Document:

EXHIBIT
10.1

 

 

 

 

CONTRIBUTION
AND

UNIT
HOLDERS AGREEMENT

 

 

DATED
AS OF MARCH 29, 2005

 

 

AMONG

 

 

NATIONAL
CINEMA NETWORK, INC.,

 

REGAL
CINEMEDIA CORPORATION

 

AND

 

NATIONAL
CINEMEDIA, LLC

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1
  DEFINITIONS

  	
   

  
	
  1.1

  	
  Defined Terms

  	
   

  
	
  1.2

  	
  Other Definitional Provisions;
  Interpretation.

  	
   

  
	
  ARTICLE 2
  FORMATION OF THE COMPANY; CONTRIBUTION AND UNIT ISSUANCES

  	
   

  
	
  2.1

  	
  Organization of the Company

  	
   

  
	
  2.2

  	
  Directors and Officers of the Company

  	
   

  
	
  2.3

  	
  INTENTIONALLY DELETED

  	
   

  
	
  2.4

  	
  Contributions by NCN

  	
   

  
	
  2.5

  	
  Contributions by Regal

  	
   

  
	
  2.6

  	
  Issuances of Equity Interests to Founding
  Members

  	
   

  
	
  2.7

  	
  Assumption of Liabilities by the Company

  	
   

  
	
  2.8

  	
  Proration Adjustments.

  	
   

  
	
  2.9

  	
  Working Capital Loan

  	
   

  
	
  ARTICLE 3
  CLOSING

  	
   

  
	
  3.1

  	
  Time and Place of Closing

  	
   

  
	
  3.2

  	
  Closing Deliveries by the Company

  	
   

  
	
  3.3

  	
  Closing Deliveries by NCN

  	
   

  
	
  3.4

  	
  Closing Deliveries by Regal

  	
   

  
	
  3.5

  	
  Additional Closing Deliveries

  	
   

  
	
  ARTICLE 4
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
  4.1

  	
  Representations and Warranties of the
  Parties

  	
   

  
	
  4.2

  	
  Representations and Warranties of the
  Company

  	
   

  
	
  ARTICLE 5
  PERSONNEL

  	
   

  
	
  5.1

  	
  Determination of Personnel Requirements and
  Recruiting

  	
   

  
	
  5.2

  	
  Non-Solicitation
  of Employees

  	
   

  
	
  ARTICLE 6 COVENANTS

  	
   

  
	
  6.1

  	
  Filings

  	
   

  
	
  6.2

  	
  Agreement to Cooperate; Further Assurances

  	
   

  
	
  6.3

  	
  Business Plan and Budget

  	
   

  
	
  6.4

  	
  Labor
  Issues

  	
   

  
	
  ARTICLE 7 CONDITIONS PRECEDENT TO
  CLOSING

  	
   

  
	
  7.1

  	
  Conditions Precedent to Closing

  	
   

  
	
  7.2

  	
  Waiver of Conditions Precedent

  	
   

  
	
  ARTICLE 8 TERMINATION; SURVIVAL

  	
   

  
	
  8.1

  	
  Termination

  	
   

  
	
  8.2

  	
  Survival

  	
   

  
	
  ARTICLE 9 OTHER

  	
   

  
	
  9.1

  	
  Injunctive
  Relief

  	
   

  
	
  9.2

  	
  Obligations of the Company

  	
   

  
	
  9.3

  	
  Amendments

  	
   

  

 

i

 

	
  9.4

  	
  Binding Effect; Assignment

  	
   

  
	
  9.5

  	
  Notices

  	
   

  
	
  9.6

  	
  Integration

  	
   

  
	
  9.7

  	
  Severability

  	
   

  
	
  9.8

  	
  Counterparts

  	
   

  
	
  9.9

  	
  Governing Law; Submission to Jurisdiction

  	
   

  
	
  9.10

  	
  Expenses

  	
   

  
	
  9.11

  	
  Confidentiality

  	
   

  
	
  9.12

  	
  Publicity

  	
   

  
	
  9.13

  	
  Indemnification

  	
   

  

 

SCHEDULES

 

	
  Schedule 2.4(a)

  	
   

  	
  NCN Assumed Liabilities and NCN Contributed
  Assets

  	
   

  
	
  Schedule 2.5(a)

  	
   

  	
  Regal Assumed Liabilities and Regal Contributed
  Assets

  	
   

  
	
  Schedule 4.1(c)

  	
   

  	
  Conflicts, Government Approvals and Notices

  	
   

  
	
  Schedule 4.1(e)

  	
   

  	
  Invalid Contributed Assets

  	
   

  
	
  Schedule 4.2(d)

  	
   

  	
  Capitalization

  	
   

  

 

EXHIBITS

 

	
  Exhibit A

  	
   

  	
  Certificate of Formation

  	
   

  
	
  Exhibit B

  	
   

  	
  Business Plan and Budget

  	
   

  

 

ii

 

CONTRIBUTION AND
UNIT HOLDERS AGREEMENT

 

This Contribution and Unit Holders Agreement,
dated as of March 29, 2005, is by and among National Cinema Network, Inc.,
a Delaware corporation (“NCN”),
Regal CineMedia Corporation, a Virginia corporation (“Regal,” and with NCN, each a “Party” and
collectively, the “Parties”),
and National CineMedia, LLC, a Delaware limited liability company
(the “Company”).

 

RECITALS

 

WHEREAS, the Parties desire to establish a
joint venture in the form of the Company for the Joint Venture Purposes (as
defined herein);

 

WHEREAS, the AMC Founding Member, and the
Regal Founding Member will be the founding members of the Company (the “Founding Members,” which term, as used herein, shall include each of such member’s
Permitted Transferees, if applicable);

 

WHEREAS, subject to the terms and conditions
of this Agreement, NCN and Regal desire to contribute certain assets identified
herein to the Company in consideration for the receipt of certain Units (as
defined herein) by the Founding Members; and

 

WHEREAS, the Parties hereto desire to set
forth certain agreements with respect to, among other things, the business,
formation and operations of the Company.

 

NOW, THEREFORE, in consideration of the
mutual covenants and agreements set forth in this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

For purposes of this Agreement, the following
terms have the meanings specified or referred to in this Section 1:

 

1.1           Defined
Terms.  As used in this
Agreement:

 

“Action”
shall have the meaning set forth in Section 4.1(h) of this Agreement.

 

“Affiliate”
shall mean with respect to any Person, any Person that directly or indirectly,
through one or more intermediaries Controls, is Controlled by or is under
common Control with such Person. Notwithstanding the foregoing, (i) no Member
shall be deemed an Affiliate of the Company, (ii) the Company shall not be
deemed an Affiliate of any Member, (iii) no stockholder of REG, or any of such
stockholder’s Affiliates (other than REG and its Subsidiaries) shall be deemed
an Affiliate of any Member or the Company, and (iv) no stockholder

 

1

 

of Marquee Holdings, or
any of such stockholder’s Affiliates (other than Marquee Holdings and its Subsidiaries) shall be deemed an
Affiliate of any Member or the Company.

 

“Aggregate Severance Amount”
shall have the meaning set forth in Section 5.1(e) of this Agreement.

 

“Agreement”
shall mean this Contribution and Unit Holders Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.

 

“AMC Founding Member”
shall have the meaning set forth in Section 1.1 of the Company Operating
Agreement.

 

“Assumed
Liabilities” shall have the meaning set forth in Section 2.7
of this Agreement.

 

“Assumption Agreement”
shall have the meaning set forth in Section 2.7 of this Agreement and
shall be entered into of even date herewith by and among the Parties.

 

“Board”
shall mean the Board of Directors of the Company.

 

“Budget” shall
have the meaning set forth in Section 1.1 of the Company Operating
Agreement.

 

“Business
Day” shall mean a day other than a Saturday, Sunday, federal or
State of New York holiday or other day on which commercial banks in New York,
New York are authorized or required by law to close.

 

“Business
Plan” shall mean the detailed three year business plan for the
Company, set forth in Exhibit B.

 

“Certificate of Formation”
shall have the meaning set forth in Section 2.1 of this Agreement and
shall be in substantially in the form of Exhibit A attached hereto.

 

“Class A Units”
shall have the meaning set forth in Section 1.1 of the Company Operating
Agreement.

 

“Closing”
shall have the meaning set forth in Section 3.1 of this Agreement.

 

“Closing Date”
shall have the meaning set forth in Section 3.1 of this Agreement.

 

“Company”
shall have the meaning set forth in the Preamble of this Agreement.

 

“Company
Operating Agreement” shall mean the Limited Liability Company
Operating Agreement of the Company of even date herewith entered into by and
between the Members of the Company.

 

“Company Reimbursement
Amount” shall have the meaning set forth in Section 5.1(e)
of this Agreement.

 

2

 

“Company Reimbursement
Percentage” shall have the meaning set forth in Section 5.1(e)
of this Agreement.

 

“Confidential Information”
shall have the meaning set forth in Section 9.11(a) of this Agreement.

 

“Contributed Assets”
shall have the meaning set forth in Section 2.5(a) of this Agreement.

 

“Contributed IP”
shall have the meaning set forth in Section 4.1(f) of this Agreement.

 

“Control”
(including the terms “Controlled by”
and “under common Control with”),
with respect to the relationship between or among two or more Persons, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee or executor, by contract or
otherwise.

 

“Equity
Interests” shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of capital stock, partnership interests (whether
general or limited), limited liability company interests or equivalent
ownership interests in or issued by, or interests, participations or other
equivalents to share in the revenues or earnings of (except as provided in any
service agreement that includes a revenue sharing component entered into in the
ordinary course of business) such Person or securities convertible into, or
exchangeable or exercisable for, such shares, interests, participations or
other equivalents and options, warrants or other rights to acquire such shares,
interests, participations or other equivalents; provided  that
discounts and rebates granted in the ordinary course of business shall not in
any event constitute an Equity Interest.

 

“Exchange
Act” shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.

 

“Exhibitor Services
Agreements” shall have the meaning set forth in Section 1.1
of the Company Operating Agreement.

 

“Founding Members”
shall have the meaning set forth in the Recitals to this Agreement.

 

“Founding
Member Representation Letter” shall have the meaning set forth
in Section 4.1(i) of this Agreement.

 

“Governmental
Approvals” shall have the meaning set forth in Section 4.1(c)
of this Agreement.

 

“Governmental
Authority” shall mean any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

 

3

 

“Governmental
Event” shall have the meaning set forth in Section 8.1(a)
of this Agreement.

 

“Group”
shall have the meaning set forth in Section 13(d)(3) of the Exchange Act.

 

“HSR Act”
shall have the meaning set forth in Section 4.1(c) of this Agreement.

 

“Intellectual
Property” shall mean all U.S., state and foreign intellectual
property rights, including but not limited to all (i) (a) patents, inventions,
discoveries, processes and designs; (b) copyrights and works of authorship in
any media; (c) trademarks, service marks, trade names, trade dress and other
source indicators, and the goodwill of the business symbolized thereby; (d)
software; and (e) trade secrets and other confidential or proprietary
documents, ideas, plans and information; (ii) registrations, applications and
recordings related thereto; (iii) rights to obtain renewals, extensions,
continuations or similar legal protections related thereto; and (iv) rights to
bring an action at law or in equity for the past, present or future infringement
or other impairment thereof; provided, however, the foregoing
shall not include Original Technology (as defined in the Software License
Agreement).

 

“Joint
Venture Agreements” shall mean, collectively, this Agreement,
the Company Operating Agreement, the Exhibitor Services Agreements, the
Founding Member Representation Letter, the Transition Services Agreement, and
the Software License Agreement.

 

“Joint
Venture Purposes” shall have the meaning set forth in Section 1.1
of the Company Operating Agreement.

 

“Marquee Holdings”
shall have the meaning set forth in Section 1.1 of the
Company Operating Agreement.

 

“Material Adverse Effect”
shall have the meaning set forth in Section 4.1(a) of this Agreement.

 

“Members”
shall have the meaning set forth in Section 1.1 of the Company Operating
Agreement.

 

“NASDAQ”
shall mean the Nasdaq Stock Market of the Nasdaq National Market.

 

“NCN” shall
have the meaning set forth in the Preamble of this Agreement.

 

“NCN Assumed Liabilities”
shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“NCN
Contributed Assets” shall have the meaning set forth in Section 2.4(a)
of this Agreement.

 

“NCN Contribution”
shall have the meaning set forth in Section 2.4(b) of this Agreement.

 

4

 

“NCN Indemnitees”
shall have the meaning set forth in Section 9.13(a) of this Agreement.

 

“NCN Liabilities”
shall have the meaning set forth in Section 9.13(a) of this Agreement.

 

“NCN Transferred Employees”
shall have the meaning set forth in Section 5.1(a) of this Agreement.

 

“NYSE” shall
mean the New York Stock Exchange.

 

“Party” or “Parties” shall have the meaning set
forth in the Preamble to this Agreement.

 

“Party Information”
shall have the meaning set forth in Section 9.11(b) of this Agreement.

 

“Permitted
Transferee” shall have the meaning set forth in Section 1.1
of the Company Operating Agreement.

 

“Person”
shall mean any individual, corporation, limited liability company, partnership,
trust, joint stock company, business trust, unincorporated association, joint
venture, Governmental Authority or other entity or organization of any nature
whatsoever or any Group of two or more of the foregoing.

 

“Post-Closing Settlement
Statement” shall have the meaning set forth in Section 2.8(d)
of this Agreement.

 

“Preliminary Settlement
Statement” shall have the meaning set forth in Section 2.8(a)
of this Agreement.

 

“Proprietary
Information” shall mean all Intellectual Property, including but
not limited to information of a technological or business nature, whether
written or oral and if written, however produced or reproduced, received by or
otherwise disclosed to the receiving Party from or by the disclosing Party that
is marked proprietary or confidential or bears a marking of like import, or
that the disclosing Party states is to be considered proprietary or
confidential, or that a reasonable person would consider proprietary or
confidential under the circumstances of its disclosure.

 

“RCM Transferred Employees”
shall have the meaning set forth in Section 5.1(b) of this Agreement.

 

“REG” shall
have the meaning set forth in Section 1.1 of the Company Operating
Agreement.

 

“Regal”
shall have the meaning set forth in the Preamble of this Agreement.

 

5

 

“Regal Assumed Liabilities”
shall have the meaning set forth in Section 2.5(a) of this Agreement.

 

“Regal Contributed Assets” shall
have the meaning set forth in Section 2.5(a) of this Agreement.

 

“Regal Contribution”
shall have the meaning set forth in Section 2.5(b) of this Agreement.

 

“Regal Founding Member”
shall have the meaning set forth in Section 1.1 of the Company Operating
Agreement.

 

“Regal Indemnitees”
shall have the meaning set forth in Section 9.13(c) of this Agreement.

 

“Regal Liabilities”
shall have the meaning set forth in Section 9.13(c) of this Agreement.

 

“SEC”
shall mean the U.S. Securities and Exchange Commission or any other federal
agency then administering the Securities Act or the Exchange Act and other
federal securities law.

 

“Securities
Act” shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as the same may be amended from
time to time.

 

“Software License Agreement” shall have
the meaning set forth in Section 1.1 of the Company Operating Agreement.

 

“Subsidiary”
shall mean, with respect to any Person, (i) a corporation a majority of whose
capital stock with the general voting power under ordinary circumstances to
vote in the election of directors of such corporation (irrespective of whether
or not, at the time, any other class or classes of securities shall have, or
might have, voting power by reason of the happening of any contingency) is at
the time beneficially owned by such Person, by one or more Subsidiaries of such
Person or by such Person and one or more Subsidiaries thereof or (ii) any other
Person (other than a corporation), including a joint venture, a general or
limited partnership or a limited liability company, in which such Person, one
or more Subsidiaries thereof or such Person and one or more Subsidiaries
thereof, directly or indirectly, at the date of determination thereof,
beneficially own at least a majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Persons
performing such functions) or act as the general partner or managing member of
such other Person.

 

“Terminated Employees”
shall have the meaning set forth in Section 5.1(c) of this Agreement.

 

“Termination Expenses”
shall have the meaning set forth in Section 5.1(c) of this Agreement.

 

“Territory”
shall mean the United States of America and Canada.

 

6

 

“Third-Party Software”
shall have the meaning set forth in Section 4.1(f) of this Agreement.

 

“Transfer”
(including the terms “Transferred”
and “Transferring”) shall
mean, directly or indirectly, to sell, transfer, give, exchange, bequest,
assign, pledge, encumber, hypothecate or otherwise dispose of, either
voluntarily or involuntarily, or to enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, gift,
exchange, merger, combination, bequest, assignment, pledge, encumbrance,
hypothecation or other disposition of, any Equity Interests or other assets beneficially
owned by a Person or any interest in any Equity Interests or other assets
beneficially owned by a Person.

 

“Transition Period” shall have the meaning set forth in Section 2(a)
of the Transition Services Agreement.

 

“Transition Services Agreement” shall have
the meaning set forth in Section 1.1 of the Company Operating Agreement.

 

“Unexercised Option”
shall have the meaning set forth in Section 5.1(e) of this Agreement.

 

“Units”
shall have the meaning set forth in Section 1.1 of the Company Operating
Agreement.

 

“WARN Act”
shall mean the Worker Adjustment Retraining and Notification Act of 1988, as
amended,

 

1.2          Other Definitional
Provisions; Interpretation.

 

(a)           The words “hereof,” “herein”
and “hereunder” and words of similar import when used in this Agreement will
refer to this Agreement as a whole, including the Exhibits and Schedules
attached hereto, and not to any particular provision of this Agreement, and section and
subsection references are to this Agreement unless otherwise specified.

 

(b)           The words “include” and
“including” and words of similar import when used in this Agreement shall be
deemed to be followed by the words “without limitation.”

 

(c)           The headings in this
Agreement are included for convenience of reference only and will not limit or
otherwise affect the meaning or interpretation of this Agreement.

 

(d)           The meanings given to
terms defined herein will be equally applicable to both the singular and plural
forms of such terms.  Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.

 

(e)           All matters to be
agreed to by any Party must be agreed to in writing by such Party unless
otherwise indicated herein.

 

7

 

ARTICLE 2

 

FORMATION
OF THE COMPANY; CONTRIBUTION AND UNIT ISSUANCES

 

2.1          Organization of the
Company.  On or before the
Closing Date, the Parties shall cause the Company to be formed as a limited
liability company having the name “National
CineMedia, LLC” to be organized under the laws of the State of
Delaware.  The Parties shall take, and
shall cause the Company to take, all requisite action to cause the Certificate
of Formation (the “Certificate of
Formation”) of the Company to be filed with the Secretary of
State of the State of Delaware and become effective on or before the Closing
Date.  Upon the Closing, the Parties
shall cause the Founding Members to execute and deliver the Company Operating
Agreement.

 

2.2          Directors and
Officers of the Company.  The
Parties shall take all requisite action to cause the directors and officers of
the Company to be as provided in Article 4
of the Company Operating Agreement upon or after the Closing.

 

2.3          INTENTIONALLY DELETED.

 

2.4          Contributions by NCN.

 

(a)           As a contribution to
the capital of the Company and in consideration of the issuance to the AMC
Founding Member of Class A Units in accordance with Section 2.6(a) and the
assumption by the Company (x) at the Closing with respect to those liabilities
listed on Part I of Schedule 2.4(a) or (y) post-Closing with respect to
those liabilities listed on Part II of Schedule 2.4(a) as consents are
obtained but in no event later than the expiration of the Transition Services
Agreement (the “NCN Assumed Liabilities”),
NCN shall contribute to the Company or cause one or more of its Subsidiaries to
contribute:

 

(i)            at
the Closing, $0.00 (subject to adjustment pursuant to Section 2.8(c)) in cash by wire transfer of immediately available funds;

 

(ii)           at
the Closing with respect to those assets and other items listed on Part III of Schedule 2.4(a)
or post-Closing with respect those assets or other items listed on Part IV of Schedule 2.4(a)
as consents are obtained but in no event later than the expiration of the
Transition Services Agreement (the “NCN
Contributed Assets”); and

 

(iii)          at
the Closing, the estimated amount on an after tax-basis of Termination Expenses
to be paid by NCN with respect to the NCN Terminated Employees.

 

(b)           The contributions set
forth in the foregoing clause (a) are collectively referred to as the “NCN Contribution.”

 

2.5          Contributions by
Regal.

 

(a)           As a contribution to
the capital of the Company and in consideration of the issuance to the Regal
Founding Member of Class A Units in accordance with Section 2.6(b) and the
assumption by the Company (x) at the Closing with respect to those liabilities
listed on Part I of Schedule 2.5(a) or (y) post-Closing with respect to
those liabilities listed on Part II of Schedule 2.5(a)

 

8

 

as consents
are obtained but in no event later than the expiration of the Transition
Services Agreement (the “Regal Assumed Liabilities”),
Regal shall contribute to the Company or cause one or more of its Subsidiaries
to contribute:

 

(i)            at
the Closing, $1,291,128 (subject to adjustment pursuant to Section 2.8(c)) in cash by wire transfer of immediately available funds;

 

(ii)           at
the Closing with respect to those assets listed on Part III of Schedule 2.5(a)
or post-Closing with respect those assets listed on Part IV of Schedule 2.5(a)
as consents are obtained but in no event later than the expiration of the
Transition Services Agreement (the “Regal
Contributed Assets,”
collectively with the NCN Contributed Assets, the “Contributed
Assets”); and

 

(iii)          at
the Closing, the estimated amount on an after tax-basis of Termination Expenses
to be paid by Regal with respect to the Regal Terminated Employees.

 

(b)           The contributions set
forth in the foregoing clause (a) are collectively referred to as the “Regal Contribution.”

 

2.6          Issuances of Equity
Interests to Founding Members.

 

(a)           In consideration for
the NCN Contribution, at the Closing the Company shall issue to the AMC
Founding Member 370 Class A
Units, which issuances shall be duly authorized and which Class A Units shall
be, on the Closing Date, validly issued and free and clear of all liens and
encumbrances (other than those arising pursuant to this Agreement and the
Company Operating Agreement).

 

(b)           In consideration for
the Regal Contribution, at the Closing the Company shall issue to the Regal
Founding Member 630 Class
A Units, which issuances shall be duly authorized and which Class A Units shall
be, on the Closing Date, validly issued and free and clear of all liens and
encumbrances (other than those arising pursuant to this Agreement and the
Company Operating Agreement).

 

(c)           At the Closing, the
Company shall deliver (i) to NCN evidence of the issuance of the Class A Units
issued pursuant to Section 2.6(a) and (ii) to the Regal Founding Member
evidence of the issuance of the Class A Units issued pursuant to Section 2.6(b).

 

2.7          Assumption of
Liabilities by the Company.  On
the Closing Date, the Parties shall cause the Company to deliver to each of the
Parties an undertaking (the “Assumption
Agreement”), pursuant to which the Company shall, on and as of
the Closing Date, assume and agree to perform, pay and discharge when due and
after obtaining consents as required for such assignment, all the NCN Assumed
Liabilities and Regal Assumed Liabilities (collectively, the “Assumed Liabilities”).  The Company will not assume, and shall not be
deemed to have assumed, any liability or obligation of any Party or any of its
Affiliates, or any current or former employee of any Party or any of its
Affiliates, of any kind or nature whatsoever, except as expressly provided in
the Assumption Agreement and this Agreement.

 

9

 

2.8          Proration Adjustments.

 

(a)           Items of income and
expense or asset or liability, as the case may be, shall be prorated as of the
Closing Date, so that each Party shall bear all such income and expense with
respect to its respective Contributed Assets and Assumed Liabilities that it
accrues or incurs through and including the period preceding the Closing Date,
and the Company shall bear all such income and expense with respect to the
Contributed Assets and Assumed Liabilities that it accrues or incurs on and
after the Closing Date.  Prorations and
the estimated amount of each Parties’ respective Termination Expenses shall be
made pursuant to a preliminary settlement statement (the “Preliminary Settlement Statement”)
prepared in good faith and delivered by each of NCN and Regal to each
other prior to Closing, together with such supplemental calculations and
information as shall be reasonably necessary or appropriate to enable the other
Party to determine the accuracy thereof. 
The Preliminary Settlement Statement shall be based upon the most
current and reliable information reasonably available to such Party at the time
of its delivery, and may be based upon estimates where actual amounts are
impractical to obtain or verify.  The
amounts set forth on the Preliminary Settlement Statements shall be subject to
adjustment or correction on the Post-Closing Settlement Statement.

 

(b)           Each Preliminary
Settlement Statement shall include an estimate of the Termination Expenses
attributable to each respective Terminated Employee as well as the following
information as a credit or debit to such Party or the Company as applicable:

 

(i)            payments
and charges under contracts (to the extent such payments and charges are
included in the Contributed Assets or Assumed Liabilities);

 

(ii)           credits
or debits for prepaid amounts and payments made in arrears under theatre
advertising arrangements; and

 

(iii)          credits
or debits resulting from any increase or decrease in the value of the
Contributed Assets (which, in the event of a decrease in value of any
Contributed Asset resulting from a breach by a Party of any covenant or
agreement set forth in this Agreement, any debit may be in addition to and not
in lieu of any additional rights or remedies of the non-breaching Party set
forth in this Agreement).

 

(c)           To the extent the
aggregate of the applicable Party’s credits and the Company’s obligations with
respect to such Party exceeds the aggregate of the Company’s credits and the
Party’s obligations set forth in accordance with Section 2.8(b), such
Party shall receive a credit to the cash required
to be contributed pursuant to Section 2.4(a)(i) or 2.5(a)(i), as the case
may be, in the amount of such excess.  To
the extent the aggregate of the Company’s credits and a Party’s obligations
exceeds the aggregate of a Party’s credits and the Company’s obligations with
respect to such Party set forth in accordance with Section 2.8(b),
the amount of cash required to be contributed
pursuant to Section 2.4(a)(i) or 2.5(a)(i), as the case may be, shall be
increased by the amount of such excess.

 

(d)           The Parties shall cause
the Company to deliver a post-closing settlement statement (the “Post-Closing Settlement Statement”) to
each Party not later than 60 days after
Closing, together with such supplemental calculations and information as shall
be reasonably

 

10

 

necessary or
appropriate to enable each such Party to determine the accuracy thereof.  The Post-Closing Settlement Statement shall
be based upon the most current and reliable information reasonably available to
the Company at the time of its delivery. 
Within 30 calendar days of the applicable Party’s receipt of the
Post-Closing Settlement Statement, such Party shall notify the Company in
writing whether such Party approves the applicable Post-Closing Settlement
Statement.  If a Party approves the
applicable Post-Closing Settlement Statement, or fails to notify the Company of
its disapproval in the manner and within the time specified above, then the
Post-Closing Settlement Statement, with respect to such Party, shall be as
delivered to such Party.  If a Party disapproves
the Post-Closing Settlement Statement, then such Party and the Company shall
use their reasonable efforts to agree upon the amounts to be set forth in the
Post-Closing Settlement Statement, and the Post-Closing Settlement Statement
shall be amended accordingly with respect to such Party.  If the Company and such Party cannot agree
upon the amounts to be set forth in the Post-Closing Settlement Statement, then
the accounting firm of Deloitte & Touche LLP, or its successor, is
designated to act as sole arbitrator and to decide all points of disagreement
with respect to the Post-Closing Settlement Statement, such decision to be
binding on the Parties.  If such firm is
unwilling or unable to serve in such capacity, then such Party and the Company
shall use their reasonable efforts to designate and retain another mutually
acceptable nationally recognized accounting firm not retained for general audit
purposes by either of them as the sole arbitrator under this Section 2.8(d).  The costs and expenses of the
arbitrator, whether the firm designated above, or otherwise designated, shall
be shared equally by the applicable Party and the Company and in the event that
two or more Parties object, then such Parties’ aggregate share of the costs and
expenses of the arbitrator shall be fifty percent.  Within five Business Days after the
Post-Closing Settlement Statement has been agreed upon or disagreements
resolved, the Company or the applicable Party, as the case may be, shall make a
payment by wire transfer of immediately available funds to the other Party in
an amount equal to the difference between the amount paid pursuant to Section 2.4(a)(i)
or 2.5(a)(i), as applicable, and the proration amount set forth on the
Post-Closing Settlement Statement, together with an interest rate per annum
for the period from and including the Closing Date through and including the
date of payment at the “prime” rate of interest as published from time
to time by The Wall Street Journal in its “Money Rates” section of its
Western Edition newspaper in effect from time to time during such period.

 

2.9          Working Capital Loan.  Within fifteen (15) days after the Closing
Date, the Founding Members will make available to the Company for working
capital a revolving loan in an aggregate amount up to $11,000,000.  The Founding Members will be obligated to
fund their ratable share, in the same proportion as their percentage of Units,
of the principal amount of such revolving loan. 
Such revolving loan will have a maturity date of March 31, 2007, accrue
interest at a minimum of the short-term Applicable Federal Rate (AFR) per
annum, and include such other terms and conditions as the Founding Members and
the Company may agree.

 

ARTICLE 3

 

CLOSING

 

3.1          Time and Place of
Closing.  The closing of the transactions
contemplated herein (the “Closing”)
shall take place at 2:00 p.m. at the offices of Hogan & Hartson LLP at One
Tabor

 

11

 

Center, Suite 1500, 1200 Seventeenth Street, Denver, Colorado, 80202 on
March 29, 2005 (the “Closing Date”).

 

3.2          Closing Deliveries by
the Company.  At the Closing, the
Company shall deliver or cause to be delivered:

 

(a)           evidence of the
issuance of Class A Units pursuant to Section 2.6;

 

(b)           certified copies of the
Certificate of Formation;

 

(c)           the Company Operating
Agreement, duly executed and delivered;

 

(d)           the Assumption
Agreements, duly executed and delivered; and

 

(e)           any
other Joint Venture Agreements to which the Company is to be a party, duly
executed and delivered.

 

3.3          Closing Deliveries by
NCN.  At the Closing, NCN shall
deliver or cause to be delivered:

 

(a)           the amount set forth in
Section 2.4(a)(i), if any, by wire transfer in cash to a bank account of
the Company identified by the Company prior to Closing;

 

(b)           appropriate instruments
of transfer of the NCN Contributed Assets listed on Schedule 2.4(a);

 

(c)           the Company Operating
Agreement, duly executed and delivered; and

 

(d)           any
other Joint Venture Agreements to which NCN or any of its Affiliates is a
party, duly executed and delivered.

 

3.4          Closing Deliveries by
Regal.  At the Closing, Regal
shall deliver or cause to be delivered:

 

(a)           the amount set forth in
Section 2.5(a)(i), if any, by wire transfer in cash to a bank account of
the Company identified by the Company prior to Closing;

 

(b)           appropriate instruments
of transfer of the Regal Contributed Assets listed on Schedule 2.5(a);

 

(c)           the Company Operating
Agreement, duly executed and delivered;

 

(d)           the
Founding Member Representation Letter, duly executed and delivered; and

 

(e)           any
other Joint Venture Agreements to which Regal or any of its Affiliates is a
party, duly executed and delivered.

 

12

 

3.5          Additional Closing
Deliveries.  From time to time on
and after Closing, the Parties and the Company agree to execute and deliver
such other instruments of conveyance, assignment, assumption, transfer and
delivery and cause their Affiliates and Subsidiaries to take such other actions
as may be required to more effectively transfer to the Company the Contributed
Assets, and/or enable the Company to exercise and enjoy all rights and benefits
with respect thereto, and to perfect the assumption by the Company of all the
Assumed Liabilities.

 

ARTICLE 4

 

REPRESENTATIONS
AND WARRANTIES

 

4.1          Representations and
Warranties of the Parties.  Each
of the Parties, severally and not jointly, represents and warrants to each of
the other Parties hereto as follows:

 

(a)           Due Organization.  Such Party is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, and has the full power and authority to conduct its business as
now conducted by it except where failure would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on either
(x) the applicable Contributed Assets to be contributed by such Party or its
Subsidiaries, taken as a whole, to the Company, if any, pursuant to this
Agreement or (y) the ability of such Party, its affiliated Founding Member or
the Company to perform its obligations, taken as a whole, under the Joint
Venture Agreements to which it is a Party (a “Material Adverse Effect”). 
Such Party or its affiliated Founding Member, as the case may be, has
full power and authority to execute and deliver this Agreement and the other
Joint Venture Agreements to which it is or is anticipated to be a Party and to
perform its obligations hereunder and thereunder except where failure would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

(b)           Authorization and
Validity of Agreement.  The
execution, delivery and performance by such Party of this Agreement and the
other Joint Venture Agreements to which such Party or its affiliated Founding
Member is or is anticipated to be a party and the consummation by such Party or
its affiliated Founding Member of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of such
Party and its affiliated Founding Member, as the case may be.  Each of this Agreement and the other Joint
Venture Agreements to which such Party or its affiliated Founding Member is or
is anticipated to be a party has been (or will be, as applicable) duly executed
and delivered by such Party and its affiliated Founding Member, as the case may
be, and, assuming due execution and delivery by the other parties thereto,
constitutes (or will constitute, as applicable) a valid and legally binding
obligation of such Party or its affiliated Founding Member, as the case may be,
enforceable against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors’ rights generally,
general equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.

 

(c)           No Conflict; No
Government Approvals or Notices Required. 
Except as described in Schedule 4.1(c) with respect to such Party
and its affiliated Founding Member, the execution, delivery and performance by
such Party of this Agreement and the other Joint Venture

 

13

 

Agreements to
which such Party or its affiliated Founding Member is or is anticipated to be a
party and the consummation by such Party or its affiliated Founding Member of
the transactions contemplated hereby and thereby will not (i) conflict with or
result in a breach of any provision of the certificate or articles of
organization or bylaws (or equivalent governing documents) of such Party or its
affiliated Founding Member, (ii) require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority in the
Territory (collectively, “Governmental
Approvals”), except for any filing or termination of the waiting
period or other approval under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the “HSR Act”),
to the extent required, (iii) require the consent or approval of any
Person (other than a Governmental Authority) or violate or conflict with, or
result in a breach of any provision of, constitute a default (or an event which
with notice or lapse of time or otherwise would become a default) or give to
any third party any right of termination, cancellation, amendment or
acceleration under, or result in the creation of a lien or encumbrance on any
of the assets including the applicable Contributed Assets of such Party or its
affiliated Founding Member as the case may be, under, any of the terms,
conditions or provisions of any agreement, contract, license or other
obligation to which such Party, its affiliated Founding Member or any of their
respective Subsidiaries is a party or by which such Party, its affiliated
Founding Member or any of their respective Subsidiaries or any of their
respective assets or properties including the applicable Contributed Assets are
bound, or (iv) violate or conflict with any order, writ, injunction, decree, statute,
rule or regulation applicable to such Party, its affiliated Founding Member or
any of their respective Subsidiaries, except for the approval of the Board of
Directors of such Party or its affiliated Founding Member and except for, in the case of clauses
(ii), (iii) and (iv), any such consents, approvals, authorizations, permits,
filings and notifications the failure of which to obtain or make and any such
violations, conflicts, breaches, defaults and other rights which, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect.

 

(d)           Sufficiency of and
Title to Properties; Absence of Liens and Encumbrances.  To the actual knowledge of such Party, such
Party or one or more of its Subsidiaries has, and on the Closing Date the
Company will acquire, good title to (or, in the case of leases, a valid lease
to, or, in the case of licenses, a valid license of) all properties, assets and
other rights included in the applicable Contributed Assets of such Party or one
or more of its Subsidiaries pursuant to this Agreement or the other Joint
Venture Agreements, if any, free and clear of all liens and encumbrances.

 

(e)           Properties,
Contracts, Permits and Other Data. 
Except as specified in Schedule 4.1(e), all rights, licenses,
leases, registrations, applications, contracts, commitments and other
agreements included in the Contributed Assets of such Party or one or more of
its Subsidiaries pursuant to this Agreement, or by which such Contributed
Assets are bound are in full force and effect and are valid and enforceable in
accordance with their respective terms except for such failures to so be in
full force and effect and valid and enforceable that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.  Such Party and its Subsidiaries
are not in breach or default in the performance of any obligation thereunder
and, to the actual knowledge of such Party, no event has occurred or has failed
to occur whereby any of the other parties thereto have been or are reasonably
likely to be released therefrom or are reasonably likely to be entitled to
refuse to perform thereunder, the enforcement of which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.

 

14

 

(f)            Intellectual
Property and Technology.  Such Party
or one or more of its Subsidiaries own, or have the valid right to use, all
Intellectual Property included in the Contributed Assets of such Party or one
or more of its Subsidiaries pursuant to this Agreement, if any (“Contributed IP”).  Except as would not individually or in the
aggregate reasonably be expected to have a Material Adverse Effect and except
with respect to computer software used by the applicable party pursuant to a
third-party license (“Third-Party Software”),
(i) all such Contributed IP is in full force and effect in all respects, and
(ii) has not been canceled, expired or abandoned.  To the actual knowledge of such Party, the Contributed
IP (other than with respect to any Third-Party Software) has not infringed and
does not infringe the Intellectual Property of any third party, nor has such
Party or any of its Subsidiaries received any written notice of any claim to
such effect.  To the actual knowledge of
such Party (other than with respect to any Third-Party Software), no third
party has infringed or is infringing any of the Contributed IP.  None of the rights of such Party or its
Subsidiaries in the Contributed IP will be impaired in any way by the
contribution of the Contributed IP to the Company, other than any impairment
that, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect, and all of the rights of such Persons to such property
will be fully enforceable by the Company after the Closing Date to the same
extent as such rights would have been enforceable by such Party or its
Subsidiaries before the Closing, without the consent or agreement of any other
party, other than any consents and agreements the failure of which to obtain,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.

 

(g)           Government Licenses,
Permits, Etc.  Such Party has all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities required for the use of the Contributed
Assets of such Party or one or more of its Subsidiaries pursuant to this
Agreement, and such licenses, permits, consents, approvals, authorizations,
qualifications and orders are fully transferable and will be transferred at the
Closing to the Company, except where failure to have such licenses, permits,
consents, approvals, authorizations, qualifications or orders would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

 

(h)          Litigation.  There is no legal action, suit, arbitration
or other legal, administrative or other governmental investigation, inquiry or
proceeding pending (collectively, an “Action”)
or, to the actual knowledge of such Party, threatened against or affecting such
Party which, if determined adversely to such Party, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.

 

(i)            Investment Representations.  NCN hereby represents, warrants and
acknowledges to the Company that (i) the Units to be acquired pursuant to Article 2
have not been registered under the Securities Act or under any state securities
laws, and (ii) NCN (A) is acquiring such Units for investment for its own
account and not with the view to, or any intention of, a resale in connection
with, any distribution thereof in whole or in part in violation of the
Securities Act, (B) is an “accredited investor” within the meaning of Regulation
D, Rule 501(a), promulgated by the SEC under the Securities Act, (C)
acknowledges that such Units may have to be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption from
the registration requirements of the Securities Act is available, and (D)
represents that by reason of its business or financial experience, NCN has the
capacity to protect its own interests in connection with the transactions
contemplated by this Agreement.  Regal
shall cause its affiliated Founding

 

15

 

Member to
execute and deliver, on or prior to the Closing, a representation letter (the “Founding Member Representation Letter”),
pursuant to which such Founding Member shall represent, warrant and acknowledge
to the Company the same foregoing investment representations made by NCN.

 

4.2          Representations and
Warranties of the Company.  The Company represents and
warrants to the other Parties as follows:

 

(a)           Due Organization.  The Company is duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full power and authority to conduct its business consistent with the Joint
Venture Purposes.  The Company has full
power and authority to enter into this Agreement and the other Joint Venture
Agreements and to perform its obligations hereunder and thereunder, including
but not limited to the issuance of Units contemplated hereby.

 

(b)           Authorization and
Validity of Agreement.  The
execution, delivery and performance by the Company of this Agreement and the
other Joint Venture Agreements and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. Each of this Agreement and the
other Joint Venture Agreements has been duly executed and delivered by the
Company and, assuming due execution and delivery by the other parties thereto,
constitutes a valid and legally binding obligation of the Company, enforceable
against it in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors’ rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.

 

(c)           No Conflict; No
Government Approvals or Notices Required. 
The execution, delivery and performance of this Agreement and the other
Joint Venture Agreements by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby will not (i) conflict with or
result in a breach of any provision of the Certificate of Formation or the
Company Operating Agreement, (ii) require any Governmental Approval, except for
any filing or termination of the waiting period or other approval under the HSR
Act, to the extent required, (iii) require the consent or approval of any
Person (other than a Governmental Authority) or violate or conflict with, or
result in a breach of any provision of, constitute a default (or an event which
with notice or lapse of time or otherwise would become a default) or give to
any third party any right of termination, cancellation, amendment or
acceleration under, or result in the creation of a lien or encumbrance on any
of the assets of the Company or any of its Subsidiaries, if any, under, any of
the terms, conditions or provisions of any agreement, contract, license or
other obligation to which the Company is a party or by which the Company or any
of its Subsidiaries, if any, or any of their respective assets or property are
bound, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its
Subsidiaries, if any, or any of their respective assets or property.

 

(d)           Capitalization.  Prior to the date hereof, there are no issued
or outstanding limited liability company interests of the Company. The Units to
be issued pursuant to this Agreement have been duly authorized and, when issued
as contemplated hereby, the Units will be

 

16

 

validly issued
and free and clear of all liens and encumbrances (other than those arising
pursuant to this Agreement and the Company Operating Agreement).  Except as identified in the Joint Venture
Agreements, no rights have been granted with respect to any Equity Interests of
the Company.  Schedule 4.2(d) sets
forth the number, class and purchasers of all Units to be issued at the Closing
and the number, class and purchasers of Units which the Company may become
obligated to issue pursuant to any agreement in existence as of the date hereof
which obligates the Company to issue any Units.

 

(e)           Registration.  Assuming the accuracy of the representations
and warranties of the Founding Members delivered pursuant to Section 4.1(i)
hereof, the offer, sale and issuance of the Units pursuant hereto will be
exempt from the registration requirements of the Securities Act and will have
been registered, qualified or exempt from registration and qualification under
the registration, permit or qualification requirements of all applicable state
securities laws.

 

ARTICLE 5

 

PERSONNEL

 

5.1          Determination of
Personnel Requirements and Recruiting.

 

(a)           Pursuant to the
Transition Services Agreement, those NCN employees that are offered employment
with the Company and accept such employment on the terms and conditions set
forth by the Company (the “NCN Transferred Employees”)
shall not be entitled to receive any severance under Section 5.1(c).  Any employee of NCN who is not offered
employment with the Company or is offered employment with the Company and
declines such employment will be a Terminated Employee as set forth in Section 5.1(c).

 

(b)           Pursuant to the
Transition Services Agreement, those Regal employees that are offered similar
employment with the Company and accept (the “RCM
Transferred Employees”) or decline such employment on the terms and
conditions set forth by the Company shall not be entitled to receive any
severance under Section 5.1(c).  Any
employee of Regal who is not offered similar employment with the Company will
be a Terminated Employee as set forth in Section 5.1(c).

 

(c)           NCN shall bear the
responsibility for any and all obligations to its respective employees that are
terminated, and Regal shall bear the responsibility for any and all obligations
to its respective employees that are terminated and are not offered a similar
position of employment with the Company (collectively, the “Terminated Employees”), arising out of such termination of
such employees and in each case in accordance with NCN’s and Regal’s respective
severance plans adopted in their discretion. 
As set forth in Article 2, as of the Closing Date each of the
Parties shall be deemed to have made a contribution to the Company of an amount
equal to the amount of their respective Termination Expenses (defined below) on
an after-tax basis, which shall include (i) severance equal to two weeks’
salary plus two week’s salary for each year or partial year of employment with
the respective Party, and (ii) any and all costs associated with long-term
incentive payouts, COBRA, outplacement services and unused vacation for each
Terminated Employee (collectively, “Termination Expenses”).

 

17

 

(d)           All NCN Transferred
Employees and RCM Transferred Employees shall be terminated as employees of NCN
and RCM, respectively, and shall be hired and become employees of the Company
upon expiration or early termination of the Transition Period.  Compensation from the Company for its
employees will not differentiate among employees based on the Party from which
such employee was obtained or whether such employee was hired directly by the
Company.

 

(e)           Notwithstanding Section 5.1(d),
Regal or its Affiliate will adopt a severance plan whereby each RCM Transferred
Employee that has unvested stock options or unvested restricted stock under the
Regal Entertainment Group 2002 Stock Incentive Plan will be entitled to receive
severance equal to the product of (i) the difference between the exercise price, if any, of each unvested
stock option and unvested share of restricted stock outstanding on the day
prior to the expiration of the Transition Period (collectively, “Unexercised Options”)and the average
of the last reported per share sales price of REG common stock for each of the
20 consecutive trading days ending on the last trading day prior to the
expiration of the Transition Period; and (ii) the number of Unexercised
Options.  Regal will be obligated to pay
each RCM Transferred Employee, on the same day as such Unexercised Options
would have vested in such year had they not terminated, that amount of the
severance attributable to those Unexercised Options that would have otherwise
vested during the applicable year, provided such RCM Transferred
Employee is still employed by the Company on such applicable vesting date.  The Company agrees to reimburse Regal $[                   ]
(the “Company Reimbursement Amount”) of Regal’s
aggregate severance obligations to RCM Transferred Employees determined upon
expiration of the Transition Period (the “Aggregate Severance Amount”).  The Company Reimbursement Amount will
represent a percentage of the Aggregate Severance Amount equal to the Company
Reimbursement Amount divided by the Aggregate Severance Amount (the “Company Reimbursement Percentage”).  The Company shall reimburse Regal five (5)
days after Regal makes its severance payments to the RCM Transferred Employees,
in an amount equal to the severance payment made by Regal multiplied by the
Company Reimbursement Percentage.

 

5.2          Non-Solicitation of
Employees.  Each of the Parties agrees that from the date
hereof until the expiration of two years following the date upon which such
Party or one of its Affiliates is no longer a Member of the Company, neither
Party nor any of its Affiliates may hire any current employee of the Company
without the Company’s prior written consent; provided, however,
that this prohibition shall not apply to (i) any employee of a Party who, on an
unsolicited basis, initiates contact with such other Party related to
employment, and (ii) any general advertisement for the solicitation of
employment not specifically directed towards employees of any Party.

 

18

 

ARTICLE 6

 

COVENANTS

 

6.1          Filings.

 

(a)           Upon the terms and
subject to the conditions set forth in this Agreement, each of the Parties
agrees to use its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other Parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement. 
Each of the Parties hereto will use its reasonable efforts and cooperate
with one another (i) in promptly determining whether any filings are required
to be made or consents, approvals, waivers, permits or authorizations are
required to be obtained (or, which if not obtained, would result in an event of
default, termination or acceleration of any agreement or any put right under
any agreement) under any applicable law or regulation or from any Governmental
Authorities or third parties, including parties to loan agreements or other
debt instruments and including such consents, approvals, waivers, permits or
authorizations as may be required or necessary to transfer any assets and
related liabilities as contemplated by Article 2 and (ii) in promptly
making any such filings, in furnishing information required in connection
therewith and in timely seeking to obtain any such consents, approvals, permits
or authorizations.  Each of the Parties
hereto shall mutually cooperate in order to facilitate the achievement of the
benefits reasonably anticipated from the transactions contemplated hereby.

 

(b)           The Parties hereto
shall respond as promptly as reasonably practicable to any inquiries received
from any Governmental Authority for additional information or documentation and
respond as promptly as reasonably practicable to all inquiries and requests
received from any State attorney general, in connection with the transactions
contemplated hereby.  To the extent a
filing is required under the HSR Act, and if not already so requested or
terminated, the Parties shall request early termination of the waiting periods
under HSR Act.

 

6.2          Agreement to
Cooperate; Further Assurances.

 

(a)           Notwithstanding
anything to the contrary in this Agreement (except with respect to
contributions to be made by the respective Parties hereto as provided in
Sections 2.4 and 2.5), no Party or any of its Affiliates shall be required to
make any disposition, including any disposition of, or any agreement to hold
separate, any Subsidiary, asset or business, and no Party hereto or any of its
Affiliates shall be required to make any payments of money (other than de
minimus payments) nor shall any Party or its Affiliates be required to comply
with any condition or undertaking or take any action which, individually or in
the aggregate, would adversely affect the economic benefits to such Party of
the transactions contemplated hereby and by the other Joint Venture Agreements,
taken as a whole, or adversely effect the business of such Party or its
Affiliates.

 

(b)           In case at any time
before or after the Closing any further action is necessary or desirable to
make any of the contributions provided for by Article 2 (including
obtaining any third party consents) or otherwise to carry out the purposes of
this Agreement, the proper officers and directors of the Company and the
Parties hereto and their respective Affiliates

 

19

 

shall execute
such further documents (including assignments, acknowledgments and consents and
other instruments of transfer) and shall take such further action as shall be
necessary or desirable to effect such transfer and to otherwise carry out the
purposes of this Agreement, in each case to the extent not inconsistent with
applicable law.

 

(c)           No Party to this Agreement
shall take any action that would result in the conditions set forth in Article 7
not being satisfied at and as of the time of the Closing.  Subject to the terms and conditions hereof,
each of the Parties shall use its reasonable efforts to cause the fulfillment
at the earliest practicable date of all of the conditions to the obligations of
the Parties to consummate the transactions contemplated by this Agreement.  Without limiting the generality of the
foregoing, each Party shall execute and deliver or cause to be executed and
delivered to the Company such reasonable and customary affidavits, certificates
and documentation relating to such Party’s or any of its Subsidiaries’
ownership and title to all Contributed Assets of such Party pursuant to Article 2,
if any, as shall be reasonably required.

 

6.3          Business Plan and
Budget.  The initial Business
Plan and Budget for the Company shall be as set forth in Exhibit B.

 

6.4          Labor Issues.  Each Party shall perform and discharge all
requirements, if any, under the WARN Act or under similar applicable state and
local laws and regulations as a result of actions taken by any Party prior to
Closing.

 

ARTICLE 7

 

CONDITIONS
PRECEDENT TO CLOSING

 

7.1          Conditions Precedent
to Closing.  The respective
obligations of each Party and the Company to consummate the transactions
contemplated by this Agreement to occur at the Closing shall be subject to the
satisfaction or waiver of the following conditions on or prior to the Closing
Date:

 

(a)           no statute, rule,
regulation, executive order, decree, or preliminary or permanent injunction
shall have been enacted, entered, promulgated or enforced by any U.S. state or
federal or foreign court of competent jurisdiction or other Governmental
Authority which prohibits consummation of the transactions contemplated by the
Joint Venture Agreements, whether temporary, preliminary or permanent; provided
that the Parties hereto shall use their reasonable efforts to have any
such order, decree or injunction vacated;

 

(b)           all waiting periods and
other approvals applicable to the transactions contemplated by the Joint
Venture Agreements under the HSR Act, if applicable, shall have been terminated
or expired and all other Governmental Approvals necessary for consummation of
the transactions contemplated by Joint Venture Agreements shall have been
obtained or made and be in effect at the Closing Date, except for any such
Governmental Approvals, the failure of which to obtain or make would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; provided  that no Party shall be required to
commence or defend any Action before any Governmental Authority in order to
satisfy this condition;

 

20

 

(c)           each of the parties to
each of the Joint Venture Agreements (other than this Agreement) shall have
duly delivered to each of the parties thereto each of the Joint Venture
Agreements (other than this Agreement) to which it is a party;

 

(d)           the representations and
warranties of each other Party and the Company contained in this Agreement that
are qualified as to materiality or words of similar import shall be true and
correct in all material respects, and those not so qualified shall be true and
correct in all respects, in each case, as of the date hereof and as of the
Closing Date as if made at the Closing Date, except for those representations
and warranties which are made as of a specific date, which representations and
warranties shall have been true and correct in all material respects or true
and correct in all respects, as the case may be, as of such date; and

 

(e)           each other party hereto
shall have performed or complied with in all material respects each covenant
and agreement required in this Agreement to be performed by it at or prior to
the Closing.

 

7.2          Waiver of Conditions
Precedent.  By proceeding on the
Closing Date and consummating the Closing, each Party shall be deemed
conclusively to have accepted or waived fulfillment of all such conditions and
receipt of all such deliverables, unless written notice to the contrary is
provided to the other Parties at such time.

 

ARTICLE 8

 

TERMINATION;
SURVIVAL

 

8.1          Termination.

 

(a)           This Agreement may be
terminated at any time prior to the Closing by:

 

(i)            the
mutual written consent of the Parties;

 

(ii)           any
Party, by giving written notice of such termination to the other Party, if the
other Party shall have materially breached any of its representations or
warranties or breached any of its material obligations or agreements under this
Agreement and such breach has not been cured within 30 days following the
delivery of such written notice by a non-breaching Party to the breaching
Party;

 

(iii)          any
Party, if (A) any Governmental Authority, the receipt of a Governmental
Approval from which is a condition precedent to the consummation of the
Closing, shall have determined not to grant any such Governmental Approval (or
imposes conditions with respect thereto such that the condition precedent set
forth in Section 7.1(b) is incapable of being satisfied) and all appeals
of such determination shall have been taken and have been unsuccessful, (B) any
U.S. state or federal or any foreign court of competent jurisdiction shall have
issued an order, judgment or decree (other than a temporary restraining order
or a preliminary injunction) restraining, enjoining or otherwise prohibiting
the transactions contemplated hereby and such order, judgment or decree shall
have become final and nonappealable or (C) any Governmental Authority shall
have

 

21

 

enacted, entered or promulgated any statute, rule, regulation,
executive order or decree prohibiting the consummation of the transactions
contemplated by the Joint Venture Agreements; (the events in clauses (A), (B)
or (C), a “Governmental Event”);
provided  that, in the case of clauses (B) and (C), the
terminating Party shall have complied with its obligations pursuant to the
proviso set forth in Section 7.1(a); or

 

(iv)          any
Party, if the Closing has not occurred by April 30, 2005; provided, however, that the
right to terminate under this Section 8.1(a)(iv) shall not be available to
any Party whose failure to fulfill any obligation under this Agreement or any
other Joint Venture Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.

 

(b)           This Agreement shall
automatically terminate at any time after the Closing if the Company is fully
and finally dissolved, liquidated or terminated pursuant to the terms of the
Company Operating Agreement.

 

(c)           In the event of a
termination of this Agreement as provided in Section 8.1(a) and 8.1(b),
this Agreement shall forthwith become null and void, except for this Section 8.1(c)
and Sections 5.1, 5.2, 9.1, 9.5, 9.6, 9.7, 9.9, 9.10, 9.11 and 9.13, which
shall survive the termination and there shall be no liability on the part of
any Parties hereunder, except for any breach of any representation, warranty,
covenant or agreement occurring prior to such termination.

 

8.2          Survival.  Subsequent
to the Closing, all representations, warranties, conditions, covenants and
obligations set forth in this Agreement shall survive the Closing indefinitely,
except for those conditions, covenants and obligations, which by their terms
are required to be performed on or before Closing, or, which, in the case of
covenants and obligations, by their terms survive Closing for any shorter
period specified herein.

 

ARTICLE 9

 

OTHER

 

9.1          Injunctive
Relief.  The Parties hereto
acknowledge and agree that a violation of any of the terms of this Agreement
will cause the other Parties hereto irreparable injury for which an adequate
remedy at law is not available. 
Accordingly, it is agreed that each of the Parties hereto will be
entitled to an injunction, restraining order or other equitable relief to
prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction, in addition to any other remedy to which they may be entitled at
law or in equity.

 

9.2          Obligations of the
Company.  The Company shall be
the sole party liable for its obligations hereunder and under the other Joint
Venture Agreements to which it is a party, and neither the Parties nor any
Founding Member will have any liability to the Company or any other Person with
respect to such liabilities of the Company.

 

9.3          Amendments.  Except as specifically provided otherwise
herein, this Agreement may be amended only by a written instrument signed by
each of the Parties and the Company.

 

22

 

9.4          Binding Effect;
Assignment.  This Agreement shall
be binding upon and shall inure to the benefit of the Parties, the Company and
their respective successors and permitted assigns, in accordance with the terms
hereof.  No Party or the Company may
assign this Agreement without the prior written consent of the other parties
except that any Party may, in its sole discretion, assign its rights under this
Agreement to a wholly owned Subsidiary or a direct or indirect parent entity of
such Party; provided  that no assignment shall in any way affect a
Party’s obligations or liabilities under this Agreement.  Any assignment or attempted assignment in
violation of this Agreement shall be null and void.

 

9.5          Notices.  Any written notice required or permitted to
be delivered pursuant to this Agreement shall be in writing and shall be deemed
delivered:  (a) upon delivery if
delivered in person; (b) upon transmission if sent via telecopier, with electronic
confirmation of receipt; (c) one Business Day after deposit with a nationally
recognized courier service, provided  that confirmation of such
delivery is received by the sender; and (d) upon transmission if sent via
e-mail, with a confirmation copy sent via telecopier, with electronic
confirmation of receipt on the same day, in each case addressed to the
following addresses:

 

	
  To NCN:

  	
  National Cinema Network, Inc.

  
	
   

  	
  920 Main Street

  
	
   

  	
  Kansas City, Missouri  64105

  
	
   

  	
  Attention: Craig Ramsey, Chief Financial
  Officer

  
	
   

  	
  Telecopy: (816) 480-2517

  
	
   

  	
  Telephone: (816) 480-2546

  
	
   

  	
  E-mail: cramsey@amctheatres.com

  
	
   

  	
   

  
	
   

  	
  with copies (which shall not itself
  constitute notice hereunder) to:

  
	
   

  	
   

  
	
   

  	
  National Cinema Network, Inc.

  
	
   

  	
  920 Main Street

  
	
   

  	
  Kansas City, Missouri  64105

  
	
   

  	
  Attention: Kevin Connor, General Counsel

  
	
   

  	
  Telecopy: (816) 480-4700

  
	
   

  	
  Telephone: (816) 480-2506

  
	
   

  	
  E-mail: kconnor@amctheatres.com

  
	
   

  	
   

  
	
   

  	
  Latham & Watkins LLP

  633 West 5th Street, Suite 4000

  Los Angeles, CA  90071

  
	
   

  	
  Attention: 
  Richard L. Wirthlin

  
	
   

  	
  Telecopy: 
  (213) 891-8763

  
	
   

  	
  Telephone: 
  (213) 485-1234

  
	
   

  	
  E-mail: richard.wirthlin@lw.com

  

 

23

 

	
  To Regal:

  	
  Regal CineMedia Corporation

  
	
   

  	
  9110 E. Nichols Avenue, Suite 200

  
	
   

  	
  Centennial, CO  80112

  
	
   

  	
  Attention: Kurt Hall, Chief Executive
  Officer

  
	
   

  	
  Telecopy: 
  (303) 792-8649

  
	
   

  	
  Telephone: (303) 792-8788

  
	
   

  	
  E-mail: Kurt.Hall@regalcinemedia.com

  
	
   

  	
   

  
	
   

  	
  with copies (which shall not itself
  constitute notice hereunder) to:

  
	
   

  	
   

  
	
   

  	
  Regal CineMedia Corporation

  
	
   

  	
  9110 E. Nichols Avenue, Suite 200

  
	
   

  	
  Centennial, CO  80112

  
	
   

  	
  Attention: Gene Hardy, General Counsel

  
	
   

  	
  Telecopy: 
  (303) 792-8649

  
	
   

  	
  Telephone: (303) 792-8630

  
	
   

  	
  E-mail: Gene.Hardy@regalcinemedia.com

  
	
   

  	
   

  
	
   

  	
  Hogan & Hartson L.L.P.

  One Tabor Center, Suite 1500

  1200 Seventeenth St.

  Denver, CO 80202

  
	
   

  	
  Attention: Christopher J. Walsh

  
	
   

  	
  Telecopy: (303) 899-7333

  
	
   

  	
  Telephone: (303) 899-7300

  
	
   

  	
  E-mail: cjwalsh@hhlaw.com

  
	
   

  	
   

  
	
  The Company:

  	
  National CineMedia, LLC

  
	
   

  	
  9110 E. Nichols Avenue, Suite 200

  
	
   

  	
  Centennial, CO  80112

  
	
   

  	
  Attention: Kurt Hall

  
	
   

  	
  Telecopy: 
  (303) 792-8649

  
	
   

  	
  Telephone: (303) 792-8788

  
	
   

  	
  E-mail: As so notified from time to time

  
	
   

  	
   

  
	
   

  	
  with copies (which shall not itself
  constitute notice hereunder) to:

  
	
   

  	
   

  
	
   

  	
  National CineMedia, LLC

  
	
   

  	
  9110 E. Nichols Avenue, Suite 200

  
	
   

  	
  Centennial, CO  80112

  
	
   

  	
  Attention: Gene Hardy

  
	
   

  	
  Telecopy: 
  (303) 792-8649

  
	
   

  	
  Telephone: (303) 792-8630

  
	
   

  	
  E-mail: As so notified from time to time 

  

 

24

 

	
   

  	
  Hogan & Hartson L.L.P.

  One Tabor Center, Suite 1500

  1200 Seventeenth St.

  Denver, CO 80202

  
	
   

  	
  Attention: Christopher J. Walsh

  
	
   

  	
  Telecopy: (303) 899-7333

  
	
   

  	
  Telephone: (303) 899-7300

  
	
   

  	
  E-mail: cjwalsh@hhlaw.com

  
	
   

  	
   

  
	
   

  	
  Latham & Watkins LLP

  633 West 5th Street, Suite 4000

  Los Angeles, CA  90071

  
	
   

  	
  Attention: 
  Richard L. Wirthlin

  
	
   

  	
  Telecopy: 
  (213) 891-8763

  
	
   

  	
  Telephone: 
  (213) 485-1234

  
	
   

  	
  E-mail: 
  richard.wirthlin@lw.com

  

 

or to such
other address as may be specified by any Party or the Company upon notice given
to each of the other Parties and the Company.

 

9.6          Integration.  This Agreement together with the other Joint
Venture Agreements and the documents referred to herein or therein, or
delivered pursuant hereto or thereto, contain the exclusive entire and final
understanding of the Parties and the Company with respect to the subject matter
hereof and thereof.  There are no
agreements, representations, warranties, covenants or undertakings with respect
to the subject matter hereof and thereof other than those expressly set forth
herein and therein.  This Agreement
together with the other Joint Venture Agreements supersede all other prior
discussions, negotiations, communications, agreements and understandings
between the Parties and the Company with respect to such subject matter hereof
and thereof, in each case including, but not limited to, all schedules and
exhibits to such other prior agreements, etc. and other documents delivered in
connection therewith.  No Party or the
Company has relied on any statement, representation, warranty, or promise not expressly
contained in this Agreement or another Joint Venture Agreement in connection
with this transaction.

 

9.7          Severability.  If one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, then such provision, paragraph, word, clause, phrase or
sentence shall be deemed restated to reflect the original intention of the
parties as nearly as possible in accordance with applicable law and the
remainder of this Agreement.  The
validity, legality and enforceability of any such provision, paragraph, word,
clause, phrase or sentence in every other respect and of the remaining
provisions, paragraphs, words, clauses, phrases or sentences hereof will not be
in any way impaired, it being intended that all obligations, rights, powers and
privileges of the Parties and the Company hereto will be enforceable to the
fullest extent permitted by law.  Upon
such determination of invalidity, illegality or unenforceability, the Parties
and the Company hereto shall negotiate in good faith to amend this Agreement to
effect the original intent of the Parties and the Company.

 

25

 

9.8          Counterparts.  This Agreement may be executed in one or more
counterparts and by each of the Parties and the Company on separate
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument.  The
Parties and the Company agree that this Agreement shall be legally binding upon
the electronic transmission, including by facsimile or email, by each Party and
the Company of a signed signature page hereof to the other Party and the
Company.

 

9.9          Governing Law;
Submission to Jurisdiction.

 

(a)           This Agreement is to be
construed in accordance with and governed by the internal laws of the State of
Delaware without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of Delaware to the rights and duties of the Parties and the Company.

 

(b)           Each Party and the
Company hereto agree that any legal action or other legal proceeding relating
to this Agreement or the enforcement of any provision of this Agreement shall
be brought or otherwise commenced exclusively in any state or federal court
located in New York, New York.  Each of
Regal, NCN and the Company thereto:

 

(i)            expressly
and irrevocably consents and submits to the jurisdiction of each state and
federal court located in New York, New York (and each appellate court located
in the State of New York) in connection with any such legal proceeding,
including to enforce any settlement, order or award;

 

(ii)           consents
to service of process in any such proceeding in any manner permitted by the
laws of the State of New York, and agrees that service of process by registered
or certified mail, return receipt requested, at its address specified pursuant
to Section 9.5 is reasonably calculated to give actual notice;

 

(iii)          agrees
that each state and federal court located in New York, New York shall be deemed
to be a convenient forum;

 

(iv)          waives
and agrees not to assert (by way of motion, as a defense or otherwise), in any
such legal proceeding commenced in any state or federal court located in New
York, New York, any claim that such party is not subject personally to the
jurisdiction of such court, that such legal proceeding has been brought in an
inconvenient forum, that the venue of such proceeding is improper or that this
Agreement or the subject matter hereof or thereof may not be enforced in or by
such court; and

 

(v)           agrees
to the entry of an order to enforce any resolution, settlement, order or award
made pursuant to this Section by the state and federal courts located in
New York, New York and in connection therewith hereby waives, and agrees not to
assert by way of motion, as a defense, or otherwise, any claim that such
resolution, settlement, order or award is inconsistent with or violative of the
laws or public policy of the laws of the State of New York or any other
jurisdiction.

 

(c)           In the event of any
action or other proceeding relating to this Agreement or the enforcement of any
provision of this Agreement, the prevailing party (as determined by the

 

26

 

court) shall
be entitled to payment by the non-prevailing party of all costs and expenses
(including reasonable attorneys’ fees) incurred by the prevailing party,
including any costs and expenses incurred in connection with any challenge to
the jurisdiction or the convenience or propriety of venue of proceedings before
any state or federal court located in New York, New York.

 

9.10        Expenses.  Except as otherwise set forth in this
Agreement (including below) or in any other written agreement among the
Parties, whether or not the transactions contemplated by this Agreement are
consummated, all legal and other costs and expenses incurred by each respective
Party in connection with this Agreement and the transactions contemplated
hereby shall be paid by such respective Party, provided that the following
costs shall be shared equally by each Party: 
(a)  Deloitte & Touche LLP’s technology assessment and business
valuation analysis, (b) legal fees to the law firm of Wachtell, Lipton, Rosen
& Katz, and (c) any associated HSR filing fees.

 

9.11        Confidentiality.

 

(a)           Each Party agrees that
from the date of this Agreement until the third anniversary of the earlier of
the termination or the Closing of this Agreement, (i) it shall use and
cause its Affiliates to use the same degree of care it uses to safeguard its
own Confidential Information (as defined below) and to cause its and its
Affiliates’ directors, officers, employees, agents and representatives to keep
confidential all Confidential Information, including but not limited to
Intellectual Property and other Proprietary Information, of the other Party and
the Company, and (ii) it shall hold and shall cause its Affiliates to hold
and shall cause its and its Affiliates’ directors, officers, employees, agents
and representatives to hold in confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion of counsel, by the
requirements of law, all documents and information concerning any other Party
hereto furnished it by such other Party or its representatives in connection
with the transactions contemplated by this Agreement (together with the
information referred to in clause (i) above, the “Confidential Information”), except to the extent that any
such information can be shown to have been (A) previously known by the Party to
which it is furnished lawfully and without breaching or having breached an
obligation of such Party or the disclosing party to keep such documents and
information confidential, (B) in the public domain through no fault of the
disclosing party, or (C) independently developed by the disclosing party
without using or having used the Confidential Information.

 

(b)           From the Closing Date
until the third anniversary thereof, the Company will preserve the
confidentiality of all Confidential Information supplied by the Parties and
their Affiliates (“Party Information”)
to the same extent that a Party must preserve the confidentiality of
Confidential Information pursuant to Sections 9.11(a).

 

(c)           From the Closing Date
until the third anniversary thereof, Party Information will not be supplied by
the Company or its Subsidiaries to any Person who is not an employee of the
Company, including any employee of a Party or any member of the Board who is
not an employee of the Company. 
Notwithstanding the foregoing, Party Information may be disclosed to
authorized third-party contractors of the Company if the Company determines
that such disclosure is reasonably necessary to further the business of the
Company, and if such contractor executes a non-disclosure agreement preventing
such contractor from disclosing such

 

27

 

Party
Information for the benefit of each provider of Party Information in a form
reasonably acceptable to the Party. 
Party Information disclosed by any Party to the Company will not be
shared with any other Party without the disclosing party’s prior written
consent.

 

9.12        Publicity.  No press release or
announcement concerning the transactions contemplated hereby shall be issued by
any Party without the prior written consent of the other Party, except as such
release or announcement may be required by law, rule or regulation of one or
more stock exchanges or automated quotation systems, including the NYSE or
NASDAQ, in which case the Party required to make the release or announcement
shall allow the other Party reasonable time to comment on such release or
announcement in advance of such issuance or filing.

 

9.13        Indemnification.

 

(a)           NCN
shall indemnify and hold harmless Regal, and its Subsidiaries, Affiliates,
officers, directors, trustees, members, partners, employees, agents, and any of
their heirs, executors, successors and assigns (other than the Company)
(collectively, the “NCN Indemnitees”)
from and against any and all losses, claims, demands, costs, damages,
liabilities, expenses of any nature (including attorneys’ fees and
disbursements), judgments, fines, settlements and other amounts arising from
any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative, arbitral or investigative, in which any NCN
Indemnitee was involved or may be involved, or threatened to be involved, as a
party or otherwise, arising out of, in connection with or relating to any
breaches of any of NCN’s representations, warranties, covenants or agreements
set forth in this Agreement (collectively, the “NCN Liabilities”), and
disregarding for purposes of this Section 9.13(a), all qualifications and
exceptions contained in this Agreement and the Schedules and Exhibits hereto
relating to materiality (including Material Adverse Effect)); provided  that NCN shall not be liable for any
NCN Liabilities arising out of, in connection with or relating to any of NCN’s
representations, warranties, covenants or agreements set forth in this
Agreement unless and until the amount of the aggregate of all such NCN
Liabilities sustained or incurred by the NCN Indemnitees, together with any
liabilities incurred by NCN Indemnitees under Section 6.1 of the Software
License Agreement, exceeds $500,000,
and then only for the aggregate amounts that exceed $500,000; and provided
further that notwithstanding any
provision of this Agreement or any other Joint Venture Agreement to the
contrary, the indemnification obligations of NCN under this Section 9.13(a),
together with any indemnification obligations of NCN or its Affiliate under Section 6.1
of the Software License Agreement,
shall not exceed an aggregate amount of $5,000,000.

 

(b)           Regal shall indemnify and hold harmless
NCN and its Subsidiaries, Affiliates, officers, directors, trustees, members,
partners, employees, agents, and any of their heirs, executors, successors and
assigns (other than the Company) (collectively, the “Regal
Indemnitees”) from and against any and all losses, claims,
demands, costs, damages, liabilities, expenses of any nature (including
attorneys’ fees and disbursements), judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative, arbitral or
investigative, in which any Regal Indemnitee was involved or may be involved,
or threatened to be involved, as a party or otherwise, arising out of, in
connection with or relating to any breaches of any of Regal’s representations,
warranties, covenants or agreements set forth in this Agreement (collectively,
the “Regal

 

28

 

Liabilities”), and
disregarding for purposes of this Section 9.13(b), all qualifications and
exceptions contained in this Agreement and the Schedules and Exhibits hereto
relating to materiality (including Material Adverse Effect)); provided  that Regal shall not be liable for
any Regal Liabilities arising out of, in connection with or relating to any of
Regal’s representations, warranties, covenants or agreements set forth in this
Agreement unless and until the amount of the aggregate of all such Regal
Liabilities sustained or incurred by the Regal Indemnitees, together with any
liabilities incurred by Regal Indemnitees under Section 6.1 of the
Software License Agreement, exceeds $500,000,
and then only for the aggregate amounts that exceed $500,000; and provided
further that notwithstanding any
provision of this Agreement or any other Joint Venture Agreement to the
contrary, the indemnification obligations of Regal under this Section 9.13(b),
together with any indemnification obligations of Regal or its Affiliate under Section 6.1
of the Software License Agreement, shall
not exceed an aggregate amount of $5,000,000.

 

(c)           The Parties
shall have no liability (for indemnification or otherwise) with respect to any
representation or warranty, covenant or obligation to be performed and complied
with prior to the Closing Date, unless on or before the date that is twelve
(12) months after the Closing Date, the indemnified party notifies the
indemnifying party of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known.

 

[Signature Page to Follow]

 

29

 

IN WITNESS WHEREOF, each of the undersigned
has executed this Agreement or caused this Agreement to be executed on its
behalf as of the date first written above.

 

 

	
   

  	
  NATIONAL
  CINEMA NETWORK, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  REGAL
  CINEMEDIA CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NATIONAL
  CINEMEDIA, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Regal
  CineMedia Holdings, LLC

  
	
   

  	
  Its:

  	
  Member

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  By:

  	
  National
  Cinema Network, Inc.

  
	
   

  	
  Its:

  	
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
								

 

 

Schedule 2.4(a)

 

NCN Assumed Liabilities and NCN Contributed
Assets

 

 

Schedule 2.5(a)

 

Regal Assumed Liabilities and Regal
Contributed Assets

 

 

Schedule 4.1(c)

 

Conflicts, Government Approvals and Notices

 

 

Schedule 4.1(e)

 

Invalid Contributed Assets

 

 

Schedule 4.2(d)

 

Capitalization

 

 

Exhibit A

 

Certificate
of Formation

 

2

 

Exhibit B

 

Business
Plan and BudgetEXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase
Agreement (this “Agreement”) is dated as of March 31,
2005, among MedicalCV, Inc., a Minnesota corporation (the “Company”),
and the investors identified on the signature pages hereto (each an “Investor” and, collectively, the “Investors”).

 

WHEREAS, subject to the
terms and conditions set forth in this Agreement and pursuant to Section 4(2)
of the Securities Act (as defined below) and Rule 506 promulgated thereunder,
the Company desires to issue and sell to each Investor, and each Investor,
severally and not jointly, desires to purchase from the Company certain
securities of the Company, as more fully described in this Agreement.

 

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

 

ARTICLE I.

DEFINITIONS

 

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

 

“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened
in writing against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.

 

“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144, or any Person
that serves as a general partner and/or investment manager or in a similar
capacity of such a Person.

 

“Bankruptcy
Event” means any of the following events:  (a) the Company or any Subsidiary commences a
proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any Subsidiary thereof; (b)
there is commenced against the Company or any Subsidiary any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the Company
or any Subsidiary is adjudicated by a court of competent jurisdiction insolvent
or bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Subsidiary suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days; (e) under
applicable law the Company or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary fails to pay, or states

 

 

that it is unable to pay or is unable to pay, its debts generally as
they become due; (g) the Company or any Subsidiary calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of its debts; or (h) the Company or any Subsidiary, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in any of
the foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

 

“Benefit
Arrangement” means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or
Multiemployer Plan and which is maintained or otherwise contributed by the
Company.

 

“Benefit
Plan” has the meaning set forth in Section 3.1(aa)(ii).

 

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

 

“Certificate
of Designation” shall mean a Certificate of Designation
relating to the Shares to be filed prior to the Closing by the Company with the
Secretary of State of the State of Minnesota setting forth the rights,
preferences and privileges set forth on Exhibit A hereto.

 

“Closing”
means the closing of the purchase and sale of Shares and Warrants contemplated
by Section 2.1.

 

“Closing
Date” means the Business Day immediately following the date
on which all of the conditions set forth in Section 2.1(d) and 2.1(e) have
been satisfied, or such other date as the parties may agree.

 

“Code”
means the Internal Revenue Code of 1986, as amended.

 

“Commission”
means the Securities and Exchange Commission.

 

“Common
Stock” means the common stock of the Company, par value $.01 per
share, and any securities into which such common stock may hereafter be
reclassified, converted or exchanged. 

 

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

 

“Company
Counsel” means Briggs and Morgan, P.A.

 

2

 

“Disclosure
Materials” has the meaning set forth in Section 3.1(h).

 

“Effective
Date” means the date that the Registration Statement required
by Section 2(a) of the Registration Rights Agreement is first declared
effective by the Commission.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, or any
successor statute.

 

“ERISA
Group” means the Company and each Subsidiary and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.

 

“Escrow
Agent” means the Escrow Agent as set forth in the Escrow
Agreement.

 

“Escrow
Agreement” means the Escrow Agreement, dated as of the date
of this Agreement, among the Company, J. Giordano Securities Group and Venture
Bank (the “Escrow Agent”).

 

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

 

“First
Notice” has the meaning set forth in Section 4.4.

 

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

 

“Intellectual
Property Rights” has the meaning set forth in Section 3.1(p).

 

“Investment
Amount” means, with respect to each Investor, the investment
amount indicated below such Investor’s signature page to this Agreement.

 

“Investor
Deliverables” has the meaning set forth in Section 2.1(c).

 

“Investor
Party” has the meaning set forth in Section 4.12.

 

“Lien”
means any lien, charge, encumbrance, security interest, right of first refusal
or other restrictions of any kind.

 

“Losses”
has the meaning set forth in Section 4.12.

 

“Material
Adverse Effect” means any of (i) a material and adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material and adverse effect on the results of operations, assets,
prospects, business or condition (financial or otherwise) of the Company and
the Subsidiaries or (iii) an adverse impairment to the Company’s ability to timely
perform its obligations under any Transaction Document.

 

“New
Issue Securities” has the meaning set forth in Section 4.4.

 

3

 

“New York
Courts” means the state and federal courts sitting in the
City of New York, Borough of Manhattan.

 

“Notice
of Acceptance” has the meaning set forth in Section 4.4.

 

“Outside
Date” means April 5, 2005.

 

“PBGC”
means the Pension Benefit Guarantee Corporation or any entity succeeding to any
or all of its functions under ERISA.

 

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

 

“Plan”
means at any time an employee pension plan benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.

 

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

 

“Refused
Securities” has the meaning set forth in Section 4.4.

 

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

 

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

 

“Required
Investors” means one or more Investors representing greater
than 50% of the aggregate principal amount of all Shares then outstanding.

 

“Required Minimum” means, as of any date, the
maximum aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents that the Company
is obligated to issue, whether contingently or otherwise, including, without
limitation, any Underlying Shares issuable upon conversion in full of all Shares
and exercise of all Warrants (without regard to any otherwise applicable conversion
or exercise restrictions contained therein) (assuming for such purpose that the
Conversion Price (as defined in the Certificate of Designation) and the
Exercise Price (as defined in the Warrants) equals 75% of the Conversion Price
and Exercise Price in effect on the Closing Date), subject to

 

4

 

Section 4.16 herein.

 

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

 

“SEC
Reports” has the meaning set forth in Section 3.1(h).

 

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

 

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

 

“Shares”
means the shares of 5% Series A Convertible Preferred Stock issued or issuable
to the Investors pursuant to this Agreement, having the rights, preferences and
privileges set forth in the Certificate of Designation.

 

“Short
Sales” include, without limitation, all “short sales” as
defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and
all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.

 

“Strategic
Transaction” means a transaction or relationship in which (1)
the Company issues shares of Common Stock (A) to a Person which the Board of
Directors of the Company determined in good faith is, itself or through its
Subsidiaries, an operating company in a business synergistic with the business
of the Company or (B) in connection with the acquisition of intellectual
property, and (2) the Company expects to receive benefits in addition to the
investment of funds, but shall not include (x) a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or
to a Person whose primary business is investing in securities or (y) issuances
to lenders or suppliers.

 

“Subsidiary”
means any subsidiary of the Company included in the SEC Reports.

 

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

 

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

 

5

 

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

 

“Underlying
Shares” means the shares of Common Stock issuable upon
conversion of the Shares.

 

“VWAP”
means, with respect to any date of determination, the daily volume weighted
average price (as reported by Bloomberg using the VAP function) of the Common
Stock on such date of determination, or if there is no such price on such date
of determination, then the daily volume weighted average price on the date
nearest preceding such date.

 

“Warrants”
means the Common Stock purchase warrants in the form of Exhibit
C hereto issued or issuable to the Investors at the Closing.

 

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

 

ARTICLE II.

PURCHASE AND SALE

 

2.1                                 Closing. 

 

(a)                                  Subject
to the terms and conditions set forth in this Agreement, at the Closing the Company
shall issue and sell to each Investor, and each Investor shall, severally and
not jointly, purchase from the Company, the Shares and the Warrants representing
such Investor’s Investment Amount.  The
Closing shall take place at the offices of Bryan Cave LLP, 1290 Avenue of the
Americas, New York, NY 10104 at 4:30 p.m. (New York City time) on the Closing
Date or at such other location or time as the parties may agree.

 

(b)                                 At
the Closing, the Company shall deliver or cause to be delivered to each Investor
the following (the “Company Deliverables”):

 

(i)                                     one
or more stock certificates, evidencing Shares with a stated value equal to the
Investment Amount indicated below such Investor’s signature on the signature
page to this Agreement, registered in the name of such Investor;

 

(ii)                                  a
Warrant, registered in the name of such Investor, pursuant to which such
Investor shall have the right to acquire the number of Warrant Shares equal to 75%
of the number of Underlying Shares as would be issuable upon a conversion in
full of the stated value of Shares issuable to such Investor in accordance with
Section 2.1(b)(i) (without regard to any limitations on conversion of the
Shares);

 

6

 

(iii)                               a
copy of the executed, filed and effective Certificate of Designation,
accompanied by a certificate evidencing the acceptance thereof by the Secretary
of State of the State of Minnesota;

 

(iv)                              the
legal opinion of Company Counsel, in agreed form, addressed to the Investors; 

 

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

 

(vi)                              a
certificate executed by a duly authorized officer of the Company certifying
that (i) all representations and warranties made by the Company and information
furnished by the Company in any schedules to this Agreement, are true and
correct in all material respects as of each of the date of this Agreement and
the Closing Date, (ii) all covenants, agreements and obligations required by
this Agreement to be performed or complied with by the Company, prior to or at
the Closing, have been performed or complied with and (iii) the items
referenced in Sections 2.1(d)(iv)-(vii) shall have been satisfied and are true
and correct as of the Closing;

 

(vii)                           the
Escrow Agreement, duly executed by the Company; and 

 

(viii)                        any other
documents reasonably requested by such Investor.

 

(c)                                  At
the Closing, each Investor shall deliver or cause to be delivered the following
(the “Investor Deliverables”):

 

(i)                                     the
Investment Amount indicated below such Investor’s name on its signature page of
this Agreement, in United States dollars and in immediately available funds, delivered
by wire transfer to the escrow account specified in the Escrow Agreement for deposit
and distribution in accordance with the terms of the Escrow Agreement; and

 

(ii)                                  to
the Company, the Registration Rights Agreement, duly executed by such Investor.

 

(d)                                 Conditions
Precedent to the Obligations of an Investor to Purchase Shares and Warrants.  The obligation of each Investor to acquire Shares
and Warrants at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:

 

(i)                                     Representations
and Warranties.  The representations
and warranties of the Company contained in the Transaction Documents shall be
true and correct as of the date when made and as of the Closing Date as though
made on and as of such date;

 

(ii)                                  Performance.  The Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing;

 

7

 

(iii)                               Officer’s
Certificate.  The officer’s certificate
described in Section 2.1(b)(vi) hereof shall have been delivered;

 

(iv)                              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 that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents;

 

(v)                                 Adverse
Changes.  Since the execution of this
Agreement, no event or series of events shall have occurred that has had or
would reasonably be expected to result in a Material Adverse Effect; 

 

(vi)                              No
Suspensions of Trading in Common Stock. 
Trading in the Common Stock shall not have been suspended by the
Commission or any Trading Market (except for any suspensions of trading of not
more than one Trading Day solely to permit dissemination of material
information regarding the Company) at any time since the date of execution of
this Agreement;

 

(vii)                           Minimum
Subscriptions.  The aggregate of all Investors’ Investment
Amounts shall not be less than $10,000,000. 

 

(viii)                        Debt
Conversion.  Except for the $500,000
in bridge notes described in Schedule 3.1(dd), together with
accrued interest thereon, all outstanding indebtedness of the Company (including
all accrued and unpaid interest, damages and other amounts owing thereunder)
shall have been paid off and satisfied in full through the conversion of all
such indebtedness into Shares and Warrants issuable hereunder (with the “Investment
Amount” of each holder of such indebtedness being equal to the amount of
indebtedness so converted and retired, and any amount not convertible into a
whole number of Shares being settled by the Company in cash) so that, upon the
Closing no indebtedness of the Company for borrowed money will remain
outstanding; and 

 

(ix)                                Company
Deliverables.  The Company shall have
delivered the Closing Company Deliverables in accordance with Section 2.1(b).

 

(e)                                  Conditions
Precedent to the Obligations of the Company to sell Shares and Warrants.  The obligation of the Company to sell Shares
and Warrants at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following conditions:

 

(i)                                     Representations
and Warranties.  The representations
and warranties of each Investor contained herein shall be true and correct as
of the date when made and as of the Closing Date as though made on and as of
such date;

 

(ii)                                  Performance.  Each Investor shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the

 

8

 

Transaction Documents to be performed, satisfied or
complied with by such Investor at or prior to the Closing;

 

(iii)                               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 that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents; and

 

(iv)                              Investors
Deliverables.  Each Investor shall
have delivered its Investor Deliverables in accordance with Section 2.1(c).

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1                                 Representations and Warranties of
the Company.  The Company hereby makes the following
representations and warranties to each Investor:

 

(a)                                  Subsidiaries.  The Company has no direct or indirect
Subsidiaries.  All references in this
Agreement to Subsidiaries shall be disregarded until such time as the Company
has any Subsidiaries.

 

(b)                                 Organization
and Qualification.  The Company and
each Subsidiary are duly incorporated or otherwise organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents.  The Company and each
Subsidiary are duly qualified to conduct its respective businesses and are in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.

 

(c)                                  Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations thereunder. 
The execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith.  Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or

 

9

 

affecting generally the enforcement of, creditors’ rights and remedies
or by other equitable principles of general application. 

 

(d)                                 No
Conflicts.  The execution, delivery
and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby in
accordance with their respective terms do not and will not (i) conflict with or
violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and state securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the case of each
of clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.  

 

(e)                                  Filings,
Consents and Approvals.  The Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of one or
more Registration Statements in accordance with the requirements Registration
Rights Agreement, (ii) filings required by state securities laws, (iii) the
filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act, (iv) the filings required in accordance
with Section 4.7 and 4.10 and (v) those that have been made or obtained
prior to the date of this Agreement.

 

(f)                                    Issuance
of the Securities.  On or prior to
the Closing Date, the Securities will be duly authorized and, when issued and
paid for in accordance with the Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens.  By the Closing Date, the Company shall have
reserved from its duly authorized capital stock a number of shares of Common
Stock issuable upon conversion of the Shares and upon exercise of the Warrants,
which number of reserved shares is not less than the Required Minimum
calculated as of the date hereof.

 

(g)                                 Capitalization.  The number of shares and type of all
authorized, issued and outstanding capital stock of the Company, and all shares
of Common Stock reserved for issuance under the Company’s various option and
incentive plans, is specified in Schedule 3.1(g).  Except as specified in Schedule 3.1(g),
no securities of the Company are entitled to preemptive or similar rights, and
no Person has any right of first refusal, preemptive right, right

 

10

 

of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents.  Except as specified in Schedule 3.1(g),
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common
Stock.  Except as specified in Schedule 3.1(g),
the issue and sale of the Securities will not, immediately or with the passage
of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.

 

(h)                                 SEC
Reports; Financial Statements.  The Company
has filed all reports, forms or other information required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section 13(a)
or 15(d) thereof, for the twelve months preceding the date hereof (or such
shorter period as the Company was required by law to file such reports) (the
foregoing materials, including any amendments thereto, being collectively
referred to herein as the “SEC Reports”
and, together with the Schedules to this Agreement (if any), the “Disclosure Materials”) on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of
the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.  For purposes
of this Agreement, any reports, forms or other information provided to the
Commission whether by filing, furnishing or otherwise providing, is included in
the term “filed” (or any derivations thereof).

 

(i)                                     Press
Releases.  The press releases
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading.

 

11

 

(j)                                     Material
Changes.  Since the date of the
latest audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities incurred in the ordinary course of business
consistent with past practice and (B) liabilities (not to exceed $50,000) not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting or the identity of its auditors, (iv)
the Company has not declared or made any dividend or distribution of cash or
other property to its shareholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) the Company
has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans and consistent with past
practice. The Company does not have pending before the Commission any request
for confidential treatment of information.

 

(k)                                  Litigation.  Except as specified in Schedule 3.1(k),
there is no Action which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC Reports, would,
if there were an unfavorable decision, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any
director or officer thereof (in his or her capacity as such), is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty, except
as specifically disclosed in the SEC Reports. 
There has not been, and to the knowledge of the Company, there is not
pending any investigation by the Commission involving the Company or any
current or former director or officer of the Company (in his or her capacity as
such).  The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

 

(l)                                     Labor
Relations.  No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company.

 

(m)                               Compliance.  Except as specified in the SEC Reports or in Schedule 3.1(m),
neither the Company nor any Subsidiary (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such default
or violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not,
individually or in the aggregate,

 

12

 

have or reasonably be expected to result in a Material
Adverse Effect.  The Company is in
compliance with all effective requirements of the Sarbanes-Oxley Act of 2002,
as amended, and the rules and regulations thereunder, that are applicable to
it, except where such noncompliance could not have or reasonably be expected to
result in a Material Adverse Effect. 

 

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

 

(o)                                 Title
to Assets.  Except as specified in Schedule 3.1(o),
the Company and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them that is material to their respective
businesses and good and valid title in all personal property owned by them that
is material to their respective businesses, in each case free and clear of all
Liens, except for Liens that do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries. Any real property
and facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance, except as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

 

(p)                                 Patents
and Trademarks.  To the knowledge of
the Company, the Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and other similar rights that are
necessary or material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company
nor any Subsidiary has received a written notice that the Intellectual Property
Rights used by the Company or any Subsidiary violate or infringe upon the
rights of any Person.  Except as set forth
in the SEC Reports, to the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights.

 

(q)                                 Insurance.  Except as specified in Schedule 3.1(q),
the Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company and the
Subsidiaries are engaged.  Except as
specified in Schedule 3.1(q), the Company has no reason to believe
that it will not be able to renew its and the Subsidiaries’ existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business on terms
consistent with market for the Company’s and such Subsidiaries’ respective
lines of business.

 

13

 

(r)                                    Transactions
With Affiliates and Employees. 
Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, of the nature or
amount that would require disclosure in SEC Reports.

 

(s)                                  Internal
Accounting Controls.  The Company and
the Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.  The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the Company and designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its Subsidiaries,
is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s Form 10-KSB or 10-QSB, as
the case may be, is being prepared.  The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures in accordance with Item 307 of Regulation S-K under the
Exchange Act for the Company’s most recently ended fiscal quarter or fiscal
year-end (such date, the “Evaluation Date”).  The Company presented in its most recently
filed Form 10-KSB or Form 10-QSB the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. 
Since the Evaluation Date, there have been no changes in the Company’s
internal controls that would be required to be disclosed pursuant to Item 308(c)
of Regulation S-K under the Exchange Act or, to the Company’s knowledge, in
other factors that could reasonably be expected to have a Material Adverse
Effect on the Company’s internal controls.

 

(t)                                    Solvency.  Based on the financial condition of the Company
as of the Closing Date (and assuming that the Closing shall have occurred), (i)
the Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the Company’s
assets do not constitute an unreasonably small amount of capital to carry on
its business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements through fiscal year 2006 and capital availability thereof;
and (iii) the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking

 

14

 

into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid.  The Company has
no current intention to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt).

 

(u)                                 Certain
Fees.  Except as specified in Schedule 3.1(u),
no brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.  The Investors
shall have no obligation with respect to any fees or with respect to any claims
(other than such fees or commissions owed by an Investor pursuant to written
agreements executed by such Investor which fees or commissions shall be the
sole responsibility of such Investor) made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by this Agreement.  

 

(v)                                 Certain
Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-(e), no
registration under the Securities Act is required for the offer, sale and issuance
of the Securities by the Company to the Investors under the Transaction
Documents.  The Company is eligible to
register the resale of its Common Stock for resale by the Investors under Form
SB-2 promulgated under the Securities Act. 
Except for the Registrable Securities (as defined in the Registration
Rights Agreement) and as specified in Schedule 3.1(v), the Company
has not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied or
exercised.

 

(w)                               Listing
and Maintenance Requirements.  Except
as specified in the SEC Reports, the Company has not, in the two years
preceding the date hereof, received notice from any Trading Market to the
effect that the Company is not in compliance with the listing or maintenance
requirements thereof.  The Company is,
and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with the listing and maintenance requirements for
continued listing of the Common Stock on the Trading Market on which the Common
Stock is currently listed or quoted.  The
issuance and sale of the Securities under the Transaction Documents does not
contravene the rules and regulations of the Trading Market on which the Common
Stock is currently listed or quoted, and no approval of the shareholders of the
Company thereunder is required for the Company to enter into and to consummate
the transactions contemplated by the Transaction Documents, including, without
limitation, to issue and deliver to the Investors the Securities contemplated
by Transaction Documents.

 

(x)                                   Investment
Company.  The Company is not, and is
not an Affiliate of, and immediately following Closing will not have become, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

 

(y)                                 Application
of Takeover Protections.  The Company
has taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business

 

15

 

combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
Articles of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors or
shareholders of the Company prior to any Closing Date as a result of the Investors
and the Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including without limitation the Company’s issuance
of the Securities and the Investors’ ownership of the Securities.

 

(z)                                   No
Additional Agreements.  Except as
specified in Schedule 3.1(z), the Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.

 

(aa)                            Compliance
with ERISA.  (i)  Each member of the ERISA Group has fulfilled
its obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code with respect to each
Plan. No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any Plan,
(ii) failed to make any required contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA
other than a liability to the PBGC for premiums under Section 4007 of
ERISA.

 

(ii)                                  The
benefit plans not covered under clause (a) above (including profit sharing,
deferred compensation, stock option, employee stock purchase, bonus, retirement,
health or insurance plans, collectively the “Benefit
Plans”) relating to the employees of the Company are duly registered
where required by, and are in good standing in all material respects under, all
applicable laws.  All required employer
and employee contributions and premiums under the Benefit Plans to the date
hereof have been made, the respective fund or funds established under the
Benefit Plans are funded in accordance with applicable laws, and no past
service funding liabilities exist thereunder.

 

(iii)                               No
Benefit Plans have any unfunded liabilities, either on a “going concern” or “winding
up” basis and determined in accordance with all applicable laws and actuarial
practices and using actuarial assumptions and methods that are reasonable in
the circumstances. No event has occurred and no condition exists with respect
to any Benefit Plans that has resulted or could reasonably be expected to
result in any pension plan having its registration revoked or wound up (in
whole or in part) or refused for the purposes of any applicable laws or being
placed under the administration of any relevant pension benefits regulatory
authority or being required to pay any taxes or penalties (in any material
amounts) under any applicable laws.

 

16

 

(bb)                          Taxes.  All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material
taxes due pursuant to such returns or pursuant to any assessment received by
the Company and each Subsidiary have been paid except those being disputed in
good faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in
respect of taxes or other governmental charges have been established in
accordance with GAAP.

 

(cc)                            Absence
of Any Undisclosed Liabilities or Capital Calls.  Except for liabilities described in the SEC
Reports, there are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than (i) those liabilities provided for in the Company’s financial
statements and (ii) other undisclosed liabilities which, individually or in the
aggregate, could not have, or reasonably be expected to result in, a Material
Adverse Effect.

 

(dd)                          Indebtedness.  The complete amount of indebtedness of the
Company for borrowed money (including all accrued and unpaid interest, damages
and other amounts owing thereunder) is set forth on Schedule 3.1(dd).  Except for the $500,000 in bridge notes described
in Schedule 3.1(dd), together with accrued interest thereon, upon
Closing, all such indebtedness will be retired, paid off and converted into Shares
and Warrants, and holders of such indebtedness will not directly or indirectly
receive any consideration for such conversion other than Shares with a stated
value equal to the amount of indebtedness so converted and retired (with any
amount not convertible into a whole number of Shares being settled by the
Company in cash) plus Warrants determined in accordance with this Agreement.

 

(ee)                            Disclosure.  The Company confirms that neither it nor any
Person acting on its behalf has provided any Investor or its respective agents
or counsel with any information that the Company believes constitutes material,
non-public information except insofar as the existence and terms of the
proposed transactions hereunder may constitute such information.  The Company understands and confirms that the
Investors will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. 
All disclosure provided to the Investors regarding the Company, its
business and the transactions contemplated hereby, furnished by or on behalf of
the Company (including the Company’s representations and warranties set forth
in this Agreement) are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.

 

(ff)                                Environmental
Laws.  The Company and its
Subsidiaries (i) are in compliance with any and all Environmental Laws (as
hereinafter defined), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval where, in each of the foregoing clauses
(i), (ii) and (iii), the

 

17

 

failure to so comply could be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect.  The term “Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous
Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.

 

3.2                                 Representations and Warranties of
the Investors.  Each Investor hereby, for itself and for no
other Investor, represents and warrants to the Company as follows:

 

(a)                                  Organization;
Authority.  Such Investor is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the applicable Transaction Documents and otherwise
to carry out its obligations thereunder. The execution, delivery and
performance by such Investor of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or, if such Investor is
not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Investor.  Each of this Agreement and the Registration
Rights Agreement has been duly executed by such Investor, and when delivered by
such Investor in accordance with terms hereof, will constitute the valid and
legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general application.

 

(b)                                 Investment
Intent.  Such Investor is acquiring
the Securities as principal for its own account for investment purposes only
and not with a view to or for distributing or reselling such Securities or any
part thereof, without prejudice, however, to such Investor’s right at all times
to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal and state securities laws.  Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time.  Such Investor is acquiring the Securities
hereunder in the ordinary course of its business. Such Investor does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

 

(c)                                  Investor
Status.  At the time such Investor
was offered the Securities, it was, and at the date hereof it is, an “accredited
investor” as defined in Rule 501(a) under the Securities Act.  Such Investor is not a registered
broker-dealer under Section 15 of the Exchange Act.

 

18

 

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

 

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

 

(f)                                    Certain
Trading Activities.  Such Investor
has not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Investor, engaged in any transactions
in the securities of the Company (including, without limitations, any Short
Sales involving the Company’s securities) since the earlier to occur of (1) the
time that such Investor was first contacted by the Company or placement agent
engaged by the Company regarding an investment in the Company and (2) the 20th
Trading Day prior to the time that the transactions contemplated by this
Agreement are publicly disclosed by the Company.  Such Investor 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 Company (including Short
Sales) prior to the time that the transactions contemplated by this Agreement
are publicly disclosed.  Notwithstanding the foregoing, in the case of
an Investor that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Investor’s assets and the portfolio
managers have no actual knowledge of the investment decisions made by the
portfolio managers managing other portions of such Investor’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  In addition, such Investor has no “borrow”
with respect to the securities of the Company, nor has such Investor entered
into any agreement to “borrow” with respect to the securities of the Company.

 

(g)                                 Indebtedness.  Following the Closing, the Company will not
owe any Investor or any of its Affiliates any amounts in respect of borrowed
money.

 

(h)                                 Independent
Investment Decision.  Such Investor
has independently evaluated the merits of its decision to purchase Securities
pursuant to this Agreement, and such

 

19

 

Investor confirms that it has not relied on the advice
of any other Investor’s business and/or legal counsel in making such
decision.    

 

The Company acknowledges and agrees that no Investor
has made or makes any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1                                 (a)                                  The Securities may only be disposed
of in compliance with state and federal securities laws.  In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the Company,
to an Affiliate of an Investor or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. 

 

(b)                                 Certificates
evidencing the Securities will contain the following legend, until such time as
they are not required under Section 4.1(c):

 

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

 

The Company acknowledges
and agrees that an Investor may from time to time pledge, and/or grant a security
interest in some or all of the Securities pursuant to a bona fide margin
agreement in connection with a bona fide margin account and, if required under
the terms

 

20

 

of such agreement or account, such Investor may
transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be
subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in
connection with the pledge, but such legal opinion may be required in
connection with a subsequent transfer following default by the Investor
transferee of the pledge.  No notice
shall be required of such pledge.  At the
appropriate Investor’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities
including the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling shareholders
thereunder.

 

(c)                                  Certificates
evidencing Underlying Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) following a sale
of such Securities pursuant to an effective registration statement (including
the Registration Statement) covering such Underlying Shares or Warrant Shares,
or (ii) following a sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an Affiliate of the Company), or (iii) while such Securities
are eligible for sale under Rule 144(k). 
The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. 
The Company agrees that it shall, within three Trading Days following such
time as restrictive legends would not then be required under this Section 4.1(c),
issue and deliver to such Investor certificates that are free of restrictive
legends representing Underlying Shares or Warrant Shares in replacement of
Underlying Shares or Warrant Shares previously issued with restrictive legends.

 

4.2                                 Furnishing of Information. 
As long as any Investor owns the Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. 
As long as any Investor owns Securities, if the Company is not required
to file reports pursuant to such laws, it will prepare and furnish to the Investors
and make publicly available in accordance with Rule 144(c) such information as
is required for the Investors to sell the Underlying Shares and Warrant Shares under
Rule 144. The Company further covenants that it will take such further action
as any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell the Underlying Shares and
Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.

 

4.3                                 Listing of Securities. 
The Company agrees that if the Company applies to have the Common Stock
traded on any other Trading Market, it will (i) include in such application the
Underlying Shares and Warrant Shares, and will take such other action as is
necessary or desirable to cause the Underlying Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible, (ii) take all
action reasonably necessary to continue the listing and trading of its Common
Stock on such other Trading Market, and (iii) comply in all material respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of such other Trading Market.

 

21

 

4.4                                 Subsequent Placements; Right of
First Refusal.

 

(a)                                  Until
the expiration of the 180th day following the Effective Date (plus
one additional day for each Trading Day following the Effective Date during
which either (1) the Registration Statement is not effective or (2) the
prospectus forming a portion of the Registration Statement is not available for
the resale of all Registrable Securities (as defined in the Registration Rights
Agreement) required to be covered thereby), the Company will not directly or
indirectly, offer, sell or grant any option to purchase (or announce any offer,
sale, grant or any option to purchase) any of its Common Stock or Common Stock
Equivalents.

 

(b)                                 Without
the consent of each holder of outstanding Shares and Warrants, the Company may
not enter into or consummate any agreement providing for an equity line of
credit, variable (or “future”) priced, resetting, self-liquidating, adjusting
or conditional fund raising, or similar financing arrangement.

 

(c)                                  If
at any time prior to the one-year anniversary of the Effective Date (plus one
additional day for each Trading Day following the Effective Date during which
either (1) the Registration Statement is not effective or (2) the
prospectus forming a portion of the Registration Statement is not available for
the resale of all Registrable Securities (as defined in the Registration Rights
Agreement) required to be covered thereby), the Company proposes to issue any
Common Stock or Common Stock Equivalents, other than an issuance described in Section 4.4(d) of
this Agreement (collectively, “New Issue Securities”),
the Company shall first offer all of the New Issue Securities to the Investors
in accordance with the following provisions:

 

(i)                                     The
Company shall publicly disclose its intention to issue New Issue Securities in
a manner such that Investors will not be in possession of material non-public
information concerning the Company as a result of the provisions of this Section (including
receipt of a First Notice, and then give a written notice to each Investor (the
“First Notice”) stating (a) its
intention to issue the New Issue Securities, (b) the number and
description of the New Issue Securities proposed to be issued and (c) the
purchase price (calculated as of the proposed issuance date) and the other
terms and conditions upon which the Company is offering the New Issue
Securities.

 

(ii)                                  Transmittal
of the First Notice to the Investors by the Company shall constitute an offer
by the Company to sell to each Investor up to its proportionate number (based
upon each Investor’s Investment Amount relative to the aggregate Investment
Amount of all Investors signatory hereto) of the New Issue Securities for the
price and upon the terms and conditions set forth in the First Notice.  For a period of five (5) Business Days
after receipt of the of the First Notice, each Investor shall have the option,
exercisable by written notice to the Company (a “Notice of
Acceptance”), to accept the Company’s offer as to all or any part of
such Investor’s proportionate number of the New Issue Securities.  If two or more types of New Issue Securities
are to be issued or New Issue Securities are to be issued together with other
types of securities, including, without limitation, debt Securities, in a
single transaction or related transactions, the rights to purchase New Issue
Securities granted to the Investors under this Section must be exercised
to purchase all types of New Issue Securities and such other securities

 

22

 

in the same proportion as such New Issue Securities
and other securities are to be issued by the Company.

 

(iii)                               The
Company shall have seven (7) Trading Days from the expiration of the period
set forth in Section 4.4(c)(ii) above to issue, sell or exchange all
or any part of, and publicly announce the transaction with respect to, such New
Issue Securities as to which a Notice of Acceptance has not been given by the
Investors (the “Refused Securities”), but only
upon terms and conditions that are not more favorable than those set forth in
the First Notice.  If by the end of the
seven (7) Trading Days referenced in this subsection the Company has
not made a public announcement with respect to the transaction involving such
New Issue Securities, such transaction shall be deemed terminated and knowledge
of such transaction shall no longer be deemed material, non-public information.

 

(d)                                 The
restrictions and rights contained in Sections 4.4.(a) and (c) shall
not apply to the issuance and sale by the Company of (i) the issuance of
securities upon the exercise or conversion of any Common Stock or Common Stock
Equivalents issued by the Company prior to the date hereof (but will apply to
any amendments, modifications and reissuances thereof), (ii) shares of Common
Stock or Common Stock Equivalents to employees, officers, consultants, or
directors of the Company, as compensation for their services to the Company or
any of its direct or indirect Subsidiaries pursuant to arrangements approved by
the Board of Directors of the Company, (iii) Securities issuable to
Investors pursuant to the Transaction Documents, (iv) the issuance of up
to an aggregate of 1,680,000 shares of Common Stock underlying warrants issued
to J. Giordano or Tower Finance Ltd. as compensation in connection with the
transaction contemplated by the Transaction Documents, (v) the issuance of
an aggregate of 10,000,000 shares of Common Stock or Common Stock Equivalents
in connection with Strategic Transactions of which up to 3,000,000 shares (subject
to equitable adjustment for intervening stock splits and similar events) of
Common Stock or Common Stock Equivalents may be issued in connection with
Strategic Transactions not approved by the Company’s shareholders, (vi) up
to an aggregate of 1,000,000 shares (subject to equitable adjustment for
intervening stock splits and similar events) of Common Stock or Common Stock
Equivalents issued to the Company’s primary landlord in connection with a
restructuring of the Company’s headquarters’ lease, or (vii) the issuance
of up to an aggregate of 8,171,000 shares of Common Stock pursuant to options
that may be issued to members of the Company’s management.

 

4.5                                 Acknowledgment of Dilution. 
The Company acknowledges that the issuance of Underlying Shares upon
conversion of Shares and Warrant Shares upon exercise of Warrants will result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial.  The Company further
acknowledges that its obligation to honor conversions under the Shares is
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim that the Company may have against any Investor.

 

4.6                                 Integration. 
The Company shall not, and shall use its best efforts to ensure that no
Affiliate of the Company shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated

 

23

 

with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Investors, or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market in a manner that would require shareholder approval of the sale
of the Securities to the Investors.

 

4.7                                 Reservation
of Shares.  The Company shall
maintain a reserve from its duly authorized shares of Common Stock to comply
with its conversion obligations under the Shares.  If on any date the Company would be, if
notice of conversion were to be delivered on such date, precluded from issuing
the number of (i) Underlying Shares, as the case may be, issuable upon
conversion in full of the Shares or (ii) Warrant Shares, as the case may
be, issuable upon exercise in full of the Warrants (in each case, without
regard to any conversion or exercise caps or other limitation thereunder), due
to the unavailability of a sufficient number of authorized but unissued or
reserved shares of Common Stock, then the Board of Directors of the Company
shall promptly prepare and mail to the shareholders of the Company proxy
materials or other applicable materials requesting authorization to amend the
Company’s Articles of Incorporation or other organizational document to
increase the number of shares of Common Stock which the Company is authorized
to issue so as to provide enough shares for issuance of the Underlying Shares
and Warrant Shares.  In connection
therewith, the Board of Directors shall (a) adopt proper resolutions
authorizing such increase, (b) recommend to and otherwise use its best
efforts to promptly and duly obtain shareholder approval to carry out such
resolutions (and hold a special meeting of the shareholders as soon as
practicable, but in any event not later than the 60th day after delivery of the
proxy or other applicable materials relating to such meeting) and (c) within
five Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Company’s Articles of Incorporation or other
organizational document to evidence such increase.

 

4.8                                 Conversion Procedures. 
The form of Conversion Notice included in and as defined in the Certificate
of Designation sets forth the totality of the procedures required by the Investors
in order to convert the Shares.  The form
of Exercise Notice included in the Warrants sets forth the totality of the
procedures required by the Investors in order to convert the Warrants.  The Company shall honor conversions of the Shares
and exercises of Warrants and shall deliver Underlying Shares and Warrant
Shares in accordance with the terms, conditions and time periods set forth in the
Certificate of Designation and Warrants.

 

4.9                                 Subsequent Registrations. 
Other than pursuant to the Registration Rights Agreement, prior to the 180th
day (plus one additional day for each Trading Day following the Effective Date
during which either (1) the Registration Statement is not effective or (2) the
prospectus forming a portion of the Registration Statement is not available for
the resale of all Registrable Securities (as defined in the Registration Rights
Agreement) required to be covered thereby) after the Effective Date, the Company
may not file any registration statement with the Commission with respect to any
securities of the Company other than registration statements on Form S-4
or Form S-8 promulgated by the Commission.  Notwithstanding the foregoing, the Company
shall be permitted to continue to file post-effective amendments and
supplements to registration statements previously filed with the Commission, provided,
no shares are added thereto.

 

24

 

4.10                           Securities Laws Disclosure;
Publicity.  By 9:00 a.m. (New York City time) on the
Trading Day following the execution of this Agreement, and by 9:00 a.m.
(New York City time) on the Trading Day following the Closing Date, the Company
shall issue press releases in forms approved by SF Capital Partners Ltd. disclosing
the transactions contemplated hereby.  On
the Trading Day following the execution of this Agreement the Company will file
a Current Report on Form 8-K disclosing the material terms of the
Transaction Documents (and attach as exhibits thereto the Transaction Documents,
including the schedules and exhibits thereto), and on the Trading Day following
the Closing Date the Company will file an additional Current Report on Form 8-K
to disclose the Closing.  In addition,
the Company will make such other filings and notices in the manner and time
required by the Commission and any Trading Market on which the Common Stock is
listed.  Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Investor, or include
the name of any Investor in any filing with the Commission (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.

 

4.11                           Non-Public Information. 
The Company covenants and agrees that neither it nor any other Person
acting on its behalf will provide any Investor or its agents or counsel with
any information that the Company believes constitutes material non-public
information, unless prior thereto such Investor shall have executed a written
agreement regarding the confidentiality and use of such information.

 

4.12                           Indemnification of Investors. 
In addition to the indemnity provided in the Registration Rights
Agreement, the Company will indemnify and hold the Investors and their
directors, officers, shareholders, partners, employees and agents (each, an “Investor Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any such Investor Party may suffer or incur
as a result of or relating to any misrepresentation, breach or inaccuracy of
any representation, warranty, covenant or agreement made by the Company in any
Transaction Document.  In addition to the
indemnity contained herein, the Company will reimburse each Investor Party for
its reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.

 

4.13                           Use of Proceeds. 
Except for the repayment of $500,000 in bridge notes described in Schedule 3.1(dd),
together with accrued interest thereon, and any cash required to settle any
amount of indebtedness not convertible into a whole number of Shares, the Company
will use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company’s
debt (other than payment of trade payables and accrued expenses in the ordinary
course of the Company’s business and consistent with prior practices), or to
redeem any Common Stock or Common Stock Equivalents.

 

25

 

4.14                           Existence; Conduct of Business. 
The Company will, and will cause each of the Subsidiaries to, do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence and the rights, licenses, permits, privileges
and franchises material to the conduct of its business, provided, that
the foregoing shall not prohibit (a) any sale, lease, transfer or other
disposition permitted by this Agreement, or (b) any merger of (i) any
domestic Subsidiary with any other domestic Subsidiary, (ii) any domestic
Subsidiary with and into the Company, or (iii) any foreign Subsidiary with
any other foreign Subsidiary.

 

4.15                           Indebtedness. 
The Company will not enter into any agreements nor issue any instruments
for borrowed money prior to the Closing without the consent of SF Capital
Partners, Ltd.

 

4.16                           Reservation of Common Stock.

 

(a)                                  At
any point while the Securities are outstanding, the Company shall maintain a
reserve from its duly authorized shares of Common Stock for issuance pursuant
to the Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.

 

(b)                                 If,
on any date while the Securities are outstanding, the number of authorized but
unissued (and otherwise unreserved) shares of Common Stock is less than 100% of
(i) the Required Minimum on such date, minus (ii) the number of
shares of Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors of the Company shall use commercially reasonable
efforts to amend the Company’s certificate or articles of incorporation to
increase the number of authorized but unissued shares of Common Stock to at
least the Required Minimum at such time (minus the number of shares of Common
Stock previously issued pursuant to the Transaction Documents), as soon as
possible and in any event not later than the next annual meeting of
shareholders.  The Company shall obtain
shareholder approval in connection with this Section 4.16(b), with the
recommendation of the Company’s Board of Directors that such proposal be
approved, and the Company shall solicit proxies from its shareholders in
connection therewith in the same manner as all other management proposals in
such proxy statement and all management-appointed proxy-holders shall vote
their proxies in favor of such proposal. 
If the Company does not obtain shareholder approval at the first
meeting, the Company shall call a meeting on the first business day of each
fiscal quarter thereafter to seek shareholder approval until the earlier of the
date shareholder approval is obtained or the Securities are no longer
outstanding.

 

4.17                           Insurance
Matter.  With respect to the Company’s
product liability insurance matter disclosed in Schedule 3.1(q), the
Company covenants and agrees that in the event its current policy is not
continued, renewed or extended with the current insurer, it will purchase 3-year
Supplemental Extended Reporting Period coverage available under such policy for
an additional premium.  Such Supplemental
Extended Reporting Period coverage shall be for the purpose of enabling the
Company to have the coverage for claims that occur before the end of the
current policy period.

 

26

 

ARTICLE V.

MISCELLANEOUS

 

5.1                                 Fees and Expenses. 
At the Closing, the Company shall pay to Bryan Cave LLP $30,000 as
partial reimbursement of SF Capital Partners Ltd. for its legal fees in
connection with the Transaction Documents (SF Capital Partners Ltd. may deduct
such amount from the Investment Amount deliverable to the Company or Escrow
Agent at Closing), it being understood that Bryan Cave LLP has only rendered
legal advice to SF Capital Partners Ltd., and not to the Company or any other
Investor in connection with the transactions contemplated hereby, and that each
of the Company and the other Investors has relied for such matters on the
advice of its own respective counsel. 
Except as specified in the immediately preceding sentence, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the
Transaction Documents.  The Company shall
pay all stamp and other taxes and duties levied in connection with the sale of
the Shares.

 

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

 

5.3                                 Notices. 
Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section prior to 5:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as follows:

 

	
  If to the Company:

  	
   

  	
  MedicalCV, Inc.

  
	
   

  	
   

  	
  9725 South Robert Trail

  
	
   

  	
   

  	
  Inver Grove Heights, Minnesota 55077

  
	
   

  	
   

  	
  Facsimile: (651) 452-4948

  
	
   

  	
   

  	
  Attention: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Briggs and Morgan, P.A.

  
	
   

  	
   

  	
  2200 IDS Center

  
	
   

  	
   

  	
  80 South Eighth Street

  
	
   

  	
   

  	
  Minneapolis, Minnesota
  55402

  
	
   

  	
   

  	
  Facsimile: (612) 977-8650

  
	
   

  	
   

  	
  Attention: Avron L. Gordon, Esq.

  

 

27

 

	
  If to an Investor:

  	
   

  	
  To the address set forth under such Investor’s name
  on the signature pages hereof;

  

 

or such other address as
may be designated in writing hereafter, in the same manner, by such Person.

 

5.4                                 Amendments; Waivers; No Additional
Consideration.  No provision of this Agreement may be waived
or amended except in a written instrument signed by the Company and the Required
Investors except as set forth below and except that the provisions of Section 4.4(b) and
the conditions precedent set forth in Section 2.1(b) may only be
waived or amended by each Investor to be bound by such waiver or amendment.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. 
No consideration shall be offered or paid to any Investor to amend or
consent to a waiver or modification of any provision of any Transaction
Document unless the same consideration is also offered to all Investors who
then hold Shares.  Without the written
consent or the affirmative vote of each Investor affected thereby, an amendment
or waiver under this Section 5.4 may not:

 

(a)                                  make
any change that impairs the conversion or exercise rights of any Securities;

 

(b)                                 amend
the definition of Required Investors;

 

(c)                                  change
the currency of any amount owed or owing under the Securities or any interest
thereon from U.S. Dollars;

 

(d)                                 impair
the right of any Investor to institute suit for the enforcement of any payment
with respect to, or conversion or exercise of, any Security; or

 

(e)                                  modify
the provisions of this Section 5.4 or Section 5.5.

 

It shall not be necessary for the consent of the
Investors under this Section 5.4 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent approves the
substance thereof.

 

5.5                                 Termination. 
This Agreement may be terminated prior to the Closing:

 

(a)                                  by
written agreement of the Investors and the Company;

 

(b)                                 by
the Company or an Investor (as to itself but no other Investor) upon written
notice to the other, if the Closing shall not have taken place by 5:30 p.m.
(New York City time) on the Outside Date; provided, that the right to
terminate this Agreement under this

 

28

 

Section 5.5(b) shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time;

 

(c)                                  by
an Investor (as to itself but no other Investor) if it concludes in good faith
that any of the conditions precedent contained in Sections 2.1(d)(iv), (v) or
(vi) shall have been breached or shall not be capable of being satisfied
by the Outside Date despite the assumed best efforts of the Company.

 

In the event of a
termination pursuant to this Section, the Company shall promptly notify all
non-terminating Investors and shall pay to SF Capital Partners Ltd. all of the
fees and expenses incurred by SF Capital Partners Ltd. (including reasonable
legal fees and expenses) in connection with this Agreement and the transactions
contemplated by this Agreement through the termination date.  Other than as to the foregoing fees and
expenses, upon a termination in accordance with this Section 5.5, the
Company and the terminating Investor(s) shall not have any further obligation
or liability (including as arising from such termination) to the other and no
Investor will have any liability to any other Investor under the Transaction
Documents as a result therefrom.

 

5.6                                 Construction. 
The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.  The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be
applied against any party.  This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.

 

5.7                                 Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.  The Company may not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the Investors.
Any Investor may assign any or all of its rights under this Agreement to any
Person to whom such Investor assigns or transfers any Securities, provided such
transferee (i) makes the representations of the assigning Investor under
the Agreement, and (ii) agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the “Investors.”

 

5.8                                 No Third-Party Beneficiaries. 
This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.12 (as to each Investor Party).

 

5.9                                 Governing Law. 
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other

 

29

 

Transaction Documents (whether brought
against a party hereto or its respective Affiliates, employees or agents) shall
be commenced exclusively in the New York Courts.  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.  Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating
to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding
to enforce any provisions of a Transaction Document, then the prevailing party
in such Proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding. 
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

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

 

5.11                           Execution. 
This Agreement may be executed in two or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the
same counterpart.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.

 

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

 

5.13                           Rescission and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any Investor
exercises a right, election, demand or option under a Transaction

 

30

 

Document and the Company does not timely
perform its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

 

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

 

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

 

5.16                           Payment Set Aside. 
To the extent that the Company makes a payment or payments to any Investor
pursuant to any Transaction Document or an Investor enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

 

5.17                           Independent Nature of Investors’
Obligations and Rights.  The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other Investor
under any Transaction Document.  The
decision of each Investor to purchase Securities pursuant to the Transaction
Documents has been made by such Investor independently of any other Investor.  Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Investors
are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents.  Each Investor

 

31

 

acknowledges that no other Investor has acted
as agent for such Investor in connection with making its investment hereunder
and that no Investor will be acting as agent of such Investor in connection
with monitoring its investment in the Securities or enforcing its rights under
the Transaction Documents.  Each Investor
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such purpose.  The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of
closing a transaction with multiple Investors and not because it was required
or requested to do so by any Investor.

 

5.18                           Limitation of Liability. 
Notwithstanding anything herein to the contrary, the Company
acknowledges and agrees that the liability of an Investor arising directly or
indirectly, under any Transaction Document of any and every nature whatsoever
shall be satisfied solely out of the assets of such Investor, and that no
trustee, officer, other investment vehicle or any other Affiliate of such Investor
or any investor, shareholder or holder of shares of beneficial interest of such
a Investor shall be personally liable for any liabilities of such Investor.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

 

32

 

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

 

	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Marc P.
  Flores

  	
   

  
	
   

  	
   

  	
  Name: Marc P. Flores

  
	
   

  	
   

  	
  Title: President and
  Chief Executive Officer

  

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR INVESTORS FOLLOW]

 

33

 

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

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  SF Capital Partners Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian H. Davidson

  	
   

  
	
   

  	
   

  	
  Name: Brian H. Davidson

  
	
   

  	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 3,000,000

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  MedCap Partners, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ C. Fred Toney

  	
   

  
	
   

  	
   

  	
  Name: C. Fred Toney

  
	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 2,000,000

  
						

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  MedCap Master Fund, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ C. Fred Toney

  	
   

  
	
   

  	
   

  	
  Name: C. Fred Toney

  
	
   

  	
   

  	
  Title: Managing Partner

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 1,500,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Millennium Partners, L.P.

  
	
   

  	
  By:

  	
  Millennium Management, L.L.C.

  
	
   

  	
  By:

  	
  /s/ Terry Feemey

  	
   

  
	
   

  	
   

  	
  Name: Terry Feemey

  
	
   

  	
   

  	
  Title: Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 2,000,000

  

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Whitebox Hedged High Yield Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 1,000,000

  

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Whitebox Intermarket Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 800,000

  

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Whitebox Convertible Arbitrage Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 500,000

  

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Pandora Select Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 500,000

  

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ASA Opportunity Fund, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Furst, Jr. 

  	
   

  
	
   

  	
   

  	
  Name: Robert D. Furst Jr. 

  
	
   

  	
   

  	
  Title: Managing Member of General Partner

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 100,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Furst Capital Partners LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Furst, Jr.

  	
   

  
	
   

  	
   

  	
  Name: Robert D. Furst Jr. 

  
	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 200,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  The Larry Haimovitch 2000 Separate Property

  Revocable Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry Haimovitch 

  	
   

  
	
   

  	
   

  	
  Name: Larry Haimovitch

  
	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Partners, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 210,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Partners II, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 53,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Offshore Fund, Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 34,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Offshore Fund II, Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 703,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Alice Ann Corporation

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Robert G. Allison

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  William H. Baxter Revocable Trust

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Gary A. Bergren

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Craig L. Campbell IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Bradley A. Erickson
  IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Anne S. Chudnofsky

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 20,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Dorothy J. Hoel

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Robert H. Clayburgh
  IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Elizabeth J. Kuehne

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Raymond R. Johnson

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Charles W. Pappas IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Richard C. Perkins

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  John T. Potter

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Paul C. Seel and Nancy S. Seel JTWROS

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  E. Terry Skone

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Donald O. and Janet Voight TTEE’s FBO Janet M.
  Voight

  Trust U/A dtd 8/29/96

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO James B. Wallace SPN/PRO

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Michael R. Wilcox IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Daniel S. and Patrice M. Perkins JTWROS

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins & /s/ Patrice M.
  Perkins

  	
   

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Mark L. Beese IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Daniel S. Perkins 

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 8,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  David H. and Lise B. Potter JTWROS

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Daniel S. Perkins 

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 20,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Pyramid Partners, L.P.

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Daniel S. Perkins 

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 150,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  PKM Properties, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul K. Miller

  	
   

  
	
   

  	
   

  	
  Name: Paul K. Miller

  
	
   

  	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 150,000

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter L. Hauser

  	
   

  
	
   

  	
   

  	
  Name: Peter L. Hauser

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 1,008,611.11

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Robert D. Furst Jr. Money Purchase Pension Plan and
  Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Furst Jr.

  	
   

  
	
   

  	
   

  	
  Name: Robert D. Furst Jr.

  
	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 201,722.22

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Bradley A. Erickson
  IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,258.33

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Robert G. Allison IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,125.28

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Dennis D. Gonyea

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,430.56

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  John T. Potter

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,215.28

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Carolyn Salon

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,258.33

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Alan R. Reckner

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 15,129.17

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Joel Salon

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,125.28

  
					

 

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Brust Limited Partnership

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,215.28

  
					

 

	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Goben Enterprises LP

  
	
   

  	
  A Minnesota Limited Partnership

  
	
   

  	
  By:

  	
  /s/ Gary Benson

  	
   

  
	
   

  	
   

  	
  Name: Gary Benson

  
	
   

  	
   

  	
  Title: General Partner

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 200,000

  
					

 

 

 

SCHEDULE 3.1(g)

 

As of March 24, 2005

 

	
   

  	
   

  	
  Authorized

  	
   

  	
  Outstanding

  	
   

  
	
  Preferred Stock

  	
   

  	
  5,000,000

  	
   

  	
  0

  	
   

  
	
  Common Stock

  	
   

  	
  95,000,000

  	
   

  	
  10,737,083

  	
   

  
	
  Option / Equity
  Incentive Plans

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1992

  	
   

  	
  500,000

  	
   

  	
  49,750

  	
   

  
	
  1993

  	
   

  	
  300,000

  	
   

  	
  77,000

  	
   

  
	
  1997

  	
   

  	
  500,000

  	
   

  	
  236,416

  	
   

  
	
  2001

  	
   

  	
  1,328,895

  	
   

  	
  990,877

  	
   

  
	
  Options Outside Plans

  	
   

  	
   

  	
   

  	
  225,000

  	
   

  
	
  Warrants

  	
   

  	
   

  	
   

  	
  7,172,636

  	
   

  
	
  Anti-Dilution
  Adjustments (assumes $13.1 million new money)

  	
   

  	
   

  	
   

  	
  1,740,753

  	
   

  
	
  Total
  Shares, Options and Warrants

  	
   

  	
   

  	
   

  	
  21,229,515

  	
   

  

 

Excludes issuable Common
Stock or Common Stock Equivalents as follows:

 

MidSouth Capital
(6,500)

Baxter Capital
Advisors, Inc. (26,000)

ROI Group
Associates, Inc. (80,000)

Management Group
(8,171,000)

Tower Finance,
Ltd. (68,000)

 

 

SCHEDULE 3.1(k)

 

On March 4, 2005,
the Company became aware of a forty-six year-old male patient who had undergone
double valve replacement surgery on February 14, 2003 in which the patient
received an aortic and mitral Omnicarbon heart valves manufactured by the
Company.  The patient suffered from
pulmonary edema and severe mitral insufficiency.  An attending physician has stated that the
leaflet of the mitral valve prosthesis could not be visualized and had
detached.  The patient underwent
emergency surgery to replace the valve, after which the patient was transferred
to intensive care where, on March 5, 2005, the patient died.  The Company has not completed an
investigation of the matter.  The Company
has sent an initial report to the Food and Drug Administration of the incident
and has undertaken an investigation of the matter.  No claim has been made against the
Company.  The Company believes that the
claim will be covered by its products liability insurance policy, subject to
the contractual limitations and coverage limits thereof.  The Company has notified its products
liability insurer of the incident.

 

On or about September 27,
2004, the Company received a letter from legal counsel for Segmed, Inc.
and Dr. William F. Northup III.  Dr. Northup
and Segmed entered into an Assignment Agreement with the Company dated August 7,
2002, relating to the Company’s annuloplasty technology for the repair of
mitral and tricuspid heart valves developed by Dr. Northup and
Segmed.  The letter alleges that the
Company has abandoned the commercialization of the annuloplasty technology,
thereby constituting a termination of the assignment of the technology.  The letter claims that Dr. Northup is
considering reclaiming his rights to the technology which would require the
Company to return the property and documents related to the assignment
including, but not limited to, the apparatus and other intellectual
property.  The Company disputes that it
has abandoned the commercialization of the annuloplasty and has had continuing
discussions with Dr. Northup. 
Neither Dr. Northup nor his legal counsel have made further
allegations that the technology has been abandoned.  The Company has had continuing discussions
with Dr. Northrup concerning its sale of the annuloplasty technology to a
medical device company.  Dr. Northrup
has participated in these discussions, which are in an early stage.

 

 

SCHEDULE 3.1(m)

 

On or about September 27,
2004, the Company received a letter from legal counsel for Segmed, Inc.
and Dr. William F. Northup III.  Dr. Northup
and Segmed entered into an Assignment Agreement with the Company dated August 7,
2002, relating to the Company’s annuloplasty technology for the repair of
mitral and tricuspid heart valves developed by Dr. Northup and
Segmed.  The letter alleges that the
Company has abandoned the commercialization of the annuloplasty technology,
thereby constituting a termination of the assignment of the technology.  The letter claims that Dr. Northup is
considering reclaiming his rights to the technology which would require the
Company to return the property and documents related to the assignment
including, but not limited to, the apparatus and other intellectual property.  The Company disputes that it has abandoned
the commercialization of the annuloplasty and has had continuing discussions
with Dr. Northup.  Neither Dr. Northup
nor his legal counsel have made further allegations that the technology has
been abandoned.  The Company has had continuing
discussions with Dr. Northrup concerning its sale of the annuloplasty
technology to a medical device company.  Dr. Northrup
has participated in these discussions, which are in an early stage.

 

In February, April and
May, 2004, the Company conducted a private placement to accredited investors of
units, each consisting of one share of common stock and one warrant to purchase
one share of common stock.  The Company
sold 2,730,763 units for aggregate gross proceeds of $4,014,222.  The Company agreed to use commercially
reasonable best efforts to cause the shares and the shares underlying the
warrants sold in the above-referenced private placement to be registered for
resale on Form SB-2 and to cause such registration to be declared
effective by the Commission within 90 days following the initial filing
thereof.  The Company satisfied its
obligations to file such registration statement and to cause such registration
statement to be declared effective by the Commission.  The Company is presently obligated to update
such registration statement by means of a post-effective amendment to disclose
the fundamental change in its business since the time of filing and to include
updated financial information.  The
Company has not completed the required updating, but intends to do so as soon
as practicable following the Closing of the transactions contemplated by the
Transaction Documents.  No claim has been
made against the Company arising out of such registration obligations.

 

 

SCHEDULE 3.1(o)

 

 

	
  File Number

  	
   

  	
  Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral Description

  	
   

  	
  Amount of

  Obligation

  	
   

  	
  Status

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  00215773

  	
   

  	
  2/27/98

  	
   

  	
  Citigroup

  	
   

  	
  All Inventory, etc.

  	
   

  	
  Repaid in full

  	
   

  	
  Release

  	
   

  
	
  020024930253

  	
   

  	
  8/19/02

  	
   

  	
  Segmed

  	
   

  	
  Certain Intellectual Property pursuant to Security
  Agreement dated 8/7/02

  	
   

  	
  $

  	
  500,000.00

  	
   

  	
  Active UCC-1

  	
   

  
	
  020036276297

  	
   

  	
  1/17/03

  	
   

  	
  PKM Properties, LLC

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  $

  	
  943,333.00

  	
   

  	
  To be converted to securities

  	
   

  
	
  020038002441

  	
   

  	
  7/9/03

  	
   

  	
  PKM Properties, LLC

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  	
  To be converted to securities

  	
   

  
	
  020038002898

  	
   

  	
  7/9/03

  	
   

  	
  Peter Hauser

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  	
  To be converted to securities

  	
   

  
	
  020039543927

  	
   

  	
  11/21/03

  	
   

  	
  Draft Co.

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  Repaid in full

  	
   

  	
  Release

  	
   

  

 

 

SCHEDULE 3.1(q)

 

The Company has a $5
million products liability insurance policy for worldwide coverage.  This policy expires on March 20,
2005.  The Company has been advised by
its insurance representative that the insurer may seek to reduce coverage under
the policy, including policy limits, due to the Company’s financial
condition.  The Company has accepted an
offer from the insurer to extend the expiring policy until April 20,
2005.  Between the closing and April 20,
2005, the Company intends to use its best efforts to renew or replace the
products liability policy.  The Company
believes, based upon discussions with its insurance representatives, that upon
completion of its private placement, it will be able to renew the coverage or
secure alternate insurance.  The Company
is unable to predict, however, whether there will be any change in its coverages
or the premium therefor.  In the event
that the policy is not continued, renewed or extended with the current insurer,
it is the intention of the Company to purchase 3-year Supplemental
Extended Reporting Period coverage available to the Company for an additional
premium.  This coverage does not extend
the policy, but allows the Company to have coverage for claims that occur
before the end of the policy period.

 

The Company has informed
the insurer of a potential claim arising out of the patient heart valve implant
matter described in Schedule 3.1(k).

 

 

SCHEDULE 3.1(u)

 

The Company has engaged J
Giordano Securities Group (“Giordano”) as its non-exclusive agent and Tower
Finance, Ltd. (“Tower”) as its finder in connection with the transaction
contemplated by the Agreement (the “Private Placement”).  The Company has agreed to pay Giordano such
commissions, fees and reimbursement of expenses as are set forth in the
engagement letter, dated December 17, 2004, as amended March 16, 2005
(the “Giordano Agreement”).  The Company
has agreed to pay Tower such finder’s fee and reimbursement of expenses as are
set forth in the finder agreement, dated December 8, 2004, as amended March 16,
2005 (the “Tower Agreement”).

 

Pursuant to the Giordano
Agreement, the Company has agreed (1) to pay Giordano a cash commission
equal to 6% of the gross proceeds raised upon the sale of Shares to its clients
(exclusive of Shares issued upon conversion of indebtedness in the Private
Placement), (2) to reimburse Giordano for reasonable expenses incurred in
connection with the Private Placement, and (3) to issue to Giordano
five-year warrants to purchase a number of shares of common stock equal to 6%
of the number of shares of common stock issuable upon conversion of the Shares
sold in the Private Placement to its clients (exclusive of Shares issued upon
the conversion of indebtedness in the Private Placement).

 

Pursuant to the Tower
Agreement, the Company has agreed (1) to pay Tower a finder’s fee equal to
6% of the gross proceeds raised upon the sale of Shares to persons introduced
to the Company by Tower (exclusive of Shares issued upon conversion of
indebtedness in the Private Placement), (2) to reimburse Tower for
reasonable expenses incurred in connection with the Private Placement, and (3) to
issue to Tower five-year warrants to purchase a number of shares of common
stock equal to 6% of the number of shares of common stock issuable upon
conversion of the Shares sold in the Private Placement to persons introduced to
the Company by Tower (exclusive of Shares issued upon the conversion of
indebtedness in the Private Placement).

 

 

SCHEDULE 3.1(v)

 

	
  Date

  Issued

  	
   

  	
  Quantity

  	
   

  	
  Exercise

  Price ($)

  	
   

  	
  Expiration

  Date

  	
   

  	
  Description

  	
   

  
	
  08/21/01

  	
   

  	
  400,000

  	
   

  	
  6.50

  	
   

  	
  08/21/06

  	
   

  	
  Warrants issued in 2001 Bridge Loan

  	
   

  
	
  11/20/01

  	
   

  	
  112,500

  	
   

  	
  6.75

  	
   

  	
  11/20/06

  	
   

  	
  Warrants issued to IPO Underwriter

  	
   

  
	
  11/17/04

  	
   

  	
  34,014

  	
   

  	
  TBD

  	
   

  	
  11/17/14

  	
   

  	
  Warrants issued in PKM Financing

  	
   

  
	
  12/01/04

  	
   

  	
  25,000

  	
   

  	
  1.46

  	
   

  	
  12/01/11

  	
   

  	
  Warrant issued to LightWave on Milestone

  	
   

  
	
  12/31/04

  	
   

  	
  45,000

  	
   

  	
  TBD

  	
   

  	
  12/31/09

  	
   

  	
  Warrants issued in Perkins Financing

  	
   

  
	
  01/13/05

  	
   

  	
  40,000

  	
   

  	
  TBD

  	
   

  	
  01/13/10

  	
   

  	
  Warrant issued in Furst Financing

  	
   

  
	
  03/03/05

  	
   

  	
  750,000

  	
   

  	
  0.50

  	
   

  	
  03/03/15

  	
   

  	
  Warrant issued in PKM Financing

  	
   

  
	
  TOTAL

  	
   

  	
  1,406,514

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Excludes shares covered
by registration statement described in Schedule 3.1(m).

Excludes shares issuable
pursuant to anti-dilution adjustments.

 

 

SCHEDULE 3.1(z)

 

Debt Conversion Agreement
by and between MedicalCV, Inc. and PKM Properties, LLC.

 

Debt Conversion Agreement
by and between MedicalCV, Inc. and Peter L. Hauser.

 

Letter Electing
Alternative 2 pursuant to December 2004 Bridge Note Purchase Agreement by
and between MedicalCV, Inc. and Perkins Capital Management.

 

Letter Electing
Alternative 2 pursuant to January 2005 Bridge Note Purchase Agreement by
and between MedicalCV, Inc. and Robert Furst Pension Plan &
Trust.

 

 

SCHEDULE 3.1(dd)

 

	
  Lender

  	
   

  	
  Type

  	
   

  	
  Amount

  Due ($)

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Letter of Credit

  	
   

  	
  943,333

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Term Debt

  	
   

  	
  1,500,000

  	
   

  
	
  Peter L. Hauser

  	
   

  	
  Term Debt

  	
   

  	
  1,000,000

  	
   

  
	
  Perkins and Furst

  	
   

  	
  Convertible Notes

  	
   

  	
  425,000

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Credit Agreement

  	
   

  	
  500,000

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Credit Agreement (Bridge Notes)

  	
   

  	
  500,000

  	
   

  
	
  Accrued Interest

  	
   

  	
  (through March 31, 2005)

  	
   

  	
  40,325

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  4,908,658

  	
   

  

 

Excludes payments due
Dakota County and Dakota Electric Association.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00082-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00082-of-00352.parquet"}]]