Document:

exv10w3

 

Exhibit
10.3

	 	 	 	 	 
	

	 	COMMERCIAL PROMISSORY NOTE
	 	 

Debtor Name

 

Enova Systems, Inc., a California corporation

	 	 	 	 	 	 	 
	Debtor Address

	 	Office
	 	Loan Number

	 
	 	 	 	 	 	 
	19850 Magellan Dr
	 	 	 	 	 	 
	Torrance, CA 90502-1106
	 	Maturity Date	 	 	Amount	 
	 
	 	June 30, 2009	 	 	$2,000,000.00	 

	 	 	 
	$2,000,000.00
	 	Date October 10, 2007

FOR VALUE RECEIVED, on June 30, 2009 the undersigned (“Debtor”)
promises to pay to the order of UNION BANK OF CALIFORNIA, N.A. (“Bank”), as
indicated below, the principal sum of Two Million and
00/100ths Dollars ($2,000,000.00), or so much thereof as is disbursed, together with interest
on the balance of such principal sum from time to time outstanding, at a per annum
rate equal to one and one-fourth percent (1.25%) per annum greater
than the annualized effective rate (yield) of interest payable on Time Deposit No.
3529003620 and all renewals, replacements, or substitutions thereof pledged to
secure payment hereof.

Any letters of credit issued and outstanding in connection with this note shall
result in a reduction of the amount available to Debtor.

1.    INTEREST PAYMENTS. Debtor shall pay interest on the last day of
each month commencing October 31, 2007. Should interest not be so paid, it
shall become a part of the principal and thereafter bear interest as herein provided.

All computations of interest under this note shall be made on the basis of a year of
360 days, for actual days elapsed.

At any time prior to the maturity date of this note, Debtor may borrow, repay and
reborrow hereon so long as the total outstanding at any one time does not exceed the
principal amount of this note.

Debtor shall pay all amounts due under this note in lawful money of the United Slates
at Bank’s P.O. Box 30115, Los Angeles, CA 90030-0115 Office, or such
other office as may be designated by Bank, from time to time.

2.    LATE PAYMENTS. If any payment required by the terms of this note shall remain
unpaid ten days after same is due, at the option of Bank, Debtor shall pay a fee of $100 to Bank.

3.    INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of Bank,
and, to the extent permitted by law, interest shall be payable on the outstanding
principal under this note at a per annum rate equal to five percent (5%) in
excess of the interest rate specified in the initial paragraph of this note, calculated from the date of default until all
amounts payable under this note are paid in full.

4.    DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not be

limited to, any of the following: (a) the failure of Debtor to make any payment required under this

 

					
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note when due; (b) any breach, misrepresentation or other default by Debtor, any guarantor,
co-maker, endorser, or any person or entity other than Debtor
providing security for this note
(hereinafter individually and collectively referred to as the “Obligor”) under any deed of trust,
security agreement, guaranty or other agreement between Bank and any Obligor; (c) the insolvency
of any Obligor or the failure of any Obligor generally to pay such Obligor’s debts as such debts
become due; (d) the commencement as to any Obligor of any voluntary or involuntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization, arrangement, debt adjustment or
debtor relief; (e) the assignment by any Obligor for the benefit of such Obligor’s creditors; (f)
the appointment, or commencement of any proceedings for the appointment of a receiver, trustee,
custodian or similar official for all or substantially all of any Obligor’s property; (g) the
commencement of any proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any guaranty or
subordination agreement given in connection with this note; (j) (the failure of any Obligor to
comply with any order, judgment, injunction, decree, writ or demand of any court or other public
authority; (k) the filing or recording against any Obligor, or the property of any Obligor, of any
notice of levy, notice to withhold, or other legal process for taxes other than property taxes;
(l) the default by any Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money, (m) the issuance against any Obligor, or the property of any
Obligor, of any writ of attachment, execution, or other judicial lien; or (n) the deterioration of
the financial condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may cease to advance
funds hereunder and may declare all obligations under this note immediately due and payable;
however, upon the occurrence of an event of default under (d), (e), (f), or (g) all principal and
interest shall automatically become immediately due and payable.

5.    ADDITIONAL AGREEMENTS OF DEBTOR. Debtor promises to pay all costs and expenses,
including reasonable attorneys fees (including the allocated costs of Bank’s in-house counsel and
legal staff) incurred by Bank in the negotiation, documentation, and modification of this note and
all related documents and in the collection or enforcement of any amount outstanding hereunder.
Debtor and any endorsers of this note for the maximum period of time and the full extent permitted
by law (a) waive diligence, presentment, demand, notice of nonpayment, protest, notice of protest,
and notice of every kind; (b) waive the right to assert the defense of any statute of limitations
to any debt or obligation hereunder; and (c) consent to renewals and extensions of time for the
payment of any amounts due under this note. If this note is signed by more than one party, the
term “Debtor” includes each of the undersigned and any successors in interest thereof, all of whose
liability shall be joint and several. Any married person who signs this note agrees that recourse
may be had against the separate property of that person for any obligations hereunder The receipt
of any check or other item of payment by Bank, at its option, shall not be considered a payment on
account until such check or other item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank’s schedule of funds
availability, and interest under this note shall accrue until the funds are deemed collected. In
any action brought under or arising out of this note, Debtor and any Obligor, including their
successors and assigns, hereby consent to the jurisdiction of any competent court within the state
of California, as provided in any alternative dispute resolution agreement executed between Debtor
and Bank, and consent to service of process by any means authorized by said state’s law. The term
“Bank” includes, without limitation, any holder of this note. This note shall be construed in
accordance with and governed by the laws of the state of California. This note hereby incorporates
any alternative dispute resolution agreement previously, concurrently or hereafter executed between
Debtor and Bank.

SEE FOLLOWING PAGE FOR ALL (OR ADDITIONAL) SIGNATURES

 

					
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DEBTOR:

Enova Systems, Inc. a California corporation

	 	 	 	 	 
	By

	 	/s/ Jarett Fenton	 	 
	 	 	 	 	 
	 
	 	 	 	 
	Title

	 	CFO	 	 
	 	 	 	 	 

 

					
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	 	28824-1-UB06601exv10w1

 

Exhibit 10.1

SECURITIES PURCHASE AND LOAN AGREEMENT

     THIS SECURITIES PURCHASE AND LOAN AGREEMENT, dated as of March 24, 2008 (this “Agreement”), is
by and between ECHO THERAPEUTICS, INC., a Minnesota corporation (the “Company”), and IMPERIUM
MASTER FUND, LTD., a Cayman Islands company (“Imperium”).

     A. The Company has requested from Imperium, and Imperium has agreed to provide to the Company,
a working capital drawdown facility in the aggregate amount of up to $2,000,000. Each loan made
under such facility shall be reflected by an Original Issue Discount Senior Secured Note in the
form attached hereto as Exhibit A (each, a “Note”).

     B. Contemporaneously with the closing of the first loan and for no additional consideration,
the Company shall issue to Imperium a Warrant in the form of Exhibit B hereto (the “Warrant”),
exercisable for 634,920 shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”). The per share exercise price of the Warrant shall be $2.00 (subject to
adjustments as provided therein). The shares of Common Stock for which the Warrant is exercisable
are referred to herein as the “Warrant Shares”, and the Notes, Warrant and Warrant Shares are
sometimes collectively referred to herein as the “Securities”.

     C. The Company has agreed to effect the registration of the resale of the Warrant Shares under
the Securities Act of 1933 (as amended, and the rules and regulations promulgated thereunder, the
“Securities Act”), pursuant to a Registration Rights Agreement in the form attached hereto as
Exhibit C (the “Registration Rights Agreement”).

     D. The issuance and sale of the Notes and Warrant by the Company under this Agreement will be
effected in reliance upon the exemption from securities registration afforded by the provisions of
Regulation D (“Regulation D”), as promulgated by the Securities and Exchange Commission (the
“Commission”) under the Securities Act.

     E. The Company’s obligations under this Agreement, and all of the other agreements,
instruments and other documents contemplated hereby, are to be (i) guaranteed by each of the
Company’s subsidiaries pursuant to a Subsidiary Guarantee in the form attached hereto as Exhibit D
(the “Guarantee”), and (ii) secured by the assets of the Company and its subsidiaries pursuant to a
Security Agreement in the form attached hereto as Exhibit E (the “Security Agreement”).

     In consideration of the mutual promises made herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and Imperium hereby agree
as follows:

1. TERMINOLOGY AND USAGE.

     1.1 Definitions. When used herein, the terms below shall have the respective meanings
indicated:

 

 

          “Accounts Receivable” has the meaning specified in Section 6.5 of this Agreement.

          “Affiliate” means, as to any Person (the “subject Person”), any other Person (a) that directly
or indirectly through one or more intermediaries controls or is controlled by, or is under direct
or indirect common control with, the subject Person, (b) that directly or indirectly beneficially
owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or
(c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially
owned or held by the subject Person. For the purposes of this definition, “control” when used with
respect to any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, through representation
on such Person’s board of directors or other management committee or group, by contract or
otherwise.

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

          “Business Day” means any day other than a Saturday, a Sunday or a day on which the Principal
Market is closed or on which banks in the City of New York are required or authorized by law to be
closed.

          “Closing” and “Closing Date” have the respective meanings specified in Section 2.1 of this
Agreement.

          “Commission” has the meaning specified in the recitals to this Agreement.

          “Common Stock” has the meaning specified in the recitals to this Agreement.

          “Company Subsidiary” means a Person that is a Subsidiary of the Company.

          “Debt” means, as to any Person at any time: (a) all indebtedness, liabilities and obligations
of such Person for borrowed money; (b) all indebtedness, liabilities and obligations of such Person
to pay the deferred purchase price of Property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are not past due by more than 90 days; (c)
all capital lease obligations of such Person; (d) all Debt of others guaranteed by such Person; (e)
all indebtedness, liabilities and obligations secured by a Lien (other than a Permitted Lien)
existing on Property owned by such Person, whether or not the indebtedness, liabilities or
obligations secured thereby have been assumed by such Person or are non-recourse to such Person;
(f) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers’ acceptances, surety or other bonds and similar instruments; and (g) all
liabilities and obligations of such Person to redeem or retire shares of capital stock of such
Person.

          “Disclosure Documents” means all SEC Documents filed with the Commission at least three (3)
Business Days prior to the Execution Date or applicable Drawdown Date.

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          “Drawdown”, “Drawdown Commitment” and “Drawdown Date” have the respective meanings specified
in Section 3.1(a) of this Agreement.

          “Drawdown Purchase Price” has the meaning specified in Section 3.1(b) of this Agreement.

          “Environmental Law” means any federal, state, provincial, local or foreign law, statute, code
or ordinance, principle of common law, rule or regulation, as well as any permit, order, decree,
judgment or injunction issued, promulgated, approved or entered thereunder, relating to pollution
or the protection, cleanup or restoration of the environment or natural resources, or to the public
health or safety, or otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of hazardous materials.

          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder.

          “Event of Default” means any event, occurrence or circumstance that constitutes an “Event of
Default” under any of the Notes.

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

          “Execution Date” means the date of this Agreement.

          “GAAP” means generally accepted accounting principles, applied on a consistent basis, as set
forth in (i) opinions of the Accounting Principles Board of the American Institute of Certified
Public Accountants, (ii) statements of the Financial Accounting Standards Board and (iii)
interpretations of the Commission and the staff of the Commission. Accounting principles are
applied on a “consistent basis” when the accounting principles applied in a current period are
comparable in all material respects to those accounting principles applied in a preceding period.

          “Governmental Authority” means any nation or government, any state, provincial or political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without limitation, any stock
exchange, securities market, and self-regulatory organization and the Financial Industry Regulatory
Authority.

          “Governmental Requirement” means any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, franchise, license or other directive or requirement of any federal,
state, county, municipal, parish, provincial, foreign or other Governmental Authority or any
department, commission, board, court, agency or any other instrumentality of any of them.

          “Holder” shall initially mean Imperium, provided that any Person that subsequently holds any
Securities shall also be deemed a Holder.

-3-

 

          “Holder Party” has the meaning specified in Section 6.8 of this Agreement.

          “Intellectual Property” means any U.S. or foreign patents, patent rights, patent applications,
trademarks, trade names, service marks, brand names, logos and other trade designations (including
unregistered names and marks), trademark and service mark registrations and applications,
copyrights and copyright registrations and applications, inventions, invention disclosures,
protected formulae, formulations, processes, methods, trade secrets, computer software, computer
programs and source codes, manufacturing research and similar technical information, engineering
know-how, customer and supplier information, assembly and test data drawings or royalty rights.

          “Key Employee” has the meaning specified in Section 5.16 of this Agreement.

          “Lien” means, with respect to any Property, any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, tax lien, financing statement, pledge, charge, or other
lien, charge, easement, encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to such Property
(including, without limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing); provided, however, “Lien” shall
not include licenses of Intellectual Property granted on an arm’s-length basis by the Company or
any Company Subsidiary to its business partners.

          “Material Adverse Effect” means an effect that is material and adverse to (i) the consolidated
business, properties, assets, operations, results of operations, financial condition, credit
worthiness or prospects of the Company and the Company Subsidiaries taken as a whole, (ii) the
ability of the Company or any material Company Subsidiary to perform its obligations under any of
the Transaction Documents or (iii) the rights and benefits to which a Holder is entitled under any
of the Transaction Documents.

          “Material Contracts” means, as to the Company and the Company Subsidiaries, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K, as applicable,
promulgated under the Securities Act to be filed as an exhibit to any report, schedule,
registration statement or definitive proxy statement filed or required to be filed by the Company
with the Commission under the Exchange Act or any rule or regulation promulgated thereunder, and
any and all amendments, modifications, supplements, renewals or restatements thereof.

          “Notes” has the meaning specified in the recitals to this Agreement.

          “Permitted Debt” means the following: (a) the Notes, (b) Debt disclosed on Schedule 1.1(i)
hereto; and (c) Debt consisting of capital lease obligations and purchase money indebtedness,
provided that, with respect to this clause (c), (i) such Debt is incurred in connection with the
acquisition of capital assets or sale-leaseback and similar arrangements, (ii) if such Debt is
greater than $100,000, then prior to incurring such Debt, the lender of such Debt and the Holders
shall have entered into an intercreditor agreement in form and substance

-4-

 

satisfactory to the Holders, and (iii) the aggregate amount of all such Debt shall not exceed
$300,000.

          “Permitted Liens” means the following:

               (a) Liens disclosed on Schedule 1.1(ii) hereto;

               (b) Liens securing Debt permitted under clause (c) of the definition of “Permitted Debt” so
long as such Liens do not encumber any Property other than the specific Property that was acquired
or leased and gave rise to such Debt;

               (c) encumbrances consisting of easements, rights-of-way, zoning restrictions or other
restrictions on the use of real Property or imperfections to title that do not (individually or in
the aggregate) materially impair the ability of the Company or any Company Subsidiary to use such
Property in its businesses, and none of which is violated in any material respect by existing or
proposed structures or land use;

               (d) Liens for taxes, assessments or other governmental charges (including without limitation
in connection with workers’ compensation and unemployment insurance) that are not delinquent or
which are being contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the Property subject to such Liens, and for which
adequate reserves (as determined in accordance with GAAP) have been established; and

               (e) Liens of mechanics, materialmen, warehousemen, carriers, landlords or other similar
statutory Liens securing obligations that are not yet due and are incurred in the ordinary course
of business or which are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the Property subject to such
Liens, for which adequate reserves (as determined in accordance with GAAP) have been established.

          “Permitted Payment” means, with respect to the Company’s 8% Senior Convertible Promissory
Notes, due February 12, 2011, (i) a redemption of such notes by the Company after the
Company has, following the Execution Date, consummated an issuance or a series of related issuances
of common and/or preferred equity for an aggregate of $10,000,000 in gross proceeds or more (that
is, prior to the consummation of such equity issuance, any redemption or prepayment by the Company
of such notes shall be deemed a Restricted Payment); and (ii) the conversion of such notes by the
holders thereof, provided that any such conversion is effectuated in accordance with the terms of
such notes in effect as of the Execution Date.

          “Person” means any individual, corporation, trust, association, company, partnership, joint
venture, limited liability company, joint stock company, Governmental Authority or other entity.

          “Principal Market” means the principal exchange, market or quotation system on which the
Common Stock is listed, traded or quoted.

-5-

 

          “Property” means property and/or assets of all kinds, whether real, personal or mixed,
tangible or intangible (including, without limitation, all rights relating thereto).

          “Pro Rata Share” means, with respect to a Holder as of a date of determination, the ratio
determined by dividing (x) the aggregate principal amount of the Notes held by such Holder as of
such date by (y) the aggregate principal amount of the Notes held by all of the Holders as of such
date. If no Notes are outstanding at the time of determination, Pro Rata Share shall be determined
by the Holders in their sole and absolute discretion.

          “Purchase Price” has the meaning specified in Section 2.1.

          “Qualified Issuance” has the meaning specified in Section 3.1 of this Agreement.

          “Registrable Securities” has the meaning specified in the Registration Rights Agreement.

          “Registration Rights Agreement” has the meaning specified in the recitals to this Agreement.

          “Regulation D” has the meaning specified in the recitals to this Agreement.

          “Restricted Payment” means (a) any dividend or other distribution (whether in cash, Property
or obligations), direct or indirect, on account of (or the setting apart of money for a sinking or
other analogous fund for the benefit of) any shares of any class of capital stock of the Company or
the Company Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares
of that class of stock to all of the holders of that class; (b) any redemption, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or
indirect, of any shares of any class of capital stock of the Company or any of its Affiliates now
or hereafter outstanding, except the Securities; (c) any prepayment of principal of, premium, if
any, or default interest on, or any redemption, conversion, exchange, purchase, retirement, sinking
fund or defeasance of, any Debt (whether upon acceleration of such Debt or otherwise) other than
the Notes or a Permitted Payment; and (d) any loan, advance or payment to any officer, director or
stockholder of the Company or any of its Affiliates, exclusive of reasonable compensation and
reimbursements paid to officers or directors in the ordinary course of business or pursuant to any
terms of any Material Contract in effect prior to the Execution Date.

          “Rule 144” means Rule 144 under the Securities Act or any successor provision.

          “SEC Documents” means all reports, schedules, registration statements and definitive proxy
statements filed by the Company with the Commission.

          “Securities” has the meaning specified in the recitals of this Agreement.

          “Securities Act” has the meaning specified in the recitals of this Agreement.

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          “Security Documents” means the Security Agreement, Guarantee and all other agreements,
instruments and other documents executed and delivered in connection with or in furtherance
thereof.

          “Stockholder Equity” has the meaning specified in Section 6.5 of this Agreement.

          “Subsidiary” means, with respect to any Person, any corporation or other entity of which at
least a majority of the outstanding shares of stock or other ownership interests having by the
terms thereof ordinary voting power to elect a majority of the board of directors (or Persons
performing similar functions) of such corporation or entity (regardless of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by
such Person and one or more of its Subsidiaries.

          “Termination Date” means the first date on which there are no Notes outstanding and none of
the Holders has any further obligation to lend any additional amounts to the Company under Section
3.

          “Trading Day” means any day on which shares of Common Stock are purchased and sold on the
Principal Market.

          “Transaction Documents” means (i) this Agreement, (ii) the Notes, (iii) the Warrant, (iv) the
Registration Rights Agreement, (v) the Security Documents and (vi) all other agreements, documents
and other instruments executed and delivered by or on behalf of the Company, the Company
Subsidiaries or any of their respective officers on the Closing Date, on any Drawdown Date or
otherwise in connection with this Agreement.

          “Warrant” has the meaning specified in the recitals to this Agreement.

          “Warrant Shares” has the meaning specified in the recitals to this Agreement.

     1.2 Other Definitional Provisions. All definitions contained in this Agreement are
equally applicable to the singular and plural forms of the terms defined. The words “hereof”,
“herein” and “hereunder” and words of similar import contained in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.

2. PURCHASE AND SALE OF THE INITIAL NOTE AND WARRANT.

     2.1 Purchase Price; Closing. Upon the terms and subject to the satisfaction or waiver
of the conditions set forth in Sections 2.2 and 2.3, the Company agrees to sell, and Imperium
agrees to purchase, a Note in the stated principal amount of $552,356.53 and the Warrant for the
purchase price of $500,000 (the “Purchase Price”). The closing of such purchase and sale is
hereinafter referred to as the “Closing”, and the date on which the Closing occurs is hereinafter
referred to as the “Closing Date”. The Closing will be deemed to occur at the offices of
Mazzeo Song & Bradham LLP, 708 Third Avenue, 19th Floor, New York, New York 10017, when
each of the conditions to the Closing described in Sections 2.2 and 2.3 has been satisfied or
waived as specified therein.

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     2.2 Conditions to Imperium’s Obligations at the Closing. Imperium’s obligation to
effect the Closing, including, without limitation, its obligation to purchase the Securities at the
Closing, are conditioned upon the fulfillment (or waiver by Imperium in its sole and absolute
discretion) of each of the following events as of the Closing Date, and the Company shall use
commercially reasonable efforts to cause each of such conditions to be satisfied:

	 	2.2.1	 	the representations and warranties of the Company set forth in
this Agreement and in the other Transaction Documents shall be true and correct
in all material respects as of such date as if made on such date (except that
to the extent that any such representation or warranty relates to a particular
date, such representation or warranty shall be true and correct in all material
respects as of that particular date);
	 
	 	2.2.2	 	the Company shall have complied with or performed in all
material respects all of the agreements, obligations and conditions set forth
in this Agreement and in the other Transaction Documents that are required to
be complied with or performed by the Company on or before the Closing;
	 
	 	2.2.3	 	the Company shall have delivered to Imperium a certificate,
signed by the Secretary of the Company and each Company Subsidiary, certifying
true, complete and accurate copies of (i) the constituent organizational
documents of each such entity, each as amended through the Closing Date, and
(ii) the resolutions passed by the board of directors or similar governing body
of each such entity authorizing the execution, delivery and performance of the
Transaction Documents to which such entity is a party;
	 
	 	2.2.4	 	the Company shall have delivered to Imperium copies of (i) the
executed Note and Warrant being purchased, (ii) the executed signature pages of
the Company and Company Subsidiaries to each of the other Transaction Documents
to which they are a party, and (iii) the certificates and instruments
representing all of the stock, notes and other securities required to be
pledged by the Company and the Company Subsidiaries under the Security
Agreement;
	 
	 	2.2.5	 	the Company’s counsel shall have confirmed that it has in its
possession the originals of each of the documents specified in Section 2.2.4,
and such counsel shall have confirmed that all such originals will be delivered
to Imperium or its counsel no later than the Business Day immediately following
the Closing Date;
	 
	 	2.2.6	 	the Company shall have delivered to Imperium a legal opinion
of its outside counsel covering the matters set forth on Exhibit F hereto

-8-

 

	 	 	 	and such opinion shall be in form and substance reasonably satisfactory to Imperium;
	 
	 	2.2.7	 	Imperium shall have satisfactorily completed its due diligence
of the Company; and
	 
	 	2.2.8	 	the expenses payable by the Company to Imperium and described
in Section 7.10 shall have been netted out of the Purchase Price payable by
Imperium.

     2.3 Conditions to Company’s Obligations at the Closing. The Company’s obligations to
effect the Closing with Imperium are conditioned upon the fulfillment (or waiver by the Company in
its sole and absolute discretion) of each of the following events as of the Closing Date:

	 	2.3.1	 	the representations and warranties of Imperium set forth in
this Agreement and in the other Transaction Documents to which it is a party
shall be true and correct in all material respects as of such date as if made
on such date (except that to the extent that any such representation or
warranty relates to a particular date, such representation or warranty shall be
true and correct in all material respects as of that date);
	 
	 	2.3.2	 	Imperium shall have complied with or performed all of the
agreements, obligations and conditions set forth in this Agreement that are
required to be complied with or performed by Imperium on or before the Closing;
	 
	 	2.3.3	 	there shall be no injunction, restraining order or decree of
any nature of any court or Governmental Authority of competent jurisdiction
that is in effect that restrains or prohibits the consummation of the
transactions contemplated hereby and by the other Transaction Documents;
	 
	 	2.3.4	 	Imperium shall have executed each Transaction Document to
which it is a party and shall have delivered the same to the Company; and
	 
	 	2.3.5	 	Imperium shall have wire transferred to the Company’s account,
in immediately available funds, an aggregate amount equal to $500,000 (net of
the expenses payable by the Company with respect to the Closing under Section
7.10).

3. DRAWDOWN FACILITY.

     3.1  Commitment; Tranches.

-9-

 

          (a) The Company shall sell to the Holders, and the Holders shall purchase from the Company
(the “Drawdown Commitment”), up to an additional $1,657,069.59 in aggregate stated principal amount
of the Notes in accordance with this Section 3. Such sale and purchase of Notes shall be made in
three equal tranches of $552,356.53 (each such tranche, a “Drawdown”), and the Drawdowns shall be
consummated on April 24, 2008, May 24, 2008 and June 24, 2008 (each, a “Drawdown Date”).
Notwithstanding the foregoing, if the Company consummates an issuance or a series of related
issuances of common and/or preferred equity for an aggregate of $5,000,000 or more (a “Qualified
Issuance”), then effective as of the date on which such equity issuance is consummated, the (i)
aggregate stated principal amount of the Notes sold at any future Drawdown (if any) shall be
reduced from $552,356.53 to $546,903.40; (ii) the accretion rate at which the Notes sold at any
future Drawdown (if any) shall be reduced from an annual rate of ten percent (10.0%) to nine
percent (9.0%); (iii) the accretion rate of the Notes then outstanding shall thereafter be reduced
from an annual rate of ten percent (10.0%) to nine percent (9.0%); and (iv) if such Qualified
Issuance is consummated on or prior to October 31, 2008, the Company shall have the right to extend
the maturity date of each Note by an additional 12 months by giving notice thereof to the Holders
within five Business Days of the date on which such Qualified Issuance is consummated. In
furtherance of the foregoing sentence, the Company shall promptly execute and deliver replacement
Notes with the reduced accretion rate and stated principal (and, if applicable, the extended
maturity date and the stated principal after giving effect to such extended maturity date) to the
Holders of the Notes then outstanding.

          (b) The Company and the Holders acknowledge and agree that for each Drawdown: (i) the
aggregate purchase price for the Notes in such Drawdown shall be $500,000 (the “Drawdown Purchase
Price”); and (ii) the Company shall be obligated to sell to each Holder, and each Holder shall be
obligated to purchase from the Company, such Holder’s Pro Rata Share of the Notes subject to such
Drawdown upon the satisfaction or waiver of the conditions set forth in Sections 3.2 and 3.3.

          (c) Notwithstanding the foregoing, (i) the Company may elect to terminate a scheduled Drawdown
by notifying the Holders thereof at least 10 days prior to the applicable Drawdown Date (any such
termination notice to be irrevocable, provided such termination shall not affect the parties
remaining Drawdown Commitment), and (ii) if there is a new Holder, and the Company has not been
notified of such new Holder at least 15 days prior to a Drawdown Date, then the Company shall not
be obligated to sell any Notes to such new Holder on such Drawdown Date, and if the other Holders
elect not to purchase all of the Notes being sold on such Drawdown Date, the Company shall not be
obligated to go forward with such Drawdown.

     3.2 Conditions to Each Holder’s Obligation on a Drawdown Date. Each Holder’s
obligation to purchase a Note in connection with a Drawdown is conditioned upon the fulfillment (or
waiver by such Holder in its sole and absolute discretion) of each of the following events as of
the applicable Drawdown Date:

	 	3.2.1	 	the representations and warranties of the Company set forth in
this Agreement and in the other Transaction Documents shall be true and
correct in all material respects as of such Drawdown Date as if made
on such date (except (i) that to the extent that any such
representation

-10-

 

	 	 	 	or warranty relates to a particular date, such
representation or warranty shall be true and correct in all material
respects as of that particular date, and (ii) for such changes to
Schedules 5.5(a), (b) and (c) as a result of the issuances of
securities following the Execution Date);
	 
	 	3.2.2	 	the Company shall have complied with or performed in all
material respects all of the agreements, obligations and conditions set forth
in this Agreement and in the other Transaction Documents that are required to
be complied with or performed by the Company on or before such Drawdown Date;
	 
	 	3.2.3	 	no Event of Default shall have occurred and be continuing;
	 
	 	3.2.4	 	the Company shall have delivered to such Holder a certificate,
signed by the Chief Executive Officer and Chief Financial Officer of the
Company, certifying that the conditions specified in this Section 3.2 have been
fulfilled as of such date, it being understood that such Holder may rely on
such certificate as though it were a representation and warranty of the Company
made herein;
	 
	 	3.2.5	 	there shall have occurred no material adverse change in the
Company’s consolidated business or financial condition since the later of (i)
the Execution Date and (ii) the most recent prior Drawdown Date; and
	 
	 	3.2.6	 	there shall be no injunction, restraining order or decree of
any nature of any court or Governmental Authority of competent jurisdiction
that is in effect that restrains or prohibits the sale of such Note.

     3.3 Conditions to Company’s Obligation on a Drawdown Date. The Company’s obligation
to sell a Note to a Holder in connection with a Drawdown is conditioned upon the fulfillment (or
waiver by the Company in its sole and absolute discretion) of each of the following events as of
the applicable Drawdown Date:

	 	3.3.1	 	the representations and warranties of such Holder set forth in
this Agreement and in the other Transaction Documents to which it is a party
shall be true and correct in all material respects as of such Drawdown Date as
if made on such date (except that to the extent that any such representation or
warranty relates to a particular date, such representation or warranty shall be
true and correct in all material respects as of that date);
	 
	 	3.3.2	 	such Holder shall have complied with or performed all of the
agreements, obligations and conditions set forth in this Agreement

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	 	 	 	that are
required to be complied with or performed by such Holder on or before such
Drawdown Date;
	 
	 	3.3.3	 	there shall be no injunction, restraining order or decree of
any nature of any court or Governmental Authority of competent jurisdiction
that is in effect that restrains or prohibits the sale of such Note; and
	 
	 	3.3.4	 	such Holder shall have wire transferred to the Company’s
account, in immediately available funds, an amount equal to such Holder’s Pro
Rata Share of the Drawdown Purchase Price.

4. REPRESENTATIONS AND WARRANTIES OF EACH HOLDER.

     Each Holder (with respect to itself only) hereby represents and warrants to the Company and
agrees with the Company that, as of the Execution Date:

     4.1 Authorization; Enforceability. Such Holder, if an entity, is duly and validly
organized, validly existing and in good standing under the laws of its jurisdiction of formation
with the requisite corporate power and authority to purchase the Securities to be purchased by it
hereunder and to execute and deliver this Agreement and the other Transaction Documents to which it
is a party. This Agreement constitutes, and upon execution and delivery thereof, each other
Transaction Document to which such Holder is a party will constitute, such Holder’s valid and
legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of
general application relating to or affecting the enforcement of creditors’ rights generally and
(ii) general principles of equity.

     4.2 Accredited Investor. Such Holder (i) is an “accredited investor” as that term is
defined in Rule 501 of Regulation D, (ii) was not formed or organized for the specific purpose of
making an investment in the Company, and (iii) is acquiring the Securities solely for its own
account and not with a present view to the public resale or distribution of all or any part
thereof, except pursuant to sales that are registered under, or exempt from the registration
requirements of, the Securities Act and/or sales registered under the Securities Act; provided,
however, that in making such representation, such Holder does not agree to hold the Securities for
any minimum or specific term and reserves the right to sell, transfer or otherwise dispose of the
Securities at any time in accordance with the provisions of this Agreement and with federal and
state securities laws applicable to such sale, transfer or disposition. Such Holder can bear the
economic risk of a total loss of its investment in the Securities and has such knowledge and
experience in business and financial matters so as to enable it to understand the risks of and form
an investment decision with respect to its investment in the Securities.

     4.3 Information. The Company has, prior to the date on which it is purchasing
Securities under this Agreement, provided to such Holder with information regarding the business,
operations and financial condition of the Company and has, prior to the date on which
it is purchasing Securities under this Agreement, granted such Holder the opportunity to ask
questions of and receive answers from representatives of the Company, its officers, directors,
employees and

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agents concerning the Company in order for such Holder to make an informed decision
with respect to its investment in such Securities. Neither such information nor any other
investigation conducted by such Holder or any of its representatives shall modify, amend or
otherwise affect such Holder’s right to rely on the Company’s representations and warranties
contained in this Agreement.

     4.4 Limitations on Disposition. Such Holder acknowledges that, except as provided in
the Registration Rights Agreement, the Securities have not been and are not being registered under
the Securities Act and may not be transferred or resold without registration under the Securities
Act or unless pursuant to an exemption therefrom.

     4.5 Legend. Such Holder understands that the certificates representing the Warrant
and Warrant Shares may bear at issuance a restrictive legend in substantially the following form:

“The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the “Securities Act”), or any
state securities laws, and may not be offered for sale or sold unless a
registration statement under the Securities Act and applicable state
securities laws shall have become effective with respect thereto, or an
exemption from registration under the Securities Act and applicable state
securities laws is available in connection with such offer or sale. These
securities [and the securities issuable hereunder] (i) may be pledged or
hypothecated in connection with a bona fide margin account or other
financing secured by such securities or (ii) may be transferred or assigned
to an affiliate of the holder hereof without the necessity of an opinion of
counsel or the consent of the issuer hereof.”

Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including,
without limitation, a pledge) of any of the Securities is registered pursuant to an effective
registration statement, (B) such Securities have been sold pursuant to Rule 144, subject to receipt
by the Company of customary documentation reasonably acceptable to the Company in connection
therewith, or (C) such Securities are eligible for resale under Rule 144(k) or any successor
provision, such Securities shall be issued without any legend or other restrictive language and,
with respect to Securities upon which such legend is stamped, the Company shall issue new
certificates without such legend to the holder upon request. The Company shall execute and deliver
written instructions to the transfer agent for its Common Stock as may be necessary to satisfy any
request by a Holder for removal of such legends no later than the close of business on the third
(3rd) Business Day following the receipt of the request from a Holder to the extent such
legends may be removed in accordance with this Section 4.5 or otherwise.

     4.6 Reliance on Exemptions. Such Holder understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the registration requirements of
federal and state securities laws and that the Company is relying upon the truth and accuracy of
the representations and warranties of such Holder set forth in this Section 4 in order to determine
the availability of such exemptions and the eligibility of such Holder to acquire the
Securities. Such Holder acknowledges that it did not purchase the Securities based upon any
advertisement in any publication of general circulation. Such Holder is relying on the
representations, acknowledgements and agreements made by the Company in Section 5 and elsewhere in
this

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Agreement in making investing, trading and/or other decisions concerning the Company’s
securities.

     4.7 Non-Affiliate Status; Common Stock Ownership. Such Holder is not an Affiliate of
the Company and is not acting in association or concert with any other Person in regard to its
purchase of the Securities or otherwise in respect of the Company. Such Holder’s investment in the
Securities is not for the purpose of acquiring, directly or indirectly, control of, and it has no
intent to acquire or exercise control of, the Company or to influence the decisions or policies of
the Board of Directors.

     4.8 Fees. Such Holder has not agreed to pay any compensation or other fee, cost or
related expenditure to any underwriter, broker, agent or other representative in connection with
the transactions contemplated hereby.

     4.9 No Conflicts. The execution and performance of this Agreement and the other
Transaction Documents to which such Holder is a party do not conflict in any material respect with
any agreement to which such Holder is a party or is bound, any court order or judgment applicable
to such Holder, or the constituent documents of such Holder.

     4.10 No Governmental Review. Such Holder understands that no federal or state agency
or any other Governmental Authority has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of an investment in the Securities nor have such
authorities passed upon the accuracy of any information provided to such Holder or made any
findings or determinations as to the merits of the offering of the Securities.

5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and
warrants to each Holder and agrees with such Holder that, as the of the Execution Date:

     5.1 Organization, Good Standing and Qualification. Each of the Company and Company
Subsidiaries is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power and authority to
carry on its business as now conducted. Each of the Company and Company Subsidiaries is duly
qualified to transact business and is in good standing in each jurisdiction in which it conducts
business except where the failure so to qualify has not had or would not reasonably be expected to
have a Material Adverse Effect.

     5.2 Authorization; Consents. The Company has the requisite corporate power and
authority to enter into and perform its obligations under the Transaction Documents, including,
without limitation, the issuance and sale of the Securities to the Holders in accordance with the
terms hereof and thereof. All corporate action on the part of the Company necessary for the
authorization, execution and delivery of, and the performance by the Company of its obligations
under, the Transaction Documents to which the Company is a party has been taken, and no further
consent or authorization of any Person (including, without limitation, any of the Company’s
directors or shareholders or any Governmental Authority (other than such approval as may be
required under the Securities Act and applicable state laws in respect of the Registration Rights
Agreement and the filing of a Form D under the Securities Act) is required under any organizational

-14-

 

document, Material Contract, Governmental Requirement or otherwise. The Board of Directors has
determined that the sale and issuance of the Securities, and the consummation of the transactions
contemplated hereby and by the other Transaction Documents, are in the best interests of the
Company.

     5.3 Enforcement. This Agreement has been and, at or prior to the Closing or a
Drawdown Date, each other Transaction Document required to be delivered by the Company at the
Closing or such Drawdown Date will be, duly executed and delivered by the Company. This Agreement
constitutes and, upon the execution and delivery thereof by the Company, each other Transaction
Documents will constitute, the valid and legally binding obligation of the Company, enforceable
against the Company in accordance with their respective terms, subject to (i) applicable
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of
general application relating to or affecting the enforcement of creditors’ rights generally and
(ii) general principles of equity.

     5.4 Disclosure Documents; Agreements; Financial Statements; Other Information. The
Company is subject to the reporting requirements of the Exchange Act and, except as described on
Schedule 5.4, the Company has filed with the Commission all SEC Documents that the Company was
required to file with the Commission on or after December 31, 2006. The Company is not aware of
any event occurring or expected to occur on or prior to the Closing Date (other than the
transactions effected hereby) that would require the filing of, or with respect to which the
Company intends to file, a Form 8-K after the Closing. Each SEC Document filed on or after
December 31, 2006, as of the date of the filing thereof with the Commission (or if amended or
superseded by a filing prior to the Execution Date, then on the date of such amending or
superseding filing), complied in all material respects with the requirements of the Securities Act
or Exchange Act, as applicable, and, as of the date of such filing (or if amended or superseded by
a filing prior to the Execution Date, then on the date of such filing), such SEC Document
(including all exhibits and schedules thereto and documents incorporated by reference therein) did
not contain an untrue statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All documents required to be filed as exhibits to the SEC
Documents filed on or after December 31, 2006 have been filed as required. Except as set forth in
the Disclosure Documents, the Company has no liabilities, contingent or otherwise, other than
liabilities incurred in the ordinary course of business which, individually or in the aggregate,
are not material to the consolidated business or financial condition of the Company and the Company
Subsidiaries. As of their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with GAAP consistently applied at the times
and during the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial
position of the Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to normal year-end
adjustments). The Company will prepare the financial statements to be included in any reports,
schedules, registration statements and definitive proxy statements that the Company is required to

-15-

 

file or files with the Commission after the date hereof in accordance with GAAP (except in the case
of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or
summary statements).

     5.5 Capitalization; Subsidiaries; Outstanding Debt.

          (a) The capitalization of the Company, including its authorized capital stock, the number of
shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company’s stock option plans and agreements, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Securities) payable in, exercisable for, or
convertible into or exchangeable for any shares of Common Stock is set forth on Schedule 5.5(a).
All outstanding shares of capital stock of the Company have been, or upon issuance will be, validly
issued, fully paid and non-assessable.

          (b) All of the Company Subsidiaries are disclosed on Schedule 5.5(b). Except as disclosed on
Schedule 5.5(b), the Company or a wholly-owned Company Subsidiary owns all of the capital stock of
each Company Subsidiary, which capital stock is validly issued, fully paid and non-assessable, and
no shares of the capital stock of the Company or any Company Subsidiary are subject to preemptive
rights or any other similar rights of the shareholders of the Company or any such Company
Subsidiary or any Liens created by or through the Company or any such Company Subsidiary.

          (c) Except as disclosed on Schedule 5.5(c) or as contemplated herein, there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any Company Subsidiary, or arrangements by which the
Company or any Company Subsidiary is or may become bound to issue additional shares of capital
stock of the Company or any Company Subsidiary (whether pursuant to anti-dilution, “reset” or other
similar provisions).

          (d) Schedule 5.5(d) identifies each individual item of Debt of the Company and/or any Company
Subsidiary currently outstanding in excess of $25,000 as of the date hereof.

     5.6 Due Authorization; Valid Issuance. The Securities are duly authorized and, when
issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly
issued, free and clear of any Liens imposed by or through the Company. Assuming the accuracy of
each Holder’s representations contained herein, the issuance and sale of the Securities under this
Agreement will be effected in compliance with all applicable federal and state securities laws.

     5.7 Form S-1. The Company is eligible to register the Registrable Securities for
resale in a secondary offering by each Holder on a registration statement on Form S-1
under the Securities Act, or any successor form thereof. To the Company’s knowledge, as of the
date hereof and as of the Closing Date, there exist no facts or circumstances (including, without
limitation, any required approvals or waivers of any circumstances that may delay or prevent the
obtaining of accountant’s consents) that could reasonably be expected to prohibit or delay the
preparation, filing or effectiveness of such registration statement on Form S-1or any successor
form thereof.

-16-

 

     5.8 No Conflict. Neither the Company nor any Company Subsidiary is in violation of
any provisions of its certificate or articles of incorporation, bylaws or any other organizational
document. Neither the Company nor any Company Subsidiary is in violation of or in default (and no
event has occurred which, with notice or lapse of time or both, would constitute a default) under
any provision of any instrument or contract to which it is a party or by which it or any of its
Property is bound, or in violation of any provision of any Governmental Requirement applicable to
the Company or any Company Subsidiary, except for any violation or default that has not had or
would not reasonably be expected to have a Material Adverse Effect. The (i) execution, delivery
and performance of this Agreement and the other Transaction Documents and (ii) consummation of the
transactions contemplated hereby and thereby will not result in any violation of any provisions of
the Company’s certificate of incorporation, bylaws or any other organizational document or in a
default under any provision of any Material Contract, or in violation of any provision of any
Governmental Requirement applicable to the Company or be in conflict with or constitute, with or
without the passage of time and giving of notice, a default under any Material Contract or the
triggering of any preemptive or anti-dilution rights (including, without limitation, pursuant to
any “reset” or similar provisions) or rights of first refusal or first offer, or any other rights
that would allow or permit the holders of the Company’s securities or any other Person to purchase
shares of Common Stock or other securities of the Company or any Company Subsidiary (whether
pursuant to a shareholder rights plan provision or otherwise).

     5.9 Financial Condition; Taxes; Litigation.

          5.9.1 The financial condition of each of the Company and Company Subsidiaries is, in all
material respects, as described in the Disclosure Documents, except for changes in the ordinary
course of business and normal year-end adjustments that are not, in the aggregate, materially
adverse to the consolidated business or financial condition of the Company and the Company
Subsidiaries. There has been no (i) material adverse change to the business, operations,
properties, financial condition, prospects or results of operations of the Company and any Company
Subsidiary since the date of the Company’s most recent financial statements contained in the
Disclosure Documents, (ii) material adverse change to the Company’s cash balances or cash flows
during the 90 days preceding the date hereof, or (iii) change by the Company in its accounting
principles, policies and methods except as required by changes in GAAP.

          5.9.2 Each of the Company and Company Subsidiaries has prepared in good faith and duly and
timely filed all tax returns required to be filed by it and such returns are complete and accurate
in all material respects and each of the Company and Company Subsidiaries has paid all taxes
required to have been paid by it, except for taxes which it reasonably disputes in good faith or
the failure of which to pay has not had or would not reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any Company Subsidiary has any liability with respect to
taxes that accrued on or before the date of the most recent balance sheet of the Company included
in
the Disclosure Documents in excess of the amounts accrued with respect thereto that are reflected
on such balance sheet.

          5.9.3 Except for sales tax audits undertaken by state taxing authorities in the ordinary
course of business, neither the Company nor any Company Subsidiary is the subject of any

-17-

 

pending
or, to the Company’s knowledge, threatened inquiry, investigation or administrative or legal
proceeding by any Governmental Authority.

          5.9.4 There is no material claim, litigation or administrative proceeding pending, or, to the
Company’s knowledge, threatened or contemplated, against the Company or any Company Subsidiary, or
against any officer, director or employee of the Company or any such Company Subsidiary in
connection with such Person’s employment therewith. Neither the Company nor any Company Subsidiary
is a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of
any court or Governmental Authority which has had or would reasonably be expected to have a
Material Adverse Effect.

     5.10 Manipulation of Price. The Company has not, and to its knowledge no one acting
on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to facilitate the sale or
resale of any of the Securities.

     5.11 Intellectual Property.

          (a) Except as disclosed on Schedule 5.11(a), each of the Company and Company Subsidiaries
owns, free and clear of claims or rights of any other Person, with full right to use, sell,
license, sublicense, dispose of, and bring actions for infringement of, or, to the knowledge of the
Company, has acquired licenses or other rights to use, all Intellectual Property necessary for the
conduct of its business as presently conducted (other than with respect to software which is
generally commercially available and not used or incorporated into the Company’s or such Company
Subsidiary’s products and open source software which may be subject to one or more “general public”
licenses). All works that are used or incorporated into the Company’s or any Company Subsidiary’s
services, products or services or products actively under development and which is proprietary to
the Company or such Company Subsidiary was developed by or for the Company or a Company Subsidiary
by the current or former employees, consultants or independent contractors of the Company or a
Company Subsidiary or purchased or licensed by the Company or a Company Subsidiary.

          (b) The business of each of the Company and Company Subsidiaries as presently conducted and
the production, marketing, licensing, use and servicing of any products or services of each of the
Company and Company Subsidiaries do not, to the knowledge of the Company, infringe or conflict with
any patent, trademark, copyright, or trade secret rights of any third parties or any other
Intellectual Property of any third parties in any material respect. Neither the Company nor any
Company Subsidiary has received written notice from any third party asserting that any Intellectual
Property owned or licensed by the Company or a Company Subsidiary, or which the Company or any
Company Subsidiary otherwise has the right to use, is
invalid or unenforceable by the Company or such Company Subsidiary and, to the Company’s
knowledge, there is no valid basis for any such claim (whether or not pending or threatened).

          (c) No claim is pending or, to the Company’s knowledge, threatened against the Company or any
Company Subsidiary nor has the Company or any Company Subsidiary received any written notice or
other written claim from any Person asserting that the Company’s or any

-18-

 

Company Subsidiary’s
present or contemplated activities infringe or may infringe in any material respect any
Intellectual Property of such Person, and the Company is not aware of any infringement by any other
Person of any material rights of the Company or any Company under any Intellectual Property Rights.

          (d) All licenses or other agreements under which the Company or any Company Subsidiary is
granted Intellectual Property (excluding licenses to use software utilized in the Company’s or such
Company Subsidiary’s internal operations and which is generally commercially available) are in full
force and effect and, to the Company’s knowledge, there is no material default by any party
thereto. The Company has no reason to believe that the licensors under such licenses and other
agreements do not have and did not have all requisite power and authority to grant the rights to
the Intellectual Property purported to be granted thereby.

          (e) All licenses or other agreements under which the Company or any Company Subsidiary has
granted rights to Intellectual Property to others (including all end-user agreements) are in full
force and effect, there has been no material default by the Company or any Company Subsidiary
thereunder and, to the Company’s knowledge, there is no material default of any provision thereof
relating to Intellectual Property by any other party thereto.

          (f) Each of the Company and Company Subsidiaries has taken all steps required in accordance
with commercially reasonable business practice to establish and preserve their ownership in their
owned Intellectual Property and to keep confidential all material technical information developed
by or belonging to the Company or such Company which has not been patented or copyrighted. To the
Company’s knowledge, neither the Company nor any Company Subsidiary is making any unlawful use of
any Intellectual Property of any other Person, including, without limitation, any former employer
of any past or present employees of the Company or any Company Subsidiary. To the Company’s
knowledge, neither the Company, any Company Subsidiary nor any of their respective employees has
any agreements or arrangements with former employers of such employees relating to any Intellectual
Property of such employers, which materially interfere or conflict with the performance of such
employee’s duties for the Company or any Company Subsidiary or result in any former employers of
such employees having any rights in, or claims on, the Company’s or any Company Subsidiary’s
Intellectual Property. Each current employee of each of the Company and Company Subsidiaries who
has access to material Intellectual Property has executed agreements regarding confidentiality,
proprietary information and assignment of inventions and copyrights to the Company or such Company
Subsidiary, as the case may be, each independent contractor or consultant of each of the Company
and Company Subsidiaries has executed agreements regarding confidentiality and proprietary
information, and neither the Company nor any Company Subsidiary has received written notice that
any employee, consultant or independent contractor is in violation of any agreement or in breach of
any agreement or arrangement with former or present employers relating to proprietary information
or assignment
of inventions. Without limiting the foregoing: (i) each of the Company and Company
Subsidiaries has taken reasonable security measures to guard against unauthorized disclosure or use
of any of its Intellectual Property that is confidential or proprietary; and (ii) the Company has
no reason to believe that any Person (including, without limitation, any former employee or
consultant of the Company or any Company Subsidiary) has unauthorized possession of any of its
Intellectual Property, or any part thereof, or that any Person has obtained unauthorized access to
any of its

-19-

 

Intellectual Property. Each of the Company and Company Subsidiaries has complied in all
material respects with its respective obligations pursuant to all agreements relating to
Intellectual Property rights that are the subject of licenses granted by third parties, except for
any non-compliance that has not had or would not reasonably be expected to have a Material Adverse
Effect.

     5.12 Registration Rights; Rights of Participation. Except as set forth on Schedule
5.12, 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 which has not been satisfied in full or waived on or
prior to the date hereof and no Person, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, anti-dilutive right or any similar right
to participate in, or to receive securities or other assets of the Company solely as a result of
the transactions contemplated by this Agreement or the other Transaction Documents.

     5.13 Solicitation; Other Issuances of Securities. Neither the Company nor any Person
acting on its behalf, nor to the Company’s knowledge, any of its Affiliates, (i) has engaged in any
form of general solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Securities, (ii) has, directly or indirectly, made any
offers or sales of any security or the right to purchase any security, or solicited any offers to
buy any security or any such right, under circumstances that would require registration of the
Securities under the Securities Act, or (iii) has issued any shares of Common Stock or shares of
any series of preferred stock or other securities or instruments convertible into, exchangeable for
or otherwise entitling the holder thereof to acquire shares of Common Stock which would be
integrated with the sale of the Securities to the Holders for purposes of the Securities Act or of
any applicable stockholder approval provisions nor will the Company or any Affiliate take any
action or steps that would cause the offering of the Securities to be so integrated with other
offerings.

     5.14 Fees. Except as set forth on Schedule 5.14, the Company is not obligated to pay
any brokers, finders or financial advisory fees or commissions to any underwriter, broker, agent or
other representative in connection with the transactions contemplated hereby. The Company will
indemnify and hold harmless each Holder from and against any claim by any Person alleging that such
Holder is obligated to pay any such compensation, fee, cost or related expenditure in connection
with the transactions contemplated hereby.

     5.15 Foreign Corrupt Practices. Neither the Company, any Company Subsidiary nor, to
the knowledge of the Company, any director, officer, agent, employee or other Person acting on
behalf of the Company or any Company Subsidiary, has (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to political activity, (ii)
made any direct or indirect unlawful payment to any foreign or domestic government official or
employee, or (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended,
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.

     5.16 Key Employees. The “executive officers” (as defined in Rule 501(f) of the
Securities Act) of each of the Company and Company Subsidiaries (each, a “Key Employee”) is

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currently serving in the capacity described in the Disclosure Documents. The Company has no
knowledge of any fact or circumstance (including, without limitation, (i) the terms of any
agreement to which such person is a party or any litigation in which such person is or may become
involved and (ii) any illness or medical condition that could reasonably be expected to result in
the disability or incapacity of such person) that would limit or prevent any such person from
serving in such capacity on a full-time basis in the reasonably foreseeable future, or of any
intention on the part of any such person to limit or terminate his or her employment with the
Company or any Company Subsidiary.

     5.17 Labor Matters. There is no strike, labor dispute or union organization
activities pending or, to the knowledge of the Company, threatened between the Company or any
Company Subsidiary and their respective employees. No employees of the Company or any Company
Subsidiary belong to any union or collective bargaining unit. Each of the Company and Company
Subsidiaries has complied in all material respects with all applicable federal and state equal
opportunity and other laws related to employment.

     5.18 Environment. Neither the Company nor any Company Subsidiary has any liabilities
under any Environmental Law, nor, to the Company’s knowledge, do any factors exist that are
reasonably likely to give rise to any such liability, affecting any of the properties owned or
leased by the Company or any Company Subsidiary, in each case other than liabilities that have not
had and would not reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any Company Subsidiary has violated any Environmental Law applicable to it now or previously in
effect, other than any violation that has not had and would not reasonably be expected to have a
Material Adverse Effect.

     5.19 ERISA. Neither the Company nor any Company Subsidiary maintains or contributes
to, or has any obligation under, any pension plan. Each of the Company and Company Subsidiaries is
in compliance in all material respects with the presently applicable provisions of ERISA and the
United States Internal Revenue Code of 1986, as amended, with respect to each pension plan except
in any such case for any such matters that, individually or in the aggregate, have not had, and
would not reasonably be expected to have, a Material Adverse Effect.

     5.20 Insurance. The Company maintains insurance for itself and each Company
Subsidiary in such amounts and covering such losses and risks as are reasonably sufficient and
customary in the businesses in which the Company and each such Company Subsidiary are engaged. As
of the date hereof and as of the Closing Date, no notice of cancellation has been received for any
of such policies and the Company is in compliance in all material respects with all of the terms
and conditions thereof. The Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue to conduct its business as
currently conducted without a significant increase in cost. Without limiting the generality
of the foregoing, the Company maintains Director’s and Officer’s insurance in such amounts and
covering such losses and risks that are customary for businesses that are reasonably comparable to
the Company.

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     5.21 Property. Each of the Company and Company Subsidiaries has good and marketable
title to all real and personal Property owned by it, in each case free and clear of all Liens,
other than the Permitted Liens. Any Property held under lease by the Company or a Company
Subsidiary is held by it under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made or proposed to be made of such Property by the
Company or such Company Subsidiary.

     5.22 Regulatory Permits. Each of the Company and Company Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct its business, except where the failure to have any such
certificate, authorization or permit would not have a Material Adverse Effect, and neither the
Company nor any Company Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.

     5.23 Investment Company. Neither the Company nor any Company Subsidiary is and, after
giving effect to the offering and sale of the Securities and the application of the proceeds
thereof, will become an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for an investment company, within the meaning of the Investment Company Act
of 1940, as amended.

     5.24 U.S. Real Property Holding Corporation. The Company is not, nor has ever been, a
U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended.

     5.25 Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.

     5.26 Money Laundering. The operations of the Company and the Company Subsidiaries are
and have been conducted at all times in compliance with applicable financial record-keeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended,
applicable money laundering statutes and applicable rules and regulations thereunder, and no
action, suit or proceeding by or before any Governmental Authority involving the Company or any of
the Company Subsidiaries with respect to such Governmental Requirements is pending or, to the
knowledge of the Company, threatened.

     5.27 Transfer Taxes. No stock transfer or other taxes (other than income taxes) are
required to be paid in connection with the issuance and sale of any of the Securities, other than
such taxes for which the Company has established appropriate reserves and intends to pay in full on
or before the Closing.

     5.28 Sarbanes-Oxley Act; Internal Controls and Procedures. To the Company’s
knowledge, the Company is in material compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002, as amended, and any and all applicable rules and regulations
promulgated by the Commission thereunder that are effective as of the date hereof. The

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Company
maintains internal accounting controls, policies and procedures, and such books and records as are
reasonably designed to provide reasonable assurance that (i) all transactions to which the Company
or any Company Subsidiary is a party or by which its properties are bound are effected by a duly
authorized employee or agent of the Company, supervised by and acting within the scope of the
authority granted by the Company’s senior management; (ii) the recorded accounting of the Company’s
consolidated assets is compared with existing assets at regular intervals; and (iii) all
transactions to which the Company or any Company Subsidiary is a party, or by which its properties
are bound, are recorded (and such records maintained) in accordance with all Governmental
Requirements and as may be necessary or appropriate to ensure that the financial statements of the
Company are prepared in accordance with GAAP.

     5.29 Embargoed Person. To the Company’s knowledge, no Person subject to trade
restrictions under United States law has any direct or indirect interest of any nature whatsoever
in the Company or any Company Subsidiary that could render the investments evidenced by the
Securities a violation of any Governmental Requirements.

     5.30 Transactions with Interested Persons. Except as disclosed on Schedule 5.30, no
officer, director or employee of the Company or any Company Subsidiary is, or has made any
arrangements with the Company or any Company Subsidiary to become, a party to any transaction with
the Company or any Company 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.

     5.31 Customers and Suppliers. The relationships of each of the Company and Company
Subsidiaries with its customers and suppliers are maintained on commercially reasonable terms. To
the Company’s knowledge, no customer or supplier of the Company or a Company Subsidiary has any
plan or intention to terminate its agreement with the Company or such Company Subsidiary, which
termination would reasonably be expected to have a Material Adverse Effect.

     5.32 Accountants. The Company’s accountants, who the Company expects will render
their opinion with respect to the financial statements to be included in the Company’s Annual
Report on Form 10-KSB for the year ended December 31, 2007, are, to the Company’s knowledge,
independent accountants as required by the Securities Act.

     5.33 Solvency. (i) The fair saleable value of the Company’s assets exceeds the amount
that will be required to be paid on or in respect of the Company’s existing Debt; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its business as now
conducted and as proposed to be conducted; and (iii) the expected cash flows of the Company for
future periods, together with the proceeds the Company would receive upon liquidation of its
assets and the proceeds from expected debt or equity offerings, after taking into account all
anticipated uses of such amounts, would be sufficient to pay all Debt when such Debt is required to
be paid. The Company has no knowledge of any facts or circumstances which lead it to

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believe that
it will be required to file for reorganization or liquidation under bankruptcy or reorganization
laws of any jurisdiction, and has no present intention to so file.

     5.34 Acknowledgement of Dilution. The Company acknowledges that the issuance of the
Warrant Shares upon exercise of the Warrants may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligation to issue the Warrant Shares in accordance with the terms
of the Warrants shall not be affected, regardless of the effect of any such dilution. The Company
further acknowledges that, to the extent not otherwise prohibited by the terms of this Agreement,
each Holder may enter into hedging transactions with respect to the Common Stock and that such
sales or transactions may have a downward effect on the market price of the Common Stock.

     5.35 Exchange Act Registration; OTC Bulletin Board. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is quoted on the OTC Bulletin Board.
The Company currently meets the continuing eligibility requirements for quotation on the OTC
Bulleting Board and has not received any notice from such service that it may not currently satisfy
such requirements or that such continued quotation is in any way threatened. The Company has taken
no action designed to, or which, to the knowledge of the Company, may have the effect of,
terminating the registration of the Common Stock under the Exchange Act or qualification to have
the Common Stock quoted on the OTC Bulletin Board.

     5.36 Disclosure. The representations, warranties and written statements contained in
this Agreement and the other Transaction Documents and in the certificates, exhibits and schedules
delivered by the Company to the Holders pursuant to this Agreement and the other Transaction
Documents and in connection with the Holders’ due diligence investigation of the Company, do not
contain any untrue statement of a material fact, and do not omit to state a material fact required
to be stated therein or necessary in order to make such representations, warranties or statements
not misleading in light of the circumstances under which they were made. Neither the Company nor
any Person acting on its behalf or at its direction has provided any Holder with material
non-public information other than the terms of the transactions contemplated hereby. Following the
issuance of a press release in accordance with Section 6.1(c), to the Company’s knowledge, none of
the Holders will possess any material non-public information concerning the Company, other than as
set forth on Schedule 5.36. The Company acknowledges that each Holder is relying on the
representations, acknowledgments and agreements made by the Company in this Section 5.36 and
elsewhere in this Agreement in making trading and other decisions concerning the Company’s
securities.

6. COVENANTS AND AGREEMENTS.

     6.1  Filings and Public Disclosure by the Company. The Company shall:

          (a) file a Form D with respect to the Securities issued at the Closing as required under
Regulation D and provide a copy thereof to Imperium promptly after such filing;

          (b) take such action as the Company reasonably determines upon the advice of counsel is
necessary to qualify the Securities for sale under applicable state or “blue-sky” laws or

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obtain an
exemption therefrom, and shall promptly provide evidence of any such action to Imperium at
Imperium’s request; and

          (c) (i) on or prior to 8:30 a.m. (eastern time) on the Business Day following the Execution
Date, issue a press release disclosing the material terms of this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby, and (ii) on or prior to
5:00 p.m. (eastern time) on the fourth Business Day following the Execution Date, file with the
Commission a Current Report on Form 8-K disclosing the material terms of and including as exhibits
this Agreement and the other Transaction Documents and the transactions contemplated hereby and
thereby; provided, however, that Imperium shall have a reasonable opportunity (under the
circumstances) to review and comment on any such press release or Form 8-K prior to the issuance or
filing thereof; and provided, further, that if the Company fails to issue a press release
disclosing the material terms of this Agreement and the other Transaction Documents within the time
frames described herein, Imperium may issue a press release disclosing such information without any
notice to or consent by the Company. Thereafter, the Company shall timely file any filings and
notices required by the Commission or applicable law with respect to the transactions contemplated
hereby.

     6.2 Use of Proceeds. The Company shall use all of the proceeds from the sale of the
Securities for working capital purposes.

     6.3 Certain Affirmative Covenants of the Company. The Company agrees that, during the
period beginning on the Execution Date and ending on the Termination Date, the Company shall, and
shall cause each Company Subsidiary to:

          (a) maintain its corporate existence in good standing;

          (b) comply with all Governmental Requirements applicable to the operation of its business,
except for instances of noncompliance that would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;

          (c) comply with all agreements, documents and instruments binding on it or affecting its
Properties or business, including, without limitation, all Material Contracts, except for instances
of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;

          (d) provide each Holder with copies of all materials sent to its shareholders at the same time
as such materials are delivered to such shareholders;

          (e) timely file with the Commission all reports required to be filed pursuant to the Exchange
Act and refrain from terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination (and otherwise make and keep public information available, as those
terms are understood and defined in Rule 144);

          (f) ensure that the Common Stock is at all times listed or quoted on the OTC Bulletin Board,
Nasdaq Capital Market, Nasdaq Global Market, the New York Stock Exchange,

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the American Stock
Exchange, or such other exchange or quotation service reasonably satisfactory to the Holders
holding a majority of the Registrable Securities; and

          (g) maintain commercially reasonable insurance coverage (including D&O insurance) for each of
the Company and Company Subsidiaries.

     6.4 Certain Negative Covenants of the Company. The Company agrees that, during the
period beginning on the Execution Date and ending on the Termination Date, without the written
consent of the Holders, the Company shall not, and shall cause each Company Subsidiary not to:

          (a) enter into any transaction or arrangement with any employee, officer, director or
shareholder of the Company or Company Subsidiary, unless such transaction is effectuated on an
arms’ length basis and approved by the independent directors of the Company or such Company
Subsidiary, as the case may be;

          (b) incur (or permit to exist) any Debt other than Permitted Debt;

          (c) grant, establish or maintain any Lien on any of its Property other than Permitted Liens;

          (d) make any Restricted Payments other than Restricted Payments made by a Company Subsidiary
to the Company;

          (e) make any offers or sales of any security or solicit any offers to buy any security, which
will be integrated with the sale of the Securities in a manner which would require the registration
of any of the Securities under the Securities Act or require stockholder approval under the rules
and regulations of the Principal Market;

          (f) dispose of all or any part of its Property unless (i) such disposition is in the ordinary
course of business and for fair market value, and (ii) such Property is not material to the
Company’s or any Company Subsidiary’s business, operations or financial condition or performance;
or

          (g) consent to or implement any termination, amendment, modification, supplement or waiver of
the certificate or articles of incorporation, articles of organization, bylaws, regulations or
other constituent documents of the Company or any Company Subsidiary which would reasonably be
expected to adversely affect the rights of any Holder under the Transaction Documents.

     6.5 Stockholder Equity Requirement. The Company shall ensure that, during the period
beginning on the Execution Date and ending on the Termination Date, the Stockholder Equity shall at
all times equal or exceed $6,500,000. Notwithstanding the foregoing, the Company shall have
30 days to cure a breach of the foregoing requirement. As used herein, the terms below shall have
the respective meanings indicated:

     “Accounts Receivable” means, at any time of determination, all accounts receivable of
the Company (i) not including prepaid deposits, deferred revenue and

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offsets, and (ii) excluding (1) all receivables that remain unpaid for over ninety (90) days from the
respective invoice dates thereof, (2) if twenty-five percent (25%) or more of all
receivables of the Company is payable by any one debtor and its Affiliates, then all
receivables payable by such debtor and its Affiliates in excess of twenty-five percent (25%)
of the total amount of all receivables of the Company; (3) all receivables payable by any
Affiliate of the Company; (4) all receivables generated as a result of pre-billing, progress
billing, retention billing, bill and hold accounts, ship in place accounts, contra revenue
accounts or cross-aged balances; (5) all receivables of a debtor and its Affiliates if
twenty-five percent (25%) or more of all receivables payable by such debtor and its
Affiliates remain unpaid for over ninety (90) days from the respective invoice dates
thereof; and (6) all receivables payable by debtors whose principal place of business is
located outside of the United States, Canada and the member nations of the European Union.

     “Stockholder Equity” means, at any time of determination, (A) the aggregate value of
(i) all cash and cash equivalents of the Company, (ii) all Accounts Receivable of the
Company, (iii) all inventory of the Company (valued at cost and multiplied by 0.80 and
excluding the portion of all work in process inventory that is in excess of 10% of the total
inventory of the Company), and (iv) all other real and personal property and equipment
(including all intangible property and assets) of the Company net of depreciation; in each
case, as of such date of determination and without duplication minus (B) the aggregate
amount of all liabilities (including, without limitation, all Debt and all trade accounts
payable) of the Company as of such date of determination and without duplication, provided,
however, that the Company’s treatment of the Warrant, as reflected in the Company’s books
and records, shall have no impact on the determination of Stockholder Equity for purposes of
this Section 6.5.

In furtherance of the foregoing financial covenant, the Company shall, on or prior to the
30th day following each fiscal quarter following the Closing Date (or, if such fiscal
quarter is the Company’s fourth fiscal quarter, then on or prior to the 60th day
following such fiscal quarter), deliver to each Holder a certificate certified by the Chief
Financial Officer of the Company certifying (i) that at all times during such fiscal quarter, the
Company was, to such officer’s knowledge, in compliance with the foregoing financial covenant and
(ii) the actual Stockholder Equity as of the last day of such fiscal quarter.

     6.6 Use of Holder’s Name. Except as may be required by applicable law and/or this
Agreement, the Company shall not use, directly or indirectly, any Holder’s name or the name of any
of its Affiliates in any advertisement, announcement, press release or other similar communication
unless it has received the prior written consent of such Holder for the specific use contemplated
or as otherwise required by applicable law or regulation.

     6.7 Disclosure of Non-Public Information. The Company agrees that it will not at any
time following the Execution Date disclose material non-public information to any Holder without
first obtaining such Holder’s prior written consent confirming that such Holder is willing to
receive material non-public information at such time.

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     6.8 Indemnification of Holders. The Company will indemnify and hold each Holder and
its directors, managers, officers, shareholders, members, partners, employees and agents (each, a
“Holder 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 that any such Holder Party may suffer or
incur as a result of or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or by the Company or any Company
Subsidiary in the other Transaction Documents or (b) any action instituted against a Holder, or any
of its Affiliates, by any shareholder of the Company who is not an Affiliate of such Holder, with
respect to any of the transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of such Holder’s representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Holder may have with any such shareholder or any
violations by such Holder or any such Affiliate of state or federal securities laws or any conduct
by such Holder or any such Affiliate which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Holder Party in respect of which
indemnity may be sought pursuant to this Agreement, such Holder Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense thereof with counsel
of its own choosing. Any Holder Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Holder Party except to the extent that (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable
period of time following such Holder Party’s written request that it do so, to assume such defense
and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate
counsel, a material conflict on any material issue between the position of the Company and the
position of such Holder Party. The Company will not be liable to any Holder Party under this
Agreement (i) for any settlement by a Holder Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to
the extent, that a loss, claim, damage or liability is attributable to such Holder Party’s wrongful
actions or omissions, or gross negligence or to such Holder Party’s breach of any of the
representations, warranties, covenants or agreements made by such Holder Party in this Agreement or
in the other Transaction Documents.

     6.9 Limitations on Disposition by Holder. No Holder shall sell, transfer, assign or
dispose of any Securities, unless:

          (a) there is then in effect an effective registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance with such
registration statement; or

          (b) such Holder has notified the Company in writing of any such disposition, and furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition
will not require registration of such Securities under the Securities Act;
provided, however, that no such opinion of counsel will be required (A) if the sale, transfer,
assignment or disposition is made to an Affiliate of such Holder, (B) if the sale, transfer,
assignment or disposition is made pursuant to Rule 144 and such Holder provides the Company with
evidence reasonably satisfactory to the Company that the proposed transaction satisfies the
requirements of Rule 144, (C) if such Securities are eligible for resale under Rule 144(k) or any

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successor provision or (D) if in connection with a bona fide pledge or hypothecation of any
Securities under a margin arrangement with a broker-dealer or other financial institution or the
sale of any such Securities by such broker-dealer or other financial institution following such
Holder’s default under such margin arrangement.

7. MISCELLANEOUS.

     7.1 Survival; Severability. The representations, warranties, covenants and
indemnities made by the parties herein and in the other Transaction Documents shall survive the
Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking
to rely thereon. In the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that in such case the parties shall
negotiate in good faith to replace such provision with a new provision which is not illegal,
unenforceable or void, as long as such new provision does not materially change the economic
benefits of this Agreement to the parties.

     7.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as expressly provided in
this Agreement. A Holder may assign its rights and obligations hereunder in connection with any
private sale or transfer of the Securities, as long as, as a condition precedent to such transfer,
the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term “Holder” shall be deemed to refer to such transferee as though
such transferee were an original signatory hereto, and such assignment complies with applicable
Governmental Requirements. Any such transferee Holder shall promptly deliver an executed copy of
such acknowledgement to the Company. The Company may not assign its rights or obligations under
this Agreement; provided, however, for purposes of clarity, except in connection with or in
furtherance of any migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

     7.3 No Reliance. Each party acknowledges that (i) it has such knowledge in business
and financial matters as to be fully capable of evaluating this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby, (ii) it is not relying on any
advice or representation of any other party in connection with entering into this Agreement, the
other Transaction Documents or such transactions (other than the representations made in this
Agreement or the other Transaction Documents), (iii) it has not received from any other party any
assurance or guarantee as to the merits (whether legal, regulatory, tax, financial or otherwise) of
entering into this Agreement or the other Transaction Documents or the performance of its
obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax, business, investment,
financial and accounting advisors to the extent that it has deemed necessary, and has entered into
this Agreement and the other Transaction Documents based on its own independent judgment and, if
applicable, on the advice of such advisors, and not on any view (whether written or oral) expressed
by any other party.

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     7.4 Independent Nature of Holders’ Obligations and Rights. The obligations of each
Holder hereunder are several and not joint with the obligations of the other Holders hereunder, and
no Holder shall be responsible in any way for the performance of the obligations of any other
Holder hereunder. The Company acknowledges and agrees that nothing contained herein or in any other
Transaction Document, and no action taken by any Holder pursuant hereto or thereto, shall be deemed
to constitute the Holders as a partnership, an association, a joint venture or any other kind of
entity, or a “group” as described in Section 13(d) of the Exchange Act, or create a presumption
that the Holders are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder has been represented by its own separate
counsel in connection with the transactions contemplated hereby, shall be entitled to protect and
enforce its rights, including, without limitation, rights arising out of this Agreement or the
other Transaction Documents, individually, and shall not be required to join any other Holder as an
additional party in any proceeding for such purpose.

     7.5 Injunctive Relief. The Company acknowledges and agrees that a breach by it of its
obligations hereunder will cause irreparable harm to each Holder and that the remedy or remedies at
law for any such breach will be inadequate and agrees, in the event of any such breach, in addition
to all other available remedies, such Holder shall be entitled to an injunction restraining any
breach and requiring immediate and specific performance of such obligations without the necessity
of showing economic loss or the posting of any bond.

     7.6 Governing Law; Jurisdiction; Waiver of Jury Trial.

          (a) This Agreement shall be governed by and construed under the laws of the State of New York
applicable to contracts made and to be performed entirely within the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in
the City and County of New York for the adjudication of any dispute hereunder or any other
Transaction Document or in connection herewith or therewith or with any transaction contemplated
hereby or thereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof 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.

          (b) EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR CONTROVERSY THAT
MAY ARISE UNDER THIS
AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES
AND, THEREFORE, EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE

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BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT OR THE OTHER
TRANSACTION DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS
AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY,
AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.6(b).

     7.7 Counterparts; Facsimile. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which together shall constitute
one and the same instrument. Any executed signature page delivered by facsimile or e-mail
transmission shall be binding to the same extent as an original executed signature page, with
regard to any agreement subject to the terms hereof or any amendment thereto.

     7.8 Headings. The headings used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this Agreement.

     7.9 Notices. Any notice, demand or request required or permitted to be given by the
Company or the Holder pursuant to the terms of this Agreement shall be in writing and shall be
deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such
delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to
be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to
an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid), addressed as follows:

If to the Company:

Echo Therapeutics, Inc.

10 Forge Parkway

Franklin, MA 02038

Attn: Chief Financial Officer

Tel: (508) 530-0311

Fax: (508) 553-8760

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

Drinker Biddle & Reath LLP

One Logan Square

18th & Cherry Streets

Philadelphia, PA 19103

Attn: Stephen T. Burdumy, Esq.

-31-

 

Tel: (215) 988-2700

Fax: (215) 988-2757

and if to any Holder, to such address for such Holder as shall appear on such Holder’s signature
page hereto, or as shall be designated by such Holder in writing to the Company in accordance with
this Section 7.9.

     7.10 Expenses. The Company and Imperium shall pay all costs and expenses that it
incurs in connection with the negotiation, execution, delivery and performance of this Agreement or
the other Transaction Documents; provided, however, that the Company shall, at the Closing, pay
Imperium an amount of $50,000 in immediately available funds as reimbursement for its out-of-pocket
expenses (including, without limitation, legal fees and expenses) incurred or to be incurred by it
in connection with its due diligence investigation of the Company and the negotiation, preparation,
execution, delivery and performance of this Agreement and the other Transaction Documents. At the
Closing, the amount due for such fees and expenses may be netted out of the Purchase Price payable
by Imperium.

     7.11 Entire Agreement; Amendments. This Agreement and the other Transaction Documents
constitute the entire agreement between the parties with regard to the subject matter hereof and
thereof, superseding all prior agreements or understandings, whether written or oral, between or
among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended except pursuant to a written instrument executed by the Company and (i) while the
Notes are outstanding, by the Holders holding a majority of the outstanding principal of the Notes,
and (ii) if the Notes are no longer outstanding, by the Holders holding a majority of the
Registrable Securities. No waiver of any provision of this Agreement may be made except pursuant
to a written instrument executed by the party against whom such waiver is sought to be enforced.
Any waiver given pursuant hereto shall be effective only in the specific instance and for the
specific purpose for which given.

[Signature Page to Follow]

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Exhibit 10.1

     IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase and Loan Agreement
as of the date first-above written.

	 	 	 	 	 
	ECHO THERAPEUTICS, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Patrick T. Mooney, M.D.	 	 
	 

	 	 	 	 
	 

	 	Patrick T. Mooney, M.D.	 	 
	 

	 	Chief Executive Officer	 	 
	 
	 	 	 	 
	IMPERIUM MASTER FUND, LTD.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Maurice Hryshko, Esq.	 	 
	 

	 	 	 	 
	 

	 	Maurice Hryshko, Esq.	 	 
	 

	 	General Counsel	 	 
	 
	 	 	 	 
	ADDRESS:	 	 
	 
	 	 	 	 
	 

	 	c/o Imperium Advisers, LLC	 	 
	 

	 	153 East 53rd Street- 29th Floor	 	 
	 

	 	New York, NY 10022	 	 
	 

	 	Attn: Maurice Hryshko, Esq.	 	 
	 

	 	Tel: (212) 433-1360	 	 
	 

	 	Fax: (212) 433-1361	 	 

 

EXHIBITS TO SECURITIES PURCHASE AND LOAN AGREEMENT

Exhibit A—Form of Note

Exhibit B—Form of Warrant

Exhibit C—Registration Rights Agreement

Exhibit D—Guarantee

Exhibit E—Security Agreement

Exhibit F—Legal Opinion

SCHEDULES TO SECURITIES PURCHASE AND LOAN AGREEMENT

Schedule 1.1(i)—Permitted Debt

Schedule 1.1(ii)—Permitted Liens

Schedule 5.36—Non-public Information

Schedule 5.4—Disclosure Documents; Agreements; Financial Statements; Other Information

Schedule 5.5(a)—Capitalization

Schedule 5.5(b)—Subsidiaries

Schedule 5.5(c)—Options and Warrants and Other Rights

Schedule 5.5(d)—Debt

Schedule 5.11(a)—Intellectual Property

Schedule 5.12—Piggyback Registration Rights

Schedule 5.14—Fees

Schedule 5.30—Transactions with Interested Persons

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