Document:

Exhibit 10.1

 

SECURITIES PURCHASE

 

AGREEMENT

 

 

Dated as of December 22, 2004

 

 

among

 

 

CARDIOTECH INTERNATIONAL, INC.

 

 

and

 

 

THE PURCHASERS LISTED ON EXHIBIT A

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I Purchase
  and Sale of Common Stock and Warrants

  	
   

  
	
   

  	
   

  
	
  Section 1.1

  	
  Purchase and Sale
  of Common Stock, Warrants and Additional Investment Rights

  	
   

  
	
  Section 1.2

  	
  Purchase Price and
  Closing

  	
   

  
	
  Section 1.3

  	
  Warrants

  	
   

  
	
  Section 1.4

  	
  AIRs

  	
   

  
	
  Section 1.5

  	
  Warrant Shares and AIR
  Shares

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II
  Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Representations and
  Warranties of the Company

  	
   

  
	
  Section 2.2

  	
  Representations and
  Warranties of the Purchasers

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Securities
  Compliance

  	
   

  
	
  Section 3.2

  	
  Registration and
  Listing

  	
   

  
	
  Section 3.3

  	
  Inspection Rights

  	
   

  
	
  Section 3.4

  	
  Compliance with
  Laws

  	
   

  
	
  Section 3.5

  	
  Keeping of Records
  and Books of Account

  	
   

  
	
  Section 3.6

  	
  Reporting
  Requirements

  	
   

  
	
  Section 3.7

  	
  Other Agreements

  	
   

  
	
  Section 3.8

  	
  Reservation of
  Shares

  	
   

  
	
  Section 3.9

  	
  Disclosure of
  Transactions and Other Material Information

  	
   

  
	
  Section 3.10

  	
  Delivery of
  Securities

  	
   

  
	
  Section 3.11

  	
  No Shorting of
  Stock

  	
   

  
	
  Section 3.12

  	
  Subsequent Financings

  	
   

  
	
  Section 3.13

  	
  Beneficial
  Ownership Restrictions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
  Conditions

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Conditions
  Precedent to the Obligation of the Company to Close and to Sell the Shares,
  Warrants and AIRs

  	
   

  
	
  Section 4.2

  	
  Conditions
  Precedent to the Obligation of the Purchasers to Close and to Purchase the
  Shares, the Warrants and the AIRs

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V
  Transfer Restrictions and Legends

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI
  Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Termination
  by Mutual Consent

  	
   

  
	
  Section 6.2

  	
  Effect
  of Termination

  	
   

  
					

 

i

 

	
  ARTICLE VII
  Indemnification

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  General
  Indemnity

  	
   

  
	
  Section 7.2

  	
  Indemnification
  Procedure

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Fees
  and Expenses

  	
   

  
	
  Section 8.2

  	
  Specific
  Enforcement; Consent to Jurisdiction

  	
   

  
	
  Section 8.3

  	
  Entire
  Agreement; Amendment

  	
   

  
	
  Section 8.4

  	
  Notices

  	
   

  
	
  Section 8.5

  	
  Waivers

  	
   

  
	
  Section 8.6

  	
  Headings

  	
   

  
	
  Section 8.7

  	
  Successors
  and Assigns

  	
   

  
	
  Section 8.8

  	
  No
  Third Party Beneficiaries

  	
   

  
	
  Section 8.9

  	
  Governing
  Law

  	
   

  
	
  Section 8.10

  	
  Survival

  	
   

  
	
  Section 8.11

  	
  Counterparts

  	
   

  
	
  Section 8.12

  	
  Publicity

  	
   

  
	
  Section 8.13

  	
  Severability

  	
   

  
	
  Section 8.14

  	
  Further
  Assurances

  	
   

  
	
  Section 8.15

  	
  Independent
  Nature of Purchasers’ Obligations and Rights

  	
   

  

 

ii

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE
AGREEMENT (this “Agreement”), dated as of December 22, 2004, by and
among CardioTech International, Inc., a Massachusetts corporation (the “Company”),
and the entities listed on Exhibit A hereto (each, a “Purchaser”
and collectively, the “Purchasers”), for the purchase and sale by the
Purchasers of shares of the Company’s Common Stock, par value $0.01 per share
(the “Common Stock”), warrants to purchase shares of Common Stock, and
additional investment rights to purchase shares of Common Stock.

 

The parties hereto agree
as follows:

 

ARTICLE I

 

Purchase and Sale of
Common Stock and Warrants

 

Section 1.1                                      Purchase
and Sale of Common Stock, Warrants and Additional Investment Rights. Upon
the following terms and conditions, the Company shall issue and sell to the
Purchasers, and each Purchaser shall, severally but not jointly, purchase from
the Company (i) shares of Common Stock (the “Shares”), (ii) warrants to
purchase shares of Common Stock equal to 50% of the number of Shares to be
purchased by such Purchaser, in substantially the form attached hereto as Exhibit
B (the “Warrants”), and (iii) additional investment rights, in
substantially the form attached hereto as Exhibit C (the “AIRs”),
pursuant to which each Purchaser may have the right to purchase, and the
Company shall be required to sell, additional shares of Common Stock, in each
case, as set forth opposite each such Purchaser’s name on Exhibit A
hereto, at a price per Share and related Warrants and AIRs of $2.40 for an
aggregate purchase price to the Company from all Purchasers of $2,735,006.40 (the “Purchase Price”).
The Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the U.S. Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder (the “Securities Act”),
including Regulation D (“Regulation D”), and/or upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the investments to be made hereunder.

 

Section 1.2                                      Purchase
Price and Closing. The Company agrees to issue and sell to the Purchasers
and, in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the number of Shares, Warrants and
AIRs set forth opposite their respective names on Exhibit A. The closing
of the purchase and sale of the Shares, Warrants and AIRs to be acquired by the
Purchasers from the Company under this Agreement shall take place at the
offices of the Company located at 229 Andover Street, Wilmington, Massachusetts
01887 (the “Closing”) at 10:00 a.m., Eastern Time (i) on or before December 22,
2004, provided, that all of the conditions set forth in Article IV hereof
and applicable to the Closing shall have been fulfilled or waived in accordance
herewith, or (ii) at such other time and place or on such date as the
Purchasers and the Company may agree upon (the “Closing Date”). The

 

 

entire Purchase Price shall be paid by the Purchasers
in cash, by wire transfer or in readily available funds.

 

Section 1.3                                            Warrants.
At the Closing, the Company shall issue to each Purchaser such number of
Warrants to purchase shares of Common Stock as is set forth opposite such
Purchaser’s name on Exhibit A hereto. The Warrants shall be exercisable
for five (5) years from the date of issuance and shall have an initial exercise
price equal to $3.00.

 

Section 1.4                                            AIRs.
At the Closing, the Company shall issue to each Purchaser such number of AIRs to
purchase shares of Common Stock as is set forth opposite such Purchaser’s name on
Exhibit A hereto. The AIRs shall be exercisable at any time on or after
the date of the issuance of the AIR and on or prior to the 90th Business
Day following the date that the Registration Statement is declared effective by
the Commission (as such terms are defined in the Registration Rights Agreement
to be entered into at the Closing between the Company and the Purchasers).

 

Section 1.5                                            Warrant
Shares and AIR Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of its authorized
but unissued shares of Common Stock equal to the aggregate number of shares of
Common Stock necessary to effect the exercise of the Warrants and the AIRs. Any
shares of Common Stock issuable upon exercise of the Warrants (and such shares
when issued) are herein referred to as the “Warrant Shares”. Any shares
of Common Stock issuable upon exercise of the AIRs (and such shares when
issued) are herein referred to as the “AIR Shares”. The Shares, the
Warrants, the AIRs, the Warrant Shares and the AIR Shares are sometimes
collectively referred to herein as the “Securities”.

 

ARTICLE II

 

Representations and Warranties

 

Section 2.1                                      Representations
and Warranties of the Company. In order to induce the Purchasers to enter
into this Agreement and to purchase the Shares, the Warrants and the AIRs, the
Company hereby makes the following representations and warranties to the
Purchasers:

 

(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
Massachusetts 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 does not have any
Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind
in any other entity, except as disclosed in the Commission Documents (as
defined in Section 2.1(f)) or as set forth on Schedule 2.1(g)
hereto. The Company and each such Subsidiary is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the 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 any adverse effect on the
business, operations, properties, prospects or financial condition of the
Company or its Subsidiaries and which is material to such entity or other
entities controlling or

 

2

 

controlled by such entity or which is likely to
materially hinder the performance by the Company of its material obligations
hereunder and under the other Transaction Documents (as defined in Section 2.1(b)
hereof).

 

(b)                                 Authorization;
Enforcement. The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, the
Warrants, the AIRs, and the other agreements and documents contemplated hereby
and thereby and executed by the Company or to which the Company is party
(collectively, the “Transaction Documents”), and to issue and sell the
Shares, the Warrants and the AIRs in accordance with the terms hereof.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth in Schedule 2.1(b),
no further consent or authorization of the Company, its Board of Directors or
its stockholders is required. This Agreement has been duly executed and
delivered by the Company.  The other
Transaction Documents will have been duly executed and delivered by the Company
at the Closing.  Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, 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 and the shares thereof currently
issued and outstanding as of October 30, 2004, are set forth on Schedule 2.1(c)
hereto. All of the outstanding shares of the Company’s Common Stock and any
other security of the Company have been duly and validly authorized. Except as disclosed
in the Commission Documents or as set forth on Schedule 2.1(c)
hereto, no shares of Common Stock or any other security of the Company are
entitled to preemptive rights or registration 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, any shares of capital stock of the Company.  Furthermore, except as disclosed in the
Commission Documents or as set forth on Schedule 2.1(c) hereto,
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 shares
of capital stock of the Company. Except for customary transfer restrictions
contained in agreements entered into by the Company in order to sell restricted
securities or as provided on Schedule 2.1(c) hereto, the Company is
not a party to or bound by any agreement or understanding granting registration
or anti-dilution rights to any individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind (a “Person”) with respect to any of
its equity or debt securities. Except as set forth on Schedule 2.1(c),
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. Except as set forth on Schedule 2.1(c)
hereto, the offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing
complied with all applicable federal and state securities laws, and no holder
of such securities has a right of rescission or claim for damages with respect
thereto which could have a Material Adverse Effect.

 

3

 

The Company has furnished or made available to the
Purchasers true and correct copies of the Company’s Articles of Incorporation
as in effect on the date hereof (the “Articles”), and the Company’s
Bylaws as in effect on the date hereof (the “Bylaws”).

 

(d)                                 Issuance
of Securities. The Shares, the Warrants and the AIRs to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and nonassessable and 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. When the
Warrant Shares are issued and paid for in accordance with the terms of this
Agreement and as set forth in the Warrants, 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. When the AIR Shares are issued and paid for in
accordance with the terms of the AIRs, 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 and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate
any provision of the Articles or Bylaws or any Subsidiary’s comparable charter
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 the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries’
respective properties or assets are bound, (iii) create or impose a lien,
mortgage, security interest, charge or encumbrance of any nature on any
property or asset of the Company or any of its Subsidiaries under any agreement
or any commitment to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound or by which any of
their respective properties or assets are bound, or (iv) 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 the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected, except, in all cases other than violations pursuant to clauses (i) or
(iv) (with respect to federal and state securities laws) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is required under federal, state, foreign
or local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Securities in accordance with the
terms hereof or thereof (other than any filings which may be required to be
made by the Company with the Securities and Exchange

 

4

 

Commission (the “Commission”) and/or the
American Stock Exchange prior to or subsequent to the Closing, or state
securities administrators prior to or subsequent to the Closing, or any
registration statement which may be filed pursuant hereto or thereto).

 

(f)                                    Commission
Documents; Financial Statements. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and, except as disclosed on Schedule 2.1(f)
hereto, the Company has timely 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, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing, including filings incorporated by reference therein, being referred
to herein as the “Commission Documents”). The Company has delivered or
made available (through the SEC EDGAR website) to the Purchasers true and
complete copies of the Commission Documents filed with the Commission since December 31,
2000.  The Company has not provided to
the Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement.  At the time of its filing, the Company’s
Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30,
2004 (the “Form 10-Q”) complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such documents, and the Form 10-Q did not
contain any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. At the time of its filing, the Company’s Annual Report on Form
10-KSB for the fiscal year ended March 31, 2004 (the “Form 10-K”)
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, at the time of its filing, the Form 10-K did not contain any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. 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 or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles (“GAAP”)
applied on a 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 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)                                 Subsidiaries.
All of the outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, and are fully paid and nonassessable. There
are no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares

 

5

 

of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any
Subsidiary or any convertible securities, rights, warrants or options of the
type described in the preceding sentence except as set forth on Schedule 2.1(g)
hereto. Neither the Company nor any Subsidiary is party to, nor has any
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of any Subsidiary. For the purposes of this Agreement, “Subsidiary”
shall mean any Person of which at least a majority of the securities or other
ownership interest having ordinary voting power (absolutely or contingently)
for the election of directors or other Persons performing similar functions are
at the time owned directly or indirectly by the Company and/or any of its other
Subsidiaries.

 

(h)                                 No
Material Adverse Change. Since September 30, 2004, the Company has not
experienced or suffered any Material Adverse Effect, except for operating losses
incurred in the ordinary course of business.

 

(i)                                     No
Undisclosed Liabilities.  Except as
disclosed on Schedule 2.1(i) hereto, neither the Company nor any of
its Subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those set forth on the balance sheet included in the
Form 10-Q or incurred in the ordinary course of the Company’s or its
Subsidiaries respective businesses since September 30,  2004, and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its Subsidiaries.

 

(j)                                     No
Undisclosed Events or Circumstances. Since September 30, 2004, except
as disclosed on Schedule 2.1(j) hereto, no event or circumstance
has occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.

 

(k)                                  Indebtedness.
Schedule 2.1(k) hereto sets forth as of the date hereof any
Material Adverse Effect to the previously reported outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For purposes of this Agreement: (x) “Indebtedness” of any Person
means, without duplication (A) any indebtedness for borrowed money in excess of
$100,000, (B) any 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) in excess of $100,000, (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) any obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) any indebtedness in excess of $100,000 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), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the

 

6

 

periods covered thereby, is
classified as a capital lease with a present value in excess of $100,000, (G)
all indebtedness referred to in clauses (A) through (F) 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, charge, 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 (H) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; and (y) “Contingent Obligation” means, as to any
Person, any direct or indirect liability, 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 in excess of $100,000 due under leases required to be
capitalized in accordance with GAAP. Except as disclosed on Schedule 2.1(k),
neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

(l)                                     Title
to Assets.  Each of the Company and
the Subsidiaries has good and marketable title to all of its real and personal
property, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances of any nature whatsoever, except as disclosed
in the Commission Documents, for those indicated on Schedule 2.1(l)
hereto or such that, individually or in the aggregate, do not have a Material
Adverse Effect.  All leases to real and
personal property of the Company and each of its Subsidiaries are valid and
subsisting and in full force and effect.

 

(m)                               Actions
Pending. 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 the Company or any Subsidiary which
questions the validity of this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby or any
action taken or to be taken pursuant hereto or thereto. Except as set forth on Schedule 2.1(m)
hereto, 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, any Subsidiary or
any of their respective properties or assets, which individually or in the
aggregate, would 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 Subsidiary or any
officers or directors of the Company or any Subsidiary in their capacities as
such, which individually, or in the aggregate, would have a Material Adverse
Effect.

 

(n)                                 Compliance
with Law.  The business of the
Company and the Subsidiaries has been and is presently being conducted in
accordance with all applicable federal, state and local governmental laws,
rules, regulations and ordinances, except as set forth in the Commission
Documents or on Schedule 2.1(n) hereto or such that, individually
or in the aggregate, the noncompliance therewith would not have a Material
Adverse Effect. The Company and each of its Subsidiaries have 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

 

7

 

other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.

 

(o)                                 Taxes.  Except as set forth on Schedule 2.1(o)
hereto, the Company and each of the Subsidiaries 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 and the Subsidiaries for
all current taxes and other charges to which the Company or any Subsidiary is
subject and which are not currently due and payable.  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 or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.

 

(p)                                 Certain
Fees.  Except for Stonegate
Securities, Inc. or as set forth on Schedule 2.1(p) hereto, 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.

 

(q)                                 Disclosure.
To the best of the Company’s knowledge, neither this Agreement or the Schedules
hereto nor any other documents, certificates or instruments furnished to the
Purchasers by or on behalf of the Company or any Subsidiary 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.

 

(r)                                    Intellectual
Property.  Except as set forth on Schedule 2.1(r),
the Company and each of the Subsidiaries owns or possesses all the Proprietary
Rights owned by it and have no knowledge that such rights are in conflict with
the rights of others. As of the date of this Agreement, neither the Company nor
any of its Subsidiaries has received any written notice that any Proprietary
Rights have been declared unenforceable or otherwise invalid by any court or
governmental agency. As of the date of this Agreement, there is, to the
knowledge of the Company, no material existing infringement, misuse or
misappropriation of any Proprietary Rights by others.  From September 30, 2004 to the date of
this Agreement, neither the Company nor any of its Subsidiaries has received
any written notice alleging that the operation of the business of the Company
or any of its Subsidiaries infringes in any material respect upon the
intellectual property rights of others. “Proprietary Rights” shall mean
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, and all rights with respect to the foregoing.

 

(s)                                  Environmental
Compliance. Except as disclosed on Schedule 2.1(s) hereto, the
Company and each of its Subsidiaries have obtained all 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, the absence of which would have
a Material Adverse Effect.  “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,

 

8

 

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 as set forth on Schedule 2.1(s)
hereto, the Company has all necessary governmental approvals required under all
Environmental Laws and used in its business or in the business of any of its
Subsidiaries, except for such instances as would not individually or in the
aggregate have a Material Adverse Effect. The Company and each of its
Subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. 
Except for such instances as would not individually or in the aggregate
have a Material Adverse Effect, there are no past or present events,
conditions, circumstances, incidents, actions or omissions relating to or in
any way affecting the Company or its Subsidiaries that violate or may violate
any Environmental Law after the Closing or that may give rise to any
Environmental Liabilities, 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.  “Environmental Liabilities” means all
liabilities of a Person (whether such liabilities are owed by such Person to
governmental authorities, third parties or otherwise) whether currently in
existence or arising hereafter which arise under or relate to any Environmental
Law.

 

(t)                                    Books
and Records; Internal Accounting Controls. The books, records and documents
of the Company and its Subsidiaries accurately reflect in all material respects
the information relating to the business of the Company and the Subsidiaries,
the location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary. The Company and each of its Subsidiaries maintain 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.

 

(u)                                 Material
Agreements. Except for the Transaction Documents or as set forth on Schedule 2.1(u)
hereto, or those that are included as exhibits to the Commission Documents,
neither the Company nor any Subsidiary is a party to any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement, a
copy of which would be required to be filed with the Commission (collectively, “Material
Agreements”) if the Company or any Subsidiary were registering securities
under the Securities Act. The Company and each of its Subsidiaries has in all
material respects performed all the obligations required to be performed by
them to date under the foregoing agreements, have received no notice of default
and, to the best of the Company’s knowledge, are not in default under any
Material Agreement now in

 

9

 

effect, the result of which could cause a Material
Adverse Effect. No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any Subsidiary limits or
shall limit the payment of dividends on its Common Stock, except as set forth
on Schedule 2.1(u) hereto.

 

(v)                                 Transactions
with Affiliates. Except as disclosed in the Commission Documents or as set
forth on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any Subsidiary or any
of their respective customers or suppliers, on the one hand, and (b) on the
other hand, any officer, employee, consultant or director of the Company, or
any of its Subsidiaries, or any Person owning 5% or more of the capital stock
of the Company or any Subsidiary or any member of the immediate family of such
officer, employee, consultant, director or 5% or greater stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, which require disclosure under applicable securities
laws.

 

(w)                               Securities
Act of 1933.  The Company has
complied and will comply with all applicable federal and state securities laws
in connection with the offer, issuance and sale of the Securities hereunder.
Neither the Company nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy any of the Securities,
or similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
Person, or has taken or will take any action so as to bring the issuance and sale
of any of the Securities under the registration provisions of the Securities
Act and applicable state securities laws. Neither the Company nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Securities.

 

(x)                                   Governmental
Approvals. Except as set forth on Schedule 2.1(x) hereto, and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Shares, the Warrants and the AIRs, or for the performance
by the Company of its obligations under the Transaction Documents.

 

(y)                                 Employees.
Neither the Company nor any Subsidiary has any collective bargaining
arrangements or agreements covering any of its employees.  Except as set forth on Schedule 2.1(y)
hereto, neither the Company nor any Subsidiary has 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 or such
Subsidiary, which contract or agreement is required to be disclosed in the
Commission Documents but which is not so disclosed. Since September 30,
2004, no officer (other than Liane Johnson), consultant or key employee of the
Company or any Subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect,

 

10

 

has terminated or, to the knowledge of the Company,
has any present intention of terminating his or her employment or engagement
with the Company or any Subsidiary.

 

(z)                                   Absence
of Certain Developments.  Except as
set forth in the Commission Documents or on Schedule 2.1(z) hereto,
since September 30, 2004, other than options issued in the ordinary course
of business and which would not result in a Material Adverse Effect, neither
the Company nor any Subsidiary has:

 

(i)                                     issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto other than under the Company’s stock option plans;

 

(ii)                                  borrowed
any amount or incurred or become subject to any liabilities (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 Company’s or such Subsidiary’s business;

 

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

 

(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;

 

(v)                                 sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, 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, or
disclosed any proprietary confidential information to any Person except in the
ordinary course of business or to the Purchasers or their representatives;

 

(vii)                           suffered any substantial
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
$100,000;

 

(x)                                   entered
into any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business;

 

11

 

(xi)                                made
charitable contributions or pledges in excess of $25,000;

 

(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)                         effected any two or more
events of the foregoing kind which in the aggregate would cause a Material
Adverse Effect; or

 

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

 

(aa)                            Use
of Proceeds. Except as set forth on Schedule 2.1(aa), the
proceeds from the sale of the Shares, the Warrants and the AIRs will be used by
the Company for working capital purposes and, except as set forth on Schedule 2.1(aa),
shall not be used to repay any outstanding Indebtedness or any loans to any
officer, director, affiliate or insider of the Company.

 

(bb)                          Public
Utility Holding Company Act and Investment Company Act Status.  The Company is not a “holding company” or a “public
utility company” as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.  The
Company is not, and as a result of and immediately upon Closing will not be, an
“investment company” or a company “controlled” by an “investment company”,
within the meaning of the Investment Company Act of 1940, as amended.

 

(cc)                            ERISA.
No liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan by the Company or any of its Subsidiaries which is or would
cause a Material Adverse Effect. The execution and delivery of this Agreement
and the issue and sale of the Shares, the Warrants and the AIRs will not
involve any transaction which is subject to the prohibitions of Section 406
of ERISA or in connection with which a tax could be imposed pursuant to Section 4975
of the Internal Revenue Code of 1986, as amended (the “Code”); provided
that, if any Purchaser, or any Person that owns a beneficial interest in any
Purchaser, 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(cc), 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 any Subsidiary or
by any trade or business, whether or not incorporated, which, together with the
Company or any Subsidiary, is under common control, as described in Section 414(b)
or (c) of the Code.

 

(dd)                          Delisting
Notification. The Company has not received a delisting notification from
the American Stock Exchange that has not been rescinded, and, to its knowledge,
there are no existing facts or circumstances that could give rise to the
delisting of the Common Stock from the American Stock Exchange.

 

12

 

(ee)                            Sarbanes-Oxley Act. The Company is
in compliance with any and all applicable requirements of the Sarbanes-Oxley
Act of 2002 that are effective as of the date hereof, and any and all
applicable rules and regulations promulgated by the Commission thereunder that
are effective as of the date hereof, except where such noncompliance would not
have, individually or in the aggregate, a Material Adverse Effect.

 

Section 2.2                                      Representations
and Warranties of the Purchasers. Each of the Purchasers hereby makes the
following representations and warranties to the Company with respect solely to
itself and not with respect to any other Purchaser:

 

(a)                                  Organization
and Standing of the Purchasers. If such Purchaser is an entity, such
Purchaser is a corporation, limited liability company or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

 

(b)                                 Authorization
and Power. Such Purchaser has the requisite power and authority to enter
into and perform the Transaction Documents and to purchase the Shares, the
Warrants and the AIRs being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by such Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by such Purchaser. The other Transaction
Documents constitute, or shall constitute when executed and delivered, valid and
binding obligations of such Purchaser enforceable against such Purchaser 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)                                  Acquisition
for Investment. Such Purchaser is purchasing the Shares and acquiring the Warrants
and the AIRs solely for its own account for the purpose of investment and not
with a view to or for sale in connection with the distribution thereof. Such
Purchaser does not have a present intention to sell any of the Securities, nor
a present arrangement (whether or not legally binding) or intention to effect
any distribution of any of the Securities to or through any Person; provided,
however, that by making the representations herein and subject to Section 2.2(e)
below, such Purchaser does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to pledge any of the
Securities for margin purposes and/or to dispose of any of the Securities at
any time in accordance with federal and state securities laws applicable to
such disposition. Such Purchaser acknowledges that it (i) has such knowledge
and experience in financial and business matters such that such Purchaser is
capable of evaluating the merits and risks of its investment in the Company,
(ii) is able to bear the financial risks associated with an investment in the
Securities, and (iii) has been given full access to such records of the Company
and the Subsidiaries and to the officers of the Company and the Subsidiaries as
it has deemed necessary or appropriate to conduct its due diligence
investigation.

 

(d)                                 Rule
144. Such Purchaser understands that the Securities must be held
indefinitely unless such Securities are registered under the Securities Act or
an exemption from registration is available. Such Purchaser acknowledges that
it is familiar with Rule 144 of the

 

13

 

rules and regulations of the Commission, as amended,
promulgated pursuant to the Securities Act (“Rule 144”), and that such
Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. Such Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Securities without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.

 

(e)                                  General.
Such Purchaser understands that the Securities are 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 such Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of such Purchaser to
acquire the Securities. Such Purchaser 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.

 

(f)                                    Opportunities
for Additional Information. Such Purchaser acknowledges that such Purchaser
has had the opportunity to ask questions of and receive answers from, or obtain
additional information from, the executive officers of the Company concerning the
financial and other affairs of the Company, and to the extent deemed necessary
in light of such Purchaser’s personal knowledge of the Company’s affairs, such
Purchaser has asked such questions and received answers to the full
satisfaction of such Purchaser, and such Purchaser desires to invest in the
Company.

 

(g)                                 No
General Solicitation. Such Purchaser acknowledges that the Securities were
not offered to such Purchaser 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, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
such Purchaser was invited by any of the foregoing means of communications.

 

(h)                                 Accredited
Investor. Such Purchaser is an accredited investor (as defined in Rule 501
of Regulation D), and such Purchaser has such experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in the Securities.  Such
Purchaser acknowledges that an investment in the Securities is speculative and
involves a high degree of risk.

 

ARTICLE III

 

Covenants

 

The Company covenants
with each Purchaser as follows, which covenants are for the benefit of each
Purchaser and their respective permitted assignees.

 

Section 3.1                                      Securities
Compliance. The Company shall notify the Commission, in accordance with its
rules and regulations, of the transactions contemplated by any of the
Transaction Documents, and shall take all other necessary action and
proceedings as

 

14

 

may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchasers, or their respective subsequent holders.

 

Section 3.2                                      Registration
and Listing. The Company will cause its Common Stock to continue to be
registered under Section 12(b) or 12(g) of the Exchange Act, will comply
in all respects with its reporting and filing obligations under the Exchange
Act, will comply with all requirements related to any registration statement
filed pursuant to this Agreement, and will not take any action or file any document
(whether or not permitted by the Securities Act or the rules promulgated
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act or
Securities Act, except as permitted herein. The Company shall use its
commercially reasonable best efforts to continue the listing of its Common
Stock on the American Stock Exchange or any successor market. The Company will
promptly file the “Listing Application” for, or in connection with, the
issuance and delivery of the Securities.

 

Section 3.3                                      Inspection
Rights. In the event the Registration Statement (as defined in the
Registration Rights Agreement) is not effective or has been suspended, and
subject to the Purchaser signing a mutually agreeable Non-Disclosure Agreement
and agreeing not to sell any of its securities if it obtains material
non-public information, the Company shall, subject to Section 3.9, permit,
during normal business hours and upon reasonable request and reasonable notice,
a Purchaser or any employees, agents or representatives thereof, so long as a
Purchaser shall be obligated hereunder to purchase the Shares or shall
beneficially own the Shares, or shall own Warrant Shares or the Warrants or AIR
Shares which, in the aggregate, represent more than two percent (2%) of the
total combined voting power of all voting securities then outstanding, to
examine and make reasonable copies of and extracts from the records and books
of account of, and visit and inspect, during the term of the Warrants, the
properties, assets, operations and business of the Company and any Subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
Subsidiary with any of its officers, consultants, directors, and key employees.

 

Section 3.4                                      Compliance
with Laws. The Company shall comply, and cause each Subsidiary to comply,
with all applicable laws, rules, regulations and orders, the noncompliance with
which could have a Material Adverse Effect.

 

Section 3.5                                      Keeping
of Records and Books of Account. The Company shall keep and cause each
Subsidiary to keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied, reflecting
all financial transactions of the Company and its Subsidiaries, and in which,
for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.

 

Section 3.6                                      Reporting
Requirements. The Company, only to the extend not included in a Commission Document
publicly filed and available for public access, shall furnish two (2) copies of
the following to each Purchaser in a timely manner so long as that Purchaser
shall be obligated hereunder to purchase the Shares or shall beneficially own
the Shares, AIRs or Warrants, or shall own Warrant Shares or AIR Shares which,
in the aggregate, represent more than one percent (1%) of the total combined
voting power of all voting securities then outstanding:

 

15

 

(a)                                  Quarterly
Reports filed with the Commission on Form 10-Q as soon as available, and in any
event within forty-five (45) days after the end of each of the first three (3)
fiscal quarters of the Company, but in no event prior to the time that such
Reports are publicly filed with the Commission or otherwise made publicly
available;

 

(b)                                 Annual
Reports filed with the Commission on Form 10-K as soon as available, and in any
event within ninety (90) days after the end of each fiscal year of the Company,
but in no event prior to the time that such Reports are publicly filed with the
Commission or otherwise made publicly available; and

 

(c)                                  Copies
of all notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.

 

Section 3.7                                      Other
Agreements. The Company shall not enter into any agreement in which the
terms of such agreement would restrict or impair the right or ability of the
Company or any Subsidiary to perform under any Transaction Document.

 

Section 3.8                                      Reservation
of Shares. So long as the Warrants and/or the AIRs remain outstanding, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, the maximum number of shares of Common
Stock to effect the exercise of the Warrants and the AIRs.

 

Section 3.9                                      Disclosure of Transactions and Other Material
Information. As soon as possible after the Closing, but in any event
no later than 8:00 a.m., New York City time, on the first Business Day
immediately following the Closing Date, the Company shall issue a press release
with respect to the transactions contemplated by this Agreement, which press
release shall be in the form attached hereto as Exhibit G. In addition,
on or before 8:30 a.m., New York City time, on the second Business Day
immediately following the Closing Date, the Company shall file a Current Report
on Form 8-K with the Commission describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement, a form of the Warrant, a form of the
AIR, and the Registration Rights Agreement, and the schedules hereto and
thereto in the form required by the Exchange Act (including all attachments, the “8-K Filing”). For purposes of
this Agreement, a “Business Day” means any day except Saturday,
Sunday and any day which is a legal holiday or a day on which banking
institutions in the State of Massachusetts generally are authorized or required
by law or other government actions to close.  As of
the time of the filing of the 8-K Filing with the Commission, no Purchaser
shall be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of their respective officers,
directors, employees or agents, that is not disclosed in the 8-K Filing. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide any
Purchaser with any material, nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing with the
Company without the express written consent of such Purchaser. Subject to the
foregoing, neither the Company nor any Purchaser shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any other

 

16

 

press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith, and (ii) as is
required by applicable law and regulations, including the applicable rules and
regulations of the American Stock Exchange (provided that in the case of clause
(i) above, each Purchaser shall be notified by the Company (although the
consent of such Purchaser shall not be required) in connection with any such
press release or other public disclosure prior to its release).

 

Section 3.10                                Delivery
of Securities. At Closing or as soon thereafter as reasonably possible (but
in any event no later than five Business Days immediately following the Closing
Date), the Company shall deliver to each Purchaser certificates representing
the Shares (in such denominations as each Purchaser may request), and the
original Warrants and AIRs, acquired by such Purchaser at the Closing.

 

Section 3.11                                No Shorting of Stock.
Each Purchaser represents and warrants to the Company that, during the period
beginning on the date such Purchaser was initially contacted by the Company or an
agent thereof with respect to a prospective investment in the Company and
ending on the date hereof, such Purchaser has not sold short (or entered into
any other similar hedging transaction with respect to) the shares of the
Company’s Common Stock.  Each
Purchaser, severally and not jointly with the other Purchasers, understands and
acknowledges that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock “against the box” with the Securities
purchased hereunder prior to the effective date of the Registration Statement is
a violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5
under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated June 1997, compiled by the Office of Chief Counsel,
Division of Corporate Finance. Accordingly, each Purchaser hereby agrees (on
behalf of itself or any Person over which it has direct control) not to use any
of the Securities to cover any short sales, hedging or similar transactions
with the same economic effect as a short sale, made prior to the effective date
of the Registration Statement. Additionally, each Purchaser, severally and not
jointly with the other Purchasers, agrees to comply with Regulation M under the
federal securities laws.

 

Section 3.12                                Subsequent
Financings.

 

(a)                                  Until
the first anniversary of the Closing Date, the Company hereby grants to each Purchaser
(but not its assigns) that (A) still owns Shares purchased hereunder
immediately prior to the issuance of the “New Securities” (as defined in Section 3.12(b)),
(B) purchased Shares on the Closing Date, and (C) was not an officer or
director of the Company as of the Closing Date (any such Purchaser, for such
purpose, an “Eligible Purchaser”), a right (the “Preemptive Right”)
to purchase all or any part of such Eligible Purchaser’s pro rata share of any
New Securities that the Company may, from time to time, propose to sell and
issue. The pro rata share for each Eligible Purchaser, for purposes of the
Preemptive Right, is the ratio of (x) the number of shares of Common Stock
then held or deemed to be held by such Eligible Purchaser immediately prior to
the issuance of the New Securities (assuming the full exercise of the Warrants
and the AIRs), to (y) the total number of shares of Common Stock of the
Company outstanding immediately prior to the issuance of the New Securities (after
giving effect to the full exercise of the Warrants and the AIRs).

 

(b)                                 For
purposes of this Section 3.12, “New Securities” shall mean any
Common Stock, whether or not authorized on the date hereof, and rights, options
or warrants to

 

17

 

purchase Common Stock and
securities of any type whatsoever that are, or may become, convertible into
Common Stock; provided, however, that “New Securities” does not
include the following:

 

(i)                                     shares
of capital stock of the Company issuable upon conversion or exercise of any
currently outstanding securities or any Shares, AIRs, Warrants or New
Securities issued in accordance with this Agreement (including the Warrant
Shares and the AIR Shares);

 

(ii)                                  shares
or options or warrants for Common Stock granted to officers, directors and
employees of, and consultants to, the Company pursuant to stock option or
purchase plans or other compensatory agreements approved by the Compensation
Committee of the Board of Directors;

 

(iii)                               shares of Common Stock
issued in connection with any pro rata stock split or stock dividend in respect
of any series or class of capital stock of the Company or recapitalization by
the Company;

 

(iv)                              shares
of capital stock, or options or warrants to purchase capital stock, issued to a
strategic investor in connection with a strategic commercial agreement or
pursuant to joint ventures, partnerships, licensing agreements or other similar
arrangements, as determined by the Board of Directors;

 

(v)                                 shares
of capital stock, or options or warrants to purchase capital stock, issued
pursuant to a commercial borrowing, secured lending or lease financing
transaction approved by the Board of Directors and effected with a bank or
other institutional lender;

 

(vi)                              shares
of capital stock, or options or warrants to purchase capital stock, issued
pursuant to the acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the assets, or
other reorganization in which the Company acquires, in a single transaction or
series of related transactions, all or substantially all of the assets of such
other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity
or fifty percent (50%) or more of the equity ownership of such other
corporation or entity;

 

(vii)                           shares of capital stock
issued in an underwritten public securities offering pursuant to a registration
statement filed under the Securities Act;

 

(viii)                        shares of capital stock, or
options or warrants to purchase capital stock, issued to current or prospective
customers or suppliers of the Company or to its employees, officers or
directors, approved by the Board of Directors as compensation or accommodation
in lieu of other payment, compensation or accommodation to such customer,
supplier, employee, officer or director;

 

(ix)                                shares of capital stock, or warrants to
purchase capital stock, issued to any Person that provides services to the
Company as compensation therefor pursuant to an agreement approved by the Board
of Directors;

 

18

 

(x)                                   shares
of capital stock, or options or warrants to purchase capital stock, offered in
a transaction where purchase of such securities by any Purchaser would cause
such transaction to fail to comply with applicable federal or state securities
laws or would cause an applicable registration or qualification exemption to
fail to be available to the Company; provided, however, that this
clause (x) shall apply only to the Purchaser or Purchasers who would cause any
such failure, and not to any of the other Purchasers; and

 

(xi)                                securities
issuable upon conversion or exercise of the securities set forth in paragraphs
(i) – (x) above.

 

In the event that the
Company proposes to undertake an issuance of New Securities, it shall give each
Eligible Purchaser written notice (the “Notice”) of its intention,
describing the type of New Securities, the price, and the general terms upon
which the Company proposes to issue the same. 
Each Eligible Purchaser shall have ten (10) Business Days after receipt
of such notice to agree to purchase all or any portion of its pro rata share of
such New Securities at the price and upon the terms specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased. In the event that any New Securities subject to the
Preemptive Right are not purchased by the Eligible Purchaser within the ten (10)
Business Day period specified above, the Company shall have sixty (60) days
thereafter to sell (or enter into an agreement pursuant to which the sale of
New Securities that had been subject to the Preemptive Right shall be closed,
if at all, within sixty (60) days from the date of said agreement) the New Securities
with respect to which the rights of the Purchaser were not exercised at a price
and upon terms, including manner of payment, not substantially more favorable
to the purchasers thereof than specified in the Notice. In the event the
Company has not sold all offered New Securities within such sixty (60) day
period (or sold and issued New Securities in accordance with the foregoing
within sixty (60) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities, without first complying again with
the procedures set forth in this Section 3.12.

 

Section 3.13                                Beneficial
Ownership Restrictions.

 

(a)                                  Notwithstanding
anything to the contrary set forth in this Agreement or any other Transaction
Document (including, without limitation, the Warrant and the AIR), at no time
may a Purchaser convert a Security if the number of shares of Common Stock to
be issued pursuant to such conversion, when aggregated with all other shares of
Common Stock owned by such Purchaser at such time, would result in such Purchaser
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act, and the rules thereunder) in excess of 4.99% of the then issued
and outstanding shares of Common Stock outstanding at such time; provided,
however, that upon a Purchaser providing the Company with sixty-one (61)
days notice (the “Waiver Notice”) that such Purchaser would like to
waive this Section 3.13(a) with regard to any or all shares of Common
Stock issuable upon conversion of any Security, this Section 3.13(a) shall
be of no force or effect with regard to those Securities referenced in the
Waiver Notice; provided, further, that any Purchaser may waive
this Section 3.13(a) by so indicating on the signature page to this
Agreement, any such waiver to be effective on and as of the date of this
Agreement.

 

19

 

(b)                                 Notwithstanding
anything to the contrary set forth in this Agreement or any other Transaction
Document (including, without limitation, the Warrant and the AIR), at no time
may a Purchaser convert a Security if the number of shares of Common Stock to
be issued pursuant to such conversion, when aggregated with all other shares of
Common Stock owned by such Purchaser at such time, would result in such Purchaser
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act, and the rules thereunder) in excess of 9.99% of the then issued
and outstanding shares of Common Stock outstanding at such time; provided,
however, that upon a Purchaser providing the Company with a Waiver
Notice that such Purchaser would like to waive this Section 3.13(b) with
regard to any or all shares of Common Stock issuable upon conversion of a
Security, this Section 3.13(b) shall be of no force or effect with regard
to those Securities referenced in the Waiver Notice.

 

(c)                                  Notwithstanding
anything in this Agreement to the contrary, without (i) the prior approval of
the Company’s stockholders in accordance with the rules of Rule 713 of the
American Stock Exchange (“AMEX”) Rules, and (ii) the submission to AMEX
of an Additional Listing Application, in no event shall the Company issue
shares of Common Stock upon conversion of the Warrants or AIRs to the extent
that the total aggregate number of shares of Common Stock issued or deemed to
be issued at any time pursuant to this Agreement would exceed 19.99% of the
issued and outstanding shares of Common Stock immediately prior to the date of
this Agreement; provided, however, that this subsection (c)
of this Section 3.13 shall only be applicable if the Common Stock is
listed for quotation on AMEX.

 

ARTICLE IV

 

Conditions

 

Section 4.1                                      Conditions
Precedent to the Obligation of the Company to Close and to Sell the Shares,
Warrants and AIRs. The obligation hereunder of the Company to close and
issue and sell the Shares, the Warrants and the AIRs to the Purchasers on the
Closing Date is subject to the satisfaction or waiver, at or before the
Closing, of the conditions set forth below. These conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion.

 

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

 

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

 

(c)                                  No
Injunction.  No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or

 

20

 

governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

 

(d)                                 Delivery
of Purchase Price. The Purchase Price for the Shares, the Warrants and the
AIRs shall have been delivered to the Company at the Closing.

 

(e)                                  Delivery
of Transaction Documents. The Transaction Documents to which the Purchasers
are party shall have been duly executed and delivered by the Purchasers to the
Company.

 

Section 4.2                                      Conditions
Precedent to the Obligation of the Purchasers to Close and to Purchase the
Shares, the Warrants and the AIRs. The obligation hereunder of the
Purchasers to purchase the Shares, the Warrants and the AIRs and consummate the
transactions contemplated by this Agreement is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for the Purchasers’ sole benefit and may be waived by the
Purchasers at any time in their sole discretion.

 

(a)                                  Accuracy
of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement, the Warrants,
the AIRs and the Registration Rights Agreement shall be true and correct in all
material respects as of the Closing Date, except for representations and
warranties that speak as of a particular date, which shall be true and correct
in all material respects as of such date.

 

(b)                                 Performance
by the Company. The Company shall have performed, satisfied and complied in
all respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing Date.

 

(c)                                  No
Suspension, Etc. Trading in the Common Stock shall not have been suspended by
the Commission (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets (“Bloomberg”) shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or quoted by the American
Stock Exchange, nor shall a banking moratorium have been declared either by the
United States or Massachusetts State authorities, nor shall there have occurred
any national or international calamity or crisis of such magnitude in its
effect on any financial market which, in each case, in the reasonable judgment
of the Purchasers, makes it impracticable or inadvisable to purchase the
Shares, the Warrants and the AIRs.

 

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

 

(e)                                  No
Proceedings or Litigation. No action, suit or proceeding before any arbitrator
or any governmental authority shall have been commenced, and no investigation
by any governmental authority shall have been threatened, against the Company
or any Subsidiary,

 

21

 

or any of the officers, directors or affiliates of the
Company or any Subsidiary, seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

 

(f)                                    Opinion
of Counsel, Etc. The Purchasers shall have received an opinion of counsel
to the Company, dated the Closing Date, in the form of Exhibit D hereto,
and such other certificates and documents as the Purchasers or their counsel
shall reasonably require incident to the Closing.

 

(g)                                 Warrants
and AIRs. The Company shall have delivered to the Purchasers the originally
executed Warrants and AIRs (in such denominations as each Purchaser may
request) being acquired by the Purchasers in accordance with Section 3.10.

 

(h)                                 Resolutions.
The Board of Directors of the Company shall have adopted resolutions consistent
with Section 2.1(b) hereof in a form reasonably acceptable to the
Purchasers (the “Resolutions”).

 

(i)                                     Reservation
of Shares. As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the issuance of the Shares and the exercise of the Warrants and the AIRs, a
number of shares of Common Stock equal to (A) the number of Warrant Shares
issuable upon exercise of the Warrants, assuming the Warrants were granted on
the Closing Date (after giving effect to the Warrants to be issued on the
Closing Date and assuming the Warrants were fully exercisable on such date
regardless of any limitation on the timing or amount of such exercises), plus (B) the number of AIR Shares issuable upon exercise of
the AIRs, assuming the AIRs were granted on the Closing Date (after giving
effect to the AIRs to be issued on the Closing Date and assuming the AIRs were
fully exercisable on such date regardless of any limitation on the timing or
amount of such exercises).

 

(j)                                     Secretary’s
Certificate. The Company shall have delivered to the Purchasers a secretary’s
certificate, dated as of the Closing Date, as to (i) the Resolutions, (ii) the
Articles and the Bylaws, each as in effect at the Closing, and (iii) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.

 

(k)                                  Officer’s
Certificate. On the Closing Date, the Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of
the Closing Date, confirming the accuracy of the Company’s representations,
warranties and covenants as of the Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2
as of the Closing Date.

 

(l)                                     Fees
and Expenses. As of the Closing Date, all fees and expenses required to be
paid by the Company shall have been or authorized to be paid by the Company as
of the Closing Date.

 

(m)                               Registration
Rights Agreement. As of the Closing Date, the parties shall have entered
into the Registration Rights Agreement in the Form of Exhibit E attached
hereto.

 

22

 

(n)                                 Lock-Up
Agreements. Each officer, director and holder of 10% or more of the Common
Stock shall have executed and delivered to the Purchasers a Lock-Up Agreement
in the form attached hereto as Exhibit F.

 

(o)                                 Material
Adverse Effect. No Material Adverse Effect shall have occurred.

 

ARTICLE V

 

Transfer Restrictions and
Legends

 

Section 5.1                                      (a)                                  The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement, to the Company, to an
Affiliate of a Purchaser or in connection with a pledge permitted by Section 5.1(b),
the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that
such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.

 

(b)                                 The Purchasers agree to the imprinting, so long as is required by this Section 5.1(b), of a legend on any of the Securities in the following form:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
 
The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and

 

23

 

no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder, if required.
 
(c)                                  Certificates evidencing the Shares, the Warrant Shares and AIR Shares shall not contain any legend (including the legend set forth in Section 5.1(b)), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Shares, Warrant Shares or AIR Shares pursuant to Rule 144, or (iii) if such Shares, Warrant Shares or AIR Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the Effectiveness Date (as defined in the Registration Rights Agreement) if required by the Company’s transfer agent to effect the removal of the legend hereunder. If all or any portion of a Warrant or AIR is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares or the AIR Shares, such Warrant Shares or AIR Shares shall be issued free of all legends. The Company agrees that following the Effectiveness Date or at such time as such legend is no longer required under this Section 5.1(c), it will, no later than ten (10) Business Days following the delivery by a Purchaser to the Company or the Company’s transfer agent of a certificate representing Shares, Warrant Shares or AIR Shares, as the case may be, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section 5.1.
 
(d)                                 In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as liquidated damages and not as a penalty, for each $1,000 of Shares, Warrant Shares and/or AIR Shares (based on the closing price of the Common Stock on the date such Securities are submitted to the Company’s transfer agent) subject to Section 5.1(c), $10 per Business Day (increasing to $20 per Business Day five (5) Business Days after such damages have begun to accrue) for each Business Day after the Legend Removal Date until such certificate is delivered in proper form. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
 
(e)                                  Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 5.1 is predicated upon the Company’s reliance that the Purchaser will sell

 

24

 

any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom.
 

ARTICLE VI

 

Termination

 

Section 6.1                                      Termination
by Mutual Consent. This Agreement may be terminated at any time prior to
the Closing Date by the mutual written consent of the Company and the
Purchasers.

 

Section 6.2                                      Effect
of Termination.  In the event of
termination by the Company or the Purchasers, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement shall be terminated without further action by any party.  If this Agreement is terminated as provided
in Section 6.1 herein, this Agreement shall become void and of no further
force and effect, except for Sections 8.1 and 8.2, and Article VII herein.
Nothing in this Section 6.2 shall be deemed to release the Company or any
Purchaser from any liability for any breach under this Agreement, or to impair
the rights of the Company or such Purchaser to compel specific performance by
the other party of its obligations under this Agreement.

 

ARTICLE VII

 

Indemnification

 

Section 7.1                                      General
Indemnity. To the extent arising from a third-party claim by other than a
Purchaser, the Company agrees to indemnify and hold harmless each Purchaser
(and its respective directors, officers, employees, 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 each
Purchaser or any such Person as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. To the
extent arising from a third-party claim, the Purchasers severally but not
jointly agree to indemnify and hold harmless the Company and its directors,
officers, employees, 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 the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.

 

Section 7.2                                      Indemnification
Procedure. Any party entitled to indemnification under this Article VII
(an “indemnified party”) will give written notice to the indemnifying party of
any matters 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 Article VII except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification

 

25

 

is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnified party a conflict of interest between it and the indemnifying party
may exist with respect to such action, proceeding or claim, 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 action or claim, then the indemnified party shall be
entitled to participate in such defense 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 Article VII 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 required by this Article VII
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 irrevocably
agrees to 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.

 

ARTICLE VIII

 

Miscellaneous

 

Section 8.1                                      Fees
and Expenses. Each party shall pay the fees and expenses of its advisors,
counsel, accountants and other experts, if any, and all other expenses,
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement; provided, however,
that the Company shall pay a flat $30,000 to Gryphon Master Fund, L.P., the
lead Purchaser (“Gryphon”), to reimburse Gryphon for the fees and
expenses (including attorneys’ fees and expenses) incurred by it in connection
with its due diligence review of the Company and the preparation, negotiation,
execution, delivery and performance of

 

26

 

this Agreement and the other Transaction Documents and
the transactions contemplated thereunder (including Gryphon’s counsel’s review
of the Registration Statement (as contemplated by the Registration Rights
Agreement) as special counsel to Purchasers), $5,000 of which has already been
paid and is non-refundable, and the remaining $25,000 of which shall be due and
payable in cash at Closing (and only if the Closing occurs). If the Closing
occurs, the Company hereby authorizes and directs Gryphon to deduct $25,000
from the Purchase Price to be paid by Gryphon at Closing in payment and
satisfaction of such remaining $25,000 due and payable by the Company at
Closing. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with any amendments, modifications or waivers
of this Agreement or any of the other Transaction Documents or incurred in
connection with the enforcement of this Agreement and any of the other
Transaction Documents, following a breach by the Company of this Agreement or
any of the other Transaction Documents, including, without limitation, all
reasonable attorneys’ fees, disbursements and expenses.

 

Section 8.2                                      Specific
Enforcement; Consent to Jurisdiction.

 

(a)                                  The
Company and the Purchasers 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.

 

(b)                                 The
Company and each Purchaser (i) hereby irrevocably submit to the non-exclusive
jurisdiction of the United States District Court sitting in the Northern
District of Texas and the courts of the State of Texas located in Dallas,
Texas, for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby, and (ii) hereby waive, and agree
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company and each Purchaser 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 service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 8.2 shall
affect or limit any right to serve process in any other manner permitted by
law. The Company and the Purchasers hereby agree that the prevailing party in
any suit, action or proceeding arising out of or relating to the Shares, the
Warrants, the AIRs or any Transaction Document shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.

 

Section 8.3                                      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 any Purchaser 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

 

27

 

instrument signed by the Company and the holders of at
least a majority in interest of the then-outstanding Shares, and no provision
hereof may be waived other than by a written instrument signed by the party
against whom enforcement of any such amendment or waiver is sought.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Shares then
outstanding. No consideration shall be offered or paid to any Person to amend
or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents or holders of Shares, as the case may
be.

 

Section 8.4                                      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 second Business Day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall
be:

 

	
  If to the
  Company:

  	
  CardioTech
  International, Inc.

  
	
   

  	
  229 Andover
  Street

  
	
   

  	
  Wilmington,
  Massachusetts  01887

  
	
   

  	
  Attention:  Dr. Michael Szycher, PhD.

  
	
   

  	
  Telecopier:  (978) 657-0074

  
	
   

  	
  Telephone:  (978) 657-0075

  
	
   

  	
   

  
	
  with copies
  (which copies

  shall not constitute notice

  to the Company) to:

  	
  Ellenoff
  Grossman & Schole LLP

  
	
   

  	
  370 Lexington
  Avenue

  
	
   

  	
  New York, NY 10017

  
	
   

  	
  Attention: David
  Selengut, Esq.

  
	
   

  	
  Telecopier: (212)
  370-7889

  
	
   

  	
  Telephone: (212)
  370-1300

  
	
   

  	
   

  
	
  If to any
  Purchaser:

  	
  At the address
  of such Purchaser set forth on Exhibit A to this Agreement.

  

 

Any party hereto may from
time to time change its address for notices by giving at least ten (10) days
written notice of such changed address to the other party hereto.

 

Section 8.5                                      Waivers.
No waiver by any 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.

 

28

 

Section 8.6                                      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.

 

Section 8.7                                      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. After the Closing,
the Purchasers, in compliance with all applicable securities laws, may assign
the Shares, the Warrants, the AIRs and their rights under this Agreement and
the other Transaction Documents and any other rights hereto and thereto without
the consent of the Company.

 

Section 8.8                                      No
Third Party Beneficiaries. 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 (other than indemnified parties, as contemplated by Article VII).

 

Section 8.9                                      Governing
Law. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Massachusetts, without giving effect to the
choice of law provisions. This Agreement shall not be interpreted or construed
with any presumption against the party causing this Agreement to be drafted.

 

Section 8.10                                Survival.
The representations, warranties, agreements and covenants of the Company and
the Purchasers set forth this Agreement shall survive the execution and
delivery hereof and the Closing hereunder.

 

Section 8.11                                Counterparts.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and shall become
effective when 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.

 

Section 8.12                                Publicity.
The Company agrees that it will not disclose, and will not include in any
public announcement, the names of the Purchasers without the consent of the
Purchasers in accordance with Section 8.3, which consent shall not be
unreasonably withheld or delayed, or unless and until such disclosure is
required by law, rule or applicable regulation, and then only to the extent of
such requirement.

 

Section 8.13                                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.

 

Section 8.14                                Further
Assurances. From and after the date of this Agreement, upon the request of
the Purchasers or the Company, the Company and each Purchaser shall

 

29

 

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, the
Warrants and the Registration Rights Agreement.

 

Section 8.15                                Independent Nature
of Purchasers’ Obligations and Rights. The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Purchaser Transaction Document. Nothing contained herein or in any other
Purchaser Transaction Document, and no action taken by any Purchaser pursuant hereto
or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser confirms that it has independently
participated in the negotiation of the transactions contemplated hereby with
the advice of its own counsel and advisors. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation,
the rights arising out of this Agreement or out of any other Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose. Each Purchaser (other
than Gryphon and GSSF Master Fund, LP (“GSSF”)) hereby agrees and
acknowledges that (a) Warren W. Garden, P.C. was retained solely by
Gryphon and GSSF in connection with their due diligence review of the Company
and the preparation, negotiation, execution, delivery and performance of this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder, and in such capacity has provided legal services solely to Gryphon
and GSSF, (b) Warren W. Garden, P.C. has not represented, nor will it
represent, any Purchaser (other than Gryphon and GSSF) in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement
or the other Transaction Documents or the transactions contemplated thereunder,
and (c) each Purchaser (other than Gryphon and GSSF) should, if it wishes
counsel with respect to the preparation, negotiation, execution, delivery and
performance of this Agreement or the other Transaction Documents or the
transactions contemplated thereunder, retain its own independent counsel with
respect thereto.

 

[Remainder of page intentionally left blank. Signature pages to
follow.]

 

30

 

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.

 

 

	
   

  	
  CARDIOTECH
  INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael Szycher,
  Ph.D.

  
	
   

  	
   

  	
  Title:

  	
  Chairman &
  Chief Executive Officer

  
					

 

 

[Signatures of Purchasers to follow on next
pages.]

 

31

 

	
   

  	
  PURCHASERS:

  
	
   

  	
   

  
	
   

  	
  GRYPHON
  MASTER FUND, L.P.

  
	
   

  	
   

  	
   

  	
   

  
	
       

  	
   

  	
  By:

  	
   Gryphon
  Partners, L.P., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   Gryphon
  Management Partners, L.P., its General
  Partner

  
	
   

  	
   

  
	
    

  	
   

  	
  By:

  	
   Gryphon
  Advisors, L.L.C., its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  E.B.
  Lyon, IV, Authorized Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  o Check
  box and initial if the foregoing Purchaser wishes to waive

  the provisions of Section 3.13(a).
                 
  (initial here)

  
									

 

 

	
   

  	
  GSSF
  MASTER FUND, LP

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   Gryphon
  Special Situations Fund, LP, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   GSSF
  Management Partners, LP, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   GSSF, LLC,
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  E.B.
  Lyon, IV, Authorized Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  o Check
  box and initial if the foregoing Purchaser wishes to waive

  the provisions of Section 3.13(a).
                 
  (initial here)

  
									

 

32

 

	
   

  	
  TRUK
  OPPORTUNITY FUND, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Atoll Asset
  Management, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Michael E. Fein, Principal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  o Check
  box and initial if the foregoing Purchaser wishes to waive

  the provisions of Section 3.13(a).
                 
  (initial here)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TRUK
  INTERNATIONAL FUND, LP

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Atoll Asset
  Management, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Michael E. Fein, Principal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  o Check
  box and initial if the foregoing Purchaser wishes to waive

  the provisions of Section 3.13(a).
                 
  (initial here)

  
							

 

33

 

	
   

  	
  MEADOWBROOK
  OPPORTUNITY FUND LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Michael Ragins, Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  o Check
  box and initial if the foregoing Purchaser wishes to waive

  the provisions of Section 3.13(a).
                 
  (initial here)

  
					

 

34

 

	
   

  	
  CAPITAL VENTURES INTERNATIONAL

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Martin Kobinger, Investment
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  o Check
  box and initial if the foregoing Purchaser wishes to waive

  the provisions of Section 3.13(a).
                 
  (initial here)

  
					

 

35

 

	
   

  	
  IROQUOIS CAPITAL, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  o Check
  box and initial if the foregoing Purchaser wishes to waive

  the provisions of Section 3.13(a).                
  (initial here)

  

 

36

 

Securities Purchase Agreement
Schedules

 

2.1(g) 
Additional Investments or Subsidiaries (2.1(a)) and obligations (2.1(g))

 

None

 

2.1(b): 
Additional Consents

 

American Stock Exchange

 

2.1 (c) Additional Shares/options :

 

-As of October 30, 2004 the number of common shares outstanding was
17,694,221

 

-As of October 30, 2004 the number of options outstanding to purchase
shares of the -Company’s common stock was 5,298,748 and it is anticipated that
the Company will grant the remaining authorized but unissued options of
1,675,461 at October 30, 2004 to employees, directors or consultants subsequent
to October 30, 2004

 

-Agreement with Dr. Eric Ryan dated July 15, 2004

 

-Agreement with Weitl Ingenieurburo dated July 15, 2004

 

-Agreement with Kai Baums dated July 15, 2004

 

-Stock option agreement with David Volpe dated March 26, 2003

 

-Fee Agreement with Ellenoff Grossman & Schole

 

-Marketing agreement with Aurelius Consulting, Inc dated July 1, 2003
and extensions thereof

 

-Asset Purchase Agreement dated November 19, 2004 between CardioTech
International, Inc. and Cartika Medical, Inc.

 

-Exchange and Venture Agreement by and among Cardiotech International,
Inc., Implant Sciences, Inc. and CorNov, Inc. dated March 5, 2005

 

-Placement Agency Agreement between CardioTech International, Inc. and
Stonegate Securities, Inc.

 

2.1 (g) Subsidiaries

 

None

 

 

2.1(f) Commission Documents

 

The Company’s proxy statement dated August 2, 2004 was filed late

 

2.1(i) 
Liabilities

 

Those related to the Asset Purchase Agreement dated November 19, 2004
by and between CardioTech International, Inc. and Cartika Medical, Inc.

 

Those related to the Placement Agency Agreement by and between
CardioTech International, Inc. and Stonegate Securities, Inc.

 

2.1(j) 
Disclosure

 

None

 

2.1(k) 
Indebtedness 

 

Related to the Asset Purchase Agreement dated November 19, 2004 by and
between CardioTech International, Inc. and Cartika Medical, Inc.

 

Related to the Placement Agency Agreement by and between CardioTech
International, Inc. and Stonegate Securities, Inc.

 

2.1(l) Title to Assets 

 

None

 

2.1(m) Actions Pending

 

None

 

2.1(n) Compliance with Law

 

None

 

2.1(o) Taxes

 

None

 

37

 

 

2.1(p) Certain Fees

 

None

 

2.1(r) Intellectual Property

 

None

 

2.1(s) Environmental Compliance

 

None

 

2.1(u) Material Agreements

 

GE Healthcare revolving line of credit requires approval from GE prior
to the payment of dividends to CardioTech

 

2.1(v) Transactions with Affiliates

 

None

 

2.1(x) Government Approvals 

 

American Stock Exchange

 

2.1(y) Employees

 

Liann Johnson, former General Manager of Catheter and Disposables
Technology was terminated in November 2004.

 

2.1(z) Absence of Certain Developments

 

None

 

2.1(aa) Use of Proceeds

 

None

 

 

 

38

 

EXHIBIT A

LIST OF PURCHASERS

 

	
  Names
  and Addresses

  of Purchasers

  	
   

  	
  Number of Shares

  Purchased

  	
   

  	
  Number of

  Warrants

  Purchased

  	
   

  	
  Number of AIRs

  Purchased

  	
   

  	
  Dollar Amount of

  Investment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gryphon Master
  Fund, L.P.

  100 Crescent Court

  Suite 490

  Dallas, Texas  75201

  Tel. No.: (214) 871-6783

  Fax No.: (214) 871-6711

  Attn:  Ryan R. Wolters

  	
   

  	
  208,334

  	
   

  	
  104,167

  	
   

  	
  208,334

  	
   

  	
  $

  	
  500,001.60

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Warren W.
  Garden, P.C.

  100 Crescent Court,
  Suite 490

  Dallas, Texas  75201

  Tel. No.: (214) 871-6710

  Fax No.: (214) 871-6711

  Attn:  Warren W. Garden, Esq.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GSSF Master
  Fund, LP

  100 Crescent
  Court

  Suite 475

  Dallas, Texas  75201

  Tel. No.: (214) 871-6752

  Fax No.: (214) 871-6711

  Attn:  Timothy M. Stobaugh

  	
   

  	
  208,334

  	
   

  	
  104,167

  	
   

  	
  208,334

  	
   

  	
  $

  	
  500,001.60

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Warren W.
  Garden, P.C.

  100 Crescent
  Court, Suite 490

  Dallas, Texas  75201

  Tel. No.: (214) 871-6710

  Fax No.: (214) 871-6711

  Attn:  Warren W. Garden, Esq.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Truk Opportunity Fund, LLC

  One East 52nd Street

  Sixth Floor

  New York, New York  10022

  Tel. No.: (212) 888-2224

  Fax No.: (212) 888-0334

  Attn:  Michael E. Fein, Principal

  	
   

  	
  195,834

  	
   

  	
  97,917

  	
   

  	
  195,834

  	
   

  	
  $

  	
  470,001.60

  	
   

  
													

 

A-1

 

	
  Names and Addresses

  of Purchasers

  	
   

  	
  Number of

  Shares

  Purchased

  	
   

  	
  Number of Warrants

  Purchased

  	
   

  	
  Number of AIRs

  Purchased

  	
   

  	
  Dollar Amount of

  Investment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Truk International Fund, LP

  One East 52nd Street

  Sixth Floor

  New York, New York 10022

  Tel. No.: (212) 888-2224

  Fax No.: (212) 888-0334

  Attn: Michael E. Fein, Principal

  	
   

  	
  12,500

  	
   

  	
  6,250

  	
   

  	
  12,500

  	
   

  	
  $

  	
  30,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Meadowbrook Opportunity Fund LLC

  520 Lake Cook Road, Suite 690

  Deerfield, Illinois 60015

  Tel. No.: (847) 876-1220

  Fax No.: (847) 876-1221

  Attn: Dan Elekman

  	
   

  	
  150,000

  	
   

  	
  75,000

  	
   

  	
  150,000

  	
   

  	
  $

  	
  360,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital Ventures International

  c/o Heights Capital Management,
  Inc.

  101 California Street, Suite 3250

  San Francisco, California 94111

  Tel. No.: (415) 403-6500

  Fax No.: (415) 403-6525

  Attn: Sam Winer and Martin Kobinger

  	
   

  	
  208,334

  	
   

  	
  104,167

  	
   

  	
  208,334

  	
   

  	
  $

  	
  500,001.60

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Iroquois
  Capital, L.P.

  641 Lexington Avenue

  26th Floor

  New York, New York 10022

  Tel. No.: (212) 974-3070

  Fax No.: (212) 207-3452

  Attn: Joshua Silverman

  	
   

  	
  156,250

  	
   

  	
  78,125

  	
   

  	
  156,250

  	
   

  	
  $

  	
  375,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Totals

  	
   

  	
  1,139,586

  	
   

  	
  569,793

  	
   

  	
  1,139,586

  	
   

  	
  $

  	
  2,735,006.40

  	
   

  
													

 

A-2

 

EXHIBIT B

FORM OF WARRANT

 

See Exhibit 4.1

 

B-1

 

EXHIBIT C

FORM OF AIR

 

See Exhibit 4.3

 

C-1

 

EXHIBIT D

FORM OF OPINION

 

1.                                       The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Massachusetts and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. 
The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the failure to so
qualify would have a Material Adverse Effect.

 

2.                                       The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Shares, the Warrants, the Warrant Shares, the AIRs and the AIR Shares. The
execution, delivery and performance of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Shares, the Warrants and the AIRs have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. Neither the
Shares, the Warrant Shares nor the AIR Shares are subject to any preemptive
rights under the Articles or the Bylaws.

 

3.                                       The
Shares have been duly authorized and, when delivered against payment in full as
provided in the Purchase Agreement, will be validly issued, fully paid and
nonassessable.  The Warrant Shares have
been duly authorized and reserved for issuance, and, when delivered upon
exercise or against payment in full as provided in the Warrants, will be
validly issued, fully paid and nonassessable. The AIR Shares have been duly
authorized and reserved for issuance, and, when delivered upon exercise or
against payment in full as provided in the AIRs, will be validly issued, fully
paid and nonassessable.

 

4.                                       The
execution, delivery and performance of and compliance with the terms of the
Transaction Documents and the issuance of the Shares, the Warrants, the AIRs,
the Warrant Shares and the AIR Shares do not (a) violate any provision of
the Articles or Bylaws, (b) to our knowledge, 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 material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party and which is known to us, (c) create
or impose a lien, charge or encumbrance on any property of the Company under
any agreement or any commitment known to us to which the Company is a party or
by which the Company is bound or by which any of its respective properties or
assets are bound, or (d) to our knowledge, result in a violation of any
Federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including Federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, except, in all cases other than violations
pursuant to clauses (a) and (d) above,

 

D-1

 

for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.

 

5.                                       No
consent, approval or authorization of or designation, declaration or filing
with any governmental authority on the part of the Company is required under
Federal, state or local law, rule or regulation in connection with the valid
execution, delivery and performance of the Transaction Documents, or the offer,
sale or issuance of the Shares, the Warrants, the Warrant Shares, the AIRs and
the AIR Shares, other than filings as may be required by applicable Federal and
state securities laws and regulations, the NASD rules and regulations or as
required by the American Stock Exchange.

 

6.                                       To
our knowledge, there is no action, suit, claim, investigation or proceeding
pending or threatened against the Company which questions the validity of the
Agreement or the transactions contemplated thereby or any action taken or to be
taken pursuant thereto. To our knowledge, other than as set forth in the
Schedules or the Commission Documents, there is no action, suit, claim,
investigation or proceeding pending, or threatened, against or involving the
Company or any of its properties or assets and which, if adversely determined,
is reasonably likely to result in a Material Adverse Effect.  To our knowledge, 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.

 

7.                                       The
offer, issuance and sale of the Shares, the Warrants and the AIRs to the
Purchasers, and the offer, issuance and sale of the Warrant Shares to the
Purchasers pursuant to the Warrants and the AIR Shares to the Purchasers
pursuant to the AIRs, are exempt from the registration requirements of the
Securities Act of 1933, as amended.

 

D-2

 

EXHIBIT E

FORM OF REGISTRATION RIGHTS AGREEMENT

 

See Exhibit 10.2

 

E-1

 

EXHIBIT F

FORM OF LOCK-UP AGREEMENT

 

See Exhibit 10.3

 

F-1

 

EXHIBIT G

FORM OF PRESS RELEASE

 

See Exhibit 99.1

 

G-1Exhibit 10.2

 

REGISTRATION RIGHTS
AGREEMENT

 

This Registration Rights
Agreement (this “Agreement”) is made and entered into as of December 22,
2004, by and among CardioTech International, Inc., a Massachusetts corporation
(the “Company”), and the persons and entities listed on Exhibit A
hereto (each, a “Purchaser” and, collectively, the “Purchasers”).

 

WHEREAS, upon the terms
and subject to the conditions of the Securities Purchase Agreement, dated as of
the date hereof (the “Purchase Agreement”), the Company has agreed to
issue and sell to the Purchasers shares of its Common Stock, Warrants to
purchase shares of its Common Stock, and additional investment rights to
purchase shares of its Common Stock; and

 

WHEREAS, to induce the
Purchasers to execute and deliver the Purchase Agreement and to purchase the
Shares, the Warrants and the AIRs, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, with respect
to the Shares, the Warrant Shares and the AIR Shares.

 

NOW, THEREFORE, in
consideration of the representations, warranties and agreements contained
herein and other good and valuable consideration, the receipt and legal
adequacy of which are hereby acknowledged by the parties, the Company and the
Purchasers hereby agree as follows:

 

1.                                       Definitions.

 

Capitalized terms used
but not otherwise defined herein shall have the meanings given such terms in
the Purchase Agreement.  As used in this
Agreement, the following terms shall have the following meanings:

 

“Affiliate” means,
with respect to any Person, any other Person that directly or indirectly
controls or is controlled by or under common control with such Person.  For the purposes of this definition, “control,”
when used with respect to any Person, means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms “affiliated,” “controlling” and “controlled”
have meanings correlative to the foregoing.

 

“AIR Shares” shall
have the meaning set forth in the definition of “Registrable Securities.”

 

“Blackout Period”
shall have the meaning set forth in Section 3(m).

 

“Board” shall have
the meaning set forth in Section 3(m).

 

 

“Business Day”
means any day except Saturday, Sunday and any day which is a legal holiday or a
day on which banking institutions in the state of Massachusetts generally are
authorized or required by law or other government actions to close.

 

“Commission” means
the Securities and Exchange Commission.

 

“Common Shares”
shall have the meaning set forth in the definition of “Registrable Securities.”

 

“Common Stock”
means the Company’s Common Stock, $.01 par value.

 

“Effectiveness Date”
means with respect to the Registration Statement the earlier of (i) the 90th
day following the Closing Date (or the 120th day following the
Closing Date in the event that the Registration Statement is “reviewed” by the
Commission), before which the Company will use its best efforts to cause the
Registration Statement to become effective, and (ii) the date which is within
five (5) Business Days of the date on which the Commission informs the Company
(a) that the Commission will not review the Registration Statement, or (b) that
the Company may request the acceleration of the effectiveness of the
Registration Statement.

 

“Effectiveness Period”
shall have the meaning set forth in Section 2.

 

“Event” shall have
the meaning set forth in Section 8(d).

 

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

 

“Holder” means,
collectively, each holder from time to time of Registrable Securities
including, without limitation, each Purchaser and its assignees. To the extent
this Agreement refers to an election, consent, waiver, request or approval of
or by the Holder, such reference shall mean an election, consent, waiver,
request or approval by the holders of a majority in interest of the
then-outstanding Registrable Securities (on an as exercised basis).

 

“Indemnified Party”
shall have the meaning set forth in Section 6(c).

 

“Indemnifying Party”
shall have the meaning set forth in Section 6(c).

 

“Liquidated Damages”
shall have the meaning set forth in Section 8(d).

 

“Losses” shall
have the meaning set forth in Section 6(a).

 

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

 

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

 

2

 

“Prospectus” means
the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.

 

“Registrable
Securities” means (i) the shares of Common Stock issued or issuable
pursuant to the Purchase Agreement, and upon any stock split, stock dividend,
recapitalization or similar event with respect to such shares of Common Stock
and any other securities issued in exchange of or replacement of such shares of
Common Stock (collectively, the “Common Shares”); until in the case of
any of the Common Shares (a) a Registration Statement covering such Common
Share has been declared effective by the Commission and continues to be
effective during the Effectiveness Period, or (b) such Common Share is sold in
compliance with Rule 144 or may be sold pursuant to Rule 144(k), after which
time such Common Share shall not be a Registrable Security; (ii) the shares of
Common Stock issued and issuable pursuant to the exercise of the Warrants, and
upon any stock split, stock dividend, recapitalization or similar event with
respect to such shares of Common Stock and any other securities issued in
exchange of or replacement of such shares of Common Stock (collectively, the “Warrant
Shares”); until in the case of any of the Warrant Shares (a) a Registration
Statement covering such Warrant Share has been declared effective by the
Commission and continues to be effective during the Effectiveness Period, or
(b) such Warrant Share is sold in compliance with Rule 144 or may be sold
pursuant to Rule 144(k), after which time such Warrant Share shall not be a
Registrable Security; and (iii) the shares of Common Stock issued and issuable
pursuant to the exercise of the AIRs, and upon any stock split, stock dividend,
recapitalization or similar event with respect to such shares of Common Stock
and any other securities issued in exchange of or replacement of such shares of
Common Stock (collectively, the “AIR Shares”); until in the case of any
of the AIR Shares (a) a Registration Statement covering such AIR Share has been
declared effective by the Commission and continues to be effective during the
Effectiveness Period, or (b) such AIR Share is sold in compliance with Rule 144
or may be sold pursuant to Rule 144(k), after which time such AIR Share shall
not be a Registrable Security.

 

“Registration
Statement” means the registration statement, including the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference in such registration statement, for the
Shares, the Warrant Shares and the AIR Shares required to be filed by the
Company with the Commission pursuant to this Agreement.

 

“Required Filing Date”
means the thirtieth (30th) day immediately following the Closing
Date.

 

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

 

3

 

“Rule 158” means
Rule 158 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.

 

“Rule 415” means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.

 

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

 

“Special Counsel”
means any special counsel to Holder, for which Holder will be reimbursed by the
Company pursuant to Section 5 of this Agreement and Section 8.1 of
the Purchase Agreement.

 

“Warrant Shares”
shall have the meaning set forth in the definition of “Registrable Securities.”

 

2.                                       Registration. On or prior to the Required Filing Date, the Company shall prepare and
file with the Commission a Registration Statement covering the resale of the
Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except
if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance with the Securities Act and the rules promulgated
thereunder) and shall contain (except if otherwise directed by the Purchasers)
the “Plan of Distribution” substantially in the form attached hereto as Exhibit
B. The Company shall (i) not permit any securities other than the
Registrable Securities to be included in the Registration Statement, (ii) use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act (including filing with the Commission a request for
acceleration of effectiveness in accordance with Rule 12dl-2 promulgated under
the Exchange Act within five (5) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that
the Registration Statement will not be “reviewed,” or not be subject to further
review) as soon as possible after the filing thereof, but in any event prior to
the Effectiveness Date, and (iii) keep such Registration Statement continuously
effective under the Securities Act for a period of two years from the
Effectiveness Date (the “Effectiveness Period”).

 

3.                                       Registration Procedures; Company’s Obligations.

 

In connection with the
registration of the Registrable Securities, the Company shall:

 

(a)                                  Prepare
and file with the Commission on or prior to the Required Filing Date, a
Registration Statement on Form S-3 (or if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3 such registration
shall be on another appropriate form in accordance with the Securities Act and
the Rules promulgated thereunder) in accordance with the method or methods of
distribution thereof as specified by the Holder (except if otherwise directed
by the Holder), and use its best efforts to cause the Registration Statement to
become effective and remain effective as provided herein; provided, however,
that not less than two (2) Business Days prior to the filing of the
Registration Statement or any related Prospectus

 

4

 

or any amendment or supplement thereto (including any
document that would be incorporated therein by reference), the Company shall
(i) furnish to the Holder and any Special Counsel, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the timely review of and comment by such Special
Counsel, and (ii) at the request of the Holder cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of such Special
Counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.  The Company shall not
file the Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holder or any Special Counsel shall reasonably object in
writing within two (2) Business Days of their receipt thereof.

 

(b)                                 (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus
to be amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; (iii) respond
promptly to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and promptly provide the Holder
true and complete copies of all correspondence from and to the Commission
relating to the Registration Statement; and (iv) comply in all material
respects with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holder set forth in the Registration
Statement as so amended or in such Prospectus as so supplemented.

 

(c)                                  Notify
the Holder of Registrable Securities to be sold and any Special Counsel
promptly (and, in the case of (i)(A) below, not less than three (3) Business
Days prior to such filing and, in the case of (i)(C) below, no later than the
first Business Day following the date on which the Registration Statement
becomes effective) and (if requested by any such Person) confirm such notice in
writing no later than three (3) Business Days following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed, (B) when the Commission
notifies the Company whether there will be a “review” of such Registration
Statement and whenever the Commission comments in writing on such Registration
Statement, and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or
for additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any
or all of the Registrable Securities or the initiation of any Proceedings for
that purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (v) of the
occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to

 

5

 

the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

 

The Company shall
promptly furnish to the Special Counsel, without charge, (i) any correspondence
from the Commission or the Commission’s staff to the Company or its
representatives relating to any Registration Statement, and (ii) promptly after
the same is prepared and filed with the Commission, a copy of any written
response to the correspondence received from the Commission.

 

(d)                                 Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of, (i) any order suspending the effectiveness of the Registration Statement,
or (ii) any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for
sale in any U.S. jurisdiction, at the earliest practicable moment.

 

(e)                                  If
requested by the Holder, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein, and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.

 

(f)                                    Furnish
to the Holder and any Special Counsel, without charge, at least one conformed
copy of each Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.

 

(g)                                 Promptly
deliver to the Holder and any Special Counsel, without charge, as many copies
of the Registration Statement, Prospectus or Prospectuses (including each form
of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by the selling Holder in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto. Should Holder offer or
sell the Registrable Securities, Holder agrees to comply with all applicable
securities laws.

 

(h)                                 Prior
to any public offering of Registrable Securities, use its best efforts to
register or qualify or cooperate with the selling Holder and any Special
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer
and sale under the securities or Blue Sky laws of such jurisdictions within the
United States as the Holder reasonably requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things necessary or
advisable to enable the disposition

 

6

 

in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or subject the Company to any tax in any such jurisdiction
where it is not then so subject.

 

(i)                                     Cooperate
with the Holder to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to a
Registration Statement and to enable such Registrable Securities to be in such
denominations and registered in such names as the Holder may request.

 

(j)                                     Upon
the occurrence of any event contemplated by Section 3(c)(v), promptly
prepare a supplement or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

 

(k)                                  Use
its best efforts to cause all Registrable Securities relating to such
Registration Statement to be listed on the American Stock Exchange and any
other securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which the same securities issued by the Company are
then listed as and when required pursuant to the Purchase Agreement.

 

(l)                                     Comply
in all material respects with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 not later than forty-five (45) days after the end of any
twelve (12) month period (or ninety (90) days after the end of any twelve (12)
month period if such period is a fiscal year) commencing on the first day of
the first fiscal quarter of the Company after the effective date of the
Registration Statement, which statement shall conform to the requirements of
Rule 158.

 

(m)                               If
(i) there is material non-public information regarding the Company which the
Company’s Board of Directors (the “Board”) reasonably determines not to
be in the Company’s best interest to disclose and which the Company is not
otherwise required to disclose, or (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines not to be in the Company’s best
interest to disclose and which the Company would be required to disclose under
the Registration Statement, then the Company may suspend effectiveness of a
Registration Statement and suspend the sale of Registrable Securities under a
Registration Statement one (1) time every three (3) months or three (3) times
in any twelve month period, provided that the Company may not suspend its
obligation for more than thirty (30) days in the aggregate in any twelve month
period if suspension is for any of the reasons listed above or sixty (60) days
in the aggregate in any twelve month period for any other

 

7

 

reason (each, a “Blackout Period”); provided,
however, that no such suspension shall be permitted for more than twenty
(20) consecutive days, arising out of the same set of facts, circumstances or
transactions.

 

(n)                                 Within
two (2) Business Days after the Registration Statement which includes the
Registrable Securities is ordered effective by the Commission, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Holder whose
Registrable Securities are included in such Registration Statement)
confirmation that the Registration Statement has been declared effective by the
Commission in the form attached hereto as Exhibit C.

 

4.                                       Registration Procedures; Holder’s Obligations

 

In connection with the
registration of the Registrable Securities, the Holder shall:

 

(a)                                  If
the Registration Statement refers to the Holder by name or otherwise as the
holder of any securities of the Company, have the right to require (if such
reference to the Holder by name or otherwise is not required by the Securities
Act or any similar federal statute then in force) the deletion of the reference
to the Holder in any amendment or supplement to the Registration Statement that
will be filed subsequent to the time that such reference ceases to be required.

 

(b)                                 (i)
not sell any Registrable Securities under the Registration Statement until it
has received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such
Registration Statement and any post-effective amendments thereto have become
effective as contemplated by Section 3(c), (ii) comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement,
and (iii) furnish to the Company information regarding such Holder and the
distribution of such Registrable Securities as is required by law to be
disclosed in the Registration Statement, and the Company may exclude from such
registration the Registrable Securities of the Holder if it fails to furnish
such information within a reasonable time prior to the filing of each
Registration Statement, supplemented Prospectus and/or amended Registration
Statement.

 

(c)                                  upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(m),
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until the Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j),
or until it is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.

 

(d)                                 Each
Purchaser agrees to furnish to the Company a completed Questionnaire in the
form attached hereto as Exhibit D as soon as practicable after the
Closing.

 

8

 

5.                                       Registration Expenses

 

All reasonable fees and
expenses incident to the performance of or compliance with this Agreement by
the Company shall be borne by the Company whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement.  The fees and expenses referred to in the foregoing
sentence shall include, without limitation, the following: (i) all registration
and filing fees (including, without limitation, fees and expenses (A) with
respect to filings required to be made with the American Stock Exchange and
each other securities exchange or other market on which Registrable Securities
are required hereunder to be listed, (B) with respect to filings required to be
made with the Commission, and (C) in compliance with state securities or Blue
Sky laws); (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is requested by the holders of a majority of
the Registrable Securities included in the Registration Statement); (iii)
messenger, telephone and delivery expenses of the Company; (iv) fees and
disbursements of counsel for the Company; and (v) fees and expenses of all
other Persons retained by the Company in connection with the consummation of
the transactions contemplated by this Agreement, including, without limitation,
the Company’s independent public accountants (including the expenses of any
comfort letters or costs associated with the delivery by independent public
accountants of a comfort letter or comfort letters).  In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation
of the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

 

6.                                       Indemnification

 

(a)                                  Indemnification
by the Company. The Company shall, notwithstanding any termination of this
Agreement, indemnify and hold harmless each Purchaser, its permitted assignees,
officers, directors, agents, brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees, each Person
who controls any such Purchaser or permitted assignee (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, and the
respective successors, assigns, estate and personal representatives of each of
the foregoing, to the fullest extent permitted by applicable law, from and
against any and all claims, losses, damages, liabilities, penalties, judgments,
costs (including, without limitation, costs of investigation) and expenses
(including, without limitation, reasonable attorneys’ fees and expenses) resulting
from a third-party claim (collectively, “Losses”), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus, as supplemented or
amended, if applicable, or arising out of or relating to any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in the light of the circumstances under which
they were made) not misleading, except (i) to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding the Holder furnished in writing to the

 

9

 

Company by the Holder expressly for use therein, which
information was reviewed and expressly approved by the Holder or Special
Counsel expressly for use in the Registration Statement, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto, or (ii) as a
result of the failure of the Holder to deliver a Prospectus, as amended or
supplemented, to a purchaser in connection with an offer or sale or (iii)
solely related to an act or lack of action of Holder.  The Company shall notify the Holder promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this
Agreement.  Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of an Indemnified Party (as defined in Section 6(c) hereof) and shall
survive the transfer of the Registrable Securities by the Holder.

 

(b)                                 Indemnification
by Purchaser.  Each Purchaser and its
permitted assignees shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, and the respective
successors, assigns, estate and personal representatives of each of the
foregoing, to the fullest extent permitted by applicable law, from and against
any and all Losses, as incurred, arising out of or relating to any untrue or
alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus, as supplemented or amended, if applicable, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto, in the
light of the circumstances under which they were made) not misleading, to the
extent, but only to the extent, that (i) such untrue statement or omission is
contained in or omitted from any information so furnished in writing by the
Holder or the Special Counsel to the Company specifically for inclusion in the
Registration Statement or such Prospectus, and (ii) such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or, to the extent that such information
relates to the Holder or the Holder’s proposed method of distribution of
Registrable Securities, was reviewed and expressly approved in writing by the
Holder expressly for use in the Registration Statement, such Prospectus or such
form of Prospectus Supplement. Notwithstanding anything to the contrary
contained herein, the Holder shall be liable under this Section 6(b) for
only that amount as does not exceed the net proceeds to the Holder as a result
of the sale of Registrable Securities pursuant to such Registration Statement.

 

(c)                                  Conduct
of Indemnification Proceedings. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity pursuant to Section 6(a)
or 6(b) hereunder (an “Indemnified Party”), such Indemnified Party
promptly shall notify the Person from whom indemnity is sought (the “Indemnifying
Party) in writing, and the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have materially and adversely prejudiced the
Indemnifying Party.

 

10

 

An Indemnified Party
shall have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or Parties unless: (i) the
Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii)
the Indemnifying Party shall have failed promptly to assume the defense of such
Proceeding and to employ counsel reasonably satisfactory to such Indemnified
Party in any such Proceeding; or (iii) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for
any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld, conditioned or delayed.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, which consent shall not
unreasonably be withheld, conditioned or delayed, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.

 

All reasonable fees and
expenses of the Indemnified Party (including reasonable fees and expenses to
the extent incurred in connection with investigating or preparing to defend
such Proceeding in a manner not inconsistent with this Section) shall be paid
to the Indemnified Party, as incurred, within thirty (30) Business Days of
written notice thereof to the Indemnifying Party, provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder or
pursuant to applicable law.

 

(d)                                 Contribution.  If a claim for indemnification under Section 6(a)
or 6(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. 
The amount paid or payable by a party as a result of any Losses shall be
deemed to include, subject to the limitations set forth in Section 6(c),
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
under Section 6(a) or 6(b) was available to such

 

11

 

party in accordance with its terms. Notwithstanding
anything to the contrary contained herein, the Holder shall be liable or
required to contribute under this Section 6(d) for only that amount as
does not exceed the net proceeds to the Holder as a result of the sale of
Registrable Securities pursuant to the Registration Statement.

 

The parties hereto agree
that it would not be just and equitable if contribution pursuant to this Section 6(d)
were determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to in the
immediately preceding paragraph.  No
Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.

 

The indemnity and
contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.

 

7.                                       Rule 144.

 

As long as the Holder
owns Registrable Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to Section 13(a)
or 15(d) of the Exchange Act. As long as the Holder owns Registrable Securities,
if the Company is not required to file reports pursuant to Section 13(a)
or 15(d) of the Exchange Act, it will prepare and furnish to the Holder and
make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well
as any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as the Holder may reasonably
request, all to the extent required from time to time to enable the Holder to
sell Common Shares, Warrant Shares and AIR Shares without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions of
counsel to the Company referred to in the Purchase Agreement.  Upon the request of any Holder, the Company
shall deliver to such Holder a written certification of a duly authorized
officer as to whether it has complied with such requirements.

 

8.                                       Miscellaneous.

 

(a)                                  Remedies.
The remedies provided in this Agreement and the Purchase Agreement are
cumulative and not exclusive of any remedies provided by law.  In the event of a breach by the Company or by
the Holder of any of their obligations under this Agreement, the Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.  The
Company and the Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of
a breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the

 

12

 

event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would
be adequate.

 

(b)                                 No
Inconsistent Agreements. Neither the Company nor any of its Affiliates has
as of the date hereof entered into, nor shall the Company or any of its
Affiliates, on or after the date of this Agreement, enter into, any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holder in this Agreement or otherwise conflicts with the provisions
hereof.  Without limiting the generality
of the foregoing, without the written consent of the Holder, the Company shall
not grant to any Person the right to request the Company to register any
securities of the Company under the Securities Act if the rights so granted are
inconsistent with the rights granted to the Holder set forth herein, or
otherwise prevent the Company with complying with all of its obligations
hereunder.

 

(c)                                  No
Piggyback on Registrations. Neither the Company nor any of its security
holders (other than the Holder in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement.

 

(d)                                 Failure
to File Registration Statement and Other Events. The Company and the Holder
agree that the Holder will suffer damages if the Registration Statement is not
filed on or prior to the Required Filing Date or is not declared effective by
the Commission on or prior to the Effectiveness Date and maintained in the
manner contemplated herein during the Effectiveness Period or if certain other
events occur.  The Company and the Holder
further agree that it would not be feasible to ascertain the extent of such
damages with precision.  Accordingly, if
(i) the Registration Statement is not filed on or prior to the Required Filing
Date, or is not declared effective by the Commission on or prior to the
Effectiveness Date, or (ii) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12dl-2 promulgated under the Exchange
Act within five (5) Business Days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be “reviewed,” or not subject to further
review, or (iii) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective or available
as to all Registrable Securities for 30 days during the Effectiveness Period,
without being succeeded within a reasonable period by a subsequent Registration
Statement filed with and declared effective by the Commission, or (iv) the
Company suspends the use of the Prospectus forming a part of such Registration Statement
for more than thirty (30) days in any period of 365 consecutive days if the
Company suspends in reliance on its ability to do so due to the existence of a
development that, in the good faith discretion of the Board, makes it
appropriate to so suspend or which renders the Company unable to comply with
the Commission requirements, or the Company suspends the use of the Prospectus
forming a part of such Registration Statement for more than sixty (60) days in
any period of 365 consecutive days for any other reason (any such failure or
breach being referred to as an “Event”), the Company shall pay as
liquidated damages for such failure or breach and not as a penalty (the “Liquidated
Damages”) to the Holder an amount equal to two percent (2%) of the purchase
price of the Shares, Warrants and AIRs paid by the Holder pursuant to the
Purchase Agreement for each thirty (30) day period, pro rated for any period
less than thirty (30) days, following the Event until the applicable Event has
been cured. Payments to be made pursuant to this Section 8(d) shall be due
and payable in cash in arrears at the end of each thirty (30) day period. The
parties agree that the Liquidated Damages represent a reasonable estimate on
the part of the parties, as

 

13

 

of the date of this Agreement, of the amount of
damages that may be incurred by the Holder if the Registration Statement is not
filed on or prior to the Required Filing Date or has not been declared
effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if any other Event as described herein has occurred.

 

(e)                                  Consent
to Jurisdiction. The Company and each Purchaser (i) hereby irrevocably
submit to the non-exclusive jurisdiction of the United States District Court
for the Northern District of Texas and the courts of the State of Texas located
in Dallas County for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or the Purchase Agreement, and (ii) hereby
waive, and agree not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper.  The Company and each Purchaser 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 service shall constitute good and sufficient service of
process and notice thereof.  Nothing in
this Section 8(e) shall affect or limit any right to serve process in any
other manner permitted by law.

 

(f)                                    Amendments
and Waivers.  The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Purchasers.

 

(g)                                 Notices.
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice prior to 5:00 p.m., Eastern Time, on a Business Day, (ii)
the first Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., Eastern Time, on any date and
earlier than 11:59 p.m., Eastern Time, on such date, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) actual receipt by the party to whom such notice is
required to be given.

 

(x)                                   if
to the Company:

 

CardioTech
International, Inc.

229 Andover Street

Wilmington, Massachusetts  01887

Attention:  Dr.
Michael Szycher, Ph.D.

Telecopier: 
(978) 657-0074

Telephone: 
(978) 657-0075

 

with a copy to:

 

14

 

Ellenoff
Grossman & Schole LLP

370
Lexington Avenue

New York, NY 10017

Attention:
David Selengut, Esq.

Telecopier:
(212)
370-7889

Telephone:
(212)
370-1300

 

(y)                                 if
to any Purchaser:

 

At the address of such Purchaser set forth on Exhibit
A to this Agreement.

 

or to such other
address or addresses or facsimile number or numbers as any such party may most
recently have designated in writing to the other parties hereto by such notice.

 

(h)                                 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns and shall inure to
the benefit of the Holder and its successors and assigns. The Company may not
assign this Agreement or any of its respective rights or obligations hereunder
without the prior written consent of the Purchasers.  Each Purchaser may assign its rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.

 

(i)                                     Assignment
of Registration Rights. The rights of the Holder hereunder, including the
right to have the Company register for resale Registrable Securities in
accordance with the terms of this Agreement, shall be assignable by each Holder
to any transferee of the Holder of all or a portion of
the shares of Registrable Securities if: 
(i) the Holder agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (A)
the name and address of such transferee or assignee, and (B) the securities
with respect to which such registration rights are being transferred or
assigned; (iii) following such transfer or assignment the further disposition
of such securities by the transferee or assignees is restricted under the
Securities Act and applicable state securities laws; (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
Section, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement; and (v) such transfer shall
have been made in accordance with the applicable requirements of the Purchase
Agreement and shall be for no less than 10% of the Registrable Securities.  In addition, the Holder shall have the right
to assign its rights hereunder to any other Person with the prior written
consent of the Company, which consent shall not be unreasonably withheld,
conditioned or delayed.  The rights to
assignment shall apply to the Holder (and to subsequent) successors and
assigns.  In the event of an assignment
pursuant to this Section 8(i), the Purchaser shall pay all incremental
costs and expenses incurred by the Company in connection with filing a
Registration Statement (or an amendment to the Registration Statement) to
register the shares of Registrable Securities assigned to any assignee or
transferee of the Purchaser.

 

15

 

(j)                                     Counterparts.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same Agreement.  In the event that any signature is delivered
by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature were the original thereof.

 

(k)                                  Governing
Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of Massachusetts, without regard to principles of
conflicts of law thereof. This Agreement shall not be interpreted or construed
with any presumption against the party causing this Agreement to be drafted.

 

(l)                                     Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.

 

(m)                               Termination.
This Agreement shall terminate on the date on which all remaining Registrable
Securities may be sold without restriction pursuant to Rule 144(k) of the
Securities Act.

 

(n)                                 Severability.
If any term, provision, covenant or restriction of this Agreement is held to be
invalid, illegal, void or unenforceable in any respect, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

(o)                                 Headings.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.

 

[Remainder of page
intentionally left blank. Signature pages to follow.]

 

16

 

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

 

 

	
   

  	
  CARDIOTECH
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael Szycher,
  Ph.D.

  
	
   

  	
   

  	
  Title:

  	
  Chairman &
  Chief Executive Officer

  
					

 

 

[Signatures of Purchasers to follow on next
pages.]

 

 

	
   

  	
  PURCHASERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GRYPHON
  MASTER FUND, L.P.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Gryphon
  Partners, L.P., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Gryphon
  Management Partners, L.P., its General
  Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Gryphon
  Advisors, L.L.C., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  E.B. Lyon, IV, Authorized
  Agent

  
											

 

 

	
   

  	
  GSSF
  MASTER FUND, LP

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Gryphon Special
  Situations Fund, LP, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  GSSF Management
  Partners, LP, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  GSSF, LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  E.B. Lyon, IV, Authorized Agent

  
											

 

 

	
   

  	
  MEADOWBROOK
  OPPORTUNITY FUND LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Michael Ragins, Manager

  
					

 

 

	
   

  	
  CAPITAL VENTURES INTERNATIONAL

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Martin Kobinger, Investment
  Manager

  
					

 

 

	
   

  	
  TRUK
  OPPORTUNITY FUND, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Atoll Asset
  Management, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Michael E. Fein, Principal

  

 

 

	
   

  	
  TRUK
  INTERNATIONAL FUND, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Atoll Asset
  Management, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Michael E. Fein, Principal

  

 

 

	
   

  	
  IROQUOIS CAPITAL, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

 

EXHIBIT A

PURCHASERS

 

Gryphon
Master Fund, L.P.

100
Crescent Court

Suite
490

Dallas,
Texas  75201

Tel.
No.: (214) 871-6783

Fax
No.: (214) 871-6711

Attn:  Ryan R. Wolters

 

With
a copy to:

 

Warren
W. Garden, P.C.

100
Crescent Court, Suite 490

Dallas,
Texas  75201

Tel.
No.: (214) 871-6710

Fax
No.: (214) 871-6711

Attn:  Warren W. Garden, Esq.

 

GSSF
Master Fund, LP

100
Crescent Court

Suite
475

Dallas,
Texas  75201

Tel.
No.: (214) 871-6752

Fax
No.: (214) 871-6711

Attn:  Timothy M. Stobaugh

 

With
a copy to:

 

Warren
W. Garden, P.C.

100
Crescent Court, Suite 490

Dallas,
Texas  75201

Tel.
No.: (214) 871-6710

Fax
No.: (214) 871-6711

Attn:  Warren W. Garden, Esq.

 

Meadowbrook Opportunity Fund LLC

520
Lake Cook Road, Suite 690

Deerfield,
Illinois  60015

Tel.
No.: (847) 876-1220

Fax
No.: (847) 876-1221

Attn:  Dan Elekman 

 

A-1

 

Truk Opportunity Fund, LLC

One East 52nd Street

Sixth Floor

New York, New York 
10022

Tel.
No.: (212) 888-2224

Fax
No.: (212) 888-0334

Attn:  Michael E. Fein, Principal

 

Truk International Fund, LP

One East 52nd Street

Sixth Floor

New York, New York 
10022

Tel.
No.: (212) 888-2224

Fax
No.: (212) 888-0334

Attn:  Michael E. Fein, Principal

 

Capital Ventures International

c/o Heights Capital Management, Inc.

101
California Street, Suite 3250

San
Francisco, California  94111

Tel.
No.: (415) 403-6500

Fax
No.: (415) 403-6525

Attn:  Sam Winer and Martin
Kobinger

 

Iroquois Capital, L.P.
641 Lexington Avenue
26th Floor

New
York, New York  10022

Tel.
No.: (212) 974-3070

Fax
No.: (212) 207-3452

Attn: Joshua Silverman

 

A-2

 

EXHIBIT B

PLAN OF DISTRIBUTION

 

We are registering the shares of common stock on
behalf of the selling stockholders. The common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at prices related to the prevailing market prices, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected at
various times in one or more of the following transactions, or in other kinds
of transactions:

 

•                  transactions on the American Stock
Exchange or on any other national securities exchange or U.S. inter-dealer
system of a registered national securities association on which the common
stock may be listed or quoted at the time of sale;

 

•                  in the over-the-counter market;

 

•                  in private transactions and
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

 

•                  in connection with short sales of the
shares after the date of this prospectus;

 

•                  by pledge to secure or in payment of
debt and other obligations;

 

•                  through the writing of options,
whether the options are listed on an options exchange or otherwise;

 

•                  in connection with the writing of
non-traded and exchange-traded call options, in hedge transactions and in
settlement of other transactions in standardized or over-the-counter options;
or

 

•                  through a combination of any of the
above transactions.

 

The
selling stockholders and their successors, including their transferees,
pledgees or donees or their successors, may sell the common stock directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be in
excess of those customary in the types of transactions involved.

 

In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 of the Securities Act may be sold under Rule 144 rather
than pursuant to this prospectus.

 

We
entered into a registration rights agreement for the benefit of the selling
stockholders to register the common stock under applicable federal and state
securities laws. The registration rights agreement provides for
cross-indemnification of the selling stockholders and us and our respective
directors, officers and controlling persons against specific liabilities in
connection

 

B-1

 

with the offer and sale
of the common stock, including liabilities under the Securities Act. We will
pay substantially all of the expenses incurred by the selling stockholders
incident to the offering and sale of the common stock.

 

Each
selling stockholder has been advised, and has acknowledged to us, that the
Commission currently takes the position that coverage of short sales of shares
of our common stock “against the box” made prior to the effective date of the registration
statement of which this prospectus is a part with any security covered by this
prospectus is a violation of Section 5 of the Securities Act, as set forth
in Item 65, Section 5 under Section A, of the Manual of Publicly
Available Telephone Interpretations, dated June 1997, compiled by the
Office of Chief Counsel, Division of Corporate Finance. Accordingly, each selling
stockholder has agreed (on behalf of itself or any person over which it has
direct control) not to use any of the securities covered by this prospectus to
cover any short sales, hedging or similar transactions with the same economic
effect as a short sale, made prior to the effective date of the registration statement.
In addition, each selling stockholder has agreed to comply with Regulation M
under the federal securities laws.

 

B-2

 

EXHIBIT C

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

[Name and address
of Transfer Agent]

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Attn:  

  	
   

  	
   

  
			

 

Re:                               CardioTech
International, Inc.

 

Ladies and
Gentlemen:

 

We are
counsel to CardioTech International, Inc., a Massachusetts corporation (the “Company”), and have represented the Company in connection
with that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated as of December 22, 2004, by and among the
Company and the purchasers (the “Purchasers”
and the “Holders”) named therein
pursuant to which the Company issued to the Purchasers shares of its Common
Stock, $0.01 par value. Pursuant to the Purchase Agreement, the Company has
also entered into a Registration Rights Agreement with the Purchasers (the “Registration Rights Agreement”), dated as of December 22,
2004, pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement), under
the Securities Act of 1933, as amended (the “1933 Act”).
In connection with the Company’s obligations under the Registration Rights
Agreement, on                               ,
2004, the Company filed a Registration Statement on Form S-3 (File No. 333-               )
(the “Registration Statement”) with the
Securities and Exchange Commission (the “SEC”) relating
to the resale of the Registrable Securities which names the Holders as selling
stockholders thereunder.

 

In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of
a member of the SEC’s staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and, accordingly, the Registrable Securities are
available for resale under the 1933 Act in the manner specified in, and
pursuant to the terms of, the Registration Statement.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

cc:                                 [PURCHASERS]

 

C-1

 

EXHIBIT D

 

CardioTech International, Inc.

 

FORM OF SELLING STOCKHOLDER NOTICE AND
QUESTIONNAIRE

 

The
undersigned beneficial owner (the “Selling Stockholder”) of common
stock, par value $0.01 per share (the “Common Stock”), of CardioTech
International, Inc., a Massachusetts corporation (the “Company”) or
Common Stock issuable upon the exercise of warrants or conversion of other
securities (the “Registrable Securities”), understands that the Company
has filed or intends to file with the Securities and Exchange Commission (the “Commission”)
a registration statement on Form S-3 (the “Registration Statement”) for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “Securities Act”), of the Registrable Securities, in
accordance with registration rights granted to the Selling Stockholder under
that certain Registration Rights Agreement, dated December 22, 2004, among
the Company, the Selling Stockholder and the other Purchasers named therein
(the “Registration Rights Agreement”). Capitalized terms used in this
Questionnaire but not otherwise defined herein will have the meanings ascribed
to such terms in the Registration Rights Agreement.

 

The Company will use the information supplied
in this Questionnaire to ensure that certain information included in the Form
S-3 is accurate, correct and complete. 
The Company will also use this information as part of its effort to
comply with certain legal requirements. 
Accordingly, please exercise great care in answering this Questionnaire.

 

It is extremely important that there be no
material misstatements or omissions in the Form S-3 and that all legal matters
be resolved satisfactorily.  Accordingly,
please be thorough when answering each question.  If you have any doubts as to whether a matter
should be reported, please report it on this Questionnaire so that the Company
and its attorneys can consider the matter and decide whether it must be
included in the Form S-3.

 

Certain
legal consequences arise from being named as a selling stockholder in the
Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel
regarding the consequences of being named or not being named as a selling
stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The
Selling Stockholder hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.

 

D-1

 

The undersigned hereby
provides the following information to the Company and represents and warrants
that such information is accurate:

 

QUESTIONNAIRE

 

1.                                                                                      Name.

 

(a)                                  Full Legal Name
of Selling Stockholder

	
   

  
	
   

  

 

 

(b)                                 Full Legal Name
of Registered Holder (if not the same as (a) above) through which Registrable
Securities Listed in Item 3 below are held:

	
   

  
	
   

  

 

 

(c)                                  Full Legal Name
of Natural Control Person (which means a natural person who directly or
indirectly alone or with others has power to vote or dispose of the securities
covered by this Questionnaire):

	
   

  
	
   

  

 

 

2.  Address for Notices to Selling Stockholder:

	
   

  
	
   

  
	
   

  
	
   

  
	
  Telephone:

  	
   

  
	
  Fax:

  	
   

  
	
  Contact Person:

  	
   

  
				

 

3.  Beneficial Ownership of Registrable
Securities:

 

(a)                                  Type and
Principal Amount of Registrable Securities beneficially owned:

	
   

  
	
   

  
	
   

  
	
   

  

 

D-2

 

4.  Broker-Dealer Status:

 

(a)                                  Are you a
broker-dealer?

 

Yes   o                                                       No   o

 

Note:                   If yes, the Commission’s
staff has indicated that you should be identified as an underwriter in the
Registration Statement.

 

(b)                                 Are you an
affiliate of a broker-dealer?

 

Yes   o                                                       No   o

 

(c)                                  If you are an
affiliate of a broker-dealer, do you certify that you bought the Registrable
Securities in the ordinary course of business, and at the time of the purchase
of the Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to distribute the
Registrable Securities?

 

Yes   o                                                       No   o

 

Note:                   If no, the Commission’s
staff has indicated that you should be identified as an underwriter in the
Registration Statement.

 

5.  Beneficial Ownership of Other Securities of
the Company Owned by the Selling Stockholder.

 

Except as set forth below in this
Item 5, the undersigned is not the beneficial or registered owner of any
securities of the Company other than the Registrable Securities listed above in
Item 3.

 

(a)                                  Type and Amount
of Other Securities beneficially owned by the Selling Stockholder:

	
   

  
	
   

  
	
   

  

 

(b)           Disclaimer of Beneficial
Ownership.  Do you wish to disclaim
beneficial ownership of any of the securities reported in your responses?

 

Yes   o                  No   o

 

If the answer is “Yes”, please furnish the
following information with respect to the person or persons who should be shown
as the beneficial owner(s) of the shares in question.

 

D-3

 

	
  Name and Address of 

  Actual Beneficial Owner

  	
   

  	
  Relationship of 

  Such Person to You

  	
   

  	
  Number of Shares

  Beneficially Owned

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

6.  Relationships with the Company:

 

Except as set forth below, neither
the undersigned nor any of its affiliates, officers, directors or principal
equity holders (owners of 5% of more of the equity securities of the
undersigned) has held any position or office or has had any other material
relationship with the Company (or its predecessors or affiliates) during the
past three years.

 

State any exceptions here:

 

	
   

  
	
   

  

 

7.                                      If you do not have the sole right to vote or
sell the securities listed in No. 3 above, please explain the nature of any
holdings listed in your response to question No. 3.

 

8.                                      Please describe any relationship or agreement
pursuant to which any person or entity exercises voting power with respect to
the shares of equity securities of the Company owned by the Selling Stockholder
and if this arrangement is in writing please attach a copy of such arrangement.

 

9.                                      Please state the name of any person or entity
who exercises ultimate “control” (See Definition in Exhibit B) over the Selling
Stockholder either directly or through one or more intermediary entities and
the relationship of the Selling Stockholder to such “controlling” person or
entity.

 

10.                               Does the Selling Stockholder presently intend
to employ any underwriter in connection with the sale of the Common Stock?

 

YES   o    NO   o

 

If YES, please give the name of the principal
underwriter, state the amounts to be underwritten by each principal underwriter
and describe the nature of the underwriters’ obligation

 

D-4

 

(i.e. is the underwriter committed to
take and pay for all of the Common Stock if any are taken or is there merely a “best
efforts” arrangement):

 

11.                               Has the Selling Stockholder entered into any
arrangements, understandings or agreements with one or more brokers or dealers
for the resale of the Common Stock?

 

YES   o    NO   o

 

If YES, please identify each such broker or
dealer and briefly describe the provision of the arrangement, understanding or
agreement including the amount of Common Stock to be offered by each such
broker or dealer and that condition, if any, under which the arrangement,
understanding or agreement may be terminated.

 

12.                               Exhibit A which is attached hereto is the
proposed Plan of Distribution to be used in the Form S-3.  Does Exhibit A adequately describe the plan
of distribution of the Selling Stockholder of the Common Stock to be registered?

 

YES   o    NO   o

 

If your answer is NO:

 

(a)                                  Describe in full the plan of distribution of
any Common Stock which will be offered otherwise than as described in response
to Questions 10 and 11.

 

 

(b)                                 Describe all discounts or commissions to be
allowed or paid to underwriters, brokers or dealers, including all cash,
securities, contracts or other consideration to be received by any such party
in connection with the resale of the Common Stock.  Also describe any commissions to be paid by
persons other than you and any finders’ fees or similar payments to be paid to
you.

 

13.                         Will the Common Stock be sold at the market
price?

 

YES   o    NO   o

 

If your answer is NO:

 

D-5

 

Please set forth below the price at which the
Common Stock will be sold or if you are unable to state the price at this time,
please explain the method by which the price will be determined.

 

14.                               The Selling Stockholder agrees to comply with
Regulation M promulgated under the federal securities laws. In addition, the
Selling Stockholder agrees to offer and sell, and agrees to instruct its broker
or brokers to offer and sell, its Registrable Securities pursuant to the Form
S-3 only in those states or other United States jurisdictions in which the
Registrable Securities are qualified or registered for offer and sale under
applicable securities or blue sky securities laws or are exempt from such
qualification or registration. The undersigned will cause each such broker or
brokers to deliver a prospectus at or prior to confirmation of a sale in
accordance with the Securities Act. You should consult with your counsel
regarding the application of other requirements prior to any disposition of any
of the Registrable Securities.

 

15.                               The Selling Stockholder understands and
acknowledges that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock “against the box” with the Securities
purchased under the Purchase Agreement made prior to the Effectiveness Date is
a violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5
under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporate Finance. Accordingly, the Selling Stockholder hereby
agrees not to use any of the Securities to cover any short sales made prior to
the Effectiveness Date.

 

16.                               Without obviating the terms and provisions of
the Registration Rights Agreement (including without limitation, Sections 3(m)
and 8(d) thereof), the Selling Stockholder acknowledges and agrees that:

 

(a)                                  The
Company may postpone effecting a registration or require the Selling
Stockholder to refrain from disposing of any of its securities if (i) the
Company is in possession of material non-public information, the disclosure of
which during the period specified in such notice the Company reasonably
believes would materially and adversely affect the interests of the Company if
disclosed, (ii) the Company is in possession of material nonpublic information
that the Company would be required to disclose in the Form S-3 and that is not,
but for the registration, otherwise required to be disclosed at the time of
such registration, the disclosure of which, in its good faith judgment, would
have a material adverse effect on the business, operations, prospects or
competitive position of the Company, (iii) the Company has been requested by
the Commission or any other federal or state governmental authority to amend or
supplement the Form S-3 or related prospectus or requested additional
information to be included in the Form S-3 or prospectus or otherwise,
(iv)  the Commission issues any stop order suspending the effectiveness of
the Form S-3 or the initiation or threatening of any proceedings for that purpose,
(v) any state securities commission or other regulatory authority issues
any order suspending the qualification or exemption from qualification of any
of the securities under state securities or “blue sky” laws or the initiation
of any proceedings for that purpose, or (vi)  any event occurs which makes
any statement made in the Form S-3 or related prospectus or any document
incorporated or deemed to be incorporated by reference therein untrue or which
requires the making of any changes in such Form S-3, prospectus or documents so
that they will

 

D-6

 

not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.

 

(b)                                 The
Selling Stockholder will refrain from disposing its securities upon receipt of
written notice to the Selling Stockholder from the Company (a “Suspension
Notice”), setting forth the limitations that shall apply to the Selling Stockholder.

 

(c)                                  Each
Selling Stockholder shall comply with the Suspension Notice until it is advised
in writing by the Company that the use of the Form S-3 or related prospectus
may be resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in the Form S-3 or related prospectus.

 

This Questionnaire has been answered to the
best knowledge and belief of the undersigned and is filed with the Company (i) for
use in any Registration Statement or related prospectus or any amendment or
supplement thereto, or any preliminary prospectus in connection with the
preparation of the Form S-3, and (ii) for use in connection with any filings
that may be made with the NASD in connection with such Form S-3. The undersigned
is aware that the Company, any potential underwriter, the Commission, the NASD
and the recipients of the prospectus will be relying on the accuracy and
completeness of the information provided herein and the undersigned hereby
consents to the use of the information provided herein for the purposes stated
above.  The undersigned will promptly
notify the Company of any changes in the foregoing answers which would be made
as a result of any deve1opments occurring after the date hereof and prior to
the effective date of the Form S-3 and will finish the Company with such
supplementary information as may be appropriate.

 

If, at any time prior to the date of
effectiveness of the S-3, any of the information set forth in the undersigned’s
responses to this Questionnaire has changed due to passage of time, or any
development occurs which requires a change in any of the undersigned’s answers,
or has for any other reason become incorrect, the undersigned agrees
immediately to furnish to the individual to whom a copy of this Questionnaire
is to be sent, as indicated and at the address shown below, any necessary or
appropriate correcting information. 
Otherwise, the Company is to understand that the above information
continues to be, to the best of the undersigned’s knowledge, information and
belief, complete and correct as of the date hereof and as of the date of
effectiveness

 

The undersigned understands that the
information that the undersigned is furnishing will be used by the Company in
the preparation of its Registration Statement on Form S-3.

 

By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers and the inclusion of such information in the
Registration Statement and the related prospectus.  The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus.

 

If there is a
conflict between the terms and provisions of this Questionnaire, and the terms
and provisions of the Registration Rights Agreement, the terms and provisions
of the Registration Rights Agreement shall control.

 

D-7

 

IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by
its duly authorized agent.

 

	
  Dated:

  	
   

  	
   

  	
  Beneficial Owner:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
							

 

D-8

 

Exhibit A

 

PLAN OF DISTRIBUTION

 

We are registering the shares of common stock on
behalf of the selling stockholders. The common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at prices related to the prevailing market prices, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected at
various times in one or more of the following transactions, or in other kinds
of transactions:

 

•                  transactions on the American Stock Exchange
or on any other national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the common stock may be
listed or quoted at the time of sale;

 

•                  in the over-the-counter market;

 

•                  in private transactions and
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

 

•                  in connection with short sales of the
shares after the date of this prospectus;

 

•                  by pledge to secure or in payment of
debt and other obligations;

 

•                  through the writing of options,
whether the options are listed on an options exchange or otherwise;

 

•                  in connection with the writing of
non-traded and exchange-traded call options, in hedge transactions and in
settlement of other transactions in standardized or over-the-counter options;
or

 

•                  through a combination of any of the
above transactions.

 

The
selling stockholders and their successors, including their transferees,
pledgees or donees or their successors, may sell the common stock directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be in
excess of those customary in the types of transactions involved.

 

In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 of the Securities Act may be sold under Rule 144 rather
than pursuant to this prospectus.

 

We
entered into a registration rights agreement for the benefit of the selling
stockholders to register the common stock under applicable federal and state
securities laws. The registration rights agreement provides for
cross-indemnification of the selling stockholders and us and our

 

D-9

 

respective directors,
officers and controlling persons against specific liabilities in connection
with the offer and sale of the common stock, including liabilities under the
Securities Act. We will pay substantially all of the expenses incurred by the
selling stockholders incident to the offering and sale of the common stock.

 

Each
selling stockholder has been advised, and has acknowledged to us, that the
Commission currently takes the position that coverage of short sales of shares
of our common stock “against the box” made prior to the effective date of the
registration statement of which this prospectus is a part with any security
covered by this prospectus is a violation of Section 5 of the Securities
Act, as set forth in Item 65, Section 5 under Section A, of the
Manual of Publicly Available Telephone Interpretations, dated June 1997,
compiled by the Office of Chief Counsel, Division of Corporate Finance.
Accordingly, each selling stockholder has agreed (on behalf of itself or any
person over which it has direct control) not to use any of the securities
covered by this prospectus to cover any short sales, hedging or similar transactions
with the same economic effect as a short sale, made prior to the effective date
of the registration statement. In addition, each selling stockholder has agreed
to comply with Regulation M under the federal securities laws.

 

D-10

 

Exhibit B

 

	
  1.

  	
  “Affiliates”

  	
  The term “Affiliates”
  means, with respect to any specified entity, any individual or organization
  which directly or indirectly controls (See Definition No. 3), is controlled
  by or is under common control with the specified entity; a “parent” is an “affiliate
  which directly or indirectly “controls” the other entity.

  
	
   

  	
   

  	
   

  
	
  2.

  	
  “Beneficial Ownership”

  	
  The term “Beneficial
  Ownership” means any direct or indirect interest in securities which gives a
  person or entity (acting alone or with others) the power to vote, dispose of
  or direct the voting or disposition of the securities. It also includes any
  securities of which such person or entity has the right to acquire (acting
  alone or with others) beneficial ownership within sixty days after a given
  date through exercise of an option, warrant or conversion right or the power
  of revocation or automatic termination of a trust, discretionary account or
  similar arrangement. Securities beneficially owned by you for these purposes
  may include, for example, shares held by you in a fiduciary capacity which
  you have the power to vote or sell, certain securities in which you have a
  beneficial interest under a trust, will or partnership agreement, securities
  owned by corporation in which you have a substantial interest or securities
  owned by your spouse, minor children or other relatives who reside with you.

  
	
   

  	
   

  	
   

  
	
  3.

  	
  “Control”

  	
  The term “Control” means
  the power to direct or cause the direction of the management and policies of
  the entity (for purposes of this Questionnaire, please assume that ownership
  of 10% or more of any class of equity securities of a company also
  constitutes “control”).

  

 

D-11

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