Document:

United States Securities and Exchange Commission Edgar Filing

EXHIBIT 10.1

DEBENTURE AMENDMENT AGREEMENT

This Debenture Amendment Agreement, dated as of November 21, 2008 (the “Agreement”), is hereby made by and between Ambient Corporation, a Delaware corporation (the “Company”) and Vicis Capital Master Fund (“Vicis”), a series of the Vicis Capital Master Trust, a trust formed under the laws of the Cayman Islands, and amends certain provisions of those certain Senior Secured Convertible Promissory Notes issued by the Company to Vicis. 

R E C I T A L S:

WHEREAS, pursuant to a Securities Purchase Agreement dated July 31, 2007 by and between the Company and Vicis, as amended (the “July Purchase Agreement”), Vicis acquired a Secured Convertible Promissory Note in the aggregate principal amount of Seven Million Five Hundred Thousand Dollars ($7,500,000) (the “July Note”).

WHEREAS, pursuant to a Securities Purchase Agreement dated November 1, 2007 by and between the Company and Vicis, as amended (the “November Purchase Agreement”), Vicis acquired a Secured Convertible Promissory Note in the aggregate principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the “November Note”).

WHEREAS, pursuant to a Securities Purchase Agreement dated January 15, 2008 by and between the Company and Vicis, as amended (the “January Purchase Agreement”, together with the July Purchase Agreement and the November Purchase Agreement, the “Purchase Agreements”), Vicis acquired a Secured Convertible Promissory Note in the aggregate principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the “January Note”, together with the July and November Notes, each as amended, the “Debentures”).

WHEREAS, pursuant to the Purchase Agreements, Vicis is the holder of Series A, B, C, D, and E Warrants issued by the Company (the “Warrants”), all of which contain conversion caps (the “Conversion Caps”) that prevent Vicis from exercising an amount of such Warrants to the extent that Vicis would beneficially own (i) greater than 4.99% of the outstanding Common Stock of the Company, and (ii) greater than 9.99% of the outstanding Common Stock of the Company. 

WHEREAS, pursuant to that certain Registration Rights Agreement dated July 31, 2007, by and between the Company and Vicis (as amended, the “Rights Agreement”), the Company agreed that it would file a registration statement (the “Registration Statement”) by the required Filing Date (as defined in the Rights Agreement) with the United States Securities and Exchange Commission (the “SEC”) to register for resale by Vicis shares of the Company’ s common stock underlying the Debentures and Warrants held by Vicis.

WHEREAS, pursuant to that certain Amendment and Waiver dated April 23, 2008 by and between the Company and Vicis (the “Waiver”), the parties agreed that the required Filing Date under the Rights Agreement, as amended, would be December 15, 2008, and that the Company will be in default under the Debentures if the Registration Statement is not declared effective by the SEC on or before April 14, 2009 (“Event of Default”).

WHEREAS, pursuant to Section 4.7 of each of the Debenture, each Debenture may be modified by an instrument in writing signed by the Holder (as defined therein) and the Company.

WHEREAS, in exchange for an additional investment by Vicis of $8,000,000 in the Company, the Company has agreed to amend the Debentures on the terms and conditions set forth herein.

WHEREAS, in connection with the additional investment, the parties wish to amend the required Filing Date under the Rights Agreement, as amended, and Vicis wishes to waive the Event of Default under the Debentures and the Purchase Agreements on the terms as hereinafter set forth.

WHEREAS, in connection with the additional investment, the parties wish to amend the Warrants to remove the Conversion Caps.

WHEREAS, capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreements, Debentures, Warrants, or Rights Agreement, as the case may be.

NOW, THEREFORE, in consideration of the foregoing recitals and for good and other valuable consideration hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

A G R E E M E N T:

1.

Transaction Consideration. In exchange for the amendment to the Debentures as set forth in Section 2 hereof, on the Closing Date, Vicis shall wire in same day federal funds an aggregate amount of $8,000,000 to the Company to an account specified by the Company.

2.

Agreements. 

(a)

Amendments to Debentures. 

(i)

The Company and Vicis hereby agree that that by the execution and delivery of this Agreement, Section 3.2(a) of each Debenture is hereby amended and replaced with the following provision:

“The term “Conversion Price” shall mean $0.015, subject to adjustment under Section 3.6 hereto; provided that, if the closing price per share of Common Stock on the Trading Day immediately preceding June 1, 2009 is less than $0.10, then the Conversion Price with respect to any amount then outstanding under this Note shall be automatically immediately further adjusted to $0.010. The closing price shall be as reported by Bloomberg Financial L.P. on the OTC Bulletin Board (based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time), or if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported.”

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(ii)

The Company and Vicis agree that notwithstanding the provisions of Section 3.6(h) of each Debenture, the Company’s obligation to reserve shares of Common Stock and Vicis’s ability to fully convert the outstanding amount of the Debenture at the $0.010 rate, shall be effective only following the effectiveness of an amendment to the Company’s certificate of incorporation increasing the Company’s number of authorized capital of Common Stock to more than 2,000,000,000 shares.

(b)

Amendment to Rights Agreement. The parties hereby agree that the definition for the term “Filing Date” in the Registration Rights Agreement, as amended, is hereby deleted and replaced in its entirety as follows:

(c)

“Filing Date” means, subject to Section 2(b) hereof, the date 120 days after written notice requesting registration is provided to the Company by the Holder; provided that, if the Filing Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Filing Date shall be the following Business Day.

(d)

Waiver of Default. Vicis hereby irrevocably waives the Event of Default with respect to each Debenture, provided that, the Registration Statement be declared effective by the SEC on or prior to the date that is 120 days after the Filing Date, subject to the provisions of the Registration Rights Agreement, including, without limitation, Section 2(b) thereof. 

(e)

Amendment to Warrants. The parties hereby agree that Section 7 of each Warrant, which contains the Conversion Caps, is hereby removed in its entirety. The parties hereby acknowledge and agree that each Warrant shall be immediately fully exercisable by Vicis without restriction.

(f)

Ratification. Except as expressly amended pursuant to this Agreement, all terms and conditions of each Debenture, each Warrant, the Rights Agreement and each related transaction document are hereby ratified and confirmed in all respects and shall continue in full force and effect. All references to any Debenture or Warrant shall hereafter refer to such Debenture or Warrant, as the case may be, as amended hereby.

(g)

Restrictions on Sales of Company Common Stock. Vicis hereby agrees and covenants that from the date hereof it will not sell any of its shares of the Company’s Common Stock in the open market until June 1, 2009; provided that, this Section 2(f) shall not prohibit sales by Vicis to affiliates.

3.

Representations and Warranties of the Company. The Company hereby represents and warrants to Vicis, as of the date hereof and the Closing Date (except as set forth on the Schedule of Exceptions delivered to Vicis with each numbered Schedule corresponding to the section number herein or in the Commission Documents (as defined below), as follows:

(a)

Organization, Good Standing and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the 

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business conducted or property owned by it makes such qualification necessary except for any jurisdiction(s) (alone or in the aggregate) in which the failure to be so qualified will not have a Material Adverse Effect. For the purposes of this Agreement, “Material Adverse Effect” means (i) any material adverse effect on the business, operations, properties, or financial condition of the Company or its subsidiary “Subsidiary”); (ii) any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to timely perform any of its obligations under this Agreement in any material respect; (iii) any material adverse effect on the legality, validity or enforceability of this Agreement, the Debentures, as amended hereby, or any other instruments delivered in connection herewith (collectively, the “Transaction Documents”). No proceeding or action has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

(b)

Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Debentures, as amended hereby, and the Transaction Documents. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby, including, without limitation, the issuance of the shares of Common Stock underlying the Debentures (the “Debenture Shares”), have been duly and validly authorized by all necessary corporate action, and no further consent or authorization of the Company, its Board of Directors or stockholders is required. When executed and delivered by the Company, each of the Transaction Documents shall constitute a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

(c)

Capitalization. The authorized capital stock of the Company, the number of shares of such capital stock issued and outstanding, and the number of shares of capital stock reserved for issuance upon the exercise or conversion of all outstanding warrants, stock options, and other securities issued by the Company, as of the date hereof, are set forth on Schedule 3(c) hereto. All of the outstanding shares of the Common Stock and each other outstanding security of the Company have been duly and validly authorized and validly issued, fully paid and nonassessable and were issued in accordance with the registration or qualification provisions of the Securities Act of 1933, as amended (the “Securities Act”), or pursuant to valid exemptions therefrom. No shares of Common Stock or any other security of the Company are entitled to preemptive rights, registration rights, rights of first refusal or similar rights and there are no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company. Furthermore, there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into, or exercisable or exchangeable for, shares of capital stock of the Company. The Company is not a party to or bound by any agreement or understanding granting registration or anti-dilution rights to any person with respect to any of its equity or debt securities. The Company is not a party to, and it has no knowledge of, any agreement or understanding restricting the voting or transfer of any shares of the capital stock of the Company. (i) There are no outstanding debt 

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securities, or other form of material debt of the Company, (ii) there are no contracts, commitments, understandings, agreements or arrangements under which the Company is required to register the sale of any of their securities under the Securities Act, (iii) there are no outstanding securities of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings, agreements or arrangements by which the Company is or may become bound to redeem a security of the Company, and (iv) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities. Any Person (defined below) with any right to purchase securities of the Company that would be triggered as a result of the transactions contemplated hereby or by any of the other Transaction Documents has irrevocably waived all such rights or the time for the exercise of such rights has passed. There are no options, warrants or other outstanding securities of the Company (including, without limitation, any equity securities issued pursuant to any Company Plan) the vesting of which will be accelerated by the transactions contemplated hereby or by any of the other Transaction Documents. None of the transactions contemplated by this Agreement or by any of the other Transaction Documents shall cause, directly or indirectly, the acceleration of vesting of any options issued pursuant the Company’s stock option plans.  The Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. For purposes of this Agreement, “Person” shall mean an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. The parties agree that for purposes of this Section 3(c), only matters disclosed on Schedule 3(c) will be deemed disclosed for purposes of this Agreement, notwithstanding the fact such matter may be also disclosed in a Commission Document.

(d)

Issuance of Securities. When the Debenture Shares are issued and paid for in accordance with the terms of this Agreement and as set forth in the applicable Debenture, as the case may be, such shares will be duly authorized by all necessary corporate action and validly issued and outstanding, fully paid and nonassessable, free and clear of all liens, encumbrances and rights of refusal of any kind and the holders shall be entitled to all rights accorded to a holder of Common Stock.

(e)

No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company, the performance by the Company of its obligations under the Debentures, and the consummation by the Company of the transactions contemplated hereby and thereby, (including, without limitation, the reservation for issuance of the Debenture Shares) do not and will not (i) violate or conflict with any provision of the Company’s Certificate of Incorporation (the “Certificate”) or Bylaws (the “Bylaws”), each as amended to date, or any certificate of designations, preferences or rights of any series of preferred stock of the Company; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party or by which the Company’s properties or assets are bound, or (iii) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of each trading market on which the Common 

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Stock of the Company is listed, quoted or traded on the date hereof (each a “Trading Market”) applicable to the Company or by which any property or asset of the Company are bound or affected, except, with respect to clauses (ii) and (iii) above for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect (excluding with respect to federal securities laws ). The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority, self-regulatory organization, or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required under the Exchange Act (as hereinafter defined) to disclose the existence of the transactions contemplated by this Agreement, (ii) the filing of a registration statement pursuant to the Registration Rights Agreement between the parties dated July 31, 2007, as amended; (iii) application(s) to each applicable Trading Market for the listing of the Debenture Shares for trading thereon in the time and manner required thereby, and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws. The Company is unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings pursuant to the preceding sentence.

(f)

Commission Documents, Financial Statements. The Common Stock of the Company is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company, for the two years preceding the date hereof, has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act. At the times of their respective filings, all of the aforementioned reports, schedules, forms, statements and other documents required to be filed by it with the Commission, including, without limitation, the Form 10-KSB for the fiscal year ended December 31, 2007 (the “Form 10-KSB” and, together with the Quarterly Reports on Forms 10-Q filed on each of May 15, August 14, 2008 and November 14, 2008, the “Commission Documents”) complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Each registration statement and any amendment thereto filed by the Company during the two years preceding the date hereof pursuant to the Securities Act and the rules and regulations thereunder, as of the date such statement or amendment became effective, complied as to form in all material respects with the Securities Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not misleading; and each prospectus filed pursuant to Rule 424(b) under the Securities Act, as of its issue date and as of the closing of any sale of securities pursuant thereto did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the Commission Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission. Such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a 

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consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or year-end adjustments or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its Subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

(g)

No Material Adverse Change. Since December 31, 2007, the Company has not experienced or suffered any Material Adverse Effect, except as disclosed in the Commission Documents.

(h)

No Undisclosed Liabilities. The Company has not incurred any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) other than those incurred in the ordinary course of the Company’s business or which, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect.

(i)

No Undisclosed Events or Circumstances. Since December 31, 2007, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations or financial condition, which, under Exchange Act, Securities Act, or rules or regulations of any Trading Market, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

(j)

Indebtedness. Schedule 3(j) hereto sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company, or Indebtedness for which the Company has commitments, unless previously disclosed in the Commission Documents. For the purposes of this Agreement, “Indebtedness” shall mean (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, change, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above. For the purposes of this Agreement, “Contingent Obligation” shall mean, as to any Person, any direct or indirect liability, 

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contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto. The Company is not in violation of any term of any agreement relating to, or in default with respect to, any Indebtedness, except any such violations or defaults as, individually or in the aggregate, would not have a Material Adverse Effect. The Company is not a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect.

(k)

Title to Assets. Except for “Permitted Liens”, as that term is defined in the January Purchase Agreement, the Company has good and valid title to all of its real and personal property, free and clear of any mortgages, pledges, charges, liens, security interests or other encumbrances (“Liens”). No Permitted Lien materially affects the value of such property and nor does it materially interfere with the use made and proposed to be made of such property. Any leases of the Company are valid and subsisting and in full force and effect with which the Company is in compliance.

(l)

Actions Pending. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Common Stock or the Company, any Subsidiary or any of their respective officers, directors or properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign) or Trading Market (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. To the Company’s knowledge, neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Securities Act. There is no action, suit, claim, investigation, arbitration, alternate dispute resolution proceeding or other proceeding pending or, to the knowledge of the Company, threatened against or involving the Company or any of its properties or assets, which individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any officers or directors of the Company in their capacities as such, which individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

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(m)

Compliance. 

(i)

Neither the Company nor the Subsidiary (A) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (B) is in violation of any order of any court, arbitrator or governmental body, or (C) is in violation of any of the provisions of its certificate or articles of incorporation, bylaws or other organizational or charter documents.

(ii)

The business of the Company has been and is presently being conducted in accordance with all applicable foreign, federal, state and local governmental laws, rules, regulations and ordinances (including, without limitation, the rules and regulations of applicable communications and energy regulatory authorities), except such that, individually or in the aggregate, the noncompliance therewith could not reasonably be expected to have a Material Adverse Effect. The Company has all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any of the foregoing.

(n)

Taxes. The Company has accurately prepared and filed all federal, state and other tax returns required by law to be filed by it, has paid or made provisions for the payment of all taxes shown to be due and all additional assessments, and adequate provisions have been and are reflected in the financial statements of the Company for all current taxes and other charges to which the Company is subject and which are not currently due and payable. None of the federal income tax returns of the Company have been audited by the Internal Revenue Service. The Company has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal or state) of any nature whatsoever, whether pending or threatened against the Company for any period, nor of any basis for any such assessment, adjustment or contingency.

(o)

Certain Fees. The Company has not employed any broker or finder or incurred any liability for any brokerage or investment banking fees, commissions, finders’ structuring fees, financial advisory fees or other similar fees in connection with the Transaction Documents. Vicis shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section incurred by the Company that may be due in connection with the transactions contemplated by this Agreement. The Company shall pay, and hold Vicis harmless against, any liability, loss or expense (including, without limitation, attorney’s fees and out-of-pocket expenses) arising in connection with any claim for any such fees created or incurred by the Company.

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(p)

Disclosure. The Company understands and confirms that Vicis will rely on the foregoing representations in effecting transactions in securities of the Company. Neither the representations and warranties contained in Section 3 of this Agreement or the Schedules hereto nor any other documents, certificates, instruments or other information furnished to Vicis by or on behalf of the Company in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading.

(q)

Intellectual Property. The Company owns or possesses the rights to use all patents, trademarks, domain names (whether or not registered) and any patentable improvements or copyrightable derivative works thereof, websites and intellectual property rights relating thereto, service marks, trade names, copyrights, licenses and authorizations which are necessary for the conduct of its business as now conducted (collectively, the “Intellectual Property Rights”) without any conflict with the rights of others, except any failures as, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable measures to protect the value of the, Intellectual Property Rights.

(r)

Environmental Compliance. The Company has obtained all material approvals, authorization, certificates, consents, licenses, orders and permits or other similar authorizations of all governmental authorities, or from any other person, that are required under any Environmental Laws. “Environmental Laws” shall mean all applicable laws relating to the protection of the environment including, without limitation, all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, material or wastes, whether solid, liquid or gaseous in nature. Except for such instances as would not individually or in the aggregate have a Material Adverse Effect and to the knowledge of the Company, there are no past or present events, conditions, circumstances, incidents, actions or omissions relating to or in any way affecting the Company that violate or may violate any Environmental Law after the Closing Date or that may give rise to any environmental liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study or investigation (i) under any Environmental Law, or (ii) based on or related to the manufacture, processing, distribution, use, treatment, storage (including without limitation underground storage tanks), disposal, transport or handling, or the emission, discharge, release or threatened release of any hazardous substance. 

(s)

Books and Records; Internal Accounting and Disclosure Controls. The records and documents of the Company accurately reflect in all material respects the information relating to the business of the Company, the location of its assets, and the nature of all 

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transactions giving rise to the obligations or accounts receivable of the Company. The Company maintains a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate actions are taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed periodic report under the Exchange Act, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of the date prior to the filing date of the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 307(c) of Regulation S-B under the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal controls. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with United States GAAP and the applicable requirements of the Exchange Act.

(t)

Material Agreements. Except for the Transaction Documents (with respect to clause (i) only), as disclosed in the Commission Documents or as set forth on Schedule 3(t) hereto, or as would not be reasonably likely to have a Material Adverse Effect, (i) the Company has performed all obligations required to be performed by it to date under any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, filed or required to be filed with the Commission (the “Material Agreements”), (ii) the Company has not received any notice of default under any Material Agreement, (iii) the Company is not in default under any Material Agreement now in effect, and no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a violation or breach of, or give the Company or any other entity the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any Material Agreement, (iv) each Material Agreement is in full force and effect and is valid and enforceable in accordance with its terms. 

(u)

Transactions with Affiliates. There are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions between (a) the Company or any of its customers or suppliers on the one hand, and (b) on the other hand, any officer, employee, consultant or director of the Company, or any person owning at least 5% of the outstanding capital stock of the Company or any member of the immediate family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or 

11

stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder which, in each case, is required to be disclosed in the Commission Documents or in the Company’s most recently filed definitive proxy statement on Schedule 14A, that is not so disclosed in the Commission Documents or in such proxy statement.

(v)

Employees. The Company is not a party to any collective bargaining arrangements or agreements covering any of its employees, nor does it employ any member of a union. The Company does not have any employment contract, agreement regarding proprietary information, non-competition agreement, non-solicitation agreement, confidentiality agreement, or any other similar contract or restrictive covenant, relating to the right of any officer, employee or consultant to be employed or engaged by the Company required to be disclosed in the Commission Documents that is not so disclosed. Neither the Company, nor any employee to the knowledge of the Company, is in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant. The Company is in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. No officer, consultant or key employee of the Company whose termination, either individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.

(w)

Absence of Certain Developments. Since December 31, 2007, the Company has not:

(i)

issued any stock, bonds or other corporate securities or any right, options or warrants with respect thereto, except pursuant to the exercise or conversion of securities outstanding as of such date;

(ii)

borrowed any amount in excess of $100,000 or incurred or become subject to any other liabilities in excess of $100,000 (absolute or contingent) except current liabilities incurred in the ordinary course of business which are comparable in nature and amount to the current liabilities incurred in the ordinary course of business during the comparable portion of its prior fiscal year, as adjusted to reflect the current nature and volume of the business of the Company;

(iii)

discharged or satisfied any lien or encumbrance in excess of $100,000 or paid any obligation or liability (absolute or contingent) in excess of $100,000, other than current liabilities paid in the ordinary course of business;

12

(iv)

declared or made any payment or distribution of cash or other property to stockholders with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or redeem, any shares of its capital stock, in each case in excess of $50,000 individually or $100,000 in the aggregate;

(v)

sold, assigned or transferred any other tangible assets, or canceled any debts or claims, in each case in excess of $100,000, except in the ordinary course of business;

(vi)

sold, assigned or transferred any patent rights, trademarks, trade names, copyrights, trade secrets or other intangible assets or intellectual property rights in excess of $100,000, or disclosed any proprietary confidential information to any person except to customers in the ordinary course of business or to Vicis or their representatives;

(vii)

suffered any material losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of prospective business;

(viii)

made any changes in employee compensation except in the ordinary course of business and consistent with past practices;

(ix)

made capital expenditures or commitments therefor that aggregate in excess of $250,000; 

(x)

entered into any material transaction, whether or not in the ordinary course of business which has not been disclosed in the Commission Documents;

(xi)

made charitable contributions or pledges in excess of $10,000;

(xii)

suffered any material damage, destruction or casualty loss, whether or not covered by insurance;

(xiii)

experienced any material problems with labor or management in connection with the terms and conditions of their employment; 

(xiv)

altered its method of accounting;

(xv)

issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans;

(xvi)

taken any steps to seek protection pursuant to any bankruptcy or similar law; or 

(xvii)

entered into an agreement, written or otherwise, to take any of the foregoing actions.

13

(x)

Investment Company Act Status. The Company is not, and immediately after receipt of payment for the Securities will not be, an “investment company”, an “affiliated person” of, “promoter” for or “principal underwriter” for, or an entity “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

(y)

ERISA. No liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any Plan (as defined below) by the Company which is or would be materially adverse to the Company. The execution and delivery of this Agreement and the issuance and sale of the Securities will not involve any transaction which is subject to the prohibitions of Section 406 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or in connection with which a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended, provided that, if any of Vicis, or any person or entity that owns a beneficial interest in any of Vicis, is an “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) with respect to which the Company is a “party in interest” (within the meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section 2.1(aa), the term “Plan” shall mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or by any trade or business, whether or not incorporated, which, together with the Company, is under common control, as described in Section 414(b) or (c) of the Code.

(z)

Sarbanes-Oxley Act. The Company is in compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations promulgated thereunder, that are effective and presently applicable to the Company and intends to comply with other applicable provisions of the Sarbanes-Oxley Act, and the rules and regulations promulgated thereunder, upon the effectiveness and applicability of such provisions with respect to the Company.

(aa)

Dilutive Effect. The Company understands and acknowledges that its obligation to issue the Debenture Shares upon the exercise of the Debentures in accordance with this Agreement and the applicable Debenture, is, in each case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interest of other stockholders of the Company.

(bb)

DTC Status. The Company’s current transfer agent is a participant in and the Common Stock is eligible for transfer pursuant to the Depository Trust Company Automated Securities Transfer Program. 

(cc)

Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage of at least $10 million. To the best of Company’s knowledge, such insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to 

14

obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(dd)

Solvency. After giving effect to the transactions contemplated hereby to occur at the Closing, the Company will not be Insolvent (as hereinafter defined). For purposes of this Agreement, “Insolvent” means (i) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (ii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iii) the Company has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted. The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date nor does it have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy or similar proceedings or any knowledge of any fact which would reasonably lead a creditor to do so.

(ee)

Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such maintenance requirements.

(ff)

Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any corporate 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.

(gg)

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

(hh)

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

15

(ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities.

(ii)

[Intentionally Omitted]

(jj)

No Disagreements with Accountants. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants formerly or presently employed by the Company.

4.

Representations and Warranties of Vicis. Vicis hereby represents and warrants to the Company as follows as of the date hereof and as of the Closing Date:

(a)

Organization and Standing of Vicis. Vicis is a trust organized, validly existing and in good standing under the laws of the jurisdiction of its organization.

(b)

Authorization and Power. Vicis has the requisite power and authority to enter into and perform its obligations under the Transaction Documents. The execution, delivery and performance of the Transaction Documents by Vicis and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action, and no further consent or authorization of Vicis is required. When executed and delivered by the Vicis, the other Transaction Documents shall constitute valid and binding obligations of Vicis enforceable against Vicis in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

(c)

No Conflict. The execution, delivery and performance of the Transaction Documents by Vicis and the consummation by Vicis of the transactions contemplated thereby and hereby do not and will not (i) violate any provision of Vicis’s charter or organizational documents, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which Vicis is a party or by which Vicis’s respective properties or assets are bound, or (iii) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to Vicis or by which any property or asset of Vicis are bound or affected, except, in all cases, other than violations pursuant to clauses (ii) or (iii) (with respect to federal and state securities laws) above, except, for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, materially and adversely affect Vicis’s ability to perform its obligations under the Transaction Documents.

(d)

Rule 144. Vicis understands that the shares additional securities issuable to it under Section 2(a) hereof must be held indefinitely unless it is registered under the Securities Act or an exemption from registration is available. Vicis acknowledges that it is familiar with Rule 144 of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that Vicis has been advised that Rule 144 

16

permits resales only under certain circumstances. Vicis understands that to the extent that Rule 144 is not available, Vicis will be unable to sell securities without either registration under the Securities Act or the existence of another exemption from such registration requirement.

(e)

General. Vicis understands that the this Agreement is being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Vicis set forth herein in order to determine the applicability of such exemptions and the suitability of Vicis to acquire the securities contemplated by this Agreement. Vicis understands that no United States federal or state agency or any government or governmental agency has passed upon or made any recommendation or endorsement of the securities issuable by this Agreement. 

(f)

No General Solicitation. Vicis acknowledges that the securities issuable under Section 2(a) of this Agreement were not offered to Vicis by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, Internet website or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which Vicis was invited by any of the foregoing means of communications. Vicis, in making the decision to enter into this Agreement, has relied upon independent investigation made by it and its advisors.

(g)

Accredited Investor. Vicis is an “accredited investor” (as defined in Rule 501 of Regulation D), and Vicis has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the securities contemplated by this Agreement. Vicis is not required to be registered as a broker-dealer under Section 15 of the Exchange Act and Vicis is not a broker-dealer. Vicis acknowledges that an investment in the Securities is speculative and involves a high degree of risk. 

(h)

Certain Fees. Vicis has not employed any broker or finder or incurred any liability for any brokerage or investment banking fees, commissions, finders’ structuring fees, financial advisory fees or other similar fees in connection with this Agreement.

(i)

No Trading. Commencing on the date that Vicis was initially contacted regarding an investment contemplated by this Agreement, Vicis has not engaged in any short sale of the Common Stock and will not engage in any short sale of the Common Stock prior to the date that is thirty (30) days following the date that the transactions contemplated by this Agreement are publicly announced.

(j)

Due Diligence. Vicis hereby represents that, in connection with Vicis’s investment or Vicis’s decision to enter into this Agreement, Vicis has not relied on any statement or representation of any Person, including any such statement or representation by the Company or the placement agent or any of their respective controlling Persons, officers, directors, partners, agents and employees or any of their respective attorneys, except as specifically set forth herein.

17

5.

Indemnification.

(a)

Company Indemnity. The Company agrees to indemnify and hold harmless Vicis (and its respective directors, officers, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred by Vicis as a result of (a) any inaccuracy in or breach of the representations, warranties or covenants made by the Company herein as such are incurred, except to the extent that such amounts result from Vicis’s failure to perform any covenant or agreement contained in this Agreement or Vicis’s illegal or willful misconduct, gross negligence, misrepresentations, recklessness or bad faith (in each case, as determined by a non-appealable judgment to such effect or a judgment not appealed in the requisite time period) in performing its obligations under this Agreement or (b) any action instituted against Vicis, or any of its respective Affiliates, by any stockholder of the Company who is not an Affiliate of Vicis, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of Vicis’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings Vicis may have with any such stockholder or any violations by Vicis of state or federal securities laws or any conduct by Vicis which constitutes fraud, gross negligence, willful misconduct or malfeasance). 

(b)

Indemnification Procedure. Any party entitled to indemnification under this (an “indemnified party”) will give written notice to the indemnifying party of any matter giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 5 except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action, proceeding or claim is brought against an indemnified party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of the indemnifying party a conflict of interest between it and the indemnified party exists with respect to such action, proceeding or claim (in which case the indemnifying party shall be responsible for the reasonable fees and expenses of one separate counsel for the indemnified parties), to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. In the event that the indemnifying party advises an indemnified party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party’s costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party which relates to such action or claim. The indemnifying party shall keep the indemnified party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such 

18

action or claim, then the indemnified party shall be entitled to participate in such defense (but not control) with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Section 5 to the contrary, the indemnifying party shall not, without the indemnified party’s prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the indemnified party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such claim. The indemnification obligations to defend the indemnified party required by this Section 5 shall be made by periodic payments of the amount thereof during the course of investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, so long as the indemnified party shall refund such moneys if it is ultimately determined by a court of competent jurisdiction that such party was not entitled to indemnification. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to pursuant to the law. No indemnifying party will be liable to the indemnified party under this Agreement to the extent, but only to the extent that a loss, claim, damage or liability is attributable to the indemnified party’s breach of any of the representations, warranties or covenants made by such party in this Agreement or in the other Transaction Documents.

6.

Miscellaneous.

(a)

Fees and Expenses. The Company shall bear its own expenses and legal fees incurred on its behalf with respect to the negotiation, execution and consummation of the transactions contemplated by this Agreement. The Company shall pay all reasonable fees and expenses incurred by Vicis in connection with the enforcement of this Agreement or any of the other Transaction Documents, including, without limitation, all reasonable attorneys’ fees and expenses.   

(b)

Specific Performance; Consent to Jurisdiction; Venue. 

(i)

The Company and Vicis acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement or the other Transaction Documents and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

(ii)

The parties agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The parties irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Company and Vicis consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such 

19

service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 6(b) shall affect or limit any right to serve process in any other manner permitted by law. The Company agrees to pay all costs and expenses of enforcement of the Transaction Documents, including, without limitation, reasonable attorneys’ fees and expenses. The parties hereby waive all rights to a trial by jury. 

(c)

Entire Agreement; Amendment. This Agreement and the Transaction Documents contain the entire understanding and agreement of the parties with respect to the matters covered hereby and, except as specifically set forth herein or in the other Transaction Documents, neither the Company nor Vicis make any representation, warranty, covenant or undertaking with respect to such matters, and they supersede all prior understandings and agreements with respect to said subject matter, all of which are merged herein. No provision of this Agreement may be waived or amended other than by a written instrument signed by the Company and Vicis. Any amendment or waiver effected in accordance with this Section 6(c) shall be binding upon Vicis (and their permitted assigns) and the Company. 

(d)

Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery by telecopy or facsimile 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 third 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:

If to the Company:

Ambient Corporation 

79 Chapel Street           

Newton, Massachusetts 02458 

Attention: Chief Executive Officer 

Tel. No.: (617) 332-0004 

Fax No.: (617) 663-6191

with copies (which copies 

shall not constitute notice 

to the Company) to:

 

Aboudi & Brounstein Law Offices

3 Gavish Street

Kfar Saba Ind. Zone 44641 Israel

Attention: Mr. David Aboudi

Tel No.: +972-9-764-4833

Fax No.: +972-9-764-4834

If to Vicis:

Vicis Capital Master Fund

Tower 56, Suite 700 

126 E. 56th Street, 7th Floor 

New York, NY 10022

Phone: (212) 909-4600

20

Fax: (212) 909-4601

Attn: Shad Stastney

with a copy to:

Andrew D. Ketter, Esq.

Quarles & Brady LLP

411 East Wisconsin Avenue

Milwaukee, WI 53202

Phone: (414) 277-5629

Fax: (414) 978-8972 

Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto pursuant to the provisions of this Section 7.4.

(e)

Waivers. No waiver by either party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 

(f)

Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof.

(g)

Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. After the Closing, the assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of such party under this Agreement. 

(h)

No Third Party Beneficiaries. Except as contemplated by Section 5 hereof, this Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

(i)

Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted.

(j)

Survival. The representations and warranties of the Company and Vicis shall survive the execution and delivery hereof and the Closing hereunder.

(k)

Counterparts. This Agreement may be executed in any number of counterparts (including those delivered by facsimile or other electronic means), all of which taken together shall constitute one and the same instrument and shall become effective when 

21

counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. 

(l)

Severability. The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.

(m)

Further Assurances. From and after the date of this Agreement, upon the request of Vicis or the Company, the Company and Vicis shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the other Transaction Documents.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

22

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

			
	 
	AMBIENT CORPORATION

	 
	 
	 

	 
	 
	 

	                                                              

	By:

	/s/ John J. Joyce

	 
	Name:

	John J. Joyce

	 
	Title:

	Chief Executive Officer

	 
	 
	 

	 
	 
	 

	 
	PURCHASER:

	 
	VICIS CAPITAL MASTER FUND,

	 
	a sub-trust of Vicis Capital Series Master Trust

	 
	 
	 

	 
	By:

	Vicis Capital LLC

	 
	 
	 

	 
	 
	 

	 
	By:

	/s/ Shad L. Stastney

	 
	Name:

	Shad L. Stastney

	 
	Title:

	PartnerFiled by Bowne Pure Compliance

Exhibit 4.1

WARRANT TO PURCHASE COMMON STOCK

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER
AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES
AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES
REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE
WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE
VOID.

WARRANT

to purchase

556,976

Shares of Common Stock

of Severn Bancorp, Inc.

Issue Date: November 21, 2008

1. Definitions. Unless the context otherwise requires, when used herein the
following terms shall have the meanings indicated.

“Affiliate” has the meaning ascribed to it in the Purchase Agreement.

“Appraisal Procedure” means a procedure whereby two independent appraisers, one chosen by the
Company and one by the Original Warrantholder, shall mutually agree upon the determinations then
the subject of appraisal. Each party shall deliver a notice to the other appointing its appraiser
within 15 days after the Appraisal Procedure is invoked. If within 30 days after appointment of
the two appraisers they are unable to agree upon the amount in question, a third independent
appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two
appraisers. The decision of the third appraiser so appointed and chosen shall be given within 30
days after the selection of such third appraiser. If three appraisers shall be appointed and the
determination of one appraiser is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle determination, then the
determination of such appraiser shall be excluded, the remaining two determinations shall be
averaged and such average shall be binding and conclusive upon the
Company and the Original Warrantholder; otherwise, the average of all three determinations
shall be binding upon the Company and the Original Warrantholder. The costs of conducting any
Appraisal Procedure shall be borne by the Company.

 

 

 

“Board of Directors” means the board of directors of the Company, including any duly
authorized committee thereof.

“Business Combination” means a merger, consolidation, statutory share exchange or
similar transaction that requires the approval of the Company’s stockholders.

“business day” means any day except Saturday, Sunday and any day on which banking
institutions in the State of New York generally are authorized or required by law or other
governmental actions to close.

“Capital Stock” means (A) with respect to any Person that is a corporation or company, any
and all shares, interests, participations or other equivalents (however designated) of capital
or capital stock of such Person and (B) with respect to any Person that is not a corporation or
company, any and all partnership or other equity interests of such Person.

“Charter” means, with respect to any Person, its certificate or articles of incorporation,
articles of association, or similar organizational document.

“Common Stock” has the meaning ascribed to it in the Purchase Agreement.

“Company” means the Person whose name, corporate or other organizational form and
jurisdiction of organization is set forth in Item 1 of Schedule A hereto.

“conversion” has the meaning set forth in Section 13(B).

“convertible securities” has the meaning set forth in Section 13(B).

“CPP” has the meaning ascribed to it in the Purchase Agreement.

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

“Exercise Price” means the amount set forth in Item 2 of Schedule A hereto.

“Expiration Time” has the meaning set forth in Section 3.

“Fair Market Value” means, with respect to any security or other property, the fair market
value of such security or other property as determined by the Board of Directors, acting in good
faith or, with respect to Section 14, as determined by the Original Warrantholder acting in good
faith. For so long as the Original Warrantholder holds this Warrant or any portion thereof, it may
object in writing to the Board of Director’s calculation of fair market value within 10 days of
receipt of written notice thereof. If the Original Warrantholder and the Company are unable to
agree on fair market value during the 10-day period following the delivery of the Original
Warrantholder’s objection, the Appraisal Procedure may be invoked by either party to
determine Fair Market Value by delivering written notification thereof not later than the
30th day after delivery of the Original Warrantholder’s objection.

 

2

 

“Governmental Entities” has the meaning ascribed to it in the Purchase Agreement.

“Initial Number” has the meaning set forth in Section 13(B).

“Issue Date” means the date set forth in Item 3 of Schedule A hereto.

“Market Price” means, with respect to a particular security, on any given day, the last
reported sale price regular way or, in case no such reported sale takes place on such day, the
average of the last closing bid and ask prices regular way, in either case on the principal
national securities exchange on which the applicable securities are listed or admitted to trading,
or if not listed or admitted to trading on any national securities exchange, the average of the
closing bid and ask prices as furnished by two members of the Financial Industry Regulatory
Authority, Inc. selected from time to time by the Company for that purpose. “Market Price” shall
be determined without reference to after hours or extended hours trading. If such security is not
listed and traded in a manner that the quotations referred to above are available for the period
required hereunder, the Market Price per share of Common Stock shall be deemed to be (i) in the
event that any portion of the Warrant is held by the Original Warrantholder, the fair market value
per share of such security as determined in good faith by the Original Warrantholder or (ii) in all
other circumstances, the fair market value per share of such security as determined in good faith
by the Board of Directors in reliance on an opinion of a nationally recognized independent
investment banking corporation retained by the Company for this purpose and certified in a
resolution to the Warrantholder. For the purposes of determining the Market Price of the Common
Stock on the “trading day” preceding, on or following the occurrence of an event, (i) that trading
day shall be deemed to commence immediately after the regular scheduled closing time of trading on
the New York Stock Exchange or, if trading is closed at an earlier time, such earlier time and (ii)
that trading day shall end at the next regular scheduled closing time, or if trading is closed at
an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market
Price is to be determined as of the last trading day preceding a specified event and the closing
time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on
that day, the Market Price would be determined by reference to such 4:00
p.m. closing price).

“Ordinary Cash Dividends” means a regular quarterly cash dividend on shares of Common Stock
out of surplus or net profits legally available therefor (determined in accordance with generally
accepted accounting principles in effect from time to time), provided that Ordinary Cash
Dividends shall not include any cash dividends paid subsequent to the Issue Date to the extent
the aggregate per share dividends paid on the outstanding Common Stock in any quarter exceed the
amount set forth in Item 4 of Schedule A hereto, as adjusted for any stock split, stock dividend,
reverse stock split, reclassification or similar transaction.

“Original Warrantholder” means the United States Department of the Treasury. Any actions
specified to be taken by the Original Warrantholder hereunder may only be taken by such Person and
not by any other Warrantholder.

 

3

 

“Permitted Transactions” has the meaning set forth in Section 13(B).

“Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

“Per Share Fair Market Value” has the meaning set forth in Section 13(C).

“Preferred Shares” means the perpetual preferred stock issued to the Original
Warrantholder on the Issue Date pursuant to the Purchase Agreement.

“Pro Rata Repurchases” means any purchase of shares of Common Stock by the Company or any
Affiliate thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or
14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any other offer available
to substantially all holders of Common Stock, in the case of both (A) or (B), whether for cash,
shares of Capital Stock of the Company, other securities of the Company, evidences of indebtedness
of the Company or any other Person or any other property (including, without limitation, shares of
Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination
thereof, effected while this Warrant is outstanding. The “Effective Date” of a Pro Rata Repurchase
shall mean the date of acceptance of shares for purchase or exchange by the Company under any
tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any
Pro Rata Repurchase that is not a tender or exchange offer.

“Purchase Agreement” means the Securities Purchase Agreement — Standard Terms incorporated
into the Letter Agreement, dated as of the date set forth in Item 5 of Schedule A hereto, as
amended from time to time, between the Company and the United States Department of the Treasury
(the “Letter Agreement”), including all annexes and schedules thereto.

“Qualified Equity Offering” has the meaning ascribed to it in the Purchase Agreement.

“Regulatory Approvals” with respect to the Warrantholder, means, to the extent applicable and
required to permit the Warrantholder to exercise this Warrant for shares of Common Stock and to own
such Common Stock without the Warrantholder being in violation of applicable law, rule or
regulation, the receipt of any necessary approvals and authorizations of, filings and registrations
with, notifications to, or expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and
the rules and regulations promulgated thereunder.

 

4

 

“Shares” has the meaning set forth in Section 2.

“trading day” means (A) if the shares of Common Stock are not traded on any national or
regional securities exchange or association or over-the-counter market, a business day or (B) if
the shares of Common Stock are traded on any national or regional securities exchange or
association or over-the-counter market, a business day on which such relevant exchange or
quotation system is scheduled to be open for business and on which the shares of Common Stock
(i) are not suspended from trading on any national or regional securities exchange or association
or over-the-counter market for any period or periods aggregating one half hour or longer; and
(ii) have traded at least once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the shares of Common Stock.

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

“Warrantholder” has the meaning set forth in Section 2.

“Warrant” means this Warrant, issued pursuant to the Purchase Agreement.

2. Number of Shares; Exercise Price. This certifies that, for value received, the
United States Department of the Treasury or its permitted assigns (the “Warrantholder”) is
entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from the
Company, in whole or in part, after the receipt of all applicable Regulatory Approvals, if any, up
to an aggregate of the number of fully paid and nonassessable shares of Common Stock set forth in
Item 6 of Schedule A hereto, at a purchase price per share of Common Stock equal to the Exercise
Price. The number of shares of Common Stock (the “Shares”) and the Exercise Price are subject to
adjustment as provided herein, and all references to “Common Stock,” “Shares” and “Exercise Price”
herein shall be deemed to include any such adjustment or series of adjustments.

3. Exercise of Warrant; Term. Subject to Section 2, to the extent permitted by
applicable laws and regulations, the right to purchase the Shares represented by this Warrant is
exercisable, in whole or in part by the Warrantholder, at any time or from time to time after the
execution and delivery of this Warrant by the Company on the date hereof, but in no event later
than 5:00 p.m., New York City time on the tenth anniversary of the Issue Date (the “Expiration
Time”), by (A) the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed
and executed on behalf of the Warrantholder, at the principal executive office of the Company
located at the address set forth in Item 7 of Schedule A hereto (or such other office or agency of
the Company in the United States as it may designate by notice in writing to the Warrantholder at
the address of the Warrantholder appearing on the books of the Company), and (B) payment of the
Exercise Price for the Shares thereby purchased:

(i) by having the Company withhold, from the shares of Common Stock that would otherwise be
delivered to the Warrantholder upon such exercise, shares of Common stock issuable upon exercise of
the Warrant equal in value to the aggregate Exercise Price as to which this Warrant is so exercised
based on the Market Price of the Common Stock on the trading day on which this Warrant is exercised
and the Notice of Exercise is delivered to the Company pursuant to this Section 3, or

(ii) with the consent of both the Company and the Warrantholder, by tendering in cash, by
certified or cashier’s check payable to the order of the Company, or by wire transfer of
immediately available funds to an account designated by the Company.

 

5

 

If the Warrantholder does not exercise this Warrant in its entirety, the
Warrantholder will be entitled to receive from the Company within a reasonable time, and in any
event not exceeding three business days, a new warrant in substantially identical form for the
purchase of that number of Shares equal to the difference between the number of Shares subject to
this Warrant and the number of Shares as to which this Warrant is so exercised. Notwithstanding
anything in this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees that its
exercise of this Warrant for Shares is subject to the condition that the Warrantholder will have
first received any applicable Regulatory Approvals.

4. Issuance of Shares; Authorization; Listing. Certificates for Shares issued upon
exercise of this Warrant will be issued in such name or names as the Warrantholder may designate
and will be delivered to such named Person or Persons within a reasonable time, not to exceed three
business days after the date on which this Warrant has been duly exercised in accordance with the
terms of this Warrant. The Company hereby represents and warrants that any Shares issued upon the
exercise of this Warrant in accordance with the provisions of Section 3 will be duly and validly
authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges
(other than liens or charges created by the Warrantholder, income and franchise taxes incurred in
connection with the exercise of the Warrant or taxes in respect of any transfer occurring
contemporaneously therewith). The Company agrees that the Shares so issued will be deemed to have
been issued to the Warrantholder as of the close of business on the date on which this Warrant and
payment of the Exercise Price are delivered to the Company in accordance with the terms of this
Warrant, notwithstanding that the stock transfer books of the Company may then be closed or
certificates representing such Shares may not be actually delivered on such date. The Company will
at all times reserve and keep available, out of its authorized but unissued Common Stock, solely
for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of
Common Stock then issuable upon exercise of this Warrant at any time. The Company will (A)
procure, at its sole expense, the listing of the Shares issuable upon exercise of this Warrant at
any time, subject to issuance or notice of issuance, on all principal stock exchanges on which the
Common Stock is then listed or traded and (B) maintain such listings of such Shares at all times
after issuance. The Company will use reasonable best efforts to ensure that the Shares may be
issued without violation of any applicable law or regulation or of any requirement of any
securities exchange on which the Shares are listed or traded.

5. No Fractional Shares or Scrip. No fractional Shares or scrip representing
fractional Shares shall be issued upon any exercise of this Warrant. In lieu of any fractional
Share to which the Warrantholder would otherwise be entitled, the Warrantholder shall be entitled
to receive a cash payment equal to the Market Price of the Common Stock on the last trading day
preceding the date of exercise less the pro-rated Exercise Price for such fractional share.

6. No Rights as Stockholders; Transfer Books. This Warrant does not entitle the
Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the
date of exercise hereof. The Company will at no time close its transfer books against transfer of
this Warrant in any manner which interferes with the timely exercise of this Warrant.

 

6

 

7. Charges, Taxes and Expenses. Issuance of certificates for Shares to the
Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder
for any issue or transfer tax or other incidental expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company.

8. Transfer/Assignment.

(A) Subject to compliance with clause (B) of this Section 8, this Warrant and all rights
hereunder are transferable, in whole or in part, upon the books of the Company by the registered
holder hereof in person or by duly authorized attorney, and a new warrant shall be made and
delivered by the Company, of the same tenor and date as this Warrant but registered in the name of
one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of
the Company described in Section 3. All expenses (other than stock transfer taxes) and other
charges payable in connection with the preparation, execution and delivery of the new warrants
pursuant to this Section 8 shall be paid by the Company.

(B) The transfer of the Warrant and the Shares issued upon exercise of the Warrant are subject
to the restrictions set forth in Section 4.4 of the Purchase Agreement. If and for so long as
required by the Purchase Agreement, this Warrant shall contain the legends as set forth in Sections
4.2(a) and 4.2(b) of the Purchase Agreement.

9. Exchange and Registry of Warrant. This Warrant is exchangeable, upon the surrender
hereof by the Warrantholder to the Company, for a new warrant or warrants of like tenor and
representing the right to purchase the same aggregate number of Shares. The Company shall maintain
a registry showing the name and address of the Warrantholder as the registered holder of this
Warrant. This Warrant may be surrendered for exchange or exercise in accordance with its terms, at
the office of the Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.

10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity
or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company shall make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same aggregate number of Shares as provided for in such lost, stolen,
destroyed or mutilated Warrant.

11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein shall not be a business day, then
such action may be taken or such right may be exercised on the next succeeding day that is a
business day.

 

7

 

12. Rule 144 Information. The Company covenants that it will use its reasonable best
efforts to timely file all reports and other documents required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations promulgated by the SEC thereunder
(or, if the Company is not required to file such reports, it will, upon the request of any
Warrantholder, make publicly available such information as necessary to permit sales pursuant
to Rule 144 under the Securities Act), and it will use reasonable best efforts to take such further
action as any Warrantholder may reasonably request, in each case to the extent required from time
to time to enable such holder to, if permitted by the terms of this Warrant and the Purchase
Agreement, sell this Warrant without registration under the Securities Act within the limitation of
the exemptions provided by (A) Rule 144 under the Securities Act, as such rule may be amended from
time to time, or (B) any successor rule or regulation hereafter adopted by the SEC. Upon the
written request of any Warrantholder, the Company will deliver to such Warrantholder a written
statement that it has complied with such requirements.

13. Adjustments and Other Rights. The Exercise Price and the number of Shares issuable
upon exercise of this Warrant shall be subject to adjustment from time to time as follows;
provided, that if more than one subsection of this Section 13 is applicable to a single event, the
subsection shall be applied that produces the largest adjustment and no single event shall cause an
adjustment under more than one subsection of this Section 13 so as to result in duplication:

(A) Stock Splits, Subdivisions, Reclassifications or Combinations. If the Company
shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a smaller number
of shares, the number of Shares issuable upon exercise of this Warrant at the time of the record
date for such dividend or distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Warrantholder after such date shall
be entitled to purchase the number of shares of Common Stock which such holder would have owned or
been entitled to receive in respect of the shares of Common Stock subject to this Warrant after
such date had this Warrant been exercised immediately prior to such date. In such event, the
Exercise Price in effect at the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be adjusted to the number
obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this
Warrant before such adjustment and (2) the Exercise Price in effect immediately prior to the record
or effective date, as the case may be, for the dividend, distribution, subdivision, combination or
reclassification giving rise to this adjustment by (y) the new number of Shares issuable upon
exercise of the Warrant determined pursuant to the immediately preceding sentence.

 

8

 

(B) Certain Issuances of Common Shares or Convertible Securities. Until the earlier of
(i) the date on which the Original Warrantholder no longer holds this Warrant or any portion
thereof and (ii) the third anniversary of the Issue Date, if the Company shall issue shares of
Common Stock (or rights or warrants or other securities exercisable or convertible into or
exchangeable (collectively, a “conversion”) for shares of Common Stock) (collectively, “convertible
securities”) (other than in Permitted Transactions (as defined below) or a transaction to which
subsection (A) of this Section 13 is applicable) without consideration or at a consideration per
share (or having a conversion price per share) that is less than 90% of the Market Price on the
last trading day preceding the date of the agreement on pricing such shares (or such convertible
securities) then, in such event:

(A) the number of Shares issuable upon the exercise of this Warrant immediately
prior to the date of the agreement on pricing of such shares (or of such convertible
securities) (the “Initial Number”) shall be increased to the number obtained by
multiplying the Initial Number by a fraction (A) the numerator of which shall be the
sum of (x) the number of shares of Common Stock of the Company outstanding on such
date and (y) the number of additional shares of Common Stock issued (or into which
convertible securities may be exercised or convert) and (B) the denominator of which
shall be the sum of (I) the number of shares of Common Stock outstanding on such
date and (II) the number of shares of Common Stock which the aggregate consideration
receivable by the Company for the total number of shares of Common Stock so issued
(or into which convertible securities may be exercised or convert) would purchase at
the Market Price on the last trading day preceding the date of the agreement on
pricing such shares (or such convertible securities); and

(B) the Exercise Price payable upon exercise of the Warrant shall be adjusted by
multiplying such Exercise Price in effect immediately prior to the date of the
agreement on pricing of such shares (or of such convertible securities) by a
fraction, the numerator of which shall be the number of shares of Common Stock
issuable upon exercise of this Warrant prior to such date and the denominator of
which shall be the number of shares of Common Stock issuable upon exercise of this
Warrant immediately after the adjustment described in clause (A) above.

For purposes of the foregoing, the aggregate consideration receivable by the Company in
connection with the issuance of such shares of Common Stock or convertible securities shall be
deemed to be equal to the sum of the net offering price (including the Fair Market Value of any
non-cash consideration and after deduction of any related expenses payable to third parties) of all
such securities plus the minimum aggregate amount, if any, payable upon exercise or conversion of
any such convertible securities into shares of Common Stock; and “Permitted Transactions” shall
mean issuances (i) as consideration for or to fund the acquisition of businesses and/or related
assets, (ii) in connection with employee benefit plans and compensation related arrangements in the
ordinary course and consistent with past practice approved by the Board of Directors, (iii) in
connection with a public or broadly marketed offering and sale of Common Stock or convertible
securities for cash conducted by the Company or its affiliates pursuant to registration under the
Securities Act or Rule 144A thereunder on a basis consistent with capital raising transactions by
comparable financial institutions and (iv) in connection with the exercise of preemptive rights on
terms existing as of the Issue Date. Any adjustment made pursuant to this Section 13(B) shall
become effective immediately upon the date of such issuance.

 

9

 

(C) Other Distributions. In case the Company shall fix a record date for the making of
a distribution to all holders of shares of its Common Stock of securities, evidences of
indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its
Common Stock and other dividends or distributions referred to in Section 13(A)), in each such case,
the Exercise Price in effect prior to such record date shall be reduced immediately thereafter to
the price determined by multiplying the Exercise Price in effect immediately prior to the reduction
by the quotient of (x) the Market Price of the Common Stock on the last trading day preceding the
first date on which the Common Stock trades regular way on the principal
national securities exchange on which the Common Stock is listed or admitted to trading without the
right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the
securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect
of one share of Common Stock (such amount and/or Fair Market Value, the “Per Share Fair Market
Value”) divided by (y) such Market Price on such date specified in clause (x); such adjustment
shall be made successively whenever such a record date is fixed. In such event, the number of
Shares issuable upon the exercise of this Warrant shall be increased to the number obtained by
dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant
before such adjustment, and (2) the Exercise Price in effect immediately prior to the distribution
giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the
immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is
coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be
reduced by the per share amount of the portion of the cash dividend that would constitute an
Ordinary Cash Dividend. In the event that such distribution is not so made, the Exercise Price and
the number of Shares issuable upon exercise of this Warrant then in effect shall be readjusted,
effective as of the date when the Board of Directors determines not to distribute such shares,
evidences of indebtedness, assets, rights, cash or warrants, as the case may be, to the Exercise
Price that would then be in effect and the number of Shares that would then be issuable upon
exercise of this Warrant if such record date had not been fixed.

(D) Certain Repurchases of Common Stock. In case the Company effects a Pro Rata
Repurchase of Common Stock, then the Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to the Effective Date of such Pro Rata
Repurchase by a fraction of which the numerator shall be (i) the product of (x) the number of
shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market
Price of a share of Common Stock on the trading day immediately preceding the first public
announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of which the
denominator shall be the product of (i) the number of shares of Common Stock outstanding
immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so
repurchased and (ii) the Market Price per share of Common Stock on the trading day immediately
preceding the first public announcement by the Company or any of its Affiliates of the intent to
effect such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon
the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product
of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and
(2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase giving rise to this
adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding
sentence. For the avoidance of doubt, no increase to the Exercise Price or decrease in the number
of Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 13(D).

 

10

 

(E) Business Combinations. In case of any Business Combination or reclassification of
Common Stock (other than a reclassification of Common Stock referred to in Section 13(A)), the
Warrantholder’s right to receive Shares upon exercise of this Warrant shall be converted into the
right to exercise this Warrant to acquire the number of shares of stock or other securities or
property (including cash) which the Common Stock issuable (at the time of such Business Combination
or reclassification) upon exercise of this Warrant immediately prior to such
Business Combination or reclassification would have been entitled to receive upon consummation of
such Business Combination or reclassification; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests thereafter of the Warrantholder shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the
Warrantholder’s right to exercise this Warrant in exchange for any shares of stock or other
securities or property pursuant to this paragraph. In determining the kind and amount of stock,
securities or the property receivable upon exercise of this Warrant following the consummation of
such Business Combination, if the holders of Common Stock have the right to elect the kind or
amount of consideration receivable upon consummation of such Business Combination, then the
consideration that the Warrantholder shall be entitled to receive upon exercise shall be deemed to
be the types and amounts of consideration received by the majority of all holders of the shares of
common stock that affirmatively make an election (or of all such holders if none make an election).

(F) Rounding of Calculations; Minimum Adjustments. All calculations under this Section
13 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest one-hundredth
(1/100th) of a share, as the case may be. Any provision of this Section 13 to the contrary
notwithstanding, no adjustment in the Exercise Price or the number of Shares into which this
Warrant is exercisable shall be made if the amount of such adjustment would be less than $0.01 or
one-tenth (1/10th) of a share of Common Stock, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so carried forward,
shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.

(G) Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any
case in which the provisions of this Section 13 shall require that an adjustment shall become
effective immediately after a record date for an event, the Company may defer until the occurrence
of such event (i) issuing to the Warrantholder of this Warrant exercised after such record date and
before the occurrence of such event the additional shares of Common Stock issuable upon such
exercise by reason of the adjustment required by such event over and above the shares of Common
Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such
Warrantholder any amount of cash in lieu of a fractional share of Common Stock; provided, however,
that the Company upon request shall deliver to such Warrantholder a due bill or other appropriate
instrument evidencing such Warrantholder’s right to receive such additional shares, and such cash,
upon the occurrence of the event requiring such adjustment.

(H) Completion of Qualified Equity Offering. In the event the Company (or any
successor by Business Combination) completes one or more Qualified Equity Offerings on or prior to
December 31, 2009 that result in the Company (or any such successor ) receiving aggregate gross
proceeds of not less than 100% of the aggregate liquidation preference of the Preferred Shares (and
any preferred stock issued by any such successor to the Original Warrantholder under the CPP), the
number of shares of Common Stock underlying the portion of this Warrant then held by the Original
Warrantholder shall be thereafter reduced by a number of shares of Common Stock equal to the
product of (i) 0.5 and (ii) the number of shares underlying
the Warrant on the Issue Date (adjusted to take into account all other theretofore made adjustments
pursuant to this Section 13).

 

11

 

(I) Other Events. For so long as the Original Warrantholder holds this Warrant or any
portion thereof, if any event occurs as to which the provisions of this Section 13 are not strictly
applicable or, if strictly applicable, would not, in the good faith judgment of the Board of
Directors of the Company, fairly and adequately protect the purchase rights of the Warrants in
accordance with the essential intent and principles of such provisions, then the Board of Directors
shall make such adjustments in the application of such provisions, in accordance with such
essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the
Board of Directors, to protect such purchase rights as aforesaid. The Exercise Price or the number
of Shares into which this Warrant is exercisable shall not be adjusted in the event of a change in
the par value of the Common Stock or a change in the jurisdiction of incorporation of the Company.

(J) Statement Regarding Adjustments. Whenever the Exercise Price or the number of
Shares into which this Warrant is exercisable shall be adjusted as provided in Section 13, the
Company shall forthwith file at the principal office of the Company a statement showing in
reasonable detail the facts requiring such adjustment and the Exercise Price that shall be in
effect and the number of Shares into which this Warrant shall be exercisable after such adjustment,
and the Company shall also cause a copy of such statement to be sent by mail, first class postage
prepaid, to each Warrantholder at the address appearing in the Company’s records.

(K) Notice of Adjustment Event. In the event that the Company shall propose to take
any action of the type described in this Section 13 (but only if the action of the type described
in this Section 13 would result in an adjustment in the Exercise Price or the number of Shares into
which this Warrant is exercisable or a change in the type of securities or property to be delivered
upon exercise of this Warrant), the Company shall give notice to the Warrantholder, in the manner
set forth in Section 13(J), which notice shall specify the record date, if any, with respect to any
such action and the approximate date on which such action is to take place. Such notice shall also
set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on
the Exercise Price and the number, kind or class of shares or other securities or property which
shall be deliverable upon exercise of this Warrant. In the case of any action which would require
the fixing of a record date, such notice shall be given at least 10 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 15 days prior to the
taking of such proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.

(L) Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to
the taking of any action which would require an adjustment pursuant to this Section 13, the Company
shall take any action which may be necessary, including obtaining regulatory, New York Stock
Exchange, NASDAQ Stock Market or other applicable national securities exchange or stockholder
approvals or exemptions, in order that the Company may thereafter validly and legally issue as
fully paid and nonassessable all shares of Common Stock that the Warrantholder is entitled to
receive upon exercise of this Warrant pursuant to this Section 13.

 

12

 

(M) Adjustment Rules. Any adjustments pursuant to this Section 13 shall be made
successively whenever an event referred to herein shall occur. If an adjustment in Exercise Price
made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock,
then such adjustment in Exercise Price made hereunder shall reduce the Exercise Price to the par
value of the Common Stock.

14. Exchange. At any time following the date on which the shares of Common Stock of
the Company are no longer listed or admitted to trading on a national securities exchange (other
than in connection with any Business Combination), the Original Warrantholder may cause the Company
to exchange all or a portion of this Warrant for an economic interest (to be determined by the
Original Warrantholder after consultation with the Company) of the Company classified as permanent
equity under U.S. GAAP having a value equal to the Fair Market Value of the portion of the Warrant
so exchanged. The Original Warrantholder shall calculate any Fair Market Value required to be
calculated pursuant to this Section 14, which shall not be subject to the Appraisal Procedure.

15. No Impairment. The Company will not, by amendment of its Charter or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in taking of all such action
as may be necessary or appropriate in order to protect the rights of the Warrantholder.

16. Governing Law. This Warrant will be governed by and construed in accordance with
the federal law of the United States if and to the extent such law is applicable, and otherwise in
accordance with the laws of the State of New York applicable to contracts made and to be performed
entirely within such State. Each of the Company and the Warrantholder agrees (a) to submit to the
exclusive jurisdiction and venue of the United States District Court for the District of Columbia
for any civil action, suit or proceeding arising out of or relating to this Warrant or the
transactions contemplated hereby, and (b) that notice may be served upon the Company at the address
in Section 20 below and upon the Warrantholder at the address for the Warrantholder set forth in
the registry maintained by the Company pursuant to Section 9 hereof. To the extent permitted by
applicable law, each of the Company and the Warrantholder hereby unconditionally waives trial by
jury in any civil legal action or proceeding relating to the Warrant or the transactions
contemplated hereby or thereby.

17. Binding Effect. This Warrant shall be binding upon any successors or assigns of
the Company.

18. Amendments. This Warrant may be amended and the observance of any term of this
Warrant may be waived only with the written consent of the Company and the Warrantholder.

 

13

 

19. Prohibited Actions. The Company agrees that it will not take any action which
would entitle the Warrantholder to an adjustment of the Exercise Price if the total number of
shares of Common Stock issuable after such action upon exercise of this Warrant, together with
all shares of Common Stock then outstanding and all shares of Common Stock then issuable
upon the exercise of all outstanding options, warrants, conversion and other rights, would exceed
the total number of shares of Common Stock then authorized by its Charter.

20. Notices. Any notice, request, instruction or other document to be given hereunder
by any party to the other will be in writing and will be deemed to have been duly given (a) on the
date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on
the second business day following the date of dispatch if delivered by a recognized next day
courier service. All notices hereunder shall be delivered as set forth in Item 8 of Schedule A
hereto, or pursuant to such other instructions as may be designated in writing by the party to
receive such notice.

21. Entire Agreement. This Warrant, the forms attached hereto and Schedule A hereto
(the terms of which are incorporated by reference herein), and the Letter Agreement (including all
documents incorporated therein), contain the entire agreement between the parties with respect to
the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings
with respect thereto.

[Remainder of page intentionally left blank]

 

14

 

[Form of Notice of Exercise]

Date: _________

TO: [Company]

RE: Election to Purchase Common Stock

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees
to subscribe for and purchase the number of shares of the Common Stock set forth below covered by
such Warrant. The undersigned, in accordance with Section 3 of the Warrant, hereby agrees to pay
the aggregate Exercise Price for such shares of Common Stock in the manner set forth below. A new
warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet
subscribed for and purchased, if any, should be issued in the name set forth below.

Number of
Shares of Common Stock                                                             

Method of Payment of Exercise Price (note if cashless exercise pursuant to Section 3(i) of the
Warrant or cash exercise pursuant to Section 3(ii) of the Warrant, with consent of the Company and
the Warrantholder)                                                             

Aggregate
Exercise Price:                                                             

	 	 	 	 	 	 	 
	 

	 	Holder:	 	 	 	 
	 

	 	By:
	 	 

	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 

 

15

 

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

Dated: November 21, 2008

	 	 	 	 	 
	 	COMPANY: SEVERN BANCORP, INC.

 	 
	 	By:  	/s/ Alan J. Hyatt
 	 
	 	 	Name:  	Alan J. Hyatt 	 
	 	 	Title:  	President 	 
	 
	 	Attest:

 	 
	 	By:  	/s/ S. Scott Kirkley
 	 
	 	 	Name:  	S. Scott Kirkley 	 
	 	 	Title:  	Secretary 	 

[Signature Page to Warrant]

 

16

 

SCHEDULE A

Item 1 

Name:

Corporate or other organizational form: Corporation

Jurisdiction of organization: Maryland

 Item 2

Exercise Price:1 $6.30

Item 3

Issue Date: November 21, 2008

Item 4

Amount of last dividend declared prior to the Issue Date: $0.06 per share

Item 5

Date of Letter Agreement between the Company and the United States Department of the
Treasury: November 21, 2008

	 	 	 
	Item 6
	 	 
	 
	 	 
	Number of shares of Common Stock:

	 	20,000,000 shares authorized,
	 

	 	10,066,679 shares issued and outstanding

Item 7

Company’s address: 200 Westgate Circle, Suite 200, Annapolis, Maryland 21401

	 	 	 
	Item 8
	 	 
	 
	 	 
	Notice information:

	 	Alan J. Hyatt, President
	 

	 	Thomas B. Bevivino, EVP & CFO

 

	 	 	 
	1	 	Initial exercise price to be calculated based on the
average of closing prices of the Common Stock on the 20 trading days ending
on the last trading day prior to the date the Company’s application for
participation in the Capital Purchase Program was approved by the United
States Department of the Treasury.

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