Document:

EXHIBIT
      10.17

 

STOCK
PURCHASE AGREEMENT

 

Aptimus,
Inc.

100 Spear
Street, Suite 1115

San
Francisco, CA 94105

Ladies
& Gentlemen:

 

Each
undersigned investor set forth of the Schedule of Investors attached as
Annex
I hereto
(each, an “Investor” and, collectively, the “Investors”), hereby confirms its
agreement with you as follows:

 

1. This
Stock Purchase Agreement (the “Agreement”) is made as of March 25, 2005 between
Aptimus, Inc., a Washington corporation (the “Company”), and each of the
Investors.

 

2. The
Company has authorized (a) the sale and issuance of up to 351,083 shares (the
“Shares”) of common stock of the Company, no par value per share (the “Common
Stock”), and (b) the issuance of warrants (the “Warrants”) representing up to
95,494 Shares of Common Stock, to the Investors and, in respect to the Shares
issuable in respect to the Warrants, to the Company’s financial advisor
described in Section 4.48 to the Disclosure Schedule in a private placement (the
“Offering”).

 

3. The
Company and the Investors agree that each Investor will, severally and not
jointly, purchase from the Company and the Company will issue and sell to the
Investors (a) that number of Shares as set forth opposite each Investor’s name
on the Schedule of Investors, for a per share purchase price (the “Purchase
Price”) equal to the one hundred percent (100%) of the five- (5-) day moving
average of the Common Stock for the five (5) trading days immediately preceding
(but not including) the Closing Date, but in no event greater than ninety-three
percent (93%) of the closing sale price of the Common Stock on the trading day
immediately preceding the Closing Date, and (b) a Warrant to purchase the number
of Shares set forth opposite each Investor’s name on the Schedule of Investors,
such number being twenty percent (20%) of the total number of Shares issuable to
such Investor as described in Section 3(a) above, which Warrant shall have a
term of five (5) years from the issuance date thereof and an exercise price (the
“Warrant Exercise Price”) equal to one hundred ten percent (110%) of the closing
sale price of the Common Stock on the trading day immediately preceding the
Closing Date, pursuant to the Terms and Conditions for Purchase of Shares
attached hereto as Annex II and
incorporated herein by reference as if fully set forth herein (the “Terms and
Conditions”). Unless otherwise requested by the Investor, certificates
representing the Shares and the Warrant purchased by the Investor will be
registered in the Investor’s name and address as set forth on Annex
I.

 

4. Each
Investor represents that, except as set forth below, (a) it has had no position,
office or other material relationship within the past three years with the
Company or persons known to it to be affiliates of the Company, (b) neither it,
nor any group of which it is a member or to which it is related, beneficially
owns (including the right to acquire or vote) any securities of the Company and
(c) it has no direct or indirect affiliation or association with any National
Association of Securities Dealers, Inc. (“NASD”) member as of the date hereof.
Exceptions:

 

(If no
exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

 

Please
confirm that the foregoing correctly sets forth the agreement between us by
signing in the space provided below for that purpose. By executing this
Agreement, you acknowledge that the Company may use the information in paragraph
4 above and the name and address information below in preparation of the
Registration Statement (as defined in Annex
II).

 

AGREED
AND ACCEPTED:

 

	APTIMUS,
      INC.	 	INVESTORS:
	 	 	 
	 	 	Gryphon Master
      Fund, L.P.
	 	 	 
	By: ______________________________  	 	By: ______________________________ 
	
      Timothy
      C. Choate

      Chief
      Executive Officer
	 	
       Print
      Name: Ryan Wolters

      Title:
      Authorized Agent

	 	 	
       

      GSSF
      Master Fund, LP

       

      By:
      ______________________________ 

      Print
      Name: Ryan Wolters

      Title:
      Authorized Agent

	 	 	
       

      S.F.
      Capital Partners Ltd.

       

      By:_____________________________  

      Print
      Name: Brian Davidson

      Title:
      Authorized Agent

	 	 	
       

      Iroquois
      Capital, L.P.

       

      By:______________________________  

      Print
      Name: Joshua Silverman

      Title:
      Authorized Agent

	 	 	
       

      Presidio
      Partners

      By:
      Presidio Management, its Authorized Investment

       

      By:______________________________  

      Print
      Name: Van L. Brady 

      Title:
      General Partner 

 

2

 

	 	 	
       

      Geary
      Partners

      By:
      Presidio Management, its Authorized Investment

       

      By:______________________________  

      Print
      Name: Van L. Brady

      Title:
      General Partner

	 	 	
       

      Brady
      Retirement Fund, L.P.

      By:
      Presidio Management, its Authorized Investment

       

      By:______________________________  

      Print
      Name: Van L. Brady

      Title:
      General Partner

 

3

ANNEX
I

 

SCHEDULE
OF INVESTORS

 

	
      Name
      of Purchaser

       
	
      Number
      of Shares

       
	
      Warrant
      shares

       
	
      Aggregate
      Purchase Price

       

	
      Gryphon
      Master Fund, L.P. 

       
	
      87,771

       
	
      17,555

       
	
      $1,500,006.39

       

	
      GSSF
      Master Fund, LP 
	
      29,257

       
	
      5,851

       
	
      $500,002.13

       

	
      S.F.
      Capital Partners Limited
	
      87,771

       
	
      17,554

       
	
      $1,500,006.39

       

	
      Iroquois
      Capital, L.P.
	
      29,257

       
	
      5,851

       
	
      $500,002.13

       

	
      Presidio
      Partners
	
      59,687

       
	
      11,937

       
	
      $1,020,050.83

       

	
      Brady
      Retirement Fund, L.P.
	
      12,990

       
	
      2,598

       
	
      $757,941.50

       

	
      Geary
      Partners
	
      44,350

       
	
      8,870

       
	
      $221,999.10

       

4

THE
SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS
CONFIDENTIAL SUMMARY OF TERMS AND CONDITIONS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THE SHARES ARE BEING OFFERED PURSUANT TO EXEMPTIONS FROM
REGISTRATION REQUIREMENTS PROVIDED BY SECTION 4(2) OF THE SECURITIES ACT,
REGULATION D AND RULE 506 THEREUNDER, CERTAIN STATE SECURITIES LAWS AND CERTAIN
RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE SHARES MAY NOT BE
TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS DOCUMENT
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.

 

ANNEX
II

 

TERMS
AND CONDITIONS FOR PURCHASE OF SHARES

 

1.  Authorization
and Sale of the Shares. Subject
to these Terms and Conditions, the Company has authorized the sale and issuance
of up to 446,577 Shares. 

 

2.  Agreement
to Sell and Purchase the Shares. At the
Closing (as defined in Section 3), the Company will sell to each Investor, and
such Investor will severally purchase from the Company, upon the terms and
conditions hereinafter set forth, the number of Shares and a Warrant to purchase
the number of Shares set forth opposite such Investor’s name in Annex
I to the
Agreement, to which these Terms and Conditions are attached as Annex II, at the
purchase price set forth thereon. The Warrant shall be in substantially the form
the parties have agreed to under separate cover.

 

3.  Delivery
of the Shares at Closing. The
completion of the purchase and sale of the Shares (the “Closing”) shall occur on
March 28, 2005 (the “Closing Date”), at the offices of the Company’s counsel. At
the Closing, the Company shall deliver to each Investor, versus payment
therefor, one or more stock certificates and warrants representing the number of
Shares and Shares issuable upon exercise of the Warrant, each as set forth
opposite such Investor’s name in Annex
I of the
Agreement, each such certificate and warrant to be registered in the name of
such Investor or, if so indicated on the signature page of the Agreement, in the
name of a nominee designated by the Investor. The Shares and Warrant shall each
bear an appropriate restrictive legend as required by applicable securities
laws.

 

The
Company’s obligation to issue the Shares and the Warrant to the Investors shall
be subject to the following conditions, any one or more of which may be waived
by the Company: (a) receipt by the Company of a certified or official bank
check or wire transfer of funds in the full amount of the purchase price for the
Shares and Warrant being purchased hereunder and (b) the accuracy of the
representations and warranties made by the Investors and the fulfillment of
those undertakings of the Investors to be fulfilled prior to the
Closing.

 

Each
Investor’s obligation to purchase the Shares and Warrant shall be subject to the
following conditions, any one or more of which may be waived by such Investor:
(a) the representations and warranties of the Company set forth herein shall be
true and correct as of the Closing Date in all material respects and
(b) the Investor shall have received such documents as such Investor shall
reasonably have requested, including compliance and Secretary’s certificates and
a standard opinion of Company counsel as to the matters set forth in the first
clause of Section 4.1, in Sections 4.2 and 4.3 hereof and, subject to the
accuracy of the information and the representations and warranties required to
be provided by each Investor, as to exemption from the registration requirements
of the Securities Act of 1933, as amended (the “Securities Act”), of the sale of
the Shares and the Shares issuable upon exercise of the Warrant.

 

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4.  Representations,
Warranties and Covenants of the Company. Except
as otherwise described in the Disclosure Schedule delivered to the Investors
prior to the execution of this Agreement, the Company hereby represents and
warrants to, and covenants with, the Investors, as follows:

 

4.1  Organization. The
Company is duly organized and validly existing under the laws of the
jurisdiction of its organization. Each of the Company and its Subsidiaries (as
defined in Rule 405 under the Securities Act) has full power and authority to
own, operate and occupy its properties and to conduct its business as presently
conducted and as described in the documents filed by the Company under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), since the end
of its most recently completed fiscal year through the date hereof, including,
without limitation, its most recent reports on Form 10-K and Form 10-Q
(collectively, the “Exchange Act Documents”) and is registered or qualified to
do business and in good standing in each jurisdiction in which the nature of the
business conducted by it or the location of the properties owned or leased by it
requires such qualification and where the failure to be so qualified would have
a material adverse effect upon the condition (financial or otherwise), earnings,
business or business prospects, properties or operations of the Company and its
Subsidiaries, considered as one enterprise (a “Material Adverse Effect”), and no
proceeding has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.

 

4.2  Due
Authorization and Valid Issuance. The
Company has all requisite power and authority to execute, deliver and perform
its obligations under the Agreement, and the Agreement has been duly authorized
and validly executed and delivered by the Company and constitutes legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, except as rights to indemnity and contribution may be
limited by state or federal securities laws or the public policy underlying such
laws, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’ and
contracting parties’ rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The Shares
and Warrant being purchased by the Investors hereunder will, upon issuance and
payment therefor pursuant to the terms hereof, be duly authorized and validly
issued, fully paid and nonassessable. 

 

4.3  Non-Contravention. The
execution and delivery of the Agreement, the issuance and sale of the Shares and
Warrant under the Agreement, the fulfillment of the terms of the Agreement and
the consummation of the transactions contemplated hereby will not
(A) conflict with or constitute a violation of, or default (with the
passage of time or otherwise) under, (i) any material bond, debenture, note
or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any Subsidiary is a party or by which it or any of its
Subsidiaries or their respective properties are bound, (ii) the charter,
bylaws or other organizational documents of the Company or any Subsidiary, or
(iii) any law, administrative regulation, ordinance or order of any court
or governmental agency, arbitration panel or authority applicable to the Company
or any Subsidiary or their respective properties, except in the case of clauses
(i) and (iii) for any such conflicts, violations or defaults which are not
reasonably likely to have a Material Adverse Effect, individually or in the
aggregate, or (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of the
material properties or assets of the Company or any Subsidiary or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of
indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any Subsidiary is a party or by
which any of them is bound or to which any of the material property or assets of
the Company or any Subsidiary is subject. No consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, or other governmental body in the United States or
any other person is required for the execution and delivery of the Agreement and
the valid issuance and sale of the Shares and Warrant to be sold and issued
pursuant to the Agreement, other than such as have been made or obtained, and
except for any post-closing securities filings or notifications required to be
made under federal or state securities laws.

 

6

4.4  Capitalization. The
capitalization of the Company is as set forth in the most recent applicable
Exchange Act Documents, increased as set forth in the next sentence. The Company
has not issued any capital stock since that date other than pursuant to
(i) employee benefit plans disclosed in the Disclosure Schedule Documents
or (ii) outstanding warrants, options or other securities disclosed in the
Disclosure Schedule. The Shares and Warrant to be sold and issued pursuant to
the Agreement, have been duly authorized, and when issued and paid for in
accordance with the terms of the Agreement, will be duly and validly issued,
fully paid and nonassessable. The outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
were not issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. Except as set forth in or contemplated by
the Agreement or as described in the Disclosure Schedule, there are no
outstanding rights (including, without limitation, preemptive rights), warrants
or options to acquire, or instruments convertible into or exchangeable for, any
unissued shares of capital stock or other equity interest in the Company or any
Subsidiary, or any contract, commitment, agreement, understanding or arrangement
of any kind to which the Company is a party or of which the Company has
knowledge and relating to the issuance or sale of any capital stock of the
Company or any Subsidiary, any such convertible or exchangeable securities or
any such rights, warrants or options. Without limiting the foregoing, except as
set forth in or contemplated by the Agreement or as described in the Disclosure
Schedule, no preemptive right, co-sale right, right of first refusal,
registration right, or other similar right exists with respect to the Shares and
Warrant or the issuance and sale thereof. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is required
for the issuance and sale of the Shares and Warrant. The Company owns the entire
equity interest in each of its Subsidiaries, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest. Except as described
in the Disclosure Schedule, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Common Stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.

 

4.5  Legal
Proceedings. There
is no material legal or governmental proceeding pending or, to the knowledge of
the Company, threatened (i) to which the Company or any Subsidiary is or may be
a party or of which the business or property of the Company or any Subsidiary is
subject or (ii) which adversely affects or challenges the legality, validity or
enforceability of the Agreement.

 

4.6  No
Violations. Neither
the Company nor any Subsidiary is, and no facts have come to the Company’s
attention that would be reasonably likely (with the passage of time or
otherwise) to result, in violation of its charter, bylaws, or other
organizational document, or in violation of any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or
authority applicable to the Company or any Subsidiary, which violation,
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect, or is in default (and there exists no condition which, with the
passage of time or otherwise, would constitute a default) in any material
respect in the performance of any bond, debenture, note or any other evidence of
indebtedness in any indenture, mortgage, deed of trust or any other material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or by which the properties of the
Company or any Subsidiary are bound, which would be reasonably likely to have a
Material Adverse Effect.

 

4.7  Governmental
Permits, Etc. With
the exception of the matters which are dealt with separately in Section 4.1,
4.12 and 4.13, each of the Company and its Subsidiaries has all necessary
franchises, licenses, certificates and other authorizations from any foreign,
federal, state or local government or governmental agency, department, or body
that are currently necessary for the operation of the business of the Company
and its Subsidiaries as currently conducted and as described in the Exchange Act
Documents except where the failure to currently possess could not reasonably be
expected to have a Material Adverse Effect.

 

4.8  Intellectual
Property. Except
as specifically disclosed in the Disclosure Schedule, (i) each of the
Company and its Subsidiaries owns or possesses sufficient rights to use all
material patents, patent rights, trademarks, copyrights, licenses, inventions,
trade secrets, trade names, designs, manufacturing or other processes, systems,
data compilation, research results, know-how or other proprietary rights
(collectively, “Intellectual Property”) that are necessary for the conduct of
its business as now conducted or as proposed to be conducted as described in the
Exchange Act Documents except where the failure to currently own or possess
would not have a Material Adverse Effect, (ii) neither the Company nor any
of its Subsidiaries is infringing, or has received any notice of, or has any
knowledge of, any asserted infringement by the Company or any of its
Subsidiaries of, any rights of a third party with respect to any Intellectual
Property that, individually or in the aggregate, would have a Material Adverse
Effect and (iii) neither the Company nor any of its Subsidiaries has
received any notice of, or has any knowledge of, infringement by a third party
with respect to any Intellectual Property rights of the Company or of any
Subsidiary that, individually or in the aggregate, would have a Material Adverse
Effect.

 

7

All
material licenses or other material agreements under which (i) the Company
is granted rights in Intellectual Property, other than Intellectual Property
generally available on commercial terms from other sources, and (ii) the
Company has granted rights to others in Intellectual Property owned or licensed
by the Company, are in full force and effect and, to the knowledge of the
Company, there is no material default by the Company thereunder.

 

The
Company believes it has taken all steps required in accordance with sound
business practice and business judgment to establish and preserve its ownership
of all material copyright, trade secret and other proprietary rights with
respect to its products and technology. To the knowledge of the Company, the
Company is not making unauthorized use of any confidential information or trade
secrets of any person. Neither the Company nor, to the knowledge of the Company,
any of its employees have any agreements or arrangements with any persons other
than the Company related to confidential information or trade secrets of such
persons or restricting any such employee’s engagement in business activities of
any nature.

 

4.9  Financial
Statements. The
financial statements of the Company and the related notes contained in the
Exchange Act Documents present fairly, in accordance with generally accepted
accounting principles, the financial position of the Company and its
Subsidiaries on a consolidated basis, as of the dates indicated, and the results
of its operations and cash flows for the periods therein specified consistent
with the books and records of the Company and its Subsidiaries on a consolidated
basis, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which are not expected to
be material in amount. Such financial statements (including the related notes)
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods therein specified, except
in the case of unaudited statements, as may be permitted by the SEC on
Form 10-Q under the Exchange Act.

 

4.10  No
Material Adverse Change. Since
December 31, 2004, there has not been (i) any Material Adverse Effect
affecting the Company and its Subsidiaries considered as one enterprise,
(ii) except as described in the Disclosure Schedule, any obligation, direct
or contingent, that is material to the Company and its Subsidiaries considered
as one enterprise, incurred by the Company, (iii) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its Subsidiaries, or (iv) any loss or damage (whether or
not insured) to the physical property of the Company or any of its Subsidiaries
which has been sustained which has a Material Adverse Effect.

 

4.11  Disclosure. The
representations and warranties of the Company contained in this Section 4
as of the date hereof, do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.

 

4.12  Common
Stock Listing. The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is quoted on the Nasdaq National Market (“Nasdaq”), and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or removal or delisting
of the Common Stock from Nasdaq, nor has the Company received any notification
that the SEC or Nasdaq Listing Qualifications is contemplating terminating such
registration.

 

4.13  Reporting
Status. The
Company has filed in a timely manner all documents that the Company was required
to file under the Exchange Act during the 12 months preceding the date of this
Agreement. The following documents complied in all material respects with the
SEC’s requirements as of their respective filing dates, and the information
contained therein as of the date thereof did not 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 light of the circumstances under
which they were made, not misleading:

 

8

	(a)  	
      Annual
      Report on Form 10-K for the year ended December 31,
      2003;

 

	(b)  	
      Definitive
      Proxy Statement for the Annual Meeting held on June 8,
    2004;

 

	(c)  	
      Quarterly
      Reports on Form 10-Q for the quarters ended March 31, 2004, June
      30, 2004 and September 30, 2004;

 

	(d)  	
      Current
      Reports on Form 8-K, filed on various dates from January 1, 2004
      through March 15, 2005; and

 

	(e)  	
      All
      other documents, if any, filed by the Company with the SEC since
      December 31, 2003 pursuant to the reporting requirements of the
      Exchange Act.

 

4.14  No
Manipulation of Stock. Neither
the Company, nor any of its directors, officers or controlling persons, has
taken or will, in violation of applicable law, take, any action designed to or
that might reasonably be expected to cause or result in, or which has
constituted, stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares and Shares issuable upon exercise of
the Warrant.

 

4.15  Company
not an “Investment Company”. The
Company has been advised of the rules and requirements under the Investment
Company Act of 1940, as amended (the “Investment Company Act”). The Company is
not, and immediately after receipt of payment for the Shares and Warrant will
not be, an “investment company” or an entity “controlled” by an “investment
company” within the meaning of the Investment Company Act and shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.

 

4.16  Foreign
Corrupt Practices; Sarbanes-Oxley Act.

 

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

 

(b)  The
Company is in compliance in all material respects with all provisions of the
Sarbanes-Oxley Act of 2002 that are applicable to it as of the Closing
Date.

 

4.17  Environmental. Except
as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect (i) the Company and its Subsidiaries are in compliance
with and not subject to any known liability under applicable Environmental Laws
(as defined below), (ii) the Company has made all filings and provided all
notices required under any applicable Environmental Law, and has, and is in
compliance with, all permits required under any applicable Environmental Laws
and each of them is in full force and effect, (iii) (a) there is no pending
civil, criminal or administrative action, or pending hearing or suit, (b) the
Company has not received any demand, claim or notice of violation and (c) to the
knowledge of the Company, there is no investigation, proceeding, notice or
demand letter or request for information threatened against the Company, in the
case of each of (a), (b) and (c), under any Environmental Law, (iv) no lien,
charge, encumbrance or restriction has been recorded under any Environmental Law
with respect to any assets, facility or property owned, operated, leased or
controlled by the Company, (v) the Company has not received notice that it has
been identified as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(“CERCLA”), or
any comparable state law and (vi) no property or facility of the Company is (a)
listed or, to the knowledge of the Company, proposed for listing on the National
Priorities List under CERCLA or is (b) listed in the Comprehensive Environmental
Response, Compensation, Liability Information System List promulgated pursuant
to CERCLA, or on any comparable list maintained by any state or local
governmental authority.

 

9

For
purposes of this Agreement, “Environmental Laws” means all applicable federal,
state and local laws or regulations, codes, orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder, relating to
pollution or protection of public or employee health and safety or the
environment, including, without limitation, laws relating to (i) emissions,
discharges, releases or threatened releases of Hazardous Materials (as defined
below) into the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), (ii) the manufacture,
processing, distribution, use, generation, treatment, storage, disposal,
transport or handling of Hazardous Materials and (iii) underground and above
ground storage tanks and related piping, and emissions, discharges, releases or
threatened releases therefrom. The term “Hazardous Material” means (a) any
“hazardous substance,” as defined in the Comprehensive Environmental Response,
the Resource Conservation and Recovery Act, as amended, (b) any “hazardous
waste,” as defined by the Resource Conservation and Recovery Act, as amended,
(c) any petroleum or petroleum product, (d) any polychlorinated biphenyl and
(e) any pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance.

 

4.18  Accountants. The
Company believes that Moss Adams LLP, who the Company expects will express its
opinion with respect to the financial statements to be incorporated by reference
from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004 (and 2003, if and as applicable) into the Registration
Statement (as defined below) and the prospectus which forms a part thereof, are
independent accountants as required by the Securities Act and the rules and
regulations promulgated thereunder.

 

4.19  Contracts. The
contracts that are currently material to the Company are in full force and
effect on the date hereof, and neither the Company nor, to the Company’s
knowledge, any other party to such contracts is in breach of or default under
any of such contracts which would have a Material Adverse Effect.

 

4.20  Taxes. The
Company has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been or might be asserted
or threatened against it which would have a Material Adverse
Effect.

 

4.21  Transfer
Taxes. On the
Closing Date, all stock transfer or other taxes (other than income taxes) which
are required to be paid in connection with the sale and transfer of the Shares
and Warrant to be sold to the Investors hereunder will be, or will have been,
fully paid or provided for by the Company and all laws imposing such taxes will
be or will have been fully complied with.

 

4.22  Private
Offering.
Assuming the correctness of the representations and warranties of the Investors
set forth in Section 5 hereof, the offer and sale of Shares hereunder is exempt
from registration under the Securities Act. The Company has not distributed and
will not distribute prior to the Closing Date any offering materials in
connection with this Offering and sale of the Shares and Warrant other than the
documents of which this Agreement is a part, including the Disclosure Schedule,
or the Exchange Act Documents. The Company has not in the past nor will it
hereafter take any action to sell, offer for sale or solicit offers to buy any
securities of the Company which would bring the offer, issuance or sale of the
Shares and Warrant as contemplated by this Agreement, within the provisions of
Section 5 of the Securities Act, unless such offer, issuance or sale was or
shall be within the exemptions of Section 4 of the Securities Act.

 

4.23  Use of
Proceeds. The
Company shall use the proceeds from the Offering for working capital, strategic
acquisitions, if any, and general corporate purposes.

 

4.24  Lock-Up. Upon
execution of this Agreement, the Company shall have entered, and shall have
caused certain of its officers and directors to enter, into an agreement with
the Investors not to sell or otherwise transfer or dispose of any shares of the
Company’s capital stock until thirty (30) days following the effectiveness of
the Registration Statement (as defined below); provided,
however, that
each such officer and director shall be permitted to sell or otherwise transfer
or dispose of up to an aggregate of ten percent (10%) of his holdings
(determined on the date hereof) of the Company’s common stock, without the prior
written approval of a majority in interest of the Investors.

 

4.25  Adjustment
of Warrant Exercise Price Upon Issuance of Additional Shares of Common
Stock. In the
event the Company shall at any time prior to the one- (1-) year anniversary the
Closing Date issue shares of Common Stock other than (i) to directors, employees
or consultants pursuant to an employee benefit plan, (ii) 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 (iii) pursuant to
a shareholder rights plan or other similar device, without consideration or for
a consideration per share less than the Purchase Price, then the Warrant
Exercise Price in effect immediately prior to such issue, if higher, shall be
reduced, concurrently with such issue, to the consideration per share received
by the Company for such issue of the Common Stock; provided,
however, that if
such issuance or deemed issuance is without consideration, then the Company
shall be deemed to have received an aggregate $1.00 of consideration for all
such shares of Common Stock issued. For purposes of this Section
4.25, the
consideration received by the Company for the issue of any additional shares of
Common Stock shall be computed:

 

10

(a)  insofar
as it consists of cash, at the aggregate amount of cash received by the Company,
excluding amounts paid or payable for accrued interest;

 

(b)  insofar
as it consists of property other than cash, at the fair market value thereof at
the time of such issue, as determined in good faith by the Board of Directors of
the Company; and

 

(c) in the
event such shares of Common Stock are issued together with other shares or
securities or other assets of the Company for consideration which covers both,
as the proportion of such consideration so received, computed as provided in
clauses (a) and (b) above, as determined in good faith by the Board of
Directors of the Company.

 

4.26 Certain
Company Limitations. From
and after the date of hereof and for a period of time ending on the
Effectiveness Date (as defined below), the Company shall not take any of the
following actions or permit any of the following events from occurring without
receiving the prior written approval of a majority in interest of the Investors:
(a) redeem any Common Stock; or (b) issue debt securities or otherwise incur
indebtedness for borrowed money; provided, however that the Company may, without
first obtaining such Investor approval, issue debt securities or otherwise incur
indebtedness: (i) to a strategic investor in connection with a strategic
commercial agreement or transaction as determined in good faith by the Company’s
Board of Directors, (ii) pursuant to a commercial borrowing, secured lending or
lease financing transaction approved in good faith by the Company’s Board of
Directors, or (iii) 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. 

 

4.27  Transactions
with Affiliates. Other
than as disclosed in the Disclosure Schedule, the Company has not entered, and
has no current plans to enter, into any agreement, contract or arrangement with
any of its officers, directors or other affiliates.

 

4.28  Brokers
or Finders. Except
as disclosed in the Disclosure Schedule, the Company has not dealt with any
broker or finder in connection with the transactions contemplated by the
Agreement, and Company has not incurred, and shall not incur, directly or
indirectly, any liability for any brokerage or finders’ fees or agents
commissions or any similar charges in connection with the transactions
contemplated by the Agreement.

 

5.  Representations,
Warranties and Covenants of the Investors.

 

5.1  Each
Investor, severally and not jointly, represents and warrants to, and covenants
with, the Company that: (i) the Investor is an “accredited investor” as
defined in Rule 501(a) of Regulation D under the Securities Act and the
Investor is also knowledgeable, sophisticated and experienced in making, and is
qualified to make decisions with respect to investments in shares presenting an
investment decision like that involved in the purchase of the Shares and
Warrant, including investments in securities issued by the Company and
investments in comparable companies, and has requested, received, reviewed and
considered all information it deemed relevant in making an informed decision to
purchase the Shares and Warrant; (ii) the Investor is acquiring the Shares
and Warrant set forth in Annex
I to the
Agreement in the ordinary course of its business and for its own account for
investment only and with no present intention of distributing any of such
Shares, Warrant and Shares issuable upon exercise of such Warrant or any
arrangement or understanding with any other persons regarding the distribution
of such Shares Warrant and Shares issuable upon exercise of such Warrant or any
arrangement or understanding with any other persons regarding the distribution
of such Shares, except in accordance with applicable securities law;
(iii) the Investor will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Shares, the Warrant or Shares
issuable upon exercise of the Warrant except in compliance with the Securities
Act, applicable state securities laws and the respective rules and regulations
promulgated thereunder; (iv) the Investor has answered all questions in the
Agreement for use in preparation of the Registration Statement and the answers
thereto are true, correct and complete in all material respects as of the date
hereof and will be true, correct and complete in all material respects as of the
Closing Date; and (v) the Investor has, in connection with its decision to
purchase the Shares and Warrant set forth in Annex
I to the
Agreement, relied only upon the Exchange Act Documents, the representations and
warranties of the Company contained herein and the Disclosure Schedules. Each
Investor understands that its acquisition of the Shares and Warrant has not been
registered under the Securities Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom, which exemptions
may depend upon, among other things, the bona fide nature of the Investor’s
investment intent as expressed herein. Investor understands that the Shares and
Warrant purchased hereunder have to be held indefinitely unless there is an
effective Registration Statement under the Securities Act with respect to the
Shares and the Shares issuable upon exercise of the Warrant or an exemption from
registration available under the Securities Act and applicable state securities
laws, and the Investor is able to bear the economic risk of an investment in the
Shares and Warrant.

 

11

5.2  Each
Investor, severally and not jointly, acknowledges, represents and agrees that no
action has been or will be taken in any jurisdiction outside the United States
by the Company that would permit an offering of the Shares and Warrant, or
possession or distribution of offering materials in connection with the issue of
the Shares and Warrant, in any jurisdiction outside the United States where
legal action by the Company for that purpose is required. Each Investor outside
the United States will comply with all applicable laws and regulations in each
foreign jurisdiction in which it purchases, offers, sells or delivers Shares or
has in its possession or distributes any offering material, in all cases at its
own expense.

 

5.3  Each
Investor, severally and not jointly, hereby covenants with the Company not to
make any sale of the Shares, the Warrant or Shares issuable upon exercise of the
Warrant without complying with the provisions of this Agreement, including
Section 7.2 hereof, and if selling pursuant to the Registration Statement,
without causing the prospectus delivery requirement under the Securities Act to
be satisfied, and the Investor acknowledges that the certificates evidencing the
Shares and Warrant will be imprinted with a legend that prohibits their transfer
except in accordance therewith. Upon the earlier of (i) the Registration
Statement becoming effective and (ii) Rule 144(k) becoming available, the
Investors shall be entitled to exchange their certificates representing the
Shares and Warrant for certificates that do not contain any restrictive legend.
Each Investor acknowledges that there may occasionally be times when the Company
determines that it must suspend the use of the prospectus forming a part of the
Registration Statement, as set forth in Section 7.2(c).

 

5.4  Each
Investor, severally and not jointly, further represents and warrants to, and
covenants with, the Company that (i) the Investor has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) this
Agreement constitutes a valid and binding obligation of the Investor enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Investors
herein may be legally unenforceable.

 

5.5 Investor
will not use any of the restricted Shares acquired pursuant to this Agreement to
cover any short position in the Common Stock of the Company in violation of
applicable securities laws.

 

5.6 Each
Investor understands that nothing in the Exchange Act Documents, this Agreement
or any other materials presented to the Investors in connection with the
purchase and sale of the Shares and Warrant constitutes legal, tax or investment
advice. The Investor has consulted such legal, tax and investment advisors as
it, in its sole discretion, has deemed necessary or appropriate in connection
with its purchase of Shares.

 

6.  Survival
of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Investors herein shall survive the execution of this Agreement, the delivery
to the Investors of the Shares and Warrant being purchased and the payment
therefor.

 

12

7.  Registration
of the Shares; Compliance with the Securities Act.

 

7.1  Registration
Procedures and Other Matters. The
Company shall:

 

(a)  subject
to receipt of necessary information from the Investors after prompt request from
the Company to the Investors to provide such information, prepare and file with
the SEC, not later than thirty (30) days from and after the Closing Date (the
“Filing Date”), a registration statement on Form S-3 or such other
successor form (except that if the Company is not then eligible to register for
resale the Registrable Securities (as defined below) on Form S-3, in which case
such registration shall be on Form S-1 or any successor form) (the “Registration
Statement”) to enable the resale of the Shares and the Shares issuable upon
exercise of the Warrant (together, the “Registrable Securities”) by the
Investors from time to time through the Nasdaq quotation system or in other
privately-negotiated transactions;

 

(b)  use its
reasonable best efforts, subject to receipt of necessary information from the
Investors after prompt request from the Company to the Investors to provide such
information, to cause the Registration Statement to become effective within 90
days, if there is no review, and 120 days, if there is a review, after the
Registration Statement is filed by the Company(the “Effectiveness Date”), such
efforts to include, without limiting the generality of the foregoing, preparing
and filing with the SEC in such period any financial statements that are
required to be filed prior to the effectiveness of such Registration
Statement;

 

(c)  use its
reasonable best efforts to prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Registration Statement current,
effective and free from any material misstatement or omission to state a
material fact for a period not exceeding, with respect to each Investor’s
Registrable Securities purchased hereunder, the earlier of (i) the second
anniversary of the Closing Date, (ii) the date on which the Investors may
sell all Registrable Securities then held by the Investors without restriction
by the volume limitations of Rule 144(e) of the Securities Act, or
(iii) such time as all Registrable Securities purchased by the Investors in
this Offering have been sold pursuant to a registration statement;

 

(d)  furnish
to the Investors with respect to the Registrable Securities registered under the
Registration Statement such number of copies of the Registration Statement,
prospectuses and preliminary prospectuses in conformity with the requirements of
the Securities Act and such other documents as the Investors may reasonably
request, in order to facilitate the public sale or other disposition of all or
any of the Registrable Securities by the Investors; provided,
however, that
the obligation of the Company to deliver copies of prospectuses or preliminary
prospectuses to the Investors shall be subject to the receipt by the Company of
reasonable assurances from the Investors that the Investors will comply with the
applicable provisions of the Securities Act and of such other securities or blue
sky laws as may be applicable in connection with any use of such prospectuses or
preliminary prospectuses;

 

(e)  file
documents required of the Company for normal blue sky clearance in states
specified in writing by the Investors and use its reasonable best efforts to
maintain such blue sky qualifications during the period the Company is required
to maintain the effectiveness of the Registration Statement pursuant to Section
7.1(c); provided,
however, that
the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented;

 

(f)  otherwise
use commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission under the Securities Act and the Exchange Act, and
take such other actions as may be reasonably necessary to facilitate the
registration of the Registrable Securities hereunder;

 

(g)  bear all
expenses of Company in connection with the procedures in paragraph (a) through
(e) of this Section 7.1 and the registration of the Registrable Securities
pursuant to the Registration Statement; 

 

(h)  advise
the Investors, promptly after it shall receive notice or obtain knowledge of the
issuance of any stop order by the SEC delaying or suspending the effectiveness
of the Registration Statement or of the initiation or threat of any proceeding
for that purpose; and it will promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal at the earliest possible
moment if such stop order should be issued; and

 

13

(i)  if: (i)
the Registration Statement is not filed on or prior to the Filing Date in
violation of this Agreement, or (ii) the Registration Statement filed hereunder
is not declared effective by the SEC on or before the Effectiveness Date, or
(iii) the Company fails to file with the SEC a request for acceleration within
five (5) business days of the date that the Company is notified by the SEC that
the Registration Statement will not be “reviewed,” or is not subject to further
review, or (iv) after the Registration Statement is first declared effective by
the SEC, it ceases for any reason to remain continuously effective as to all
Registrable Securities for which it is required to be effective or the Investors
are not permitted to utilize the prospectus therein to resell such Registrable
Securities, other than, in each case, within the time limits permitted by
Sections 7.2(d), (any such failure or breach being referred to as an “Event”),
then in addition to any other rights the Investors may have hereunder or under
applicable law: (x) on each such Event date the Company shall pay to each
Investor an amount in cash, as liquidated damages and not as a penalty, equal to
1.5% of the aggregate purchase price paid by such Investor pursuant to the
Agreement for any Registrable Securities then held by such Investor; and (y) on
each monthly anniversary of each such Event (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to each Investor an amount in cash, as liquidated damages and not as a
penalty, equal to 1.5% of the aggregate purchase price paid by such Investor
pursuant to the Agreement for any Registrable Securities then held by such
Investor. If the Company fails to pay any liquidated damages pursuant to this
Section in full within seven (7) business days after the date payable, the
Company will pay interest thereon at a rate of 10% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to the Investors,
accruing daily from the date such liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full.

 

With a
view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any time
permit the Investors to sell Registrable Securities to the public without
registration, the Company covenants and agrees to: (i) make and keep public
information available, as those terms are understood and defined in
Rule 144, until the earlier of (A) such date as all of the Investors’
Registrable Securities may be resold pursuant to Rule 144(k) or any other rule
of similar effect or (B) such date as all of the Investors’ Registrable
Securities shall have been resold; (ii) file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and under the Exchange Act; and (iii) furnish to the
Investors upon request, as long as the Investors owns any Registrable
Securities, (A) a written statement by the Company that it has complied
with the reporting requirements of the Securities Act and the Exchange Act;
(B) a copy of the Company’s most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, and (C) such other information as may
be reasonably requested in order to avail the Investors of any rule or
regulation of the SEC that permits the selling of such Registrable Securities
without registration.

 

In no
event at any time before the Registration Statement becomes effective with
respect to the Shares shall the Company publicly announce or file any other
registration statement, other than registrations on Form S-8 and Post
Effective Amendment No. 1 to Form S-1 on Form S-3, without the prior written
consent of a majority in interest of the Investors.

 

The
Company understands that the Investors disclaim being underwriters, but an
Investor being deemed an underwriter by the SEC shall not relieve the Company of
any obligations it has hereunder.

 

7.2  Transfer
of Shares After Registration; Suspension.

 

(a)  Each
Investor agrees that it will not effect any disposition of the Registrable
Securities or its right to purchase the Registrable Securities that would
constitute a sale within the meaning of the Securities Act except as
contemplated in the Registration Statement referred to in Section 7.1 and
as described below or as otherwise permitted by law, and that it will promptly
notify the Company of any changes in the information set forth in the
Registration Statement regarding the Investor or its plan of
distribution.

 

14

(b)  Except in
the event that paragraph (c) below applies, the Company shall (i) if deemed
necessary by the Company, prepare and file from time to time with the SEC a
post-effective amendment to the Registration Statement or a supplement to the
related prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that such
Registration Statement will not 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 not misleading, and so that, as thereafter delivered
to purchasers of the Registrable Securities being sold thereunder, such
prospectus will not 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 light of the circumstances under which they were made,
not misleading; (ii) provide the Investors copies of any documents filed
pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the
Company has complied with its obligations in Section 7.2(b)(i) (or that, if the
Company has filed a post-effective amendment to the Registration Statement which
has not yet been declared effective, the Company will notify the Investors to
that effect, will use its best efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify the
Investors when the amendment has become effective).

 

(c)  Subject
to paragraph (d) below, in the event (i) of any request by the SEC or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement for amendments or supplements to a Registration
Statement or related prospectus or for additional information; (ii) of the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) 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 Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) of any event or circumstance which, upon the advice of its
counsel, necessitates the making of any changes in the Registration Statement or
related prospectus, or any document incorporated or deemed to be incorporated
therein by reference, so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or any omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the prospectus, it
will not contain any untrue statement of a material fact or any omission 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; then the Company shall deliver a certificate in writing to
the Investors (the “Suspension Notice”) to the effect of the foregoing and, upon
receipt of such Suspension Notice, the Investors will refrain from selling any
Registrable Securities pursuant to the Registration Statement (a “Suspension”)
until the Investors’ receipt of copies of a supplemented or amended prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in any such prospectus. In the event of any Suspension, the Company
will use its reasonable best efforts to cause the use of the prospectus so
suspended to be resumed as soon as reasonably practicable within twenty (20)
business days after the delivery of a Suspension Notice to the Investors. In
addition to and without limiting any other remedies (including, without
limitation, at law or at equity) available to the Investors, the Investors shall
be entitled to specific performance in the event that the Company fails to
comply with the provisions of this Section 7.2(c).

 

(d)  Notwithstanding
the foregoing paragraphs of this Section 7.2, the Investors shall not be
prohibited from selling Registrable Securities under the Registration Statement
as a result of Suspensions on more than two (2) occasions of not more than
thirty (30) days each in any twelve (12) month period, unless, in the good faith
judgment of the Company’s Board of Directors, upon the written advice of
counsel, continuing a Suspension is necessary to prevent the disclosure of
material nonpublic information where such disclosure would be materially
injurious to the Company, in which event the Company shall use reasonable best
efforts to terminate such Suspension at the earliest date
practicable.

 

(e)  Provided
that a Suspension is not then in effect, the Investors may sell Registrable
Securities under the Registration Statement in the manner set forth under the
caption “Plan of Distribution” in the prospectus, provided that
they arrange for delivery of a current prospectus to the transferee of such
Registrable Securities. Upon receipt of a request therefor, the Company has
agreed to provide an adequate number of current prospectuses to the Investors
and to supply copies to any other parties requiring such
prospectuses.

 

(f)  In the
event of a sale of Registrable Securities by the Investors pursuant to the
Registration Statement, the Investors must also deliver to the Company’s
transfer agent, with a copy to the Company, a Certificate of Subsequent Sale
substantially in the form attached hereto as Exhibit A, so that
the Registrable Securities may be properly transferred.

 

15

7.3  Indemnification. For the
purpose of this Section 7.3:

 

(i) the term
“Selling Stockholder” shall include the Investors and any affiliate of such
Investors;

 

(ii) the term
“Registration Statement” shall include the prospectus in the form first filed
with the SEC pursuant to Rule 424(b) of the Securities Act or filed as part of
the Registration Statement at the time of effectiveness if no Rule 424(b) filing
is required, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 7.1; and

 

(iii) the term
“untrue statement” shall include any untrue statement or alleged untrue
statement of a material fact, or any omission or alleged omission to state (1)
if in the Registration Statement (and excluding the prospectus from such defined
term solely for the purposes of describing the applicable standard), a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (2) if in the prospectus, 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. 

 

(a)  The
Company agrees to indemnify and hold harmless each Selling Stockholder from and
against any losses, claims, damages or liabilities to which such Selling
Stockholder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon (i) any untrue statement
contained in the Registration Statement as amended at the time of effectiveness,
or (ii) any failure by the Company to fulfill any undertaking included in
the Registration Statement as amended at the time of effectiveness, and the
Company will reimburse such Selling Stockholder for any reasonable legal or
other expenses reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim, provided,
however, that
the Company shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an untrue statement
made in such Registration Statement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Selling
Stockholder specifically for use in preparation of the Registration Statement or
the failure of such Selling Stockholder to comply with its covenants and
agreements contained in Sections 5.1, 5.2, 5.3 and 7.2 hereof or any statement
or omission in any prospectus that is corrected in any subsequent prospectus
that was delivered to the Selling Stockholder prior to the pertinent sale or
sales by the Selling Stockholder. The Company shall reimburse each Selling
Stockholder for the amounts provided for herein on demand as such expenses are
incurred.

 

(b)  Each
Investor agrees to indemnify and hold harmless the Company (and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, each officer of the Company who signs the Registration Statement and each
director of the Company) from and against any losses, claims, damages or
liabilities to which the Company (or any such officer, director or controlling
person) may become subject (under the Securities Act or otherwise), insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, (i) any failure to comply
with the covenants and agreements contained in Sections 5.1, 5.2, 5.3 or 7.2
hereof, or (ii) any untrue statement contained in the Registration
Statement if such untrue statement was made in reliance upon and in conformity
with written information furnished by or on behalf of the Investor specifically
for use in preparation of the Registration Statement, and the Investor will
reimburse the Company (or such officer, director or controlling person), as the
case maybe, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided that the
Investor’s obligation to indemnify the Company shall be limited to the net
amount received by the Investor from the sale of the Registrable Securities
giving rise to such liability. The Investor shall reimburse the Company for the
amounts provided for herein on demand as such expenses are
incurred.

 

16

(c)  Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 7.3, such indemnified person shall
notify the indemnifying person in writing of such claim or of the commencement
of such action, but the omission to so notify the indemnifying person will not
relieve it from any liability which it may have to any indemnified person under
this Section 7.3 (except to the extent that such omission materially and
adversely affects the indemnifying person’s ability to defend such action) or
from any liability otherwise than under this Section 7.3. Subject to the
provisions hereinafter stated, in case any such action shall be brought against
an indemnified person, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall elect by written notice delivered to
the indemnified person promptly after receiving the aforesaid notice from such
indemnified person, shall be entitled to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified person. After notice from
the indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof, provided,
however, that if
there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no
indemnifying person shall be responsible for the fees and expenses of more than
one separate counsel (together with appropriate local counsel) for all
indemnified parties. In no event shall any indemnifying person be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
person shall have approved the terms of such settlement; provided that
such consent shall not be unreasonably withheld. No indemnifying person shall,
without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could have been a party and indemnification could have
been sought hereunder by such indemnified person, unless such settlement
includes an unconditional release of such indemnified person from all liability
on claims that are the subject matter of such proceeding.

 

(d)  If the
indemnification provided for in this Section 7.3 is unavailable to or
insufficient to hold harmless an indemnified person under subsection (a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
person shall contribute to the amount paid or payable by such indemnified person
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Investors on the other in
connection with the statements or omissions or other matters which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, in the case of an untrue
statement, whether the untrue statement relates to information supplied by the
Company on the one hand or the Investors on the other and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement. The Company and the Investors agree that it would not be
just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Investors were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified person as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Investors shall not be required to
contribute any amount in excess of the amount by which the net amount received
by the Investors from the sale of the Registrable Securities to which such loss
relates exceeds the amount of any damages which such Investors have otherwise
been required to pay by reason of such untrue statement. 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. Each Investor’s obligations in this
subsection to contribute shall be in proportion to its sale of Registrable
Securities to which such loss relates and shall not be joint with any other
Selling Stockholders.

 

(e)  The
parties to this Agreement hereby acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including, without limitation, the provisions of
this Section 7.3, and are fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 7.3 fairly allocate the risks in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in the Registration
Statement as required by the Securities Act and the Exchange Act. The parties
are advised that federal or state public policy as interpreted by the courts in
certain jurisdictions may be contrary to certain of the provisions of this
Section 7.3, and the parties hereto hereby expressly waive and relinquish any
right or ability to assert such public policy as a defense to a claim under this
Section 7.3 and further agree not to attempt to assert any such
defense.

 

17

7.4  Termination
of Conditions and Obligations. The
conditions precedent imposed by Section 5 or this Section 7 upon the
transferability of the Shares or the Registrable Securities, as applicable,
shall cease and terminate as to any particular Shares or the Registrable
Securities, as applicable, when such Shares or the Registrable Securities, as
applicable, shall have been effectively registered under the Securities Act and
sold or otherwise disposed of in accordance with the intended method of
disposition set forth in the Registration Statement covering the Registrable
Securities or at such time as an opinion of counsel reasonably satisfactory to
the Company shall have been rendered to the effect that such conditions are not
necessary in order to comply with the Securities Act.

 

7.5  Information
Available. So long
as the Registration Statement is effective covering the resale of Registrable
Securities owned by the Investors, the Company will furnish to the
Investors:

 

(a)  Unless
otherwise electronically available on EDGAR, as soon as practicable after it is
available, one copy of (i) its Annual Report to Stockholders (which Annual
Report shall contain financial statements audited in accordance with generally
accepted accounting principles by a national firm of certified public
accountants), (ii) if not included in substance in the Annual Report to
Stockholders, its Annual Report on Form 10-K and (iii) its Quarterly
Reports on Form 10-Q (the foregoing, in each case, excluding
exhibits);

 

(b)  upon the
request of the Investors, all exhibits excluded by the parenthetical to
subparagraph (a) of this Section 7.5 as filed with the SEC and all other
information that is made available to shareholders; and

 

(c)  upon the
reasonable request of the Investors, an adequate number of copies of the
prospectuses to supply to any other party requiring such prospectuses. Further,
and upon the reasonable request of the Investors, the President or the Chief
Financial Officer of the Company (or an appropriate designee thereof) will meet
with the Investors or their representative at the Company’s headquarters to
discuss all information relevant for disclosure in the Registration Statement
covering the Registrable Securities and will otherwise cooperate with any
Investor conducting an investigation for the purpose of reducing or eliminating
such Investor’s exposure to liability under the Securities Act, including the
reasonable production of information at the Company’s headquarters; provided, that
the Company shall not be required to disclose any confidential information to or
meet at its headquarters with any Investor until and unless the Investor shall
have entered into a confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect thereto.

 

8.  Notices. All
notices, requests, consents and other communications hereunder shall be in
writing, shall be mailed (A) if within the United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile, or (B) if delivered from outside the
United States, by International Federal Express or facsimile, and shall be
deemed given (i) if delivered by first-class registered or certified mail, three
business days after so mailed, (ii) if delivered by nationally recognized
overnight carrier, one business day after so mailed, (iii) if delivered by
International Federal Express, two business days after so mailed, (iv) if
delivered by facsimile, upon electronic confirmation of receipt and shall be
delivered as addressed as follows:

 

(a)  if to the
Company, to:

 

Aptimus,
Inc.

100 Spear
Street, Suite 1115

San
Francisco, CA 94104

Tel:
(415) 896-2123 x 203

Fax:
(415) 896-2561

Attn:
David H. Davis

 

(b)  with a
copy to:

 

Kimberley
Anderson

Dorsey
& Whitney

US Bank
Center

1420
Fifth Avenue, Suite 3400

Seattle,
WA 98101

Tel:
(206) 903-8854

Fax:
(206) 903-8820

 

18

(c)  if to the
Investor, at its address on the signature page hereto, or at such other address
or addresses as may have been furnished to the Company in writing.

 

9.  Changes. This
Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the majority in interest of the
Investors.

 

10.  Headings. The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.

 

11.  Severability. In case
any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.

 

12.  Governing
Law. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of Delaware, without giving effect to the principles of
conflicts of law.

 

13.  Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other
parties.

 

14.  Expenses. Each of
the Company and the Investors shall bear its own expenses, including fees and
costs of attorneys, accountants and financial advisors, incurred in connection
with the transactions contemplated hereunder; provided,
however, that
the Company shall be responsible for the payment of Gryphon Master Fund, L.P.’s
reasonable legal fees that it incurs with respect to the negotiation, execution
and delivery of the Agreement, in the aggregate sum of $15,000, payable by
Company not later than three (3) business days from the Closing Date.

 

15.  Confidential
Information. Each
Investor represents to the Company that, at all times during the Offering, the
Investor has maintained in confidence the existence of this Offering. The
parties acknowledge and agree that each Investor’s confidentiality obligation in
respect to the existence of the Offering, and it’s related possession of
material non-public information about the Company, shall terminate
contemporaneous with the Company’s disclosure of the consummation of the
Offering, which disclosure shall be made on Form 8-K not more than one (1)
business day following the Closing Date. The
Company confirms that neither it nor any Officer or Director, acting
on its behalf, has provided any Investor or its respective agents or counsel
with any information that the Company believes constitutes material, non-public
information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company.

 

16.  Publicity. The
Company and the Investors shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and neither the
Company nor any Investor shall issue any such press release or otherwise make
any such public statement without the prior consent of the Company, with respect
to any press release of any Investor, or without the prior consent of a majority
in interest of the Investors, with respect to any press release of the Company,
which consent shall not unreasonably be withheld, except if such disclosure is
required by law, in which case the disclosing party shall, to the extent not
inconsistent with the disclosing party’s legal obligations, promptly provide the
other party with prior notice of such public statement or communication.

 

19

Aptimus,
Inc.

 

__________,
200_

 

Re: Aptimus,
Inc.; Registration Statement on Form S-_

 

Dear
Selling Stockholder:

 

Enclosed
please find five (5) copies of a prospectus dated _______________, _____ (the
“Prospectus”) for your use in reselling your shares of common stock, no par
value per share (the “Shares”), of Aptimus, Inc. (the “Company”), under the
Company’s Registration Statement on Form S-__ (Registration No.
333-               )
(the “Registration Statement”), which has been declared effective by the
Securities and Exchange Commission. As
a selling stockholder under the Registration Statement, you have an obligation
to deliver a copy of the Prospectus to each purchaser of your Shares, either
directly or through the broker-dealer who executes the sale of your
Shares.

 

The
Company is obligated to notify you in the event that it suspends trading under
the Registration Statement in accordance with the terms of the Stock Purchase
Agreement between the Company and you. During the period that the Registration
Statement remains effective and trading thereunder has not been suspended, you
will be permitted to sell your Shares which are included in the Prospectus under
the Registration Statement. Upon a sale of any Shares under the Registration
Statement, you or your broker will be required to deliver to the Company’s
Transfer Agent, Mellon Investors LLC, (1) your restricted stock
certificate(s) representing the Shares, (2) instructions for transfer of
the Shares sold, and (3) a representation letter from your broker, or from
you if you are selling in a privately negotiated transaction, or from such other
appropriate party, in the form of Exhibit A attached
hereto (the “Certificate of Subsequent Sale”). The Representation Letter
confirms that the Shares have been sold pursuant to the Registration Statement
and in a manner described under the caption “Plan of Distribution” in the
Prospectus and that such sale was made in accordance with all applicable
securities laws, including the prospectus delivery requirements.

 

Please
note that you are under no obligation to sell your Shares during the
registration period. However, if you do decide to sell, you must comply with the
requirements described in this letter or otherwise applicable to such sale. Your
failure to do so may result in liability under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. Please remember
that all sales of your Shares must be carried out in the manner set forth under
the caption “Plan of Distribution” in the Prospectus if you sell under the
Registration Statement. The Company may require an opinion of counsel reasonably
satisfactory to the Company if you choose another method of sale. You
should consult with your own legal advisor(s) on an ongoing basis to ensure your
compliance with the relevant securities laws and
regulations.

 

In
order to maintain the accuracy of the Prospectus, you must notify the
undersigned upon the sale, gift, or other transfer of any Shares by you,
including the number of Shares being transferred, and in the event of any other
change in the information regarding you which is contained in the Prospectus.
For example, you must notify the undersigned if you enter into any arrangement
with a broker-dealer for the sale of Shares through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker-dealer. Depending on the circumstances, such transactions may require the
filing of a supplement to the prospectus in order to update the information set
forth under the caption “Plan of Distribution” in the
Prospectus.

 

Should
you need any additional copies of the Prospectus, or if you have any questions
concerning the foregoing, please write to me at Aptimus, Inc., 100 Spear Street,
Suite 1115, San Francisco, CA 94105. Thank you.

 

Sincerely,

 

Chief
Executive Officer

 

20

 

Exhibit
A

 

CERTIFICATE
OF SUBSEQUENT SALE

 

Mellon
Investors LLC

 

	 	
      RE:
	
      Sale
      of Shares of Common Stock of Aptimus, Inc. (the “Company”) pursuant to the
      Company’s Prospectus dated _______________, 200__ (the
      “Prospectus”)

 

Dear
Sir/Madam:

 

The
undersigned hereby certifies, in connection with the sale of shares of Common
Stock of the Company included in the table of Selling Stockholders in the
Prospectus, that the undersigned has sold the shares pursuant to the Prospectus
and in a manner described under the caption “Plan of Distribution” in the
Prospectus and that such sale complies with all securities laws applicable to
the undersigned, including, without limitation, the Prospectus delivery
requirements of the Securities Act of 1933, as amended.

 

	Selling
      Stockholder (the beneficial owner):  	 
	 	 
	Record
      Holder (e.g., if held in name of nominee):  	 
	 	 
	Restricted Stock Certificate No.(s):  	 
	 	 
	Number
      of Shares Sold:  	 
	 	 
	 	 
	Date of
      Sale:  	 

 

In the
event that you receive a stock certificate(s) representing more shares of Common
Stock than have been sold by the undersigned, then you should return to the
undersigned a newly issued certificate for such excess shares in the name of the
Record Holder [and BEARING
A RESTRICTIVE LEGEND].
Further, you should place a stop transfer on your records with regard to such
certificate.

 

	 	 	Very truly yours,
	 	 	 
	Dated: 	 	By: 
	 	 	Print Name: 
	 	 	Title:

     

 

	
      cc:
	
      Aptimus,
      Inc.

100 Spear
Street, Suite 1115

	
      
	
      San
      Francisco, CA 94105

 

21EXHIBIT
      10.18

 

THIS
WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

 

	No. W- [XX]	Warrant to Purchase [XXXX] Shares
    of 
	 	Common Stock (subject to
  adjustment)
	 	 

      

WARRANT
TO PURCHASE COMMON STOCK

of

APTIMUS,
INC.

Void
after March 24, 2010

 

This
certifies that, for value received, [Investor Name], or registered assigns
(“Holder”) is entitled, subject to the terms set forth below, to purchase from
Aptimus, Inc., a Washington corporation (the “Company”), [XXXX] shares of the
common stock, without par value (“Common Stock”) of the Company, upon surrender
hereof at the principal office of the Company referred to below, with the
subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term “Warrant” as used herein shall include
this Warrant and any warrants delivered in substitution or exchange therefor as
provided herein.

 

1. Term
of Warrant. Subject
to the terms and conditions set forth herein, this Warrant shall be exercisable,
in whole or in part, during the term commencing on the date hereof (the “Warrant
Issue Date”) and ending at 5:00 p.m., Pacific Time, on March 24, 2010, and shall
be void thereafter.

 

2. Exercise
Price. The
Exercise Price at which this Warrant may be exercised shall be [alternatively,
$20.22; $18.15] per share of Common Stock, as adjusted from time to time
pursuant to Section 12 hereof.

 

3. Exercise
of Warrant.

 

(a) The
purchase rights represented by this Warrant are exercisable by the Holder in
whole or in part, but not for less than 2,000 shares at a time (or such lesser
number of shares which may then constitute the maximum number purchasable; such
number being subject to adjustment as provided in Section 12 below), at any
time, or from time to time, during the term hereof as described in Section 1
above, by the surrender of this Warrant and the Notice of Exercise annexed
hereto duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company), upon payment in cash or by check acceptable to the
Company of the purchase price of the shares to be purchased.

 

(b) This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the
person entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of record of such
shares as of the close of business on such date. As promptly as practicable on
or after such date, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of shares issuable upon such exercise. In the event that this Warrant
is exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.

 

(c) Net
Issue Exercise. So long
as the shares of Common Stock issuable upon exercise of the Warrant are not
registered pursuant to an effective registration statement on Form S-3 or its
equivalent, and notwithstanding any provisions herein to the contrary, if the
fair market value of one share of Common Stock is greater than the Exercise
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the Holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Notice of Exercise and notice of such election, in which
event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:

 

X = Y
(A-B) 

A

 

	 	
      Where
	
      
	
      X
      =
	
      the
      number of shares of Common Stock to be issued to the
  Holder

 

	 	
      Y
      =
	
      the
      number of shares of Common Stock purchasable under the Warrant or, if only
      a portion of the Warrant is being exercised, the portion of the Warrant
      being canceled (at the date of such
calculation)

 

	 	
      A
      =
	
      the
      fair market value of one share of the Company’s Common Stock (at the date
      of such calculation)

 

	 	
      B
      =
	
      Exercise
      Price (as adjusted to the date of such
calculation)

 

For
purposes of the above calculation, fair market value of one share of Common
Stock shall be determined by the Company’s Board of Directors in good faith;
provided, however, that where there exists a public market for the Company’s
Common Stock at the time of such exercise, the fair market value per share shall
be the product of (i) the average of the closing bid and asked prices of the
Common Stock quoted in the Over-The-Counter Market Summary or the last reported
sale price of the Common Stock or the closing price quoted on the Nasdaq
National Market or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
Journal for the five (5) trading days prior to the date of determination of fair
market value and (ii) the number of shares of Common Stock into which each share
of Common Stock is convertible at the time of such exercise. Notwithstanding the
foregoing, in the event the Warrant is exercised in connection with the
Company’s initial public offering of Common Stock, the fair market value per
share shall be the product of (i) the per share offering price to the public of
the Company’s initial public offering, and (ii) the number of shares of Common
Stock into which each share of Common Stock is convertible at the time of such
exercise. The “cashless” exercise right of Holder set forth in this Section 3(c)
shall terminate upon the Effectiveness Date, as that term is defined in that
certain Stock Purchase Agreement (“Stock Purchase Agreement”) of even date, by
and between the Company and Holder or its assignor, as the case may
be.

 

4. No
Fractional Shares or Scrip. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. In lieu of any fractional share to which the
Holder would otherwise be entitled, the Company shall make a cash payment equal
to the Exercise Price multiplied by such fraction.

 

5. Replacement
of Warrant. On
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.

 

6. Rights
of Shareholders. Subject
to Sections 10 and 12 of this Warrant, the Holder shall not be entitled to vote
or receive dividends or be deemed the holder of Common Stock or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised as provided herein.

 

7. Transfer
of Warrant.

 

(a) Warrant
Register. The
Company shall maintain a register (the “Warrant Register”) containing the names
and addresses of the Holder or Holders. Any Holder of this Warrant or any
portion thereof may change his or her address as shown on the Warrant Register
by written notice to the Company requesting such change. Any notice or written
communication required or permitted to be given to the Holder may be delivered
or given by mail to such Holder as shown on the Warrant Register and at the
address shown on the Warrant Register. Until this Warrant is transferred on the
Warrant Register of the Company, the Company may treat the Holder as shown on
the Warrant Register as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.

 

(b) Warrant
Agent. The
Company may, by written notice to the Holder, appoint an agent for the purpose
of maintaining the Warrant Register referred to in Section 7(a) above, issuing
the Common Stock or other securities then issuable upon the exercise of this
Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the
foregoing. Thereafter, any such registration, issuance, exchange, or
replacement, as the case may be, shall be made at the office of such
agent.

 

(c) Transferability
and Nonnegotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the “Act”), and applicable state securities laws, title to this Warrant
may be transferred by endorsement (by the Holder executing the Assignment Form
annexed hereto) and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery; provided, however, that this Warrant
may not be transferred in part unless such transfer is to a transferee who
pursuant to such transfer receives the right to purchase at least 2,000 shares
hereunder.

 

(d) Exchange
of Warrant Upon a Transfer. On
surrender of this Warrant for exchange, properly endorsed on the Assignment Form
and subject to the provisions of this Warrant with respect to compliance with
the Act and with the limitations on assignments and transfers and contained in
this Section 7, the Company at its expense shall issue to or on the order of the
Holder a new warrant or warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of shares issuable upon exercise hereof.

 

(e) Compliance
with Securities Laws.

 

(i) The
Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and
the shares of Common Stock to be issued upon exercise hereof are being acquired
solely for the Holder’s own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Common Stock to be issued upon exercise
hereof except under circumstances that will not result in a violation of the Act
or any state securities laws. Upon exercise of this Warrant, the Holder shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of Common Stock so purchased are being acquired solely
for the Holder’s own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.

 

(ii) Unless
and until an effective registration statement covering this Warrant and/or all
shares of Common Stock issuable upon exercise hereof is in place, the
certificates representing same shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):

 

THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.

 

8. Reservation
of Stock. The
Company covenants that during the term this Warrant is exercisable, the Company
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the exercise of this
Warrant and, from time to time, will take all steps necessary to amend its
Articles of Incorporation (the “Articles”) to provide sufficient reserves of
shares of Common Stock issuable upon exercise of the Warrant. The Company
further covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
or otherwise specified herein). The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the exercise of this
Warrant.

 

9. Capital
Stock of the Company. The
Company represents and warrants that it has (i) 100,000,000 authorized shares of
common stock, of which 6,040,108 shares were outstanding as of March 15, 2005,
and (ii) 6,814,516 authorized shares of preferred stock, of which none were
outstanding as of the date hereof. All of the outstanding shares of common stock
have been duly authorized and validly issued and are fully paid and
nonassessable and were not issued in violation of any subscription or preemptive
rights. When issued in accordance with the terms of this Warrant, the shares of
Common Stock issued upon the exercise of this Warrant will be duly authorized,
validly issued, fully paid and nonassessable, and shall not have been issued in
violation of any subscription or preemptive rights.

 

10. Notices.

 

(a) Whenever
the Exercise Price or number of shares purchasable hereunder shall be adjusted
pursuant to Section 12 hereof, the Company shall issue a certificate signed by
its Chief Financial Officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by U.S. mail, registered or certified,
return receipt requested, postage prepaid, and signed confirmation of receipt,
or by personal delivery with signed acknowledgment of receipt) to the Holder of
this Warrant at such address set forth in the Warrant Register.

 

(b) In
case:

 

(i) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive any dividend or other distribution, or any right to
subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or

 

(ii) of any
capital reorganization of the Company, any reclassification of the capital stock
of the Company, any consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the assets of the
Company to another corporation, or

 

(iii)
 of any
voluntary dissolution, liquidation or winding-up of the Company,

 

then, and
in each such case, the Company will mail or cause to be mailed to the Holder or
Holders a notice specifying, as the case may be, (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or (B)
the date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 15 days prior to the date therein
specified.

 

(c) All such
notices, advices and communications shall be deemed to have been received (i) in
the case of personal delivery, on the date of such delivery and (ii) in the case
of mailing, on the third business day following the date of such
mailing.

 

11. Amendments.

 

(a) Any term
of this Warrant may be amended only with the written consent of the Company and
the Holder.

 

(b) No
waivers of, or exceptions to, any term, condition or provision of this Warrant,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.

 

12. Adjustments. The
Exercise Price and the number of shares purchasable hereunder are subject to
adjustment from time to time as follows:

 

(a) Merger,
Sale of Assets, etc. If at
any time while this Warrant, or any portion thereof, is outstanding and
unexpired there shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), (ii) a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company’s capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (iii) a sale or transfer of the Company’s
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in effect,
the number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer that a holder of the shares deliverable upon exercise of this Warrant
would have been entitled to receive in such reorganization, consolidation,
merger, sale or transfer if this Warrant had been exercised immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 12. The foregoing provisions of
this Section 12(a) shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company’s Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company’s Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.

 

(b) Reclassification,
etc. If the
Company, at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired by reclassification of securities or otherwise, shall
change any of the securities as to which purchase rights under this Warrant
exist into the same or a different number of securities of any other class or
classes, this Warrant shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result of such
change with respect to the securities that were subject to the purchase rights
under this Warrant immediately prior to such reclassification or other change
and the Exercise Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 12.

 

(c) Split,
Subdivision or Combination of Shares. If the
Company at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a forward split or subdivision or
proportionately increased in the case of a reverse split or
combination.

 

(d)  Adjustment
of Warrant Exercise Price Upon Issuance of Additional Shares of Common
Stock. In the
event the Company shall at any time prior to [Insert Date = one- (1-) year
anniversary of the Closing Date] issue shares of its Common Stock other than (i)
to directors, employees or consultants pursuant to an employee benefit plan,
(ii) 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
(iii) pursuant to a shareholder rights plan or other similar device, without
consideration or for a consideration per share less than the Purchase Price (as
that term is defined in that certain Stock Purchase Agreement), then the
Exercise Price in effect immediately prior to such issue, if higher, shall be
reduced, concurrently with such issue, to the consideration per share received
by the Company for such issue of the Common Stock; provided,
however, that if
such issuance or deemed issuance is without consideration, then the Company
shall be deemed to have received an aggregate $1.00 of consideration for all
such shares of Common Stock issued. For purposes of this Section
12(d), the
consideration received by the Company for the issue of any additional shares of
Common Stock shall be computed:

 

(i) insofar
as it consists of cash, at the aggregate amount of cash received by the Company,
excluding amounts paid or payable for accrued interest;

 

(ii) insofar
as it consists of property other than cash, at the fair market value thereof at
the time of such issue, as determined in good faith by the Board of Directors of
the Company; and

 

(iii) in the
event such shares of Common Stock are issued together with other shares or
securities or other assets of the Company for consideration which covers both,
as the proportion of such consideration so received, computed as provided in
clauses (i) and (ii) above, as determined in good faith by the Board of
Directors of the Company.

 

(e) Certificate
as to Adjustments. Upon the
occurrence of each adjustment or readjustment pursuant to this Section 12, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each Holder of this Warrant a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request, at any time, of any such Holder, furnish or
cause to be furnished to such Holder a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the Exercise Price at the time in effect;
and (iii) the number of shares and the amount, if any, of other property that at
the time would be received upon the exercise of the Warrant.

 

13. Miscellaneous.

 

(a) Applicable
Law. This
Warrant shall be governed by and construed in accordance with the laws of the
State of Delaware applicable to contracts made and to be performed entirely
within the State of Washington.

 

(b) Attorneys
Fees. In the
event of any dispute between the parties concerning the terms and provisions of
this Warrant, the party prevailing in such dispute shall be entitled to collect
from the other party all costs incurred in such dispute, including reasonable
attorney’s fees.

 

(c)  Captions. The
captions for the sections and subsections of this Warrant have been inserted for
convenience only and shall have no substantive effect.

 

 

[signature
page follows]

 

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first written
above.

 

	 	APTIMUS, INC.
	 	 
	 	By
      
	 	Its

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