Document:

EX-10.1

Exhibit 10.1

Execution Version

EXECUTIVE EMPLOYMENT AGREEMENT

This EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of February
1, 2011 (the “Effective Date”), by and between Cornerstone Therapeutics Inc., a Delaware
corporation (the “Company”), and Vincent T. Morgus (the “Executive”).

WHEREAS, the Company desires to employ the Executive and enter into this Agreement, which will
set forth the terms and conditions under which the Executive will serve the Company and its
affiliates; and

WHEREAS, the Executive wishes to be employed by the Company on the terms and conditions set
forth herein.

 

NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter contained,
the parties hereto agree as follows:

1. Term of Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment with the Company, upon the terms set forth in this Agreement,
for the period commencing on the Effective Date and ending on the date that the Agreement is
terminated in accordance with the provisions of Section 4.

2. Title; Capacity. The Executive shall serve as Executive Vice President, Finance,
and Chief Financial Officer and in such other positions as the Company or its Board of Directors
(the “Board”) may determine from time to time. The Executive shall be based at the
Company’s office in Cary, North Carolina. The Executive shall be subject to the supervision of,
and shall have such authority as is delegated to him by, the President and Chief Executive Officer
of the Company or his designee.

The Executive hereby accepts such employment and agrees to undertake the duties and
responsibilities inherent in such position and such other duties and responsibilities as the
President and Chief Executive Officer or his designee shall from time to time reasonably assign to
him. The Executive agrees to devote his entire business time, attention and energies to the
business and interests of the Company during the employment period; provided,
however, that the Executive may serve as a consultant or a member of an advisory board or a
board of directors with the prior consent of the Board. The Executive agrees to abide by any
rules, regulations, instructions, personnel practices and policies of the Company that are
applicable to him and any changes therein that may be adopted from time to time by the Company.

3. Compensation and Benefits.

3.1. Salary. The Company shall pay the Executive a base salary for the year starting
February 1, 2011 in accordance with its regular payroll practices at an annualized rate of
$285,000, less lawful deductions. Such salary shall be subject to adjustment thereafter as
determined by the Board.

3.2. Annual Target Cash Bonus and Equity Compensation. The Executive shall be
eligible to receive an annual target cash bonus of up to thirty-five (35) percent of his then
annual base salary (“Target Cash Bonus”). The Board (or a committee thereof) shall
determine the amount of the actual award, if any, based on overall corporate performance and
individual performance. Actual awards may be greater than or less than the Executive’s Target Cash
Bonus, depending in part upon the extent to which actual performance exceeds or falls below the
performance goals. Any bonus shall be paid in a single lump sum, subject to lawful deductions, at
such time as bonuses are regularly paid to senior executives of the Company, but in any event such
bonus shall be paid on or before March 15 of the year following the year to which the bonus
relates. Except as may be expressly provided below, the Executive must be employed on the date
that the bonus is paid to be eligible for any Target Cash Bonus. Each cash bonus award that may
become payable shall be paid solely from the general assets of the Company. Notwithstanding the
foregoing, the Executive shall be eligible to receive a Target Cash Bonus for 2011 of up to
thirty-two and eight hundredths percent (32.08%) of his then annual base salary. The Executive
shall be eligible to receive annual equity awards on similar terms and conditions as may be
applicable to other senior executives of the Company, and the Compensation Committee of the Board
shall determine the amount of the actual equity award, if any. The Executive acknowledges that the
Compensation Committee may consider that he was employed by the Company for only eleven months of
2011 in determining the amount of his actual equity award for such year.

3.3. Grant of Restricted Stock and Stock Options. The Executive will be granted,
effective as of the Effective Date, fifty-five thousand (55,000) shares of restricted common stock
and options to acquire seventy thousand (70,000) shares of common stock. The grant shall be on
such terms and conditions as are described in Appendix A hereto, and the documents
referenced therein.

3.4. Fringe Benefits. The Executive shall be entitled to participate in all bonus and
benefit programs (excluding the Company’s Cash Bonus Program for Employees (Other than Executive
Officers)) that the Company establishes and makes available to its employees or executives, if any,
to the extent that the Executive’s position, tenure, salary, age, health and other qualifications
make him eligible to participate; provided, however, the Executive’s participation
is subject to the applicable terms, conditions and eligibility requirements of these plans as they
may exist from time to time. The Executive shall be entitled to accrue 1.67 vacation days per
month (four (4) weeks per year), and, if requested in writing by the President and Chief Executive
Officer, such vacation time shall be taken at such times as may be approved by the President and
Chief Executive Officer or his designee. Accrued but unused vacation at the end of each year will
not carry over past January 31 of the next year, except to the extent provided for in Company
policies.

3.5. Reimbursement of Expenses. The Company shall reimburse the Executive for all
reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection
with, or related to, the performance of his duties, responsibilities or services under this
Agreement, in accordance with the Company’s expense reimbursement policy, including the Executive’s
presentation of documentation, expense statements, vouchers and/or such other supporting
information as the Company may request, provided, however, that the amount
available for such travel, entertainment and other expenses may be fixed in advance by the Board.
Notwithstanding the foregoing, (i) the expenses eligible for reimbursement in any particular
taxable year may not affect the expenses eligible for reimbursement in any other taxable year,
(ii) such reimbursement must be made on or before the last day of the year following the year in
which the expense was incurred, and (iii) the right to reimbursement is not subject to liquidation
or exchange for another benefit.

3.6. Car Allowance. The Executive will receive a monthly car allowance in the amount
of $850. A valid driver’s license, an acceptable motor vehicle record and personal automobile
insurance are required at all times to operate a personal motor vehicle on Company business. The
Company reserves the right to change or discontinue its vehicle allowance program at any time.

4. Employment Termination. The employment of the Executive by the Company pursuant to
this Agreement shall terminate upon the occurrence of any of the following:

4.1. At the election of the Company, for Cause, immediately upon written notice by the Company
to the Executive;

4.2. At the election of the Executive, for Good Reason, upon written notice by the Executive
to the Company;

4.3. At the election of the Company without Cause during a Change of Control Period (as
defined in Section 20) or at the election of the Executive for Good Reason during a Change of
Control Period;

4.4. Upon the death or Disability (as defined in Section 20) of the Executive;

4.5. At the election of the Executive, without Good Reason, by providing written notice to the
Company at least ninety (90) days prior to such termination; and

4.6. At the election of the Company, without Cause, by providing written notice to the
Executive at least ninety (90) days prior to such termination.

5. Effect of Termination.

5.1. Termination for Cause. In the event the Executive’s employment is terminated for
Cause pursuant to Section 4.1, the Company shall pay to the Executive the compensation and benefits
otherwise payable and expenses otherwise reimbursable to him under Section 3 through the last day
of his actual employment by the Company.

5.2. Termination at the Election of the Executive Without Good Reason. In the event
the Executive elects to terminate his employment pursuant to Section 4.5, the Company shall pay the
Executive the compensation and benefits otherwise payable and expenses otherwise reimbursable to
him under Section 3 through the last day of his actual employment by the Company. Executive shall
not be liable to the Company for any damages arising from or associated with the Company’s not
having a Chief Financial Officer during any period following a termination by the Executive of his
employment and this Agreement pursuant to Section 4.5.

5.3. Termination for Death or Disability. If the Executive’s employment is terminated
by death or because of Disability pursuant to Section 4.4, in addition to any disability or life
insurance benefits for which the Executive or the estate of the Executive may be eligible, the
Company shall pay to the estate of the Executive or to the Executive, as the case may be, the
compensation and benefits otherwise payable and expenses otherwise reimbursable to him under
Section 3 through the last day of his actual employment by the Company. In addition, if the
Executive’s employment terminates as a result of his death, the Executive’s estate shall receive an
amount equal to a pro rata payment of the annual cash bonus for which he would have been eligible,
less lawful deductions, within ten (10) calendar days following the effective date of the Release
required by Section 5.6, but not later than ninety (90) days following termination of employment.
Notwithstanding the foregoing, if the ninetieth (90th) day following the Executive’s termination
from employment occurs in the calendar year following the year of the Executive’s termination, then
the payment shall be made no earlier than January 1 of such subsequent calendar year. No other
benefits are payable upon the Executive’s termination pursuant to Section 4.4.

5.4. Termination Without Cause or for Good Reason, and not during a Change of Control
Period. Provided that the Company has not provided notice of termination without Cause to the
Executive pursuant to Section 4.6 prior to the first anniversary of the Effective Date (such
anniversary date, the “Benefit Date”), if the Executive’s employment is terminated without Cause
pursuant to Section 4.6, or for Good Reason pursuant to Section 4.2, and such termination does not
occur during a Change of Control Period, the Company shall:

(a) pay the Executive the compensation and benefits otherwise payable and expenses otherwise
reimbursable to him under Section 3 through the last day of his actual employment by the Company;

(b)  pay the Executive a lump sum payment equal to one (1) times his annualized base salary,
less lawful deductions, payable within ten (10) calendar days following the effective date of the
Release required by Section 5.6 but not later than ninety (90) days following termination of
employment. Notwithstanding the foregoing, if the ninetieth (90th) day following the
Executive’s termination from employment occurs in the calendar year following the year of the
Executive’s termination, then the payment shall be made no earlier than January 1 of such
subsequent calendar year;

(c)  pay on behalf of the Executive, in accordance with the Company’s regular payroll
practices, on a monthly basis an amount equal to (i) one hundred (100) percent of the Executive’s
monthly health and dental COBRA premiums for the Executive and his dependents, if any, if the
Executive properly elects to continue health and dental insurance under COBRA and (ii) pay to the
Executive on the first business day of each applicable month one hundred (100) percent of the cost
of the monthly premiums paid by the Company to the insurance companies for life insurance and
disability insurance for the Executive in the month preceding the Executive’s termination of
employment, such payments under subsections (i) and (ii) to continue until the earlier of (x)
twelve (12) months after the termination of the Executive’s employment and (y) the last day of the
first month that the Executive is eligible for other employer-sponsored health coverage.
Notwithstanding the foregoing, to the extent such payments are reimbursement to the Executive of
medical expenses incurred by the Executive as described in Reg. § 1.409A-1(b)(9)(v)(B),
reimbursements may not be made beyond the period of time during which the Executive would be
entitled (or would, but for such arrangement, be entitled) to COBRA continuation coverage under a
group health plan of the Company;

(d)  pay the Executive a lump sum payment in an amount equal to a pro rata payment of the
Target Cash Bonus for which he was eligible, less lawful deductions; such payment shall be paid
within ten (10) calendar days following the effective date of the Release required by Section 5.6,
but not later than ninety (90) days following termination of employment. Notwithstanding the
foregoing, if the ninetieth (90th) day following the Executive’s termination from
employment occurs in the calendar year following the year of the Executive’s termination, then the
payment shall be made no earlier than January 1 of such subsequent calendar year; and

(e)  accelerate vesting of all of the Executive’s outstanding unvested stock options and
restricted stock by one year.

5.5. Termination Without Cause or for Good Reason during a Change of Control Period.
If the Executive’s employment is terminated without Cause pursuant to Section 4.3, or for Good
Reason pursuant to Section 4.3, and such termination occurs during a Change of Control Period, the
Company shall:

(a) pay the Executive the compensation and benefits otherwise payable and expenses otherwise
reimbursable to him under Section 3 through the last day of his actual employment by the Company;

(b)  pay the Executive a lump sum payment equal to one (1) times his annualized base salary,
less lawful deductions, payable within ten (10) calendar days following the effective date of the
Release required by Section 5.6, but not later than ninety (90) days following termination of
employment. Notwithstanding the foregoing, if the ninetieth (90th) day following the
Executive’s termination from employment occurs in the calendar year following the year of the
Executive’s termination, then the payment shall be made no earlier than January 1 of such
subsequent calendar year;

(c)  pay on behalf of the Executive, in accordance with the Company’s regular payroll
practices, on a monthly basis an amount equal to (a) one hundred (100) percent of the Executive’s
monthly health and dental COBRA premiums for the Executive and his dependents, if any, if the
Executive properly elects to continue health and dental insurance under COBRA and (b) pay to the
Executive on the first business day of each applicable month one hundred (100) percent of the cost
of the monthly premiums paid by the Company to the insurance companies for life insurance and
disability insurance for the Executive in the month preceding the Executive’s termination of
employment, such payments under subsections (a) and (b) to continue until the earlier of (x) twelve
(12) months after the termination of the Executive’s employment and (y) the last day of the first
month that the Executive is eligible for other employer-sponsored health coverage. Notwithstanding
the foregoing, to the extent such payments are reimbursement to the Executive of medical expenses
incurred by the Executive as described in Reg. § 1.409A-1(b)(9)(v)(B), reimbursements may not be
made beyond the period of time during which the Executive would be entitled (or would, but for such
arrangement, be entitled) to COBRA continuation coverage under a group health plan of the Company;

(d)  pay the Executive a lump sum payment in an amount equal to a pro rata payment of the
Target Cash Bonus for which he was eligible, less lawful deductions; such payment shall be paid ten
(10) calendar days following the effective date of the Release required by Section 5.6, but not
later than ninety (90) days following termination of employment. Notwithstanding the foregoing, if
the ninetieth (90th) day following the Executive’s termination from employment occurs in the
calendar year following the year of the Executive’s termination, then the payment shall be made no
earlier than January 1 of such subsequent calendar year; and

(e)  accelerate vesting of one hundred (100) percent of all of the Executive’s outstanding
unvested stock options and restricted stock.

5.6 Conditions to Payment.

(a) Notwithstanding any provision of this Agreement to the contrary, the Company’s obligation
to provide the payments and benefits under Sections 5.3, 5.4, and 5.5 is conditioned upon the
Executive’s, or the Executive’s estate’s, execution of a severance agreement and full release of
all claims against the Company and all affiliated persons and entities, drafted by and reasonably
satisfactory to counsel for the Company (the “Release”), and the Executive’s compliance
with Sections 7 and 8 of this Agreement. The Release shall include clauses covering
confidentiality, non-disparagement, cooperation, and non-admissions, among other terms, all in a
form reasonably acceptable to the Company. The Executive, at his expense, may consult with legal
counsel and may propose revisions to the Release, which the Company agrees to consider in good
faith. If the Executive chooses not to execute such a release or fails to comply with those
Sections, then the Company’s obligation to compensate the Executive ceases on the effective
termination date except as to base salary up through the termination date. The Release shall be
provided to the Executive within thirty (30) days of the Executive’s separation from service and
the Executive must execute it within the time period specified in the Release (which shall not be
longer than forty-five (45) days from the date of receipt). Such Release shall not be effective
until any applicable revocation period specified therein has expired.

(b) Notwithstanding any provision of this Agreement to the contrary, the Company’s obligation
to provide the payments and benefits under Sections 5.4 shall not arise until the Benefit Date and
is expressly conditioned upon the Executive remaining an employee in good standing with the Company
through the Benefit Date.

6. Vesting of Stock Upon a Change of Control. One hundred (100) percent of the
Executive’s outstanding unvested stock options and restricted stock will vest on a Change of
Control (as defined in Section 20).

7. Non-Compete.

7.1. During the Executive’s employment with the Company and for a period of one year following
the cessation thereof, the Executive will not engage in any of the following on his own behalf or
in any capacity on another’s behalf:

(a) engage in any business activity (or assist others to engage in any business activity) that
directly competes with the Company; or

(b) have any interest in any business that directly competes with the Company; or

(c) be employed (or otherwise engaged) in (A) a management capacity, (B) other capacity
providing the same or similar services which the Executive provided to the Company, or (C) any
capacity connected with competitive business activities, by any person or entity that engages in
the same, similar or otherwise competitive business as the Company.

The restrictions set forth in subparagraphs 7.1(a)–(c) shall apply in the following severable
geographic areas: (i) the Raleigh-Cary-Durham-Chapel Hill, NC metropolitan areas; (ii) any city,
metropolitan area, county, state (or similar political subdivisions in foreign countries) in which
the Company is located or does or, during the last twelve (12) months of the Executive’s employment
with the Company, did business; (iii) any city, metropolitan area, county, or state (or similar
political subdivisions in foreign countries) in which the Executive’s services were provided, or
for which the Executive had responsibility, or in which the Executive worked on Company projects,
during the last twelve (12) months of the Executive’s employment with the Company; or (iv) the
entire United States of America and its territories.

7.2. During the Executive’s employment with the Company and for a period of one (1) year
following the cessation thereof (whether voluntary or involuntary and regardless of the reason for,
or party initiating, the termination), the Executive will not engage in any of the following on his
own behalf or in any capacity on another’s behalf, directly or indirectly:

(a) solicit, persuade, induce, encourage or attempt to solicit, persuade, induce or encourage
any person to leave his or her employment with the Company or to refrain from providing services to
the Company; or

(b) induce or attempt to induce (including, without limitation, by soliciting business from),
or otherwise encourage or assist, any customer, client, or business relation of the Company with
which the Executive had contact on behalf of the Company (i) to cease doing business with the
Company or reduce the level of business it conducts with the Company, or (ii) to purchase or
promote any prescription pharmaceutical product that competes directly with the Company’s products
for the treatment of any indication for which the Company has received United States Food and Drug
Administration (“FDA”) approval or for an indication which the Company’s products are being
developed or may be developed.

Upon cessation of the Executive’s employment with the Company, the Executive will sever all
marketing and sales relationships with customers of the Company and the Executive agrees that any
attempt to retain these customers for his own or another’s benefit will be a material breach of
this Agreement.

7.3. The Executive agrees that, if requested by the Company in writing, he will give notice to
the Company of each new business activity he plans to undertake during the non-competition period,
at least ten (10) business days prior to beginning any such activity. The notice shall state the
name and address of the individual, corporation, association or other entity or organization
(“Entity”) for whom such activity is undertaken and the name of the Executive’s business
relationship or position with the entity. The Executive further agrees to provide the Company with
other pertinent information concerning such business activity as the Company may reasonably request
in order to determine the Executive’s continued compliance with his obligations under this
Agreement. The Executive agrees that, if requested by the Company in writing, he will provide a
copy of Sections 7 and 8 of this Agreement to all persons and Entities with whom he seeks to be
hired or do business before accepting employment or engagement with any of them.

7.4. If any restriction set forth in this Section 7 is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be interpreted to extend only
over the maximum period of time, range of activities or geographic area as to which it may be
enforceable.

7.5. The Executive acknowledges that the restrictions contained in this Section are necessary
for the protection of the business and goodwill of the Company and in light of, among other things,
the highly competitive market in which the Company operates. The Executive agrees that any breach
of this Section will cause the Company substantial and irreparable damage and therefore, in the
event of any such breach, in addition to such other remedies which may be available, the Company
shall have the right to seek specific performance and injunctive relief without posting a bond.

7.6. If the Executive violates the provisions of this Section 7, he shall continue to be held
by the restrictions set forth in this Section, until a period equal to the period of restriction
has expired without any violation.

8. Proprietary Information and Developments.

8.1. Proprietary Information.

(a) The Executive agrees that all information and know-how, whether or not in writing, of a
private, secret or confidential nature concerning the Company’s business or financial affairs
(collectively, “Proprietary Information”) is and shall be the exclusive property of the
Company. By way of illustration, but not limitation, Proprietary Information may include
inventions, products, processes, methods, techniques, formulas, compositions, compounds, projects,
developments, plans, research data, clinical data, financial data, personnel data, computer
programs, and customer and supplier lists. The Executive will disclose Proprietary Information
solely to employees, officers, and directors of the Company and only on a need-to-know basis and
will use the same solely for purposes of performing the Executive’s duties and responsibilities on
behalf of Company as described in Section 2 hereof, unless otherwise permitted by prior written
approval of an officer of the Company. Developments (defined in Section 8.2(a) below) shall
constitute Proprietary Information of Company for all purposes hereunder.

(b) The Executive agrees that all files, letters, memoranda, reports, records, data, sketches,
drawings, laboratory notebooks, program listings, or other written, photographic, or other tangible
material containing Proprietary Information, whether created by the Executive or others, which
shall come into his custody or possession, shall be and are the exclusive property of the Company
to be used by the Executive only in the performance of his duties for the Company.

(c) The Executive agrees that his obligations set forth in paragraphs (a) and (b) above also
extend to such types of information, know-how, records and tangible property of customers of the
Company or suppliers to the Company or other third parties who may have disclosed or entrusted the
same to the Company or to the Executive in the course of the Company’s business.

8.2. Developments.

(a) The Executive will make full and prompt disclosure to the Company of all inventions,
discoveries, processes, methods, developments, software, and works of authorship, whether or not
patentable or copyrightable, which are created, made, conceived or reduced to practice by the
Executive or under his direction or jointly with others during his employment by the Company,
whether or not during normal working hours or on the premises of the Company (all of which, along
with all improvements, modifications, and derivative works thereof and thereto and all proprietary
know-how and other information associated therewith, are collectively referred to in this Agreement
as “Developments”).

(b) The Executive agrees to irrevocably and unconditionally assign, and does hereby
irrevocably and unconditionally assign, to the Company (or any person or entity designated by the
Company) and to forever waive and never assert any and all of his right, title and interest in and
to all Developments and all related patents, patent applications, copyrights, copyright
registration applications, and other intellectual property rights and moral rights associated
therewith. The rights assigned to Company herein shall include, without limitation, the rights (i)
to bring claims and causes of action for damages and other relief by reason of all past and future
infringements, misappropriations, or other violations of any and all rights under such
Developments; (ii) to collect and enjoy damages, benefits, and other remedies resulting therefrom;
and (iii) to charge and collect royalties or other payments arising out of or relating to the grant
of licenses or similar rights under any such Developments.

(c) The Executive agrees to cooperate fully with the Company, both during and after his
employment with the Company, with respect to the prosecution, procurement, maintenance, enforcement
and/or defense of patents, trademarks, copyrights, trade secrets and other means for protection of
the Developments (both in the United States and foreign countries). The Executive shall sign all
papers, including, without limitation, copyright registration applications, patent applications,
declarations, oaths, formal assignments, assignment of priority rights, and powers of attorney,
which the Company may deem necessary or desirable in order to protect its rights and interests in
any Development. The Executive shall further execute and deliver all such instruments and take all
other actions as in the opinion of the Company and its counsel shall be appropriate to vest in the
Company (or in such person as the Company may specify) all right, title and interest in said
Developments and any patents, trademarks, copyrights, trade secrets and other intellectual property
rights associated therewith. The Executive shall be entitled to reasonable compensation for all
time devoted to such post-employment cooperation at a rate equal to three hundred dollars ($300)
per hour.

(d) Whenever requested to do so by the Company, both during and after his employment with the
Company, and at the expense of the Company, the Executive shall cooperate fully and assist the
Company in the defense or prosecution of any claims or actions now in existence or which may be
brought in the future in connection with (i) any litigation commenced by the Company against third
parties, (ii) any litigation commenced by a third party against the Company and (iii) any
administrative hearing or administrative proceeding involving the Company. The Executive’s full
cooperation in connection with any claims, actions or administrative proceedings shall include, but
not be limited to, his being available to meet with the Company’s counsel to prepare for trial,
discovery or an administrative hearing and to act as a witness when requested by the Company at
reasonable times designated by the Company. The Executive shall be entitled to reasonable
compensation for all time devoted to such post-employment cooperation at a rate equal to three
hundred dollars ($300) per hour.

(e) The Executive hereby irrevocably appoints the Company to be his attorney in fact and, in
his name and on his behalf, to execute all such instruments and take all other actions and
generally to use his name for the purpose of providing to the Company the full benefit of the
provisions of subsections 8.2(b) and 8.2(c).

(f) The Executive hereby waives and quitclaims to the Company any and all claims, of any
nature, which the Executive now or may hereafter have for infringement, misappropriation, or other
violation of any Development assigned hereunder to the Company.

(g) The Executive acknowledges and agrees that all original works of authorship which are
created by the Executive (solely or jointly with others) within the scope of the Executive’s
employment and which are protectable by copyright are “works made for hire,” as that term is
defined in the United States Copyright Act (17 U.S.C. Section 101).

(h) The Executive represents and warrants that to the extent applicable, the Executive has
provided to the Company a list entitled “List of Inventions,” that a true and complete list of all
inventions, discoveries, methods, processes, developments, software, and works of authorship,
whether or not patentable or copyrightable, which were created, made, conceived or reduced to
practice by the Executive, whether solely or jointly with others, prior to his employment by the
Company (collectively, “Inventions”). Any improvements to or derivative works of any such
Inventions, whether or not patentable or copyrightable and whether or not reduced to practice,
conceived or created after commencement of the Executive’s employment by the Company shall
constitute Developments for all purposes hereunder to the extent arising out of or relating to any
use of or other reliance on any Proprietary Information by or on behalf of the Executive.

8.3. Other Agreements. Other than as previously disclosed to the Company by the
Executive in writing, the Executive hereby represents that he is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or disclosing any trade
secret or confidential or proprietary information in the course of his employment with the Company
or to refrain from competing, directly or indirectly, with the business of such previous employer
or any other party. The Executive further represents that his performance of all the terms of this
Agreement and as an executive officer of the Company does not and will not breach any agreement to
keep in confidence proprietary information, knowledge or data acquired by him in confidence or in
trust prior to his employment with the Company.

9. Other Severance Arrangements. The benefits under this Agreement will be provided
in lieu of benefits under any severance plan of the Company or under the Executive’s offer letter.
The Executive acknowledges and agrees that the acceleration of vesting of stock options and
restricted stock under this Agreement is in lieu of any acceleration of vesting of stock options
and restricted stock upon a change of control under the Company’s current and any future stock
option plans, including, but not limited to, the Company’s 2000 Equity Incentive Plan, 2003 Stock
Incentive Plan, 2004 Stock Incentive Plan, the Cornerstone BioPharma Holdings, Inc. 2005 Stock
Option Plan, and the Cornerstone BioPharma Holdings, Inc. 2005 Stock Incentive Plan, each as
amended from time to time.

10. Mitigation. The Executive has no obligation to mitigate amounts payable under
this Agreement by seeking other employment.

11. Notices. All notices required or permitted under this Agreement shall be in
writing and shall be deemed effective upon personal delivery or upon deposit in the United States
Post Office, by registered or certified mail, postage prepaid, if to the Company, at its principal
office addressed to the attention of Craig Collard, CEO, and if to the Executive, at the address
specified in his most recently submitted IRS Form W-4, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 11.

12. Pronouns. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular forms of
nouns and pronouns shall include the plural, and vice versa.

13. Entire Agreement. This Agreement constitutes the entire understanding between the
parties hereto with respect to the subject matter hereof, and this Agreement supersedes and renders
null and void any and all prior oral or written agreements, understandings or commitments
pertaining to the subject matter hereof. To the extent this Agreement is inconsistent or conflicts
with any other agreement entered into between the Executive and the Company, including any option
or restricted stock award agreements, this Agreement shall control.

14. Amendment. This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Executive.

15. Governing Law. This Agreement shall be interpreted and enforced in accordance
with the laws of the State of North Carolina without regard to conflict of laws provisions.

16. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of both parties and their respective successors and assigns, including any corporation with
which or into which the Company may be merged or which may succeed to its assets or business,
provided, however, that the obligations of the Executive are personal and shall not be assigned by
the Executive.

17. Dispute Resolution. Any claim or controversy arising out of or relating to this
Agreement, or any breach thereof, or otherwise arising out of or relating to the Executive’s
employment, compensation and benefits with the Company or the termination thereof, including any
claim for discrimination under any local, state or federal employment discrimination law, except as
specifically excluded herein, shall be brought in only in a court of the State of North Carolina
(or, if appropriate, a federal court located within the State of North Carolina), and the Company
and the Executive each consents to the jurisdiction of such a court. Both the Company and the
Executive expressly waive any right that any party either has or may have to a jury trial of any
dispute arising out of or in any way related to the Executive’s employment with or termination from
the Company. The Executive expressly acknowledges and agrees that he hereby waives any right to
claim or recover punitive damages.

18. Acknowledgment. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD A REASONABLE PERIOD
SUFFICIENT TO STUDY, UNDERSTAND AND CONSIDER THIS AGREEMENT, THAT HE HAS HAD AN OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL OF HIS CHOICE, THAT HE HAS READ THIS AGREEMENT AND UNDERSTANDS ALL OF
ITS TERMS, THAT HE IS ENTERING INTO AND SIGNING THIS AGREEMENT KNOWINGLY AND VOLUNTARILY, AND THAT
IN DOING SO HE IS NOT RELYING UPON ANY STATEMENTS OR REPRESENTATIONS BY THE COMPANY OR ITS AGENTS.

19. Miscellaneous.

19.1. No delay or omission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Company on any
one occasion shall be effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.

19.2. The captions of the sections of this Agreement are for convenience of reference only and
in no way define, limit or affect the scope or substance of any section of this Agreement.

19.3. In case any provision of this Agreement shall be invalid, illegal or otherwise
unenforceable, the validity, legality and enforceability of the remaining provisions shall in no
way be affected or impaired thereby.

19.4. Nothing in this Agreement should be construed to create a trust or to establish or
evidence the Executive’s claim of any right to payment other than as an unsecured general creditor
with respect to any payment to which the Executive may be entitled.

19.5. The provisions of Sections 5, 7, 8 and 21 shall survive the termination of this
Agreement.

19.6. Upon termination of the Executive’s employment by the Company for any reason whatsoever
whether voluntarily or involuntarily, or at any other time upon the Company’s request, the
Executive agrees to promptly return to the possession of the Company any materials or copies
thereof, in hard copy or electronically, containing and/or pertaining to Proprietary Information
relating to the Company or any of its subsidiaries or affiliates and shall not take any material or
copies thereof from the possession of the Company, or destroy any such materials. In addition, the
Executive shall also return to the Company all Company property and equipment in the Executive’s
possession or control, including but not limited to, all documents, product samples, tapes, notes,
computer files, equipment, phone, facsimile, printer, computer, physician lists, employee lists,
lab notebooks, files, computer equipment, security badges, telephone calling cards, credit cards,
and other information or materials (and all copies) which contain confidential, proprietary or
non-public information of the Company. The Executive further agrees to leave intact all electronic
Company documents on the Company’s servers or computers, including those which the Executive
developed or helped develop during the Executive’s employment. The Executive further agrees to
promptly return or make available to the Company or its agents any motor vehicle provided to the
Executive by the Company.

 

20. Definitions.

20.1. For purposes of this Agreement, “beneficial ownership” shall have the meaning
set forth in Rule 13d-3 promulgated under the Exchange Act, and “beneficially own(s)” and
“beneficially owned” shall have a correlative meanings.

20.2. For the purposes of this Agreement, “Cause” for termination shall be deemed to
exist upon (a) the Executive’s use of alcohol or narcotics which proximately results in the willful
material breach or habitual willful neglect of the Executive’s duties under this Agreement; (b) the
Executive’s criminal conviction of fraud, embezzlement, misappropriation of assets, or the
Executive’s conviction of any felony or crime of moral turpitude, but in no event traffic
or similar violations; (c) any act of the Executive constituting willful misconduct which is
materially detrimental to the Company’s best interests, including but not limited to
misappropriation of, or intentional damage to, the funds, property or business of the Company; (d)
except with regard to violation of Company policies prohibiting harassment or discrimination, the
Executive’s material violation of the Company’s policies if such violations are not cured or ended
within thirty (30) days after notice thereof by the Company specifying the nature of such material
violation; (e) the Executive’s material violations of the Company’s policies prohibiting harassment
or discrimination; or (f) the Executive’s willful Material Breach (as defined below) of this
Agreement, if such willful Material Breach is not cured by the Executive within thirty (30) days
after the Company’s written notice thereof specifying the nature of such willful Material Breach.
“Material Breach” shall mean (x) the substantial and continual willful nonperformance of
the Executive’s material duties under this Agreement resulting from the Executive’s gross
negligence or willful misconduct which the Board reasonably determines has resulted in material
injury to the Company or (y) the breach of Section 7 or Section 8 of this Agreement.

20.3. For purposes of this Agreement, a “Change of Control” shall mean:

(a) the acquisition by an individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act (as defined below)) (a “Person”) other than Chiesi
Farmaceutici SpA or any of its affiliates, of beneficial ownership of any capital stock of the
Company if prior to such acquisition such Person did not, and after such acquisition such Person
does, beneficially own fifty percent (50%) or more of the combined voting power of the
then-outstanding securities of the Company entitled to vote generally in the election of directors
(the “Outstanding Company Voting Securities”); or

(b) such time as the Continuing Directors (as defined below) do not constitute a majority of
the Board (or, if applicable, the Board of Directors of a successor corporation to the Company),
where the term “Continuing Director” means at any date a member of the Board (x) who was a
member of the Board on the date of the initial adoption of the Employment Agreement by the Board or
(y) who was nominated or elected subsequent to such date by at least a majority of the directors
who were Continuing Directors at the time of such nomination or election or whose election to the
Board was recommended or endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election; provided, however, that there shall be
excluded from this clause (y) any individual whose initial assumption of office occurred as a
result of an actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or

(c) the consummation of a merger, consolidation, reorganization, recapitalization or share
exchange involving the Company or a sale or other disposition of all or substantially all of the
assets of the Company (a “Business Combination”), unless, immediately following such
Business Combination, each of the following two conditions is satisfied: (x) all or substantially
all of the individuals and entities who were the beneficial owners of the Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors, respectively, of the resulting
or acquiring corporation in such Business Combination (which shall include, without limitation, a
corporation which as a result of such transaction owns the Company or substantially all of the
Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the “Acquiring Corporation”) in substantially the same
proportions as their ownership of the Outstanding Company Voting Securities immediately prior to
such Business Combination and (y) no Person (excluding any executive benefit plan (or related
trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns,
directly or indirectly, 50% or more of the combined voting power of the then-outstanding securities
of such corporation entitled to vote generally in the election of directors (except to the extent
that such ownership existed prior to the Business Combination); or

(d) the liquidation or dissolution of the Company.

Notwithstanding this Section 20.3, any change in ownership of the outstanding capital stock of the
Company that results from the acquisition of additional shares by Chiesi Farmaceutici SpA or any of
its affiliates (including any “going private” transaction whereby Chiesi Farmaceutici SpA would
acquire all of the outstanding capital stock of the Company not then owned by them),or changes in
Board composition resulting from the exercise by Chiesi Farmaceutici SpA and its affiliates of
voting power as majority stockholder(s) of the Company, shall not constitute a “Change of Control”
within the context of this Agreement.

20.4. For purposes of this Agreement, a “Change of Control Period” shall consist of
the period from three (3) months before until three (3) months after the date on which a Change of
Control occurs.

20.5. As used in this Agreement, the term “Disability” means, with respect to the
Executive, that the Executive is unable to perform the essential functions of his position with a
reasonable accommodation if necessary by reason of any medically determinable physical or mental
impairment. A determination of Disability shall be agreed upon by a physician satisfactory to the
Executive and a physician selected by the Company, provided that if these
physicians do not agree, the Executive and the Company shall each select a physician and these two
together shall select a third physician, whose determination as to Disability shall be binding on
all parties.

20.6. As used in this Agreement, the term “Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended.

20.7. For purposes of this Agreement, “Good Reason” shall be deemed to exist upon
(a) any material reduction in the annual base compensation payable to the Executive (but exclusive
of any Target Cash Bonus, annual equity award or other similar cash bonus or equity plans for this
purpose); (b) the relocation of the place of business at which the Executive is principally located
to a location that is greater than thirty (30) miles from its current location; (c) the failure of
the Company to comply with a material term of this Agreement; (d) a material reduction in the
Executive’s level of responsibility to that which is not consistent with the position held by the
Executive, as defined in Section 2 herein, so long as notice of the Good Reason condition is given
within thirty (30) days of the condition’s initial existence, the Company is given thirty (30) days
to remedy the condition, and the termination from employment occurs within ninety (90) days
following the initial existence of one or more Good Reason conditions; (e) the Company’s shares
cease to be publicly traded at a time when Chiesi Farmaceutici SpA and its affiliates do not own at
least fifty percent (50%) of the outstanding shares of the Company; or (f) the Company’s shares are
delisted from or by Nasdaq at a time when Chiesi Farmaceutici SpA and its affiliates do not own at
least fifty percent (50%) of the outstanding shares of the Company. By way of clarification,
neither (I) any change in ownership of the outstanding capital stock of the Company that results
from the acquisition of shares by Chiesi Farmaceutici SpA or any of its affiliates, including but
not limited to, the fact that the Company is no longer registered pursuant to Section 12 of the
Securities Act of 1933, as amended, nor (II) the Company’s action to seek suspension of its
reporting obligations under Section 15(d) of the Exchange Act (i.e., “going dark”), shall of itself
constitute a “Good Reason” within the context of this Agreement.

20.8. For purposes of this Agreement, “pro rata payment” shall be deemed to mean the
calculation of a payment by the Company based on the proportion of the calendar year completed,
based on the nearest whole number of months of the Executive’s employment (for illustrative
purposes only, if the Executive was terminated without Cause by the Company on April
13th of a given year, the Executive would be entitled to 1/4 of his Target Cash Bonus
for such year under Section 5.4(iii)).

21. Non-Disparagement. The Executive understands and agrees that as a condition to
him of the monetary consideration provided in connection with this Agreement, during the term of
the Agreement and after the termination of his employment with the Company for any reason, he shall
not make any false, disparaging or derogatory statements in public or private to any person or
media outlet regarding the Company or any of its directors, officers, employees, agents, or
representatives or the Company’s business affairs and financial condition. The Company understands
and agrees that during the term of the Agreement and after the termination of the Executive’s
employment with the Company for any reason, the Company shall not make any false, disparaging or
derogatory statements in public or private to any person or media outlet regarding the Executive.
Nothing in this Section shall prohibit either Party from communicating or testifying truthfully (i)
to the extent required or protected by law, (ii) to any federal, state, or local governmental
agency, or (iii) in response to a subpoena to testify issued by a court of competent jurisdiction.

22. Section 409A. 

22.1. Parties’ Intent. The parties intend that the provisions of this Agreement
comply with the provisions of Section 409A and all provisions of this Agreement shall be construed
in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
If any provision of this Agreement (or of any award of compensation, including equity compensation
or benefits) would cause the Executive to incur any additional tax or interest under Section 409A,
the Company shall, upon the specific request of the Executive, use its reasonable business efforts
to in good faith reform such provision to comply with Section 409A; provided, that to the maximum
extent practicable, the original intent and economic benefit to the Executive and the Company of
the applicable provision shall be maintained, and the Company shall have no obligation to make any
changes that could create any additional economic cost or loss of benefit to the Company. The
Company shall timely use its reasonable business efforts to amend any plan or program in which the
Executive participates to bring it in compliance with Section 409A. Notwithstanding the foregoing,
the Company shall have no liability with regard to any failure to comply with Section 409A so long
as it has acted in good faith with regard to compliance therewith.

22.2. Separation from Service. A termination of employment shall not be deemed to
have occurred for purposes of any provision of this Agreement providing for the payment of any
amounts or benefits upon or following a termination of employment unless such termination also
constitutes a “Separation from Service” within the meaning of Section 409A and, for purposes of any
such provision of this Agreement, references to a “termination,” “termination of employment,”
“separation from service” or like terms shall mean Separation from Service.

22.3. Separate Payments. Each installment payment required under this Agreement shall
be considered a separate payment for purposes of Section 409A.

22.4. Delayed Distribution to Key Employees. If the Company determines in accordance
with Sections 409A and 416(i) of the Code and the regulations promulgated thereunder, in the
Company’s sole discretion, that the Executive is a Key Employee of the Company on the date the
Executive’s employment with the Company terminates and that a delay in benefits provided under this
Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any severance payments
and any continuation of benefits or reimbursement of benefit costs provided by this Agreement, and
not otherwise exempt from Section 409A, shall be delayed for a period of six (6) months following
the date of termination of the Executive’s employment (the “409A Delay Period”). In such
event, any severance payments and the cost of any continuation of benefits provided under this
Agreement that would otherwise be due and payable to the Executive during the 409A Delay Period
shall be paid to the Executive in a lump sum cash amount in the month following the end of the 409A
Delay Period. For purposes of this Agreement, “Key Employee” shall mean an employee who,
on an Identification Date (“Identification Date” shall mean each December 31) is a key
employee as defined in Section 416(i) of the Code without regard to paragraph (5) thereof. If the
Executive is identified as a Key Employee on an Identification Date, then the Executive shall be
considered a Key Employee for purposes of this Agreement during the period beginning on the first
April 1 following the Identification Date and ending on the following March 31.

23. Parachutes. If all, or any portion, of the payments provided under this
Agreement, either alone or together with other payments and benefits which the Executive receives
or is entitled to receive from the Company or an affiliate, would constitute an excess “parachute
payment” within the meaning of Section 280G of the Code, the payments and benefits provided under
this Agreement shall be reduced to the extent necessary so that no portion thereof shall fail to be
tax-deductible under Section 280G of the Code.

[Remainder of this page is intentionally left blank]

      

SIGNATURE PAGE TO EXECUTIVE EMPLOYMENT AGREEMENT

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set
forth above.

CORNERSTONE THERAPEUTICS INC.

By:       /s/ Craig A. Collard      

Name: Craig A. Collard

Title: President and Chief Executive Officer

EXECUTIVE

By:      /s/ Vincent T. Morgus     

Vincent T. Morgus

      

Appendix A

1. Shares of restricted stock awarded pursuant to Section 3.3 will be subject to the terms of the
Company’s Restricted Stock Agreement and will vest over 4 years as follows:

a. 25% of the total award will vest on the first anniversary of the Effective Date;

b. A further 6.3% of the total award will vest on a day to be randomly determined in each of the
next 11 calendar quarters (provided that in no event shall the days so chosen in two consecutive
calendar quarters be less than 60 days apart from each other) following the first anniversary of
the award; and

c. The remainder of the total award will vest on the fourth anniversary of the Effective Date.

d. If Chiesi Farmaceutici SpA or any of its affiliates makes a tender offer for all shares of
the Company or otherwise engages in any Business Combination in which Chiesi Farmaceutici SpA or
any of its affiliates would acquire all of the outstanding capital stock of the Company not then
owned by them, then any unvested restricted shares would be converted into an amount equal to
the cash consideration in the tender offer or other Business Combination with respect to such
number of unvested shares, which amount would vest and be paid to the Executive according to the
original vesting schedule through the fourth anniversary of the Effective Date . For example,
if the closing of a Business Combination with Chiesi Farmaceutici SpA occurred on the first
anniversary of Effective Date, 75% of the total award would be converted into restricted cash.
The restricted cash would vest and be paid on a quarterly basis during the remaining three years
of the vesting period.

2. Options to acquire common stock awarded pursuant to section 3.3 will be subject to the terms of
the Company’s Stock Option Agreement and will vest over 4 years as follows:

a. 25% of the total award will vest on the first anniversary of the Effective Date;

b. An additional 2.09% of the total award will vest at the beginning of each of the next
thirty-five months following the first anniversary of the Effective Date and the remainder of
the total award will vest on the fourth anniversary of the Effective Date.

All rights of exercise shall be cumulative so that to the extent the option is not exercised in any
period to the maximum extent permissible it shall continue to be exercisable, in whole or in part,
with respect to all shares for which the option is vested until the earlier of the final exercise
date or the termination of the option.blga_ex401.htm

 

 

 

 EXHIBIT 4.01

Form of Subscription Agreement between the Company and the named investor

dated February 3, 2011

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of February 3, 2011, by and between BlastGard International, Inc., a Colorado corporation (the “Company”), and the Subscriber identified on the signature page hereto (the “Subscriber”).

WHEREAS, the Company and the Subscriber are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”);

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Subscriber, as provided herein, and the Subscriber shall purchase, in the aggregate, (i) $160,000 of principal amount (“Principal Amount”) secured promissory notes of the Company (“Note” or “Notes”), a form of which is annexed hereto as Exhibit A, convertible into shares of the Company’s Common Stock, $0.001 par value (the “Common Stock”) at a per share conversion price set forth in the Notes (“Conversion Price”); and (ii) Class A Warrants (the “Warrants”) in the forms attached hereto as Exhibit B, to purchase shares of the Company’s Common Stock (the “Warrant Shares”) (the “Offering”).  The Notes, shares of Common Stock issuable upon conversion of the Notes (the “Conversion Shares”), the Warrants and the Warrant Shares are collectively referred to herein as the “Securities”; and

WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants contemplated hereby (“Purchase Price”) shall be held in escrow by Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581 (the “Escrow Agent”) pursuant to the terms of an Escrow Agreement to be executed by the parties substantially in the form attached hereto as Exhibit C (the “Escrow Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Subscriber hereby agree as follows:

1.           Closing.   Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the “Closing Date,” Subscriber shall purchase and the Company shall sell to such Subscriber the Shares and the Warrants as described in Section 2 below.  The date the Escrow Agent releases the funds received from one or more Subscriber to the Company and releases the Escrow Documents (as defined in the Escrow Agreement) to the parties in accordance with the provisions of the Escrow Agreement shall be the Closing Date with respect to such released funds and Escrow Documents, and such releases are referred to herein as the “Closing.”

2.           Notes and Warrants.

(a)           Notes.   Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on the Closing Date, Subscriber shall purchase from the Company, and the Company shall sell to such Subscriber, a Note in the Principal Amount designated on the signature page hereto for such Subscriber’s Purchase Price indicated thereon.

  

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(b)           Warrants.  On the Closing Date, the Company will issue and deliver 8,000,000 Class A Warrants to the Subscriber.  The exercise price to acquire a Warrant Share upon exercise of a Class A Warrant shall be $0.03, subject to reduction as described in the Warrants. The Warrants shall be exercisable from the date of the Approval as described in Section 9(x) herein until four years after the Closing Date.

(c)           Allocation of Purchase Price.   The Purchase Price will be allocated by Subscriber, at Subscriber’s election, among the components of the Securities so that each component of the Securities will be fully paid and non-assessable, and acquired for value.

3.           Security Interest.   The Subscriber has been granted a security interest in the assets of the Company including ownership of the Subsidiaries (as defined in Section 5(a)), and in the assets of the Subsidiaries on or about December 2, 2004, as amended, which security interest will be memorialized in two Security and Pledge Agreements (collectively, “Security Agreement”).   The Company and Subsidiaries acknowledged the appointment of a collateral agent (the “Collateral Agent”) to act on behalf of the Subscriber as set forth in the Security Agreement.  The Subsidiaries of the Company guaranteed the Company’s obligations under the Transaction Documents [as defined in Section 5(c)], which guaranty was memorialized in a “Guaranty”.  The Company and Subsidiaries will execute such other agreements, documents and financing statements reasonably requested by the Subscriber and Collateral Agent, which will be filed at the Company’s expense with the jurisdictions, states and counties designated by the Subscriber.  Subsequent to the Closing, the Company and Subsidiaries will also execute all such documents reasonably necessary in the opinion of the Subscriber and Collateral Agent to memorialize and further protect the security interest described herein which will be prepared and filed at the Company’s expense with the jurisdictions, states and filing offices designated by the Subscriber and Collateral Agent.

                    4.           Subscriber Representations and Warranties.  Subscriber hereby represents and warrants to and agrees with the Company with respect only to such Subscriber that:

(a)           Organization and Standing of the Subscriber.  Subscriber, to the extent applicable, is an entity duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation.

(b)           Authorization and Power.  Such Subscriber has the requisite power and authority to enter into and perform this Agreement and the other Transaction Documents (as defined herein) and to purchase the Note and Warrants being sold to it hereunder.  The execution, delivery and performance of this Agreement and the other Transaction Documents by such Subscriber and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action, and no further consent or authorization of Subscriber or its board of directors or stockholders, if applicable, is required.  This Agreement and the other Transaction Documents have been duly authorized, executed and delivered by such Subscriber and constitutes, or shall constitute, when executed and delivered, a valid and binding obligation of such Subscriber, enforceable against Subscriber in accordance with the terms thereof.

  

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(c)           No Conflicts.  The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation by such Subscriber of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a violation of such Subscriber’s charter documents, bylaws or other organizational documents, if applicable; (ii) conflict with nor constitute a default (or an event which with notice or lapse of time or both would become a default) under any agreement to which such Subscriber is a party; nor (iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Subscriber or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on Subscriber).  Such Subscriber is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement and the other Transaction Documents  nor to purchase the Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, such Subscriber is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

(d)           Information on Company.   Such Subscriber has been furnished with or has had access to the EDGAR Website of the Commission to the Company’s filings made with the Commission through the tenth business day preceding the Closing Date (hereinafter referred to collectively as the “Reports”).  Subscriber is not deemed to have any knowledge of any information not included in the Reports unless such information is delivered in the manner described in the next sentence.  In addition, such Subscriber may have received in writing from the Company such other information concerning its operations, financial condition and other matters as such Subscriber has requested in writing, identified thereon as OTHER WRITTEN INFORMATION (such other information is collectively, the “Other Written Information”), and considered all factors such Subscriber deems material in deciding on the advisability of investing in the Securities.

(e)           Information on Subscriber.   Such Subscriber is, and will be at the time of the conversion of the Notes and exercise of the Warrants, an “accredited investor,” as such term is defined in Regulation D promulgated by the Commission under the 1933 Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States publicly-owned companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable such Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment.  Such Subscriber has the authority and is duly and legally qualified to purchase and own the Securities.  Such Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.  The information set forth on Schedule 1 hereto regarding such Subscriber is accurate.

(f)           Purchase of Notes and Warrants.  On the Closing Date, such Subscriber will purchase the Note and Warrants as principal for its own account for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof.

(g)           Compliance with Securities Act.   Such Subscriber understands and agrees that the Securities have not been registered under the 1933 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the accuracy of the representations and warranties of the Subscriber contained herein), and that such Securities must be held indefinitely unless a subsequent disposition is registered under the 1933 Act or any applicable state securities laws or is exempt from such registration.  In any event, and subject to compliance with applicable securities laws, the Subscriber may enter into lawful hedging transactions in the course of hedging the position they assume and the Subscriber may also enter into lawful short positions or other derivative transactions relating to the Securities, or interests in the Securities, and deliver the Securities, or interests in the Securities, to close out their short or other positions or otherwise settle other transactions, or loan or pledge the Securities, or interests in the Securities, to third parties who in turn may dispose of these Securities.

  

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(h)           Conversion Shares and Warrant Shares Legend.  The Conversion Shares and Warrant Shares shall bear the following or similar legend:

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

(i)           Notes and Warrants Legend.  The Notes and Warrants shall bear the following legend:

	 	
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE -OR-  EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

  

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(j)           Communication of Offer.  The offer to sell the Securities was directly communicated to such Subscriber by the Company.  At no time was such Subscriber presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited toattend a promotional meeting otherwise than in connection and concurrently with such communicated offer.

(k)           Restricted Securities.   Such Subscriber understands that the Securities have not been registered under the 1933 Act and such Subscriber will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities unless pursuant to an effective registration statement under the 1933 Act, or unless an exemption from registration is available.  Notwithstanding anything to the contrary contained in this Agreement, such Subscriber may transfer (without restriction and without the need for an opinion of counsel) the Securities to its Affiliates (as defined below) provided that each such Affiliate is an “accredited investor” under Regulation D and such Affiliate agrees to be bound by the terms and conditions of this Agreement. For the purposes of this Agreement, an “Affiliate” of any person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity.  Each Subsidiary is an Affiliate of the Company.  For purposes of this definition, “control” means the power to direct the management and policies of such person or firm, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

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

(m)           Correctness of Representations.  Subscriber represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless Subscriber otherwise notifies the Company prior to the Closing Date, shall be true and correct as of the Closing Date.

(n)           Survival.  The foregoing representations and warranties shall survive the Closing Date.

  

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5.           Company Representations and Warranties.  Except as set forth in the Schedules, the Company represents and warrants to and agrees with Subscriber that:

(a)           Due Incorporation.  The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power to own its properties and to carry on its business as presently conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect (as defined herein).  For purposes of this Agreement, a “Material Adverse Effect” shall mean a material adverse effect on the financial condition, results of operations, prospects, properties or business of the Company and its Subsidiaries taken as a whole.  For purposes of this Agreement, “Subsidiary” means, with respect to any entity at any date, any direct or indirect corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity of which (A) more than 30% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (ii) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity, or (B) is under the actual control of the Company.  As of the Closing Date, all of the Company’s Subsidiaries and the Company’s other ownership interests therein are set forth on Schedule 5(a).  The Company represents that it owns all of the equity of the Subsidiaries and rights to receive equity of the Subsidiaries set forth on Schedule 5(a), free and clear of all liens, encumbrances and claims, except as set forth on Schedule 5(a).  No person or entity other than the Company has the right to receive any equity interest in the Subsidiaries.  The Company further represents that neither the Company nor the Subsidiaries have been known by any other names for the five (5) years preceding the date of this Agreement.

(b)           Outstanding Stock.  All issued and outstanding shares of capital stock and equity interests in the Company have been duly authorized and validly issued and are fully paid and non-assessable.

(c)           Authority; Enforceability.  This Agreement, the Notes, Warrants, the Escrow Agreement, and any other agreements delivered or required to be delivered together with or pursuant to this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly authorized, executed and delivered by the Company and/or the Subsidiaries, as the case may be, and are valid and binding agreements of the Company and/or the Subsidiaries, as the case may be, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally and to general principles of equity and subject to stockholder Approval as described in Section 9(x) of this Agreement for an increase in the authorized common shares sufficient to permit the delivery of shares of common stock underlying such securities.  The Company and/or the Subsidiaries, as the case may be, have full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform their obligations thereunder.

  

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(d)           Capitalization and Additional Issuances.   The authorized and outstanding capital stock of the Company and Subsidiaries on a fully diluted basis and all outstanding rights to acquire or receive, directly or indirectly, any equity of the Company and Subsidiaries as of the date of this Agreement and the Closing Date (not including the Securities) are set forth on Schedule 5(d).  Except as set forth on Schedule 5(d), there are no options, warrants, or rights to subscribe to, securities, rights, understandings or obligations convertible into or exchangeable for or granting any right to subscribe for any shares of capital stock or other equity interest of the Company or any of the Subsidiaries.  The only officer, director, employee and consultant stock option or stock incentive plan or similar plan currently in effect or contemplated by the Company is described on Schedule 5(d).  There are no outstanding agreements or preemptive or similar rights affecting the Company’s Common Stock or equity.

(e)           Consents.  No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company, Subsidiaries or any of their Affiliates, any Principal Market [as defined in Section 9(b)], or the Company’s stockholders is required for the execution by the Company of the Transaction Documents and compliance and performance by the Company and Subsidiaries of their obligations under the Transaction Documents, including, without limitation, the issuance and sale of the Securities except that stockholder Approval as described in Section 9(x) of this Agreement is required for an increase in the authorized common shares sufficient to permit the delivery of shares of common stock.  The Transaction Documents and the Company’s performance of its obligations thereunder has been unanimously approved by the Company’s board of directors in accordance with the Company’s Certificate of Incorporation and applicable law.  Any such qualifications and filings will, in the case of qualifications, be effective upon Closing and will, in the case of filings, be made within the time prescribed by law.

(f)           No Violation or Conflict.  Assuming the representations and warranties of the Subscriber in Section 4 are true and correct, neither the issuance nor the sale of the Securities nor the performance of the Company’s obligations under the Transaction Documents by the Company, will:

	 	
(i)

	
violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (A) the articles or certificate of incorporation, charter or bylaws of the Company, (B) to the Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or over the properties or assets of the Company or any of its Affiliates, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or any of its Affiliates is a party, by which the Company or any of its Affiliates is bound, or to which any of the properties of the Company or any of its Affiliates is subject, or (D) the terms of any “lock-up” or similar provision of any underwriting or similar agreement to which the Company, or any of its Affiliates is a party except the violation, conflict, breach, or default of which would not have a Material Adverse Effect; or

(ii)           result in the creation or imposition of any lien, charge or encumbrance upon the Securities or any of the assets of the Company or any of its Affiliates except in favor of Subscriber as described herein; or

	 	
(iii)

	
result in the activation of any anti-dilution rights or a reset or repricing of any debt, equity or security instrument of any creditor or equity holder of the Company, or the holder of the right to receive any debt, equity or security instrument of the Company nor result in the acceleration of the due date of any obligation of the Company; or

           (iv)           result in the triggering of any piggy-back or other registration rights of any person or entity holding securities of the Company or having the right to receive securities of the Company.

  

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(g)           The Securities.  The Securities upon issuance:

 

(i)           are, or will be, free and clear of any security interests, liens, claims or other encumbrances, subject only to restrictions upon transfer under the 1933 Act and any applicable state securities laws;

(ii)           have been, or will be, duly and validly authorized and on the dates of issuance of the Notes and Warrants, the Conversion Shares upon conversion of the Notes, and the Warrant Shares upon exercise of the Warrants, such Notes, Warrants, Conversion Shares and Warrant Shares will be duly and validly issued, fully paid and non-assessable and if registered pursuant to the 1933 Act and resold pursuant to an effective registration statement or an exemption from registration, will be free trading, unrestricted and unlegended;

(iii)           will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company or rights to acquire securities or debt of the Company;

(iv)           will not subject the holders thereof to personal liability by reason of being such holders; and

           (v)           assuming the representations and warranties of the Subscriber as set forth in Section 4 hereof are true and correct, will not result in a violation of Section 5 under the 1933 Act.

(h)           Litigation.  There is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates that would affect the execution by the Company or the complete and timely performance by the Company of its obligations under the Transaction Documents.  Except as disclosed in the Reports, there is no pending or, to the best knowledge of the Company, basis for or threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates which litigation if adversely determined would have a Material Adverse Effect.

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

(j)           Information Concerning Company.  The Reports and Other Written Information contain all material information relating to the Company and its operations and financial condition as of their respective dates which information is required to be disclosed therein.   Since December 9, 2010, and except as disclosed in the Reports or modified in the Reports and Other Written Information or in the Schedules hereto, there has been no Material Adverse Effect relating to the Company’s business, financial condition or affairs. The Reports and Other Written Information including the financial statements included therein do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, taken as a whole, not misleading in light of the circumstances and when made.

  

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(k)           Defaults.  The Company is not in violation of its articles of incorporation or bylaws.   The Company is (i) not in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters which default would have a Material Adverse Effect, or (ii) not in violation of any statute, rule or regulation of any governmental authority which violation would have a Material Adverse Effect.

(l)           No Integrated Offering.   Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security of the Company nor solicited any offers to buy any security of the Company under circumstances that would cause the offer of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the Bulletin Board.  No prior offering will impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.  Neither the Company nor any of its Affiliates will take any action or suffer any inaction or conduct any offering other than the transactions contemplated hereby that may be integrated with the offer or issuance of the Securities or that would impair the exemptions relied upon in this Offering or the Company’s ability to timely comply with its obligations hereunder.

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

(n)           No Undisclosed Liabilities.  The Company has no liabilities or obligations which are material, individually or in the aggregate, other than those incurred in the ordinary course of the Company’s business since September 30, 2010, and which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, except as disclosed in the Reports or in Schedule 5(n).

(o)           No Undisclosed Events or Circumstances.  Since September 30, 2010, except as disclosed in the Reports, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the Reports.

(p)           Dilution.   The Company’s executive officers and directors understand the nature of the Securities being sold hereby and recognize that the issuance of the Securities will have a potential dilutive effect on the equity holdings of other holders of the Company’s equity or rights to receive equity of the Company.  The board of directors of the Company has concluded, in its good faith business judgment, that the issuance of the Securities is in the best interests of the Company.  The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Notes and the Warrant Shares upon exercise of the Warrants subject to stockholder Approval as described in Section 9(x) of this Agreement for an increase in the authorized common shares sufficient to permit the delivery of shares of common stock, is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other stockholders of the Company or parties entitled to receive equity of the Company.

  

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(q)           No Disagreements with Accountants and Lawyers.  There are no material disagreements of any kind presently existing, or reasonably anticipated by the Company to arise between the Company and the accountants and lawyers previously and presently employed by the Company, including but not limited to disputes or conflicts over payment owed to such accountants and lawyers, nor have there been any such disagreements during the two years prior to the Closing Date.

(r)           Investment Company.   Neither the Company nor any Affiliate of the Company is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

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

(t)           Reporting Company/Shell Company.  The Company is a publicly-held company subject to reporting obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the “1934 Act”).  Pursuant to the provisions of the 1934 Act, the Company has filed all reports and other materials required to be filed thereunder with the Commission during the preceding twelve months.  As of the Closing Date, the Company is not a “shell company” as those terms are employed in Rule 144 under the 1933 Act.

(u)           Listing.  The Company’s Common Stock is quoted on the OTC Bulletin Board (“Bulletin Board”) under the symbol BLGA.  The Company has not received any pending oral or written notice that its Common Stock is not eligible nor will become ineligible for quotation on the Bulletin Board nor that its Common Stock does not meet all requirements for the continuation of such quotation.

(v)           DTC Status.   The Company’s transfer agent is a participant in the Depository Trust Company Automated Securities Transfer Program. The name, address, telephone number, fax number, contact person and email address of the Company transfer agent is set forth on Schedule 5(v) hereto.

(w)           Company Predecessor and Subsidiaries.  The Company makes each of the representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j), (k), (l), (o), (p), (r), (s) and (t) of this Agreement, as same relate or could be applicable to each Subsidiary.  All representations made by or relating to the Company of a historical or prospective nature and all undertakings described in Section 9 shall relate, apply and refer to the Company and Subsidiaries and their predecessors and successors.

  

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(x)           Correctness of Representations.  The Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, and, unless the Company otherwise notifies the Subscriber prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date; provided, that, if such representation or warranty is made as of a different date, in which case such representation or warranty shall be true as of such date.

(y)           Survival.  The foregoing representations and warranties shall survive the Closing Date.

6.           Regulation D Offering/Legal Opinion.  The offer and issuance of the Securities to the Subscriber is being made pursuant to the exemption from the registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder.  On the Closing Date, the Company will provide an opinion reasonably acceptable to the Subscriber from the Company’s legal counsel opining on the availability of an exemption from registration under the 1933 Act as it relates to the offer and issuance of the Securities and other matters reasonably requested by Subscriber.  A form of the legal opinion is annexed hereto as Exhibit D.  Subject to stockholder Approval as described in Section 9(x) of this Agreement for an increase in the authorized common shares sufficient to permit the delivery of shares of common stock, the Company will provide, at the Company’s expense, to the Subscriber, such other legal opinions, if any, as are reasonably necessary in Subscriber’s opinion for the issuance and resale of Common Stock issuable upon conversion of the Notes and exercise of Warrants, Conversion Shares and Warrant Shares pursuant to an effective registration statement, Rule 144 under the 1933 Act or an exemption from registration.

                    7.1.           Conversion of Notes.

(a)           Upon the conversion of a Note or part thereof, the Company shall, at its own cost and expense, take all necessary action, including obtaining and delivering an opinion of counsel to assure that the Company’s transfer agent shall issue stock certificates in the name of Subscriber (or its permitted nominee) or such other persons as designated by Subscriber and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion.  The Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company’s Common Stock and that the certificates representing such shares shall contain no legend other than the legend set forth in Section 4(h).  If and when Subscriber sells the Conversion Shares, assuming (i) a registration statement including such Conversion Shares for registration has been filed with the Commission, is effective and the prospectus, as supplemented or amended, contained therein is current and (ii) Subscriber or its agent confirms in writing to the transfer agent that Subscriber has complied with the prospectus delivery requirements, the Company will reissue the Conversion Shares without restrictive legend and the Conversion Shares will be free-trading, and freely transferable.  In the event that the Conversion Shares are sold in a manner that complies with an exemption from registration, the Company will promptly instruct its counsel to issue to the transfer agent an opinion permitting removal of the legend indefinitely if such sale is intended to be made in conformity with Rule 144(b)(1)(i) of the 1933 Act, or for 90 days if pursuant to the other provisions of Rule 144 of the 1933 Act, provided that Subscriber delivers reasonably requested representations in support of such opinion.

  

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(b)           Subscriber will give notice of its decision to exercise its right to convert its Note, interest, or part thereof by telecopying, or otherwise delivering a completed Notice of Conversion (a form of which is annexed as Exhibit A to the Note) to the Company via confirmed telecopier transmission or otherwise pursuant to Section 13(a) of this Agreement.  Subscriber will not be required to surrender the Note until the Note has been fully converted or satisfied.  Each date on which a Notice of Conversion is telecopied to the Company in accordance with the provisions hereof by 6 PM Eastern Time (“ET”) (or if received by the Company after 6 PM ET, then the next business day) shall be deemed a “Conversion Date.”  Subject to stockholder Approval as described in Section 9(x) of this Agreement for an increase in the authorized common shares sufficient to permit the delivery of shares of common stock, the Company will itself or cause the Company’s transfer agent to transmit the Company’s Common Stock certificates representing the Conversion Shares issuable upon conversion of the Note to Subscriber via express courier for receipt by Subscriber within three days after the Conversion Date (such third day being the “Delivery Date”).  In the event the Conversion Shares are electronically transferable, then delivery of the Shares must be made by electronic transfer provided request for such electronic transfer has been made by the Subscriber.   A Note representing the balance of the Note not so converted will be provided by the Company to Subscriber if requested by Subscriber, provided Subscriber delivers the original Note to the Company.

(c)           The Company understands that a delay in the delivery of the Conversion Shares in the form required pursuant to Section 7.1 hereof later than the Delivery Date could result in economic loss to the Subscriber.  As compensation to Subscriber for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to each applicable Subscriber for late issuance of Conversion Shares in the form required pursuant to Section 7.1 hereof upon Conversion of the Note, the amount of $100 per business day after the Delivery Date for each $10,000 of Note principal amount and interest (and proportionately for other amounts) being converted of the corresponding Conversion Shares which are not timely delivered.  The Company shall pay any payments incurred under this Section upon demand.  Furthermore, in addition to any other remedies which may be available to the Subscriber, in the event that the Company fails for any reason to effect delivery of the Conversion Shares on or before the Delivery Date, the Subscriber will be entitled to revoke all or part of the relevant Notice of Conversion by delivery of a notice to such effect to the Company whereupon the Company and Subscriber shall each be restored to their respective positions immediately prior to the delivery of such notice, except that the damages payable in connection with the Company’s default shall be payable through the date notice of revocation or rescission is given to the Company.

           7.2.           Mandatory Redemption at Subscriber’s Election.  Subject to stockholder Approval as described in Section 9(x) of this Agreement for an increase in the authorized common shares sufficient to permit the delivery of shares of common stock, in the event (i) the Company is prohibited from issuing Conversion Shares, (ii) upon the occurrence of any other Event of Default (as defined in the Note, this Agreement or any other Transaction Document), that continues beyond any applicable cure period, (iii) a Change in Control (as defined below) occurs, or (iv) upon the liquidation, dissolution or winding up of the Company or any Subsidiary, then at the Subscriber's election, the Company must pay to Subscriber not later than ten (10) days after request by such Subscriber, a sum of money determined by multiplying up to the outstanding principal amount of the Note designated by each such Subscriber by, at Subscriber’s election, the greater of (i) 120%, or (ii) a fraction the numerator of which is the highest closing price of the Common Stock for the thirty days preceding the date demand is made by Subscriber pursuant to this Section 7.2 and the denominator of which is the lowest applicable conversion price during such thirty (30) day period, plus accrued but unpaid interest and any other amounts due under the Transaction Documents ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be received by Subscriber on the same date as the Conversion Shares otherwise deliverable or within ten (10) days after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding Note principal, interest and other amounts will be deemed paid and no longer outstanding.  The Subscriber may rescind the election to receive a Mandatory Redemption Payment at any time until such payment is actually received.  Liquidated damages calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued for the ten day period prior to the actual receipt of the Mandatory Redemption Payment by such Subscriber shall be credited against the Mandatory Redemption Payment provided the balance of the Mandatory Redemption Payment is timely paid.  For purposes of this Section 7.2, “Change in Control” shall mean (i) the Company  becoming a Subsidiary of another entity (other than a corporation formed by the Company for purposes of reincorporation in another U.S. jurisdiction), (ii) the sale, lease or transfer of substantially all the assets of the Company or any Subsidiary, or (iii) a majority of the members of the Company’s board of directors as of the Closing Date no longer serving as directors of the Company, except as a result of natural causes or as a result of hiring additional outside directors in order to meet appropriate stock exchange requirements, unless prior written consent of the Subscriber had been obtained by the Company.  The foregoing notwithstanding, Subscriber may demand and receive from the Company the amount stated above or any other greater amount which Subscriber is entitled to receive or demand pursuant to the Transaction Documents.

  

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7.3.           Maximum Conversion.  A Subscriber shall not be entitled to convert on a Conversion Date that amount of a Note nor may the Company make any payment including principal, interest, or liquidated or other damages by delivery of Conversion Shares in connection with that number of Conversion Shares which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by such Subscriber and its Affiliates on a Conversion Date or payment date, and (ii) the number of Conversion Shares issuable upon the conversion of the Note with respect to which the determination of this provision is being made on a calculation date, which would result in beneficial ownership by Subscriber and its Affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such Conversion Date.  For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.  Subject to the foregoing, the Subscriber shall not be limited to aggregate conversions of only 4.99% and aggregate conversions by the Subscriber may exceed 4.99%.  The Subscriber shall have the authority to determine whether the restriction contained in this Section 7.3 will limit any conversion of a Note and the extent such limitation applies and to which convertible or exercisable instrument or part thereof such limitation applies.  The Subscriber may increase the permitted beneficial ownership amount upon and effective after 61 days prior written notice to the Company.  Subscriber may allocate which of the equity of the Company deemed beneficially owned by Subscriber shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%.

7.4.           Injunction Posting of Bond.  In the event Subscriber shall elect to convert a Note or part thereof, or exercise a Warrant, the Company may not refuse conversion or exercise based on any claim that Subscriber or any one associated or affiliated with Subscriber has been engaged in any violation of law, or for any other reason, unless, a final non-appealable injunction from a court made on notice to Subscriber, restraining and or enjoining conversion of all or part of such Note or exercise of such Warrant shall have been sought and obtained by the Company or the Company has posted a surety bond for the benefit of Subscriber in the amount of 120% of the greater of the outstanding principal and accrued but unpaid interest of the Note, or aggregate purchase price of the Conversion Shares, or 120% of the aggregate exercise price of the Warrants which are sought to be subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to Subscriber to the extent the judgment or decision is in Subscriber’s favor.

           

7.5.           Buy-In.   In addition to any other rights available to Subscriber, if the Company fails to deliver to a Subscriber Conversion Shares by the Delivery Date and if after the Delivery Date Subscriber or a broker on Subscriber’s behalf purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by Subscriber of the Common Stock which Subscriber was entitled to receive upon such conversion (a “Buy-In”), then the Company shall pay to Subscriber (in addition to any remedies available to or elected by the Subscriber) the amount by which (A) Subscriber’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note for which such conversion request was not timely honored together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if a Subscriber purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of Note principal and/or interest, the Company shall be required to pay Subscriber $1,000 plus interest. Subscriber shall provide the Company written notice and evidence indicating the amounts payable to Subscriber in respect of the Buy-In.

7.6.           Redemption.    The Note shall not be redeemable or callable by the Company, except as described in the Note.

8.           Fees.

(a)           Broker’s Commission.  The Company on the one hand, and Subscriber (for himself only) on the other hand, agrees to indemnify the other against and hold the other harmless from any and all liabilities to any persons claiming brokerage commissions or similar fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby and arising out of such party’s actions.  The Company represents that there are no parties entitled to receive fees, commissions, finder’s fees, due diligence fees or similar payments in connection with the Offering.  Anything in this Agreement to the contrary notwithstanding, Subscriber is providing indemnification only for such Subscriber’s own actions.  The liability of the Company and Subscriber’s liability hereunder is several and not joint.  The Company represents that to the best of its knowledge there are no other parties entitled to receive fees, commissions, or similar payments in connection with the Offering.

(b)           Subscriber’s Legal Fees.   The Company shall pay to Grushko & Mittman, P.C., a cash fee of $10,000 (“Legal Fees”) as reimbursement for services rendered in connection with the transactions described in the Transaction Documents. The Legal Fees will be payable out of funds held pursuant to the Escrow Agreement.  Grushko & Mittman, P.C. will be reimbursed at Closing by the Company for all lien searches, filing fees, and reasonable printing and shipping costs for the closing statements to be delivered to Subscriber.

  

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9.           Covenants of the Company.  The Company covenants and agrees with the Subscriber as follows:

(a)           Stop Orders.  Subject to the prior notice requirement described in Section 9(n), the Company will advise the Subscriber, within twenty-four hours after it receives notice of issuance by the Commission, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.  The Company will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws provided at least five (5) days prior notice of such instruction is given to the Subscriber.

(b)           Listing/Quotation.  The Company shall promptly secure the quotation or listing of the Conversion Shares and Warrant Shares upon each national securities exchange, or automated quotation system upon which the Company’s Common Stock is quoted or listed and upon which such Conversion Shares and Warrant Shares are or become eligible for quotation or listing (subject to official notice of issuance) and shall maintain same so long as any Notes and Warrants are outstanding.  The Company will maintain the quotation or listing of its Common Stock on the NYSE Amex Equities, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global Select Market, Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock (the “Principal Market”), and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market, as applicable. Subject to the limitation set forth in Section 9(n), the Company will provide Subscriber with copies of all notices it receives notifying the Company of the threatened and actual delisting of the Common Stock from any Principal Market.  As of the date of this Agreement and the Closing Date, the Bulletin Board is the Principal Market.

(c)           Market Regulations.  If required, the Company shall notify the Commission, the Principal Market and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Subscriber and promptly provide copies thereof to the Subscriber.

(d)           Filing Requirements.  From the date of this Agreement and until the last to occur of (i) all the Conversion Shares have been resold or transferred by the Subscriber pursuant to a registration statement or pursuant to Rule 144(b)(1)(i), or (ii) none of the Notes and Warrants are outstanding (the date of such latest occurrence being the “End Date”), the Company will (A) comply in all respects with its reporting and filing obligations under the 1934 Act, (B) voluntarily comply with all reporting requirements that are applicable to an issuer with a class of shares registered pursuant to Section 12(g) of the 1934 Act even if the Company is not subject to such reporting requirements sufficient to permit Subscriber to be able to resell the Conversion Shares and Warrant Shares pursuant to Rule 144(b)(i), and (C) comply with all requirements related to any registration statement filed pursuant to this Agreement.  The Company will use its commercially reasonable best efforts not to take any action or file any document (whether or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said acts until the End Date.  Until the End Date, the Company will continue the listing or quotation of the Common Stock on a Principal Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Market.  The Company agrees to timely file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to Subscriber promptly after such filing.

  

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(e)           Use of Proceeds.   The proceeds of the Offering will be substantially employed by the Company for the purposes set forth on Schedule 9(e) hereto.  Except as described on Schedule 9(e), the Purchase Price may not and will not be used for accrued and unpaid officer and director salaries, nor payment of financing related debt nor redemption of outstanding notes or equity instruments of the Company nor non-trade payables outstanding on the Closing Date.

(f)           Reservation.   Subject to stockholder Approval as described in Section 9(x) of this Agreement for an increase in the authorized common shares sufficient to permit the delivery of shares of common stock, the Company undertakes to reserve on behalf of Subscriber from its authorized but unissued Common Stock, a number of shares of Common Stock equal to 150% of the amount of Common Stock necessary to allow Subscriber to be able to convert all of the Notes (including interest that would accrue thereon through the Maturity Date (as defined in the Notes)) and 100% of the amount of Warrant Shares issuable upon exercise of the Warrants (“Required Reservation”).   Failure to have sufficient shares reserved pursuant to this Section 9(f) at any time shall be a material default of the Company’s obligations under this Agreement and an Event of Default under the Notes.  Without waiving the foregoing requirement, if at any time Notes and Warrants are outstanding the Company has reserved on behalf of the Subscriber less than 125% of the amount necessary for full conversion of the outstanding Note principal and interest at the conversion price in effect on every such date and 100% of the Warrant Shares issuable upon exercise of outstanding Warrants (“Minimum Required Reservation”), the Company will promptly reserve the Minimum Required Reservation, or if there are insufficient authorized and available shares of Common Stock to do so, the Company will take all action necessary to increase its authorized capital to be able to fully satisfy its reservation requirements hereunder, including the filing of a preliminary proxy with the Commission not later than fifteen (15) days after the first day the Company has reserved less than the Minimum Required Reservation.  The Company agrees to provide notice to the Subscriber not later than five days after the date the Company has less than the Minimum Required Reservation reserved on behalf of the Subscriber.

(g)           DTC Program.  At all times that Notes or Warrants are outstanding, the Company will employ as the transfer agent for the Common Stock, Conversion Shares and Warrant Shares a participant in the Depository Trust Company Automated Securities Transfer Program and cause the Common Stock to be transferable pursuant to such program.

(h)           Taxes.  From the date of this Agreement and until the End Date, the Company will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefore.

(i)           Insurance.  As reasonably necessary as determined by the Company, from the date of this Agreement and until the End Date, the Company will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Company’s line of business and location, in amounts and to the extent and in the manner customary for companies in similar businesses similarly situated and located and to the extent available on commercially reasonable terms.

(j)           Books and Records.  From the date of this Agreement and until the End Date, the Company will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis.

(k)           Governmental Authorities.   From the date of this Agreement and until the End Date, the Company shall duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its properties or assets.

  

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(l)           Intellectual Property.  From the date of this Agreement and until the End Date, the Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to use intellectual property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business, unless it is sold for value.  Schedule 9(l) hereto identifies all of the intellectual property owned by the Company and Subsidiaries, which schedule includes but is not limited to patents, patents pending, patent applications, trademarks, tradenames, service marks and copyrights.

(m)           Properties.  From the date of this Agreement and until the End Date, the Company will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and the Company will at all times comply with each provision of all leases and claims to which it is a party or under which it occupies or has rights to property if the breach of such provision could reasonably be expected to have a Material Adverse Effect.  The Company will not abandon any of its assets except for those assets which have negligible or marginal value or for which it is prudent to do so under the circumstances.

(n)           Confidentiality/Public Announcement.   From the date of this Agreement and until the End Date, the Company agrees that except in connection with a Form 8-K, Form 10-Q, Form 10-K and the registration statement or statements regarding the Subscriber’s Securities or in correspondence with the Commission regarding same, it will not disclose publicly or privately the identity of the Subscriber unless expressly agreed to in writing by Subscriber or only to the extent required by law and then only upon not less than two (2) days prior notice to Subscriber.  In any event and subject to the foregoing, the Company undertakes to file a Form 8-K and make a public announcement describing the Offering not later than the first business day after the Closing Date.  In the Form 8-K or public announcement, the Company will specifically disclose the amount of Common Stock outstanding immediately after the Closing.  Upon  delivery by the Company to the Subscriber after the Closing Date of any notice or information, in writing, electronically or otherwise, and while a Note, Conversion Shares or Warrants are held by Subscriber, unless the  Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or Subsidiaries, the Company  shall within four (4) days after any such delivery publicly disclose such  material,  nonpublic  information on a Report on Form 8-K.  In the event that the Company believes that a notice or communication to Subscriber contains material, nonpublic information relating to the Company or Subsidiaries, except as required to be delivered in connection with this Agreement, the Company shall so indicate to Subscriber prior to delivery of such notice or information.  Subscriber will be granted five days to notify the Company that Subscriber elects not to receive such information.   In the case that Subscriber elects not to receive such information, the Company will not deliver such information to Subscriber.  In the absence of any such Company indication, Subscriber shall be allowed to presume that all matters relating to such notice and information do not constitute material, nonpublic information relating to the Company or Subsidiaries.

         (o)           Non-Public Information.  The Company covenants and agrees that except for the Reports, Other Written Information and schedules and exhibits to this Agreement and the Transaction Documents, which information the Company undertakes to publicly disclose on the Form 8-K described in Section 9(n) above, neither it nor any other person acting on its behalf will at any time provide Subscriber or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Subscriber, its agent or counsel shall have agreed in writing to accept such information as described in Section 9(n) above.  The Company understands and confirms that the Subscriber shall be relying on the foregoing representations in effecting transactions in securities of the Company.  The Company agrees that any information known to Subscriber not already made public by the Company may be made public and disclosed by the Subscriber.

(p)           Negative Covenants.   So long as a Note is outstanding, without the consent of Subscriber, the Company will not and will not permit any of its Subsidiaries to directly or indirectly:

  

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(i)           create, incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, security title, mortgage, security deed or deed of trust, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its property, whether now owned or hereafter acquired except for:  ) (a) Liens imposed by law for taxes that are not yet due or are being contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles; (b) carriers’, warehousemen’s, mechanic’s, material men’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or that are being contested in good faith and by appropriate proceedings; (c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) Liens created with respect to the financing of the purchase of new property in the ordinary course of the Company’s business up to the amount of the purchase price of such property;  (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property (each of (a) through (f), a “Permitted Lien”);

                                            (ii)           except as contemplated by Section 9(x) herein, amend its certificate of incorporation, bylaws or its charter documents so as to materially and adversely affect any rights of the Subscriber;

(iii)           repay, repurchase or offer to repay, repurchase or otherwise acquire or make any dividend or distribution in respect of any of its Common Stock, preferred stock, or other equity securities other than to the extent permitted or required under the Transaction Documents;

(iv)           except as set forth on Schedule 9(p)(iv), engage in any transactions with any officer, director, employee or any Affiliate of the Company, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $100,000 other than (i) for payment of salary, or fees for services rendered, pursuant to and on the terms of a written contract in effect at least one  day prior to the Closing Date, a copy of which has been provided to the Subscriber at least one day prior to the Closing Date, (ii) reimbursement for authorized expenses incurred on behalf of the Company, (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company disclosed in the Reports, or (iv) other transactions disclosed in the Reports; or

(v)           pay or redeem any financing related debt or past due obligations or securities outstanding as of the Closing Date, or past due obligations, vendor or existing obligations, which in management’s good faith, reasonable judgment must be paid to avoid disruption of the Company’s businesses].

  

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(q)           Offering Restrictions.   Subject to the consent of the Subscriber, for so long as the Notes are outstanding, the Company will not enter into or exercise any Equity Line of Credit or similar agreement, nor issue nor agree to issue any floating or Variable Priced Equity Linked Instruments nor any of the foregoing or equity with price reset rights (collectively, the “Variable Rate Restrictions”).   For purposes hereof, “Equity Line of Credit” shall include any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its securities to the investor or underwriter over an agreed period of time and at an agreed price or price formula, and “Variable Priced Equity Linked Instruments” shall include: (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (2) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security due to a change in the market price of the Company’s Common Stock since date of initial issuance, and (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required or has the option to (or any investor in such transaction has the option to require the Company to) make such amortization payments in shares of Common Stock which are valued at a price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security (whether or not such payments in stock are subject to certain equity conditions).  The foregoing notwithstanding, until twelve (12) months after the Closing Date, for so long as any Securities are outstanding, except for the Excepted Issuances, the Company will not enter into an agreement to issue nor issue any equity, convertible debt or other securities convertible into Common Stock or equity of the Company at a convertible or exercisable price below $0.06, nor modify any of the foregoing which may be outstanding at anytime, without the prior written consent of the Subscriber.

(r)           Seniority.   Except for Permitted Liens, until the Notes are fully satisfied or converted, without written consent of Subscriber, the Company and Subsidiaries shall not grant nor allow any security interest to be taken in any assets of the Company or any Subsidiary or any Subsidiary’s assets; nor issue or amend any debt, equity or other instrument which would give the holder thereof directly or indirectly, a right in any equity or assets of the Company or any Subsidiary or any right to payment equal to or superior to any right of the Subscriber as holders of the Notes in or to such equity, assets or payment, nor issue or incur any debt not in the ordinary course of business.

(s)           Notices.   For so long as the Subscriber holds any Notes or Warrants, the Company will maintain a United States address and United States fax number for notice purposes under the Transaction Documents.

(t)           Transactions with Insiders.  So long as the Notes are outstanding without a consent of Subscriber, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, materially amend, materially modify or materially supplement, or permit any Subsidiary to enter into, materially amend, materially modify or materially supplement, any agreement, transaction, commitment, or arrangement relating to the sale, transfer or assignment of any of the Company’s tangible or intangible assets with any of its Insiders (as defined below)(or any persons who were Insiders at any time during the previous two (2) years), or any Affiliates (as defined below) thereof, or with any individual related by blood, marriage, or adoption to any such individual.  “Affiliate” for purposes of this Section 9(t) means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.  “Control” or “Controls” for purposes of the Transaction Documents means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity.  For purposes hereof, “Insiders” shall mean any officer, director or manager of the Company, including but not limited to the Company’s president, chief executive officer, chief financial officer and chief operations officer, and any of their affiliates or family members.

  

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(u)           Stock Splits.  For so long as the Notes are outstanding, the Company undertakes and covenants that without the consent of Subscriber, the Company will not enter into any stock splits without the consent of Subscriber.

(v)           Notice of Event of Default.  The Company agrees to notify Subscriber of the occurrence of an Event of Default (as defined and employed in the Transaction Documents) not later than ten (10) days after any of the Company’s officers or directors becomes aware of such Event of Default.

(w)           Further Registration Statements.   The Company will not, without the consent of Subscriber, file with the Commission or with state regulatory authorities any registration statements including a registration statement on Form S-8 or amend any already filed registration statement to increase the amount of Common Stock registered therein, or reduce the price of which such company securities are registered therein, until the expiration of the “Exclusion Period,” which shall be defined as until all the Conversion Shares and Warrant Shares may be resold by the Subscriber pursuant to a registration statement or Rule 144b(1)(i), without regard to volume limitations.  The Exclusion Period will be tolled or reinstated, as the case may be, during the pendency of an Event of Default as defined in the Note.

(x)           Approval.   The Company undertakes on or before six months after the Closing Date, to obtain shareholder approval (“Approval”) in order to increase the authorized shares of Common Stock of the Company in order to have sufficient shares available for the conversion of the Note and exercise of the Warrants.  Failure by the Company to timely obtain the Approval and have sufficient authorized shares available for Subscriber to convert the Note and exercise the Warrant on or before six months after the Closing Date (“Approval Default”) is an Event of Default under this Agreement, the Note, the Warrant and all of the Transaction Documents.

  

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10.           Covenants of the Company Regarding Indemnification.

(a)           The Company agrees to indemnify, hold harmless, reimburse and defend the Subscriber, the Subscriber’s officers, directors, agents, counsel, Affiliates, members, managers, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber or any such person which results, arises out of or is based upon (i) any material misrepresentation by Company or breach of any representation or warranty by Company in this Agreement or in any Exhibits or Schedules attached hereto in any Transaction Document, or other agreement delivered pursuant hereto or in connection herewith, now or after the date hereof; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Subscriber relating hereto.

 

(b)           In no event shall the liability of the Subscriber or permitted successor hereunder or under any Transaction Document or other agreement delivered in connection herewith be greater in amount than the dollar amount of the net proceeds actually received by such Subscriber or successor upon the sale of Registrable Securities (as defined herein).

11.           (a)           Favored Nations Provision.  Other than in connection with (i) full or partial consideration in connection with a bona fide strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity so long as such issuances are not for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights, and which have been approved by Subscriber, (ii) the Company’s issuance of securities in connection with bona fide strategic license agreements and other bona fide partnering arrangements so long as such issuances are not for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights, and which have been approved by Subscriber, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans described on Schedule 5(d) , (iv) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement on the terms disclosed in the Reports and which securities are also described on Schedule 11(a), and (v) as a result of the exercise of Warrants or conversion of Notes which are granted or issued pursuant to this Agreement on the unamended terms in effect on the Closing Date (collectively, the foregoing (i) through (v) are “Excepted Issuances”), if at any time the Notes or Warrants are outstanding, the Company shall agree to or issue (the “Lower Price Issuance”) any Common Stock or securities convertible into or exercisable for shares of Common Stock (or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise price per share which shall be less than the Conversion Price in effect at such time, or if less than the Warrant exercise price in effect at such time, without the consent of the Subscriber, then the Conversion Price and Warrant exercise price shall automatically be reduced to such other lower price.  The average Conversion Price of the Conversion Shares and average exercise price in relation to the Warrant Shares shall be calculated separately for the Conversion Shares and Warrant Shares. Common Stock issued or issuable by the Company for no consideration or for consideration that cannot be determined at the time of issue will be deemed issuable or to have been issued for $0.001 per share of Common Stock.  For purposes of the issuance and adjustments described in this paragraph, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or any warrant, right or option to purchase Common Stock shall result in the issuance of the additional shares of Common Stock upon the sooner of the agreement to or actual issuance of such convertible security, warrant, right or options and again at any time upon any subsequent issuances of shares of Common Stock upon exercise of such conversion or purchase rights if such issuance is at a price lower than the Conversion Price or Warrant exercise price in effect upon such issuance.  The rights of Subscriber set forth in this Section 12 are in addition to any other rights the Subscriber has pursuant to this Agreement, the Notes, Warrants, any other Transaction Document, and any other agreement referred to or entered into in connection herewith or to which Subscriber and Company are parties.

  

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(b)           Right of First Refusal.  Subject to Tango Point’s right of first refusal only if the Company and Tango Point are in full compliance with the terms of their contract, then, until the earlier of (i) eighteen (18) months following the Closing Date, or (ii) the termination of the Exclusion Period [as defined in Section 9(w)], the Subscriber shall be given not less than fifteen (15) days prior written notice of any proposed sale by the Company of its common stock or other securities or equity linked debt obligations (“Other Offering”), except in connection with the Excepted Issuances.  If Subscriber elects to exercise its rights pursuant to this Section 11(b), the Subscriber shall have the right during the fifteen (15) days following receipt of the notice, to purchase in the aggregate up to all of such offered common stock, debt or other securities in accordance with the terms and conditions set forth in the notice of sale, relative to each other in proportion to the amount of Note Principal issued to it on the Closing Date.  In the event such terms and conditions are modified during the notice period, Subscriber shall be given prompt notice of such modification and shall have the right during the fifteen (15) days following the notice of modification to exercise such right.

(c)           Maximum Exercise of Rights.   In the event the exercise of the rights described in Section 11(a) and Section 11(b) would or could result in the issuance of an amount of Common Stock of the Company that would exceed the maximum amount that may be issued to a Subscriber calculated in the manner described in Section 7.3 of this Agreement, then the issuance of such additional shares of Common Stock of the Company to such Subscriber will be deferred in whole or in part until such time as such Subscriber is able to beneficially own such Common Stock without exceeding the applicable maximum amount set forth calculated in the manner described in Section 7.3 of this Agreement and such Subscriber notifies the Company accordingly.

12.           Miscellaneous.

(a)           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Company, to: BlastGard International, Inc., 2451 McMullen Booth Road, Suite 242, Clearwater, FL 33759, Attn: Michael J. Gordon, CEO and CFO, facsimile: 727-592-9402, with a copy by fax only to (which shall not constitute notice): Morse & Morse, PLLC, 1400 Old Country Road, Suite #302, Westbury, NY 11590, Attn: Steven Morse, Esq., fax: (516) 487-1452, and (ii) if to the Subscriber, to: the address and fax number indicated on the signature page hereto, with an additional copy by fax only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697-3575.

 (b)           Entire Agreement; Assignment.  This Agreement and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties.  Neither the Company nor the Subscriber has relied on any representations not contained or referred to in this Agreement and the documents delivered herewith.   No right or obligation of the Company shall be assigned without prior notice to and the written consent of the Subscriber.

(c)           Counterparts/Execution.  This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement may be executed by facsimile transmission, PDF, electronic signature or other similar electronic means with the same force and effect as if such signature page were an original thereof.

 

  

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(d)           Law Governing this Agreement.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York.  The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

(e)           Specific Enforcement, Consent to Jurisdiction.  The Company and Subscriber acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.  Subject to Section 12(d) hereof, the Company and Subscriber hereby irrevocably waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction in New York of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

(f)           Damages.   In the event the Subscriber is entitled to receive any liquidated or other damages pursuant to the Transactions Documents, the Subscriber may elect to receive the greater of actual damages or such liquidated damages.  In the event the Subscriber is granted rights under different sections of the Transaction Documents relating to the same subject matter or which may be exercised contemporaneously, or pursuant to which damages or remedies are different, Subscriber is granted the right in Subscriber’s absolute discretion to proceed under such section as Subscriber elects.

(g)           Maximum Payments.   Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Subscriber and thus refunded to the Company.  The Company agrees that it may not and actually waives any right to challenge the effectiveness or applicability of this Section 12(g).

 

 

(h)    Calendar Days.   All references to “days” in the Transaction Documents shall mean calendar days unless otherwise stated.  The terms “business days” and “trading days” shall mean days that the New York Stock Exchange is open for trading for three or more hours.  Time periods shall be determined as if the relevant action, calculation or time period were occurring in New York City.  Any deadline that falls on a non-business day in any of the Transaction Documents shall be automatically extended to the next business day and interest, if any, shall be calculated and payable through such extended period.

 

(i)   Captions: Certain Definitions.  The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement.  As used in this Agreement the term “person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof.

(j)           Severability.  In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability: (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

  

22

  

(k)   Successor Laws.  References in the Transaction Documents to laws, rules, regulations and forms shall also include successors to and functionally equivalent replacements of such laws, rules, regulations and forms.  A successor rule to Rule 144(b)(1)(i) shall include any rule that would be available to a non-Affiliate of the Company for the sale of Common Stock not subject to volume restrictions and after a six month holding period.

 

(l)           Maximum Liability.   In no event shall the liability of the Subscriber or permitted successor hereunder or under any Transaction Document or other agreement delivered in connection herewith be greater in amount than the dollar amount of the net proceeds actually received by such Subscriber or successor upon the sale of Conversion Shares.

(m)           Equal Treatment.   No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered and paid to the Subscriber and its permitted successors and assigns.

(n)           Adjustments.   The conversion price, Warrant exercise price, amount of Conversion Shares and Warrant Shares, trading volume amounts, price/volume amounts and similar figures in the Transaction Documents shall be equitably adjusted and as otherwise described in this Agreement, the Notes and Warrants.

[-SIGNATURE PAGES FOLLOW-]

  

23

  

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us.

	 	 	
BLASTGARD INTERNATIONAL, INC.

a Colorado corporation

	 
	 	 	 	 	 
	 	 	 	 	 
	
 

	 	By:  	
 

	 
	
 

	 	 	
Name: Michael J. Gordon

	 
	
 

	 	 	
Title: Chief Executive Officer and CFO

	 
	 	 	 	 	 
	 	 	

Dated: February ___, 2011

	 

 

	
SUBSCRIBER

	
PRINCIPAL

AMOUNT

	
CLASS A

WARRANTS

	
ALPHA CAPITAL ANSTALT

Pradafant 7

9490 Furstentums

Vaduz, Lichtenstein

Fax No.: 011-42-32323196

 

Taxpayer ID# (if applicable): ______________

 

 

______________________________________

(Signature)

By:

 

	
$160,000.00

	
8,000,000

  

24

  

LIST OF EXHIBITS AND SCHEDULES

 

	 	Exhibit A	 	Form of Note
	 	 	 	 
	 	

Exhibit B       

	 	

Form of Class A Warrants

	 	 	 	 
	 	

Exhibit C  

	 	

Escrow Agreement

	 	 	 	 
	 	

Exhibit D   

	 	

Form of Legal Opinion

	 	 	 	 
	 	

Schedule 5(a)   

	 	

Subsidiaries

	 	 	 	 
	 	

Schedule(d)

	 	

Capitalization and Additional Issuances

	 	 	 	 
	 	

Schedule 5(n)   

	 	

Undisclosed Liabilities

	 	 	 	 
	 	

Schedule 5(v) 

	 	

Transfer Agent

	 	 	 	 
	 	

Schedule 9(e)   

	 	

Use of Proceeds

	 	 	 	 
	 	

Schedule 9(l)  

	 	

Intellectual Property

	 	 	 	 
	 	

Schedule 9(p)(iv) 

	 	

Transactions with Principals

	 	 	 	 
	 	

Schedule 11(a)   

	 	

Excepted Issuances

 

           

  

25

  

 

SCHEDULE 5(a) - SUBSIDIARIES

 

BlastGard International, Inc. owns 100% of BlastGard Technologies, Inc., except for security interest and liens granted to 1$t creditor.

  

26

  

SCHEDULE 5(d) — CAPITALIZATION AND ADDITIONAL ISSUANCES

 

 

BlastGard International, Inc. current capitalization is as follows:

 

60,252,809 - issued and outstanding of Common Stock

 

Preferred stock issued and outstanding and convertible into 5,000,000 shares of Common Stock upon receipt of stock holder approval for an increase in authorized common shares.

2,850,000 – options (this figure does not include 6,250,000 which are conditional on expanding the Plan per pending shareholder meeting)

13,574,164 – warrants*

 

Convertible Debentures*:

 

December 2, 2004 Note - $322,744 as of 12/31/10, convertible at $.03 per share into 10,758,120 shares.

 

*Please note that all outstanding warrants and debt have full anti-dilution protection.

 

  

27

  

SCHEDULE 5(n) — UNDISCLOSED LIABILITIES

 

BlastGard International, Inc. owns 100% of BlastGard Technologies, Inc., except for security interest and liens granted to 1St and 2" creditors.

 

	
Accounts Payable:

	
$150,167

	
Verde Settlement:

	
$ 84,369

	
Regions Credit Line:

	
$ 96,405

	
December 2004 Note:

	
$314,184

	
Accrued Payroll:

	
$288,000

 

  

28

  

SCHEDULE 5(v) — TRANSFER AGENT

 

Corporate Stock Transfer, Inc.

3200 Cherry Creek Dr. South, Ste. 430 Denver, CO 80209

303.282.4800

303.282.4986 F

  

29

  

SCHEDULE 9(e) — USE OF PROCEEDS

 

BlastGard International, Inc. will forward $150,000 to support HighCom Securities and Blastgard operations and $10,000 for legal services.

 

  

30

  

SCHEDULE 9(1) — INTELLECTUAL PROPERTY

 

Explosive devices are increasingly being used in asymmetric warfare to cause destruction to property and loss of life. These explosive devices sometimes can be disrupted, but often there is insufficient warning of an attack. Our BlastWrap® products were created around this core concept. The BlastWrap® patent application was filed with the U.S. Patent and Trademark Office on July 31, 2003. The BlastWrap patent application was filed with Argentina on March 12, 2004; with Kuwait on July 28, 2004, and with the European market, China, Japan, Singapore, New Zealand, Indonesia, Korea, India, Australia, Israel, and Canada on February 27, 2004 and we also filed an application for this technology under the Patent Cooperation Treaty on February 27, 2004. Under this treaty, we expect to have patent protection in most industrialized countries when the patent is issued in each individual country. A substantial number of countries have been added to the list of the treaty members, including almost all of the former Soviet republics and China; thus the new claims will be protected in more than 40 countries. A second patent application for "Blast mitigating container assemblies" was filed with the U.S. Patent and Trademark Office on April 29, 2004 and a new U.S. Continuation-In-Part patent application for "Blast mitigating container assemblies" on January 26, 2005. We also filed an application for this "Blast mitigating container assemblies" technology under the Patent Cooperation Treaty on January 26, 2006.

 

On October 13, 2009, BlastGard was notified by its patent counsel that its patent application for its BlastWrap material was granted from the Eurasian Patent Office. The terms of this patent will expire on February 27, 2024. The patent will be valid in all contracting states: Armenia (AM), Azerbaijan (AZ), Belarus (BY), Kirgizstan (KG), Kazakstan (KZ), Moldova (MD), Russia (RU), Tajikistan (TJ), and Turlunenistan (TM). In addition, we have been issued patents in Argentina, granted on September 17, 2007, and in Singapore, granted on August 31, 2007 for our "improved acoustic/shock wave attenuating assembly" (i.e. BlastWrap). On March 18, 2008, our patent-pending application (No. 11/042,318) for our explosive effect mitigated containers (i.e. BlastGard MTR and MBR") was issued as U.S. Patent No. 7,343,843.

 

31

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