Document:

exv4w1

 

Exhibit
4.1

Viseon, inc.

(formerly rsi systems, inc.)

SECURITIES PURCHASE AGREEMENT

 

SERIES B

CONVERTIBLE PREFERRED STOCK

AND

WARRANTS

 

Dated as of August ___, 2005

THE SECURITIES OFFERED FOR SALE PURSUANT TO THE TERMS OF THIS AGREEMENT AND
ALL SECURITIES THAT MAY BE ACQUIRED UPON CONVERSION OF THE SERIES B CONVERTIBLE
PREFERRED STOCK OR THE EXERCISE OF THE ACCOMPANYING WARRANTS HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF
ANY STATE. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS AND IN COMPLIANCE WITH THE CONDITIONS
SPECIFIED IN THIS AGREEMENT AND THE OTHER INVESTMENT DOCUMENTS IDENTIFIED HEREIN.

 

 

Securities Purchase Agreement

for

Series B Convertible Preferred Stock

and

Warrants

     This Securities Purchase Agreement (hereinafter the “Agreement”), dated as of the ___th day of August 2005, is entered into by and between VISEON, Inc. f/k/a RSI Systems, Inc.,
a corporation duly authorized and existing pursuant to the laws of the state of Nevada, with its
principal offices located at 8445 Freeport Parkway, Suite 245, Irving, Texas 75063 (the
“Corporation”), and the purchaser whose name and address are set forth on the signature page hereof
(the “Purchaser” or the “Investor”).

     Whereas, The Company proposes to issue and sell to the Investor, subject to the terms and
conditions stated herein, the number of shares of the Company’s Series B Convertible Preferred
Stock and Series B Warrants set forth on the signature page hereof (collectively, the “Offered
Securities”), each to be issued in a private placement pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the “Securities Act”),
pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder, and with
respect to which ThinkEquity Partners LLC., (the “Placement Agent”) is acting as a placement agent.

     Now, Therefore, for and in consideration of the mutual agreements and covenants contained in
this Agreement, the Company and the Purchaser agree as follows:

	1.	 	Authorization of Sale of the Securities. Subject to the terms and conditions of this
Agreement, the Company has authorized the issuance and sale of up to Five Hundred
(500) shares of the Company’s Series B Convertible Preferred Stock (the “Convertible
Preferred”) convertible into the Company’s common stock, par value $0.01 per share (the
“Common Stock”), the terms and conditions of which are set forth in the Certificate of
Designation of Series B Convertible Preferred Stock in the form attached hereto as Exhibit A
and  Five Hundred (500) Series B Warrants to purchase up to 12,500,000 shares of
Common Stock (the “Warrant Shares”), with each Series B Warrant entitling the Purchaser to
acquire Twenty-Five Thousand
(25,000) shares of the Company’s Common Stock, at the
purchase price of one dollar and fifteen cents ($1.15) per share of Common Stock,
subject to adjustment, exercisable for five (5) years, subject to the terms, conditions and
adjustments, as set forth therein and evidenced by a warrant certificate in the form attached
hereto as Exhibit B (the “Warrants”). The Company reserves the right to increase or decrease
the number of shares of Convertible Preferred and Warrants sold in this private placement
prior to the Closing Date.
	 
	2.	 	Agreement to Sell and Purchase the Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, at the Closing (as defined in Section 3 herein below), the
Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the
Company, the number of units set forth on the signature page of this Agreement, each unit
consisting of one share of the Company’s Series B Convertible Preferred Stock and one Series B
Warrant (each such unit, a “Unit”) for a purchase price Twenty-Five Thousand
Dollars ($25,000.00) per Unit.

 

 

	3.	 	Additional Purchasers. The Company proposes to enter into a substantially
similar form of purchase agreement with certain other investors (the “Other Purchasers”) and
expects to complete sales of the Offered Securities to them. The Purchaser and the Other
Purchasers are hereinafter sometimes collectively referred to as the “Purchasers” and this
Agreement and the agreements executed by the Other Purchasers are hereinafter sometimes
collectively referred to as the “Agreements”.
	 
	4.	 	Purchase, Sale and Delivery of Offered Securities at the Closing. The completion of
the purchase and sale of the Offered Securities (the “Closing”) shall occur at the offices of
Morrison & Foerster LLP, 1290 Avenue of the Americas, New York, New York 10104 as soon as
practicable and as agreed to by the parties hereto, within three business days following the
execution of the Agreements, or on such later date or at such different location as the
parties shall agree in writing, but not prior to the date that the conditions for Closing set
forth below have been satisfied or waived by the appropriate party (the “Closing Date”).

	 	(a)	 	At the Closing, the Purchaser will buy from the Company, on the terms and
conditions set forth herein, and the Company will issue, sell and deliver to the
Purchaser, the Offered Securities by delivering shares of the Convertible Preferred,
the terms and conditions of which are set forth in the Designation of Series B
Convertible Preferred Stock in the form attached hereto as Exhibit A and Series B
Warrants to purchase shares of Common Stock, with each Series B Warrant entitling the
Purchaser to acquire
Twenty-Five Thousand (25,000) shares of the Company’s
Common Stock, at the purchase price of one dollar and fifteen cents ($1.15)
per share, subject to adjustment, exercisable for five (5) years, subject to the terms,
conditions and adjustments, as set forth therein and evidenced by a warrant certificate
in the form attached hereto as Exhibit B each Warrant registered in the name of the
Purchaser, or, if so indicated on the Investor Questionnaire attached hereto as
Appendix I, in such nominee name(s) as designated by the Purchaser, and bearing an
appropriate legend referring to the fact that the Securities were sold in reliance upon
the exemption from registration under the Securities Act provided by Section 4(2)
thereof and Rule 506 thereunder. The Purchaser and any other permitted holders
(including, to the extent set forth herein, subsequent transferees) of the Offered
Securities will be entitled to the benefits of a registration rights agreement of even
date herewith among the Company and the Purchaser (the “Registration Rights
Agreement”), pursuant to which the Company agrees to file a registration statement with
the Securities and Exchange Commission (the “Commission”) registering the resale of the
Common Stock which may be obtained upon the conversion or exercise of, or received as
dividends on, the Offered Securities (the “Underlying Common Stock”) under the
Securities Act. The Company reserves the right to increase or decrease the number of
shares of Convertible Preferred and Warrants to be included in the Offered Securities.

	5.	 	Conditions Precedent. The Company’s obligation to complete the purchase and sale of
the Offered Securities and deliver such stock certificate(s) and Warrants to the Purchaser at
the Closing 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 same-day funds in the full amount
of the purchase price for the Securities being purchased hereunder; (b) completion of the
purchases and sales under the Agreements with the Purchasers; and (c) the accuracy in all
material respects of the representations and warranties made by the Purchasers (as if such
representations and warranties were made on the Closing Date) and the fulfillment in all
material respects of those undertakings of the Purchasers to be fulfilled prior to the
Closing. The Purchaser has made payment by wire transfer of funds in accordance with
instructions from the Company in the full amount of the purchase price of the Offered
Securities, which Purchaser is purchasing (the “Payment”). The Purchaser’s obligation to
accept delivery of such stock certificate(s) and Warrant certificate(s) and to pay for the
Offered Securities evidenced thereby shall be subject to the following conditions, any one
or more of which may be waived by the Purchaser: (a) each of the representations and
warranties of the Company made herein shall be accurate in all material respects (except
where the representations and warranties already are qualified by materiality) as of the
Closing Date; (b) the delivery to the Purchaser by counsel to the Company of a legal opinion
in a form reasonably satisfactory to counsel to the Placement Agent; and (c) the fulfillment
in all material respects of those undertakings of the Company to be fulfilled prior to
Closing. The Purchaser’s obligations hereunder are expressly not conditioned on the
purchase by any or all of the Other Purchasers of the securities that they have agreed to
purchase from the Company. The Purchaser hereby agrees to be bound hereby upon (i)
execution and delivery to the Company, in care of the Placement Agent, of the signature page
to this Agreement and (ii) if the Company so chooses to accept this Agreement from the
Purchaser, written acceptance on the Closing Date by the Company and the Placement Agent of
this Agreement, which shall be confirmed by faxing to the Purchaser the signature page to
this Agreement that has been executed by the Company.
	 
	6.	 	Representations and Warranties of the Company. The Company represents and warrants
to, and agrees with, the Purchaser that:

	 	(a)	 	As of the date of this Agreement, all reports that have been required to be
filed by the Company under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) have been filed under the Exchange Act and the rules and regulations of
the Commission thereunder. As of the date of this Agreement, all reports which have
been filed by the Company under the Securities Exchange Act, as amended (collectively,
the “Exchange Act Reports”), do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The Exchange Act
Reports, when they were filed with the Commission, conformed in all material respects
to the requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
	 
	 	(b)	 	The Company’s audited consolidated financial statements contained in the Form
10-KSB for the year ended June 30, 2004 (the “Form 10-KSB”) and the unaudited financial
statements contained in the Form 10-QSB for the quarter ended March 31, 2005 (the “Form
10-QSB”) including the notes contained therein present fairly, in accordance with U.S.
generally accepted accounting principles, the

 

 

	 	 	 	financial position of the Company as of the dates indicated, and the results of its
operations, cash flows and the changes in stockholders’ equity for the periods
therein specified, subject, in the case of unaudited financial statements for
interim periods, to normal year-end audit adjustments; and such financial statements
(including the related notes) have been prepared in accordance with U.S. generally
accepted accounting principles applied on a consistent basis throughout the periods
therein specified, except that unaudited financial statements may not contain all
footnotes required by generally accepted accounting principles. All liabilities,
contingent and other, of the Company and the Subsidiaries (as defined herein), are
set forth in the financial statements as of June 30, 2004 and March 31, 2005
contained in the Form 10-KSB and Form 10-QSB respectively. Since March 31, 2005,
(i) the Company and the Subsidiaries have not incurred any liabilities or
obligations, indirect, or contingent, or entered into any oral or written agreement
or other transaction that is not in the ordinary course of business or that could
reasonably be expected to result in a material reduction in the future earnings of
the Company and the Subsidiaries; (ii) the Company and the Subsidiaries have not
sustained any material loss or interference with their businesses or properties from
fire, flood, windstorm, accident or other calamity not covered by insurance; (iii)
other than dividends payable on the Company’s Series A Convertible Preferred Stock,
the Company and the Subsidiaries have not paid or declared any dividends or other
distributions with respect to their capital stock and neither the Company nor any of
the Subsidiaries is in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock of the Company or of any of the Subsidiaries other than as set forth in
Schedule 3(b), the sale of the Securities hereunder, shares or options issued
pursuant to employee equity incentive plans or purchase plans approved by the
Company’s Board of Directors and repurchases of shares or options pursuant to
repurchase plans already approved by the Company’s Board of Directors; (v) there has
not been any indebtedness not incurred in the ordinary course of business that is
material to the Company and the Subsidiaries, taken as a whole; (vi) there has not
been any other event that has caused a Material Adverse Effect (as defined herein)
and (vii) the number of shares issuable and reserved for issuance pursuant to
securities exercisable for, or convertible into or exchangeable for any shares of
capital stock as of the date of this Agreement, is as described in Schedule 3(b)
attached to this Agreement.
	 
	 	(c)	 	Virchow, Krause & Company, LLP, Certified Public Accountants, which has
expressed its opinion with respect to the financial statements and the notes thereto of
the Company as of June 20, 2003 and 2004 and for each of the two years in the period
ended June 30, 2004 included in the Form 10-KSB, is an independent accountant as
required by the Securities Act and the rules and regulations promulgated thereunder.
	 
	 	(d)	 	As of March 31, 2005, the Company had outstanding capital stock as set forth in
the Form 10-QSB; the issued and outstanding shares of the Company’s Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities

 

 

	 	 	 	laws, were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and conform in all material respects
to the description thereof contained in the Form 10-QSB and the Form 10-KSB (the
“Form 10-KSB” and together with the Form 10-QSB, the “SEC Periodic Filings”).
Except as set forth in Schedule 3(b) or disclosed in the SEC Periodic Filings, the
Company does not have outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or obligations.
The description of the Company’s stock, stock bonus and other stock plans or
arrangements and the options or other rights granted and exercised thereunder, set
forth in the SEC Periodic Filings accurately and fairly presents all material
information with respect to such plans, arrangements, options and rights. With
respect to each Subsidiary, to the extent relevant under applicable law, (i) all the
issued and outstanding shares of each Subsidiary’s capital stock have been duly
authorized and validly issued, are fully paid and nonassessable, have been issued in
compliance with applicable federal and state securities laws, and were not issued in
violation of or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and (ii) there are no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of any Subsidiary’s capital stock or any such options, rights, convertible
securities or obligations.
	 
	 	(e)	 	The Offered Securities have been duly authorized by the Company and, when
delivered and paid for pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered, will be validly issued, fully paid and
non-assessable and will constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms.
	 
	 	(f)	 	The Company has been duly incorporated, is validly existing and in good
standing under the laws of the State of Nevada, with power and authority (corporate and
other) to own its properties and conduct its business as described in the Exchange Act
Reports. The Company is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to qualify would
not reasonably be expected to have a Material Adverse Effect (as defined herein).
	 
	 	(g)	 	Except as disclosed in the SEC Periodic Filings, the Company and the
Subsidiaries have no material contracts. Any contracts described in the SEC Periodic
Filings that are material to the Company and the Subsidiaries, taken as a whole, are in
full force and effect on the date hereof; and neither the Company nor any of the
Subsidiaries is, nor, to the Company’s knowledge, any other party, is in breach of or
default under any of such contracts that would have a Material Adverse Effect.

 

 

	 	(h)	 	Except as disclosed in the SEC Periodic Filings, (1) there are no legal or
governmental actions, suits or proceedings pending and (2) to the Company’s knowledge,
there are no inquiries, investigations, or legal or governmental actions, suits, or
proceedings threatened to which the Company or any of the Subsidiaries is or may be a
party or of which property owned or leased by the Company or any of the Subsidiaries is
or may be the subject, or related to environmental or discrimination matters, which
actions, suits or proceedings, individually or in the aggregate, might reasonably be
expected to have a Material Adverse Effect. No labor disturbance by the employees of
the Company or any of the Subsidiaries exists or, to the Company’s knowledge, is
imminent that might reasonably be expected to have a Material Adverse Effect. Neither
the Company nor any of the Subsidiaries is party to or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body, administrative
agency or other governmental body which might reasonably be expected to have a Material
Adverse Effect.
	 
	 	(i)	 	Each wholly-owned subsidiary of the Company (each, a “Subsidiary”) has been
duly incorporated, is validly existing in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and other) to
own its properties and conduct its business as described in the Exchange Act Reports;
each Subsidiary is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification; all of the issued and outstanding
capital stock of each Subsidiary has been duly authorized and validly issued and is
fully paid and nonassessable and is owned by the Company free from liens, encumbrances
and defects. The Subsidiaries listed in Exhibit 21.1 to the Form 10-KSB constitute
the only subsidiaries of the Company.
	 
	 	(j)	 	When the Offered Securities are delivered and paid for pursuant to this
Agreement, the Offered Securities will be convertible into or exercisable for the
Company’s Common Stock in accordance with the terms of the Offered Securities. The
aggregate number of shares of Common Stock initially issuable upon conversion or
exercise of, and as payment of dividends on, such Offered Securities has been duly
authorized and reserved for issuance upon such conversion, exercise, or payment and,
when issued upon such conversion, exercise or payment, will be validly issued, fully
paid and nonassessable. The outstanding Common Stock of the Company has been duly
authorized and validly issued, is fully paid and nonassessable and conforms to the
description thereof contained in the Exchange Act Reports; and neither the shareholders
of the Company nor any other person or entity shall have any preemptive rights with
respect to the Offered Securities or the Underlying Common Stock. Except as set forth
in the Exchange Act Reports or on Schedule 3(b), there are no outstanding rights,
options, warrants, right of first refusal agreements, commitments or similar rights for
the purchase or acquisition from the Company or any of its Subsidiaries of any
securities of the Company or any of its Subsidiaries. The Offered Securities and the
Underlying Common Stock, when issued, will be free and clear of all pledges, liens,
encumbrances and other restrictions (other than those arising

 

 

	 	 	 	under federal or state securities laws as a result of the private placement of the
Offered Securities). No co-sale right, right of first refusal or other similar
right exists with respect to the Offered Securities and the Underlying Common Stock
or the issuance and sale thereof. Excepting certain holders of the Company’s Series
A Preferred Stock and Warrants, the issuance and sale of the Offered Securities and
the Underlying Common Stock will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under such
securities. 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
Offered Securities or the Underlying Common Stock. The issuance and sale of the
Offered Securities and Underlying Common Stock under the Agreements does not
contravene the rules and regulations of any self-regulatory organization, exchange
or market (an “SRO”). Except for the registration rights listed on Schedule 2, no
holder of any of the securities of the Company has any rights (“demand,” “piggyback”
or otherwise) to have such securities registered by reason of the intention to file,
filing or effectiveness of a registration statement.
	 
	 	(k)	 	Except for the Engagement Letter Agreement between the Company and the
Placement Agent dated June 24, 2005 (the “Placement Agency Agreement”), there are no
contracts, agreements or understandings between the Company and any person in
connection with the sale of the Offered Securities that would give rise to a valid
claim against the Company or the Purchaser for a brokerage commission, finder’s fee or
other like payment.
	 
	 	(l)	 	No consent, approval, authorization, or order of, or filing with, any
governmental agency or body, any SRO, or any court is required for the consummation of
the transactions contemplated by this Agreement and the Registration Rights Agreement
in connection with the issuance and sale of the Offered Securities and the Underlying
Common Stock by the Company except for post-Closing compliance with Blue Sky laws of
the jurisdictions, if any, where any Purchaser may reside and the order of the
Commission declaring the Registration Statement (as defined in the Registration Rights
Agreement) effective.
	 
	 	(m)	 	The Company has full legal right, corporate power and authority to enter into
this Agreement, the Registration Rights Agreement and the Offered Securities and to
perform the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the Offered
Securities by the Company and the consummation of the transactions contemplated herein
and therein will not violate any provision of the certificate of incorporation or
bylaws of the Company or any of the Subsidiaries and will not result in the creation of
any lien, charge, security interest or encumbrance upon any assets of the Company or
any of the Subsidiaries pursuant to the terms or provisions of, and will not (i)
conflict with, result in the breach or violation of, or constitute, either by itself or
upon notice or the passage of time or both, a default under (A) any agreement, lease,
franchise, license, permit or other instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries or any of
their respective

 

 

	 	 	 	properties may be bound or affected and in each case which would have a Material
Adverse Effect, or (B) to the Company’s knowledge, any statute or any judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company or any of
the Subsidiaries or any of their respective properties where such conflict, breach,
violation or default is likely to result in a Material Adverse Effect. No consent,
approval, authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of this
Agreement, the Registration Rights Agreement or the Offered Securities or the
consummation of the transactions contemplated hereby or thereby, except for
compliance with the blue sky laws and federal securities laws applicable to the
offering of the Offered Securities. Upon the execution and delivery of this
Agreement, the Registration Rights Agreement and the Offered Securities, and
assuming the valid execution and delivery thereof together with the Payment by the
Purchaser, each of this Agreement, the Registration Rights Agreement and the Offered
Securities will constitute a valid and binding obligation of the Company,
enforceable 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 Company in Section 8(b) hereof may be limited
by federal or state securities laws or the public policy underlying such laws.
	 
	 	(n)	 	The Company and the Subsidiaries have good and marketable title to all real
properties and all other properties and assets reflected as owned by them in the
Current Exchange Act Reports (as defined herein), in each case free from liens and
encumbrances other than as set forth in the Company’s Form 10-KSB for the twelve month
period ending June 30, 2004 or in the Company’s Form 10-QSB for the three month period
ending March 31, 2005 filed with Commission (the “Current Exchange Act Reports”). All
real properties and all other properties and assets owned by the Company and the
Subsidiaries, that are material to the business of any of them or that have a value of
$25,000 or more, are free of any defects that would materially affect the value thereof
or materially interfere with the use made or to be made thereof by them. The Company
and its Subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions (i) that would materially interfere with the use
made or to be made thereof by them or (ii) are not materially significant in relation
to its business taken as a whole. The Company and the Subsidiaries own or lease all
such properties as are necessary to their respective operations as now conducted.
	 
	 	(o)	 	Neither the Company nor any of the Subsidiaries has been advised, nor has
reason to believe, that it is not conducting its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is conducting
its business, including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance

 

 

	 	 	 	would not have a would have a material adverse effect on the business, assets,
operations, financial condition results of operations or prospects of the Company
(a “Material Adverse Effect”). Each of the Company and the Subsidiaries has all
franchises, licenses, certificates and other authorizations from such federal,
state, local or other foreign or domestic government or governmental agency,
department or body that are currently required for the operation of the business of
the Company and the Subsidiaries as currently conducted, except where the failure to
posses currently such franchises, licenses, certificates and other authorizations is
not reasonably expected to have a Material Adverse Effect. The Company and the
Subsidiaries have not received any notice of proceedings relating to the revocation
or modification of any such permit that, if the subject of an unfavorable decision,
ruling or finding, could reasonably be expected to have a Material Adverse Effect.
	 
	 	(p)	 	The Company and the Subsidiaries have, own, possess or can acquire adequate
trademarks, trade names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property (collectively, “intellectual
property rights”) necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of, or conflict with
the intellectual property rights owned by others with respect to such intellectual
property rights.
	 
	 	(q)	 	There are no pending actions, suits or proceedings against or affecting the
Company or any Subsidiary or any of their respective properties or officers or
directors, in their capacity as such, that, if determined adversely to the Company,
would have a Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under this Agreement the Registration
Rights Agreement or the Offered Securities or which are otherwise material in the
context of the sale of the Offered Securities; and to the best of the Company’s
knowledge and belief, no such actions, suits or proceedings are threatened.
	 
	 	(r)	 	Each of the Company and the Subsidiaries 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 neither the Company nor any of the Subsidiaries has knowledge of a tax
deficiency that has been or might be asserted or threatened against it that might
reasonably be expected to have a Material Adverse Effect.
	 
	 	(s)	 	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
Offered Securities to be sold to the Purchaser 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 complied with.
	 
	 	(t)	 	The Company is in compliance with the applicable requirements of the
Sarbanes-Oxley Act of 2002, and the rules and regulations thereunder, that are
currently in effect and is actively taking steps to ensure that it will be in
compliance with other

 

 

	 	 	 	applicable provisions of such Act not currently in effect at all times after the
effectiveness of such provisions except where such noncompliance would not have or
reasonably be expected to result in a Material Adverse Effect or which would be
reasonably likely to have a material adverse effect on the transactions contemplated
hereby or by the Registration Rights Agreement. The Company and each Subsidiary
maintains a system of internal accounting controls sufficient to provide the
Company’s management with timely and accurate information as to its financial
position.
	 
	 	(u)	 	The Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by others within
those entities, particularly during the period in which the Company’s Form 10-KSB or
10-QSB, as the case may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures as of the date
required by the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder (such date, the “Evaluation Date”). The Company has presented in the
applicable Form 10-KSB or Form 10-QSB the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their evaluations
as of the Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Regulation S-B)
or, to the Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls. The Company meets the requirements for the use of Form
SB-2 for the registration of the resale of the Offered Securities and the Underlying
Common Stock by the Purchaser.
	 
	 	(v)	 	The Company is not and is not required to be registered under Section 8 of the
United States Investment Company Act of 1940, as amended (the “Investment Company Act”)
and at all times maintains satisfactory controls and procedures to provide accurate
data upon which to base such statement; the Company’s intended use of the proceeds from
the sale of the Offered Securities are to retire long and short term indebtedness, and
for general working capital for the continued operation of its business and the Company
is not and, after giving effect to the offering and sale of the Offered Securities and
the application of the proceeds thereof as described in this Agreement, will not be an
“investment company” or an “affiliated person” of, or “promoter” or “ principal
underwriter” for an investment company as such term is defined in the Investment
Company Act.
	 
	 	(w)	 	All offers and sales of securities by the Company have been made by the Company
in compliance with the Securities Act and the rules and regulations of the Commission
thereunder.
	 
	 	(x)	 	Assuming the accuracy of the representations of the Purchaser in the Investor
Questionnaires and herein, the offer and sale of the Offered Securities by the

 

 

	 	 	 	Company to the Purchaser, and the issuance of the Underlying Common Stock, in the
manner contemplated by this Agreement will be exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof and Regulation
D thereunder and will be exempt from the registration and qualification requirements
of the laws of any applicable state or United States jurisdiction.
	 
	 	(y)	 	The Company has not distributed or made available and will not distribute or
make available prior to the Closing Date any offering material in connection with the
offering and sale of the Offered Securities other than the SEC Periodic Filings.
Neither the Company nor any person acting on its behalf has in the past or will
hereafter take any action independent of the Placement Agent to sell, offer for sale or
solicit offers to buy any securities of the Company that would subject the offer,
issuance or sale of the Offered Securities, as contemplated by this Agreement, to the
registration requirements of Section 5 of the Securities Act. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to buy any
security under circumstances that would require registration under the Securities Act
of the issuance of the Offered Securities to Purchaser. The issuance of the Offered
Securities to the Purchaser will not be integrated with any other issuance of the
Company’s securities (past, current or future) for purposes of the Securities Act or
any applicable rules of the Nasdaq Stock Market. The Company will not make any offers
or sales of any security that would cause the offering of the Offered Securities to be
integrated with any other offering of securities by the Company for purposes of any
registration requirement under the Securities Act or any applicable rules of the Nasdaq
Stock Market.
	 
	 	(z)	 	The Company is in material compliance with all applicable securities (or “Blue
Sky”) laws of the states of the United States, which including, without limitation, the
state in which the Purchaser resides and of each other state in which the Offering has
been made to the Purchaser, as identified in writing by the Placement Agent to the
Company
	 
	 	(aa)	 	The Company and the Subsidiaries maintain insurance of the types and in the
amounts that the Company reasonably believes is adequate for their businesses,
including, but not limited to, insurance covering all real and personal property leased
by the Company and the Subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against by similarly situated
companies, all of which insurance is in full force and effect.
	 
	 	(bb)	 	The Company has not entered and will not enter into any contractual arrangement
with respect to the distribution of the Offered Securities or the Underlying Common
Stock except for this Agreement, the Registration Rights Agreement and the Placement
Agency Agreement.

 

 

	 	(cc)	 	The Company is subject to the reporting requirements of the Exchange Act and
has filed all reports required thereby. There exist no facts or circumstances
(including without limitation any required approvals or waivers or any circumstances
that may delay or prevent the obtaining of accountant’s consents) that reasonably could
be expected to prohibit or delay the preparation and filing of the Registration
Statement on Form SB-2 that will be available for the resale of the shares of Common
Stock and the shares of Underlying Common Stock (including, without limitation, the
Warrant Shares) by the Purchaser.
	 
	 	(dd)	 	The Company has not taken, and will not take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the price of
the shares of the Common Stock to facilitate the sale or resale of the Offered
Securities.
	 
	 	(ee)	 	The Company has made available all material public information, as well as the
Howison and Arnott Opinion (as defined herein), in connection with the business of the
Company and the transactions contemplated by this Agreement, and no representation or
warranty made, nor any document, statement, or financial statement prepared or
furnished by the Company in connection herewith contains any untrue statement of
material fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein, in light of the circumstances under which they were
made, not misleading. The Company confirms that neither it nor any person acting on
its behalf has provided the Purchaser or any of its agents or counsel with any
information, (including, without limitation, the disclosure and statements included in
the Howison and Arnott Opinion) that the Company believes constitutes material,
non-public information. The Company understands and confirms that the Purchaser will
rely on the foregoing representation in effecting transactions in securities of the
Company.
	 
	 	(ff)	 	The Company shall not use the Purchaser’s name or the name of any of its
affiliates in any advertisement, announcement, press release or other similar public
communication unless it has received the prior written consent of the Purchaser for the
specific use contemplated or as otherwise required by applicable law or regulation.
	 
	 	(gg)	 	No transaction has occurred between or among the Company, any of the
Subsidiaries and their affiliates, officers or directors or any affiliate or affiliates
of any such officer or director that is required to have been described under
applicable securities laws in its Exchange Act filings and is not so described in such
filings.
	 
	 	(hh)	 	There is no transaction, arrangement or other relationship between the Company
and an unconsolidated or other off-balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.

 

 

	 	 	 	There are no such transactions, arrangements or other relationships with the Company
that may create contingencies or liabilities that are not otherwise disclosed by the
Company in its Exchange Act filings.
	 
	 	(ii)	 	For the purposes of this Agreement, the term “Intellectual Property” means all
intellectual property rights of the Company and its Subsidiaries, including (a) all
inventions, including discoveries related thereto, conceived of and reduced to practice
as of the date hereof, whether patentable or not in any jurisdiction, patents,
applications for patents (including, without limitation, divisions, continuations,
continuations in part and renewal applications), and any renewals, extensions or
reissues thereof, in any jurisdiction; (b) trademarks, service marks, brand names,
certification marks, trade dress, assumed names, trade names and other indications of
origin, the goodwill associated with the foregoing and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the foregoing,
including any extension, modification of or renewal of any such registration or
application; (c) computer software (including software, data, and related
documentation); (d) non-public information, trade secrets, know-how (including, without
limitation, research and development, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings and
specifications) and confidential information and rights in any jurisdiction to limit
the use or disclosure thereof by any person or entity; (e) writings or other works,
whether copyrightable or not in any jurisdiction, registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or extensions thereof;
(f) any similar intellectual property rights, and (g) any claims or causes of action
arising our of or related to any infringement or misappropriation of any of the
foregoing.

	 	(i)	 	The Company and its Subsidiaries own all right, title and
interest in and to all of the Intellectual Property owned by them, free and
clear of any and all liens, encumbrances or other adverse claims or interests
of any kind or nature, except as previously disclosed in any Current Exchange
Act Report.
	 
	 	(ii)	 	All of the Intellectual Property necessary to the operation of
the business of the Company and its Subsidiaries is, to the knowledge of the
Company, valid and enforceable, without any qualification, limitation or
restriction thereon or on the use thereof and the Company has not received any
notice or claim (whether written, oral or otherwise) challenging or questioning
the validity or enforceability of any of the Intellectual Property or
indicating an intention on the part of any third party to bring a claim that
any of the Intellectual Property is invalid or unenforceable or has been
misused which has not been previously disclosed in any Current Exchange Act
Report or as discussed in the attached due diligence opinion of Howison and
Arnott (the “Howison and Arnott Opinion”), nor is there a reasonable basis for
a claim that any of the Intellectual Property is invalid or unenforceable or
has been misused, and, with respect to all patents included in the Intellectual
Property, to the knowledge of the Company,

 

 

	 	 	 	there is no relevant prior art pertaining to any issued patents thereof that
was not disclosed during the prosecution of the patent application(s)
therefor and which if such prior art had been disclosed may have affected
the prosecution thereof or the scope of the patent claims ultimately granted
in respect thereof.
	 
	 	(iii)	 	The Company and its Subsidiaries have not taken any action or
failed to take any action (including the manner in which they have conducted
its business, or used or enforced, or failed to use or enforce, any of the
Intellectual Property) that would result in the abandonment, cancellation,
forfeiture, relinquishment, invalidation or unenforceability of any of the
Intellectual Property (including, with respect to the patents included in the
Intellectual Property, failing to disclose any known material prior art in
connection with the prosecution of patent applications, and with respect to the
copyrights included in the Intellectual Property, failing to disclose required
information to the United States Copyright Office or any other copyright
registry). The Company and each Subsidiary has taken reasonable steps to
protect and maintain its rights in and to the Intellectual Property. All
registered trademarks, service marks, and copyrights included in the
Intellectual Property have been registered or filed, and all patents included
in the Intellectual Property have been filed and obtained, in accordance with
all applicable legal requirements and are currently in effect and in compliance
with all applicable legal requirements (including, in the case of registered
trademarks or service marks, the timely post-registration filing of affidavits
of use and incontestability and renewal applications), and without limiting the
generality of any of the foregoing, the Company and its Subsidiaries have
timely paid all filing, examination, issuance, post registration and
maintenance fees, annuities and the like associated with or required with
respect to any of the Intellectual Property.
	 
	 	(iv)	 	No patent, trademark or service mark included in the
Intellectual Property has been or is now involved in any interference, reissue,
reexamination, opposition or cancellation proceeding, that is material to the
ownership, existence or validity of such Intellectual Property, which has not
been previously disclosed in any Current Exchange Act Report or as discussed in
the attached due diligence opinion of Howison and Arnott and, to the Company’s
knowledge and belief, (A) no such action is or has been threatened with respect
to any such patent, trademark or service mark, and (B) there is no patent or
patent application of any third party potentially interfering with any such
patent.
	 
	 	(v)	 	To the knowledge of the Company, there has been no prior use of
any of the trademarks and service marks included in the Intellectual Property
by any third party, which would confer upon such party superior rights in such
marks. All registered trademarks or service marks included in the Intellectual
Property are being used, have been continuously used in the form appearing in,
and in connection with, the goods and services listed in

 

 

	 	 	 	their respective registration certificates and applications therefor,
respectively.
	 
	 	(vi)	 	The Company and the Subsidiaries have not disclosed, nor are
they under any contractual or other obligation to disclose, to another third
party any trade secrets included in the Intellectual Property, except pursuant
to a confidentiality and non-disclosure agreement, and, to the Company’s
knowledge, no third party has materially breached any such agreement.
	 
	 	(vii)	 	The Company has the right to practice all inventions disclosed
in the patents included in the Intellectual Property.
	 
	 	(viii)	 	The Intellectual Property constitutes all of the intellectual property rights
necessary for the conduct of the current business activities of the Company and
its Subsidiaries.

	 	(jj)	 	The Company and its Subsidiaries are not a party to any action or proceeding
that involves or involved a claim of infringement, misappropriation or other wrongful
use or exploitation, either (i) by the Company or any Subsidiary against any third
party or (ii) by any third party against the Company or any Subsidiary, pertaining to
the Company’s use of any of the Intellectual Property, nor has any such claim been made
(whether written oral or otherwise) or threatened or is there any reasonable basis
therefor, which has not been previously disclosed in any Current Exchange Act Report.
None of the Intellectual Property is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use, exercise, practice or other
exploitation thereof by the Company or any Subsidiary, with the exception of certain
Intellectual Property licensed to third parties. To the knowledge of the Company,
neither the Intellectual Property nor the products sold by the Company or any
Subsidiary enveloped, practiced, copied, modified (including the creation of
derivatives), displayed, made, sold, offered for sale, marketed, used, leased, licensed
or sublicensed, imported, exported or otherwise distributed, disposed of, otherwise
exercised or exploited by or for the Company, nor the activities or operations of
Company or any Subsidiary infringe, misappropriate or otherwise inappropriately
conflict with or violate, or has any of them infringed, misappropriated, or otherwise
inappropriately conflicted with or violated, any intellectual property right or other
right of any third party.
	 
	 	(kk)	 	Each current employee, independent contractor and consultant to the Company or
any of the Subsidiaries who has participated in the development of any of the
Intellectual Property has (a) executed an agreement requiring each of them to maintain
in strict confidence the trade secrets and information of the Company and the
Subsidiaries related to the Intellectual Property and (b) properly assigned such
individual’s rights in such Intellectual Property to the Company or such Subsidiary, as
applicable, or such work product otherwise constitutes the property of the Company or
such Subsidiary, as applicable, as a work made for hire. The Company and its
Subsidiaries are not utilizing (A) any inventions of any independent contractors or
consultants, or confidential information (including

 

 

	 	 	 	trade secrets) of any third party to which any independent contractors or
consultants have been exposed, and (B) any inventions of any employees of the
Company or any of the Subsidiaries made, or any confidential information (including
trade secrets) of another person to which any employees were exposed, prior to their
employment by the Company or any Subsidiary, as applicable, in each case excluding
any inventions or confidential information that have been duly assigned in writing
to the Company or Subsidiary, as applicable. To the Company’s knowledge and belief,
at no time during the conception of or reduction to practice of any of the
Intellectual Property was any developer, inventor or other contributor to such
Intellectual Property operating under any grants from any governmental entity or
private source, or performing research sponsored by any governmental entity or
private source.
	 
	 	(ll)	 	Except as set forth in the Company’s Exchange Act Reports, none of the officers
or directors of the Company or any Subsidiary and, to the knowledge of the Company,
none of the employees of the Company or Subsidiary is presently a party to any
transaction with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
	 
	 	(mm)	 	Based on the financial condition of the Company as of the Closing Date (and
assuming that the Closing shall have occurred), (i) the Company’s fair saleable value
of its assets exceeds the amount that will be required to be paid on or in respect of
the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as now conducted and
as proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the current cash of
the Company, together with the proceeds that the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).
	 
	 	(nn)	 	No other purchaser of Series B Preferred Stock and Series B Warrants has
received, or will receive, more favorable terms, conditions or covenants than those
contained herein and no consideration shall be offered or paid for the amendment,
consent to a waiver or modification of any provision of this Agreement, the Warrant or
the Registration Rights Agreements unless the same consideration is also offered to all
parties to such agreements. Notwithstanding

 

 

	 	 	 	the forgoing or any other provision hereof, each Purchaser acknowledges and agrees
that the percentages set forth in Paragraph 19 of any Series B Warrant and the
application thereof with respect to a holder may be different as to any other holder
and that any deviation as such shall not constitute a breach of this Agreement or
any other agreement related to or in furtherance of the transaction contemplated
hereby.
	 
	 	(oo)	 	The Company acknowledges that the issuance of the Offered Securities may result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges that its
obligations under this Agreement, the Convertible Preferred and the Warrant, including
without limitation its obligation to issue the Underlying Common Stock, (including,
without limitation, the Warrant Shares), are unconditional and absolute and not subject
to any right of set off, counterclaim, delay or reduction, regardless of the effect of
any such dilution or any claim the Company may have against any Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership of the
other stockholders of the Company.
	 
	 	(pp)	 	The Company acknowledges and agrees that, except for the information provided
in Part III, Section 2 of the Investor Questionnaire, (i) to the knowledge of the
Company, none of the Investors have been asked to agree, nor has any Investor agreed,
to desist from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Offered Securities for any specified term; (ii) that past or future open market or
other transactions by any Investor, including short sales, and specifically including,
without limitation, short sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact the
market price of the Company’s publicly-traded securities; (iii) that any Investor, and
counter parties in “derivative” transactions to which any such Investor is a party,
directly or indirectly, presently may have a “short” position in the Common Stock; and
(iv) that, to the knowledge of the Company, each Investor shall not be deemed to have
any affiliation with or control over any arm’s length counter party in any “derivative”
transaction. The Company further understands and acknowledges that (a) one or more
Investors may engage in hedging activities at various times during the period that the
Convertible Preferred, Warrants and/or Warrant Shares are outstanding and (b) such
hedging activities (if any) could reduce the value of the existing stockholders’ equity
interests in the Company at and after the time that the hedging activities are being
conducted. The Company acknowledges that such aforementioned hedging activities do not
constitute a breach of this Agreement, the Convertible Preferred, the Warrants or any
of the documents executed in connection with the transaction contemplated by this
Agreement.

 

 

	7.	 	Representations by the Purchaser: Resale by the Purchaser. The Purchaser represents,
warrants and acknowledges and agrees with the Company and Placement Agent as follows:

	 	(a)	 	The Purchaser is an “Accredited Investor” (as such term is defined in Rule 501
of Regulation D promulgated under the Securities Act). By reason of his business and
financial experience, the Purchaser has such knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the merits and
risks of the investment in the Offered Securities and the Underlying Common Stock, has
the capacity to protect the Purchaser’s own interests and is able to bear the economic
risk of such investment. The Purchaser has had an opportunity to review all publicly
disclosed financial information, publicly available information from the Company’s
books and records and all regulatory filings of the Company and to ask questions of
representatives of the Company concerning the terms and conditions of the transactions
contemplated by this Agreement.
	 
	 	(b)	 	The Purchaser is acquiring the Offered Securities for the Purchaser’s own
account, for investment purposes only, and not with a view to the public sale or
distribution thereof in violation of the Securities Act. The Purchaser understands
that the Offered Securities and the Underlying Common Stock have not been registered
under the Securities Act or registered or qualified under any state securities law in
reliance upon specific exemptions therefrom, which exemptions depend upon, among other
things, the bona fide nature of the Purchaser’s investment intent as expressed herein.
Without limiting the foregoing, the Purchaser makes no representations or warranties
regarding the period of time that the Purchaser will remain a holder of the Offered
Securities.
	 
	 	(c)	 	The Purchaser is not purchasing the Offered Securities as a result of or
subsequent to any advertisement, article, notice or other communication published in
any newspaper magazine or similar media or broadcast over television or radio or
presented at any seminar.
	 
	 	(d)	 	The Purchaser is, and on the Closing Date will be, able to bear the economic
risk of an investment in the Offered Securities and is able to afford a complete loss
of such investment. The Purchaser has adequate means of providing for the Purchaser’s
current financial needs and contingencies, is able to bear the substantial economic
risks of an investment in the Offered Securities for an indefinite period of time, and
has no need for liquidity in such investment.
	 
	 	(e)	 	The Purchaser acknowledges that the Purchaser has been afforded (i) the
opportunity to ask such questions as he has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Offered Securities, and the merits and risks of investing in the
Offered Securities; (ii) access to information about the Company and the Company’s
financial condition, results of operations, business, properties, management and
prospects sufficient to enable the Purchaser to evaluate the

 

 

	 	 	 	Purchaser’s investment; and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without unreasonable effort
or expense that is necessary to make an informed investment decision with respect to
his investment.
	 
	 	(f)	 	The Purchaser understands and acknowledges that (i) the Offered Securities and,
upon conversion or exercise, the Underlying Common Stock are being offered and sold
without registration under the Securities Act in a private placement that is exempt
from the registration provisions of the Securities Act under Section 4(2) of the
Securities Act and Regulation D promulgated thereunder; (ii) neither the Offered
Securities nor the Underlying Common Stock have been registered under any Blue Sky law
of any state and (iii) the availability of such exemptions depends in part on, and the
Company is relying on the accuracy, completeness and truthfulness of, the
representations made by Purchaser herein and the statements made by the Purchaser in
the Investor Questionnaire. Purchaser hereby acknowledges and consents to such
reliance by the Company. The Purchaser understands further that in absence of an
effective Registration Statement, the Offered Securities can only be sold pursuant to
some exemption from registration, such as Rule 144 of the Act, which requires, among
other conditions, that the Offered Securities must be held for a minimum of one (1)
year.
	 
	 	(g)	 	The Purchaser understands and recognizes that investment in the Offered
Securities involves substantial risks. The Purchaser has, by reason of the Purchaser’s
business or financial experience either alone or together with the Purchaser’s
representatives and professional advisers (who are unaffiliated with and who are not
compensated, directly or indirectly, by the Company or the Placement Agent or any
affiliate of either of them), such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Offered Securities and the Underlying Common Stock, has
so evaluated the merits and risks of the prospective investment in the Offered
Securities and the Underlying Common Stock. The Purchaser has evaluated the merits and
risks of such investment to such Purchaser’s satisfaction, and has the capacity to
protect Purchaser’s own interests in connection with the offering of the Offered
Securities to the Purchaser. The Purchaser further acknowledges that he has read the
Exchange Act Reports of the Company, including the risk factors identified therein.
The Purchaser further recognizes that no Federal or state agencies have passed upon the
offering of the Offered Securities or made any finding or determination as to the
fairness of this investment.
	 
	 	(h)	 	The Purchaser has made a decision to purchase the Offered Securities based
solely upon the representations and warranties made by the Company in this Agreement,
the Purchaser’s review of the Exchange Act Reports and such other information made
available to the Purchaser by the Company in writing and is not relying on any
investigation or statements made by the Placement Agent. The Purchaser acknowledges
that the Placement Agent cannot make any assurances

 

 

	 	 	 	that the Exchange Act Reports or other information supplied by the Company are
accurate or complete.
	 
	 	(i)	 	The Company confirms that this Section (6)(i) supersedes any legend
requirements of Section 7.03(d) of the Company’s By-Laws, which would otherwise be
applicable to the Offered Securities and the Underlying Common Stock. (i) The
Purchaser acknowledges that each certificate representing the Offered Securities and
the Underlying Common Stock shall contain a legend substantially in the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR
UNDER APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED
THAT THE SELLER DELIVERS TO THE COMPANY AN OPINION OF
COUNSEL (WHICH OPINION IS REASONABLY SATISFACTORY TO
THE COMPANY) CONFIRMING THE AVAILABILITY OF SUCH
EXEMPTION. INVESTORS SHOULD BE AWARE THAT THEY MAY
BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

Certificates evidencing the Offered Securities and Underlying Common Stock shall not
contain any legend (including the legend set forth above), (A) while a registration
statement covering the resale of such security is effective under the Securities Act
(provided, however, that the Purchaser’s prospectus delivery requirements under the
Securities Act will remain applicable), or (B) following any sale of any of the
Offered Securities and/or Underlying Common Stock pursuant to Rule 144, or (C) if
the Offered Securities and/or Underlying Common Stock are eligible for sale under
Rule 144(k), or (D) if such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued by
the Staff of the SEC). The Company shall use its best efforts to cause its counsel
to issue a legal opinion (at the Company’s expense) to the Company’s transfer agent
promptly after the effective date of any registration statement (the “Effective
Date”) if required by the Company’s transfer agent to effect the removal of the
legend hereunder. The Company agrees that following the Effective Date or at such
time as such legend is no longer required under this clause (ii), it will, no later
than three trading days following the delivery by the Purchaser to the Company or
the Company’s transfer agent of a certificate representing the Offered Securities
and/or

 

 

Underlying Common Stock issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such Offered Securities
and/or Underlying Common Stock that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge(s) the restrictions on transfer set forth
herein. All costs and expenses related to the removal of the legends and the
reissuance of any of the Offered Securities or any of the Underlying Common Stock
shall be borne by the Company.

	 	(j)	 	The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Offered Securities and/or Underlying
Common Stock to a financial institution that is an “accredited investor” as defined in
Rule 501(a) under the Securities Act and, if required under the terms of such
arrangement, the Purchaser may transfer pledged or secured Offered Securities and/or
Underlying Common Stock to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the Company’s expense, the
Company will execute and deliver such reasonable documentation as a pledgee or secured
party of Offered Securities and/or Underlying Common Stock may reasonably request in
connection with a pledge or transfer of the Offered Securities and/or Underlying Common
Stock, including, subject to the provisions of Section 2 (g) of the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.
	 
	 	(k)	 	The Purchaser has all requisite power and authority to enter into this
Agreement and the Registration Rights Agreement and to consummate the transactions
contemplated hereby and thereby. This Agreement and the Registration Rights Agreement
have been duly executed and delivered by the Purchaser. This Agreement and the
Registration Rights Agreement are legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or conveyance or similar laws relating to or limiting creditors’
rights generally or by equitable principles relating to enforceability and except as
rights of indemnity or contribution may be limited by federal or state securities or
other laws or the public policy underlying such laws.
	 
	 	(l)	 	If Purchaser is a partnership, corporation, trust or estate: (i) such
partnership, corporation, trust or estate has the full legal right and power and all
authority and approval required (a) to execute and deliver, or authorize execution and
delivery of, this Agreement and all other instruments executed and delivered by or on
behalf of such partnership, corporation, trust or estate in connection with the

 

 

	 	 	 	purchase of the Offered Securities, (b) to delegate authority pursuant to a power of
attorney and (c) to purchase and hold such Offered Securities; (ii) the signature of
the party signing on behalf of such partnership, corporation, trust or estate is
binding upon such partnership, corporation, trust or estate; and (iii) such
partnership, corporation or trust has not been formed for the specific purpose of
acquiring the Offered Securities, unless each beneficial owner of such entity is
qualified as an “accredited investor” within the meaning of Regulation D and has
submitted information substantiating such individual qualification.
	 
	 	(m)	 	If the Purchaser is a retirement plan or is investing on behalf of a retirement
plan, the Purchaser acknowledges that investment in the Offered Securities poses risks
in addition to those associated with other investments, including the inability to use
losses generated by an investment in the Offered Securities to offset taxable income.
	 
	 	(n)	 	No consent, approval, authorization, or order of, or filing with, any
governmental agency or body or any court is required for the consummation of the
transactions contemplated by this Agreement and the Registration Rights Agreement by
the Purchaser, except for such as have been obtained prior to the date hereof.
	 
	 	(o)	 	The information furnished by the Purchaser herein and in the Investor
Questionnaire signed by Purchaser is true and accurate as of the date hereof and will
be true and accurate on the Closing Date, absent notification by the Purchaser to the
Company of any material change in the information contained therein prior to the
Closing Date.
	 
	 	(p)	 	The execution, delivery and performance this Agreement and the Registration
Rights Agreement will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Purchaser or any of the Purchaser’s properties, or any agreement
or instrument to which the Purchaser is a party or by which the Purchaser is bound or
to which any of the properties of the Purchaser is subject, or any charter or by-laws
of the Purchaser.
	 
	 	(q)	 	The Purchaser acknowledges that the Placement Agent will receive compensation
from the Company in connection with the offering of the Offered Securities, but is not
guaranteeing or assuming responsibility for the operation or possible liability of the
Company, including, without limitation, compliance by the Company with the agreements
entered into in connection with the offering of the Offered Securities, and the
Placement Agent will not supervise or participate in the operation or management of the
Company.
	 
	 	(r)	 	No person or entity acting on behalf, or under the authority, of the Purchaser
is or will be entitled to any broker’s finder’s or similar fee or commission in
connection with this Agreement or the purchase by the Purchaser of the Offered
Securities.

 

 

	 	(s)	 	PURCHASER HEREBY ACKNOWLEDGES THAT THE COMPANY HAS DELIVERED TO THE PURCHASER ALL
INFORMATION AND DOCUMENTS THAT PURCHASER HAS REQUESTED OF THE COMPANY. IN MAKING AN
INVESTMENT DECISION, THE PURCHASER HAS RELIED UPON THE PURCHASER’S OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
	 
	 	(t)	 	The Purchaser acknowledges that the Placement Agent has been retained by the
Company to act as the Company’s placement agent in the offering of the Offered
Securities and that, for its services, the Placement Agent will be compensated by the
Company as follows: (i) a fee equal to (a) seven percent (7%) of the gross proceeds
from the sale of the Offered Securities, (ii) warrants to purchase three percent (3%)
of the number of shares of the Company’s Common Stock receivable upon conversion of the
Series B Convertible Preferred Stock sold in the Offering, exercisable for a five (5)
year period for one dollar and fifteen cents ($1.15) per share, subject to adjustment
(the “Series B Agent Warrants”), and (iii) the reimbursement of certain expenses.
	 
	 	(u)	 	The Purchaser acknowledges that upon execution and delivery of this Agreement
by the Company and the Purchaser, except as required by law or as may otherwise be
contemplated by this Agreement, the Purchaser is not entitled to cancel, terminate or
revoke this Agreement or any agreements of Purchaser hereunder and that this Agreement
and such other agreements shall survive the death or disability of the Purchaser and
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors, legal representatives and
permitted assigns. If the Purchaser is more than one person, the obligations of the
Purchaser hereunder shall be joint and several and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed to be made by and be
binding upon each such person and his or her heirs, executors, administrators,
successors, legal representatives and permitted assigns.

	8.	 	Certain Agreements of the Company. The Company agrees with the Purchaser that:

	 	(a)	 	In addition to any and all other public statements or disclosures made by the
Company in its sole discretion (subject to the last sentence of this Section 8(a)), the
Company will issue a press release and file a Current Report on Form 8-K with the
Commission (i) disclosing the material terms of the transaction contemplated by this
Agreement by the day following the execution and delivery of the last of the Agreements
to be so executed and delivered by a Purchaser and (ii) regarding the Closing of the
purchase and sale of the Offered Securities, if practicable, on the date of the Closing
or the following morning. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Purchaser, or include the name of the Purchaser in
any filing with the Commission or any SRO, without the prior written consent of the
Purchaser, except (i) as required by federal securities law and (ii) to the extent such
disclosure is required by law or

 

 

	 	 	 	regulations, in which case the Company shall provide the Purchaser with prior notice
of such disclosure permitted under sub clause (i) or (ii). Furthermore, the Company
covenants and agrees that neither it nor any other Person acting on its behalf will
provide the Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto the
Purchaser shall have executed a written agreement regarding the confidentiality and
use of such information. The Company understands and confirms that the Purchaser
shall be relying on the foregoing representations in effecting transactions in
securities of the Company.
	 
	 	(b)	 	The Company shall indemnify and hold the Purchaser harmless from and against
all fees, commissions or other payments owing by the Company to the Placement Agent or
any other person or from acting on behalf of the Company with respect to the offering
of the Offered Securities to the Purchaser.
	 
	 	(c)	 	The Company will pay all expenses incidental to the performance of its
obligations under this Agreement and the Registration Rights Agreement including all
expenses in connection with the execution, issue, authentication, packaging and initial
delivery of the Offered Securities and, as applicable, the Underlying Common Stock, the
preparation of this Agreement, the Registration Rights Agreement, and amendments and
supplements thereto, and any other document relating to the issuance, offer, sale and
delivery of the Offered Securities and as applicable the Underlying Common Stock.
	 
	 	(d)	 	For the period commencing on the date hereof and ending on the 90th
day after the Effective Date of the Registration Statement, the Company will not offer,
sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, any
Common Stock or any securities which are convertible into, or exercisable for, Common
Stock, except for (i) shares of Common Stock issued or issuable pursuant to the Offered
Securities, specifically including all shares issuable upon conversion or exchange of,
or as dividends on, the Offered Securities, (ii) shares of Common Stock issued or
issuable pursuant to the Company’s Series A Convertible Preferred Stock, specifically
including all conversion shares and all shares that may be issued as dividends thereon,
(iii) shares of Common Stock issued or issuable pursuant to the Company’s Series A-1
Warrants, Series A-2 Warrants and Series A-Agent Warrants, (iv) shares of Common Stock
issuable upon the exercise of any options or warrants outstanding on the date of this
Agreement, (v) shares of Common Stock issuable pursuant to or upon the conversion of
any note, debenture, debt instrument and any other written agreement to which the
Company is a party on the date of this Agreement (vi) shares of Common Stock (including
grants, options and warrants) issuable pursuant to or in accordance with any plan for
which the Company has filed a registration statement that has been declared effective
including, without limitation, the 1994 Stock Plan, the 2005 Stock Plan and the
Consultant Compensation Plan, or any other stock plan, option plan or written
agreements to which the Company is a party on the date of this Agreement including all
modifications and replacements thereof, (vii) shares of Common Stock issuable

 

 

	 	 	 	pursuant to or in accordance with any grants, options, warrants, conversions or
otherwise for which the Company has filed a registration statement that has been
declared effective and (viii) shares of Common Stock issued or issuable pursuant to
the Company’s Series-B-Agent Warrants. (the securities described in sections (i)
through (viii) inclusive may sometimes be referred to herein as the “Excluded
Securities”). The Company will not at any time offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any securities under
circumstances where such offer, sale, pledge, contract or disposition would cause
the exemption afforded by Section 4(2) of the Securities Act to cease to be
applicable to the offer and sale of the Offered Securities and the Underlying Common
Stock to the Purchaser hereunder.
	 
	 	(e)	 	The Company shall use the net proceeds received from the sale of the Offered
Securities solely for working capital, including the development of technology.

	9.	 	Conditions of the Obligations of the Purchaser. In addition to the conditions
precedent set forth in Section 4 of this Agreement, the obligations of the Purchaser to
purchase and pay for the Offered Securities on the Closing Date will be subject to the
accuracy of the representations and warranties on the part of the Company herein, to the
accuracy of the statements of officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder and to the following additional
conditions precedent:

	 	(a)	 	The Company shall have executed this Agreement and the Registration Rights
Agreement and delivered the same to the Placement Agent.
	 
	 	(b)	 	The Purchaser shall have received copies of all documents and information,
which it may have reasonably requested in connection with the offering and sale of the
Offered Securities.
	 
	 	(c)	 	The Company shall have caused its corporate and securities legal counsel,
respectively, to deliver to the Purchaser the legal opinions in substantially the forms
together attached hereto as Exhibit C.
	 
	 	(d)	 	The Company shall have caused its intellectual property counsel to deliver to
the Purchaser the Howison and Arnott Opinion relating to the Intellectual Property,
which is substantially in the form attached hereto as Exhibit B.
	 
	 	(e)	 	No stop order or suspension of trading shall have been imposed by Nasdaq, the
Commission, any SRO or any other governmental regulatory body with respect to public
trading in Common Stock of the Company.
	 
	 	(f)	 	Subsequent to the execution and delivery of this Agreement, but prior to the
Closing Date there shall not have occurred (i) a change in U.S. or international
financial, political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of the Placement Agent, be likely to prejudice
materially the success of the proposed issue, sale or distribution of the Offered
Securities, whether in the primary market or in respect of dealings in the

 

 

	 	 	 	secondary market, or (ii) (A) any change, or any development or event involving a
prospective change, in the condition (financial or other), business, properties or
results of operations of the Company and its Subsidiaries taken as one enterprise
which, in the judgment of the Purchaser is material and adverse and makes it
impractical or inadvisable to proceed with completion of the offering or the sale of
and payment for the Offered Securities; (B) any material suspension or material
limitation of trading in securities generally on NASDAQ or any setting of minimum
prices for trading on NASDAQ, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market; (C) any banking
moratorium declared by United States Federal or New York authorities; or (D) any
outbreak or escalation of major hostilities in which the United States is involved,
any declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of the Purchaser, the effect
of any such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the offering or sale of and
payment for the Offered Securities.
	 
	 	(g)	 	The Purchaser shall have received a certificate, dated as of the Closing Date,
of the Chief Executive Officer, President or the principal financial or accounting
officer of the Company in form a substance reasonably satisfactory to the Placement
Agent and its counsel, in which such officers, to the effect that the representations
and warranties of the Company in this Agreement are true and correct, that the Company
has complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to such Closing Date, and that there has
been no development or event that would constitute a Material Adverse Effect, nor any
development or event known to the Company that prospectively involves a Material
Adverse Effect.
	 
	 	(h)	 	The Offering shall have resulted in gross proceeds of $8,000,000 or more being
made available to the Company, provided that, the Company and the Placement Agent may
agree, without notice to any Purchaser, to reduce the required amount of minimum gross
proceeds being made available to the Company as a result of the Offering to any amount
not less than $5,000,000 at any time following the execution hereof, in their sole and
absolute discretion.
	 
	 	(i)	 	The Company and the Company’s transfer agent shall have executed irrevocable
instructions in the form attached hereto as Exhibit C (the “Irrevocable Transfer Agent
Instructions”), instructing such transfer agent, and any subsequent transfer agent, to
promptly issue certificates, registered in the name of each Purchaser or its respective
nominee(s), for the Underlying Common Stock in such amounts as specified from time to
time by the Purchaser to the Company upon conversion of the Series B Convertible
Preferred Stock and/or upon exercise of the Series B Warrants.
	 
	 	(j)	 	The Purchaser shall have received a certificate evidencing the incorporation
and good standing of the Company in Nevada issued by the Secretary of State of the
State of Nevada as of a date within ten (10) days of the Closing Date, together

 

 

	 	 	 	with a certificate evidencing the good standing of the Company as a foreign
corporation in the State of Texas issued by the Secretary of State of the State of
Texas.
	 
	 	(k)	 	The Purchaser shall have received a certified copy of the Certificate of
Incorporation and the Certificate of Designation, as certified by the Secretary of
State of the State of Nevada as of a date within ten (10) days of the Closing Date.
	 
	 	(l)	 	The Purchaser shall have received from the Company a secretary’s certificate,
dated as of the Closing Date, certifying as to (A) resolutions, (B) the Articles of
Incorporation and (C) the Bylaws, each as in effect at the date hereof.
	 
	 	(m)	 	The Company will furnish the Purchaser such number of conformed copies of such
opinions, certificates, letters and documents as the Purchaser may reasonably request
in writing. Any Purchaser may in its sole discretion waive compliance with any
conditions to the obligations of the Purchaser hereunder.

	10.	 	Survival of Certain Representations and Obligations. The respective indemnities,
agreements, representations, warranties and other statements of the Company or its officers
and of the Purchaser set forth in or made pursuant to this Agreement will remain in full force
and effect, regardless of any investigation, or statement as to the results thereof, made by
or on behalf of the Purchaser, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of and payment for
the Offered Securities.
	 
	11.	 	Notices. All notices, requests, demands, waivers, consents and other communications
hereunder shall be in writing, and (i) if sent to the Purchaser or the Placement Agent shall
be delivered either in person, by telegraphic, facsimile, or other electronic means, by
overnight air courier or by as certified or registered mail, return receipt requested or (ii)
if sent to the Company, shall be delivered either in person, by telegraphic, facsimile, or
other electronic means, by overnight air courier, and shall be deemed to have been duly given
and to have become effective: (a) upon receipt if delivered in person or by telegraphic,
facsimile or other electronic means calculated to arrive on any Business Day prior to 5:00
p.m., local time, or on the next succeeding Business Day if delivered on a non-business day or
after 5:00 p.m., local time; (b) one Business Day after having been delivered to an air
courier for overnight delivery or (c) three Business Days after having been deposited in the
United States mails as certified or registered mail, return receipt requested, all fees
prepaid, directed to the parties at the following addresses (or at such other address as shall
have been previously given in writing in accordance with the terms hereof by any party
hereto):

If to Purchaser,

to the address set forth on

the signature page hereof.

If to Viseon, Inc.:

 

 

	 	 	 	 	 	 	 
	 	 	Viseon, Inc.
	 	 	Attn: President
	 	 	8445 Freeport Parkway Suite 245
	 	 	Dallas, TX 75063
	 
	 	 	 	 	 	 
	 	 	 	 	With a copy to:
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Albert B. Greco, Jr.
	 

	 	 	 	 	 	Law Offices of Albert B. Greco, Jr.
	 

	 	 	 	 	 	16901 N. Dallas Parkway, Suite 230
	 

	 	 	 	 	 	Addison, Texas 75001
	 

	 	 	 	 	 	Facsimile: 972-818-7343

	12.	 	Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all such counterparts shall together constitute
one and the same Agreement. In the event that any signature is delivered by facsimile
transmission or y an e-mail which contains an electronic file of an executed signature page,
such signature shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such facsimile or
electronic file signature page (as the case may be) were an original thereof.
	 
	13.	 	Applicable Law: Consent to Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard to principles
of conflicts of laws. The Purchaser hereby submits to the exclusive jurisdiction of the
Federal and State courts situated in New York County, New York in any suit or proceeding
arising out of or relating to this Agreement or the transactions contemplated hereby.
	 
	14.	 	Changes. This Agreement may not be modified, amended or waived except pursuant to an
instrument in writing signed by the Company and the Purchaser.
	 
	15.	 	Entire Agreement. This Agreement and the other agreements and instruments executed
and delivered by the parties hereto in connection with the execution and delivery of this
Agreement and the consummation of the transaction contemplated by this Agreement constitute
the entire agreement between the parties hereto pertaining to the subject matter hereof, and
any and all other written or oral agreements relating to such subject matter are expressly
cancelled.
	 
	16.	 	Successors and Assigns. This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the Company and the Purchaser, including without
limitation and without the need for an express assignment, affiliates of the Purchaser. The
Company may not assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Purchaser. Upon any transfer, the Company shall be obligated to such
transferee to perform all of its covenants under this Agreement as if such transferee were an
Purchaser.

 

 

	17.	 	Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, the Purchaser and the Company will be entitled
to specific performance under the Agreement. The parties agree that monetary damages may not
be adequate compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agree to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be adequate.
	 
	18.	 	Independent Nature of Purchaser’s Obligations and Rights. The obligations of the
Purchaser under this Agreement are several and not joint with the obligations of any other
purchaser under any other agreement, and the Purchaser shall not be responsible in any way for
the performance of the obligations of any other purchaser under any other agreements. The
decision of the Purchaser to purchase Offered Securities pursuant to this Agreement has been
made by such Purchaser independently of any other purchaser. Nothing contained herein or in
any of the other agreement, and no action taken by Purchaser pursuant thereto, shall be deemed
to constitute the Purchaser and any other purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Purchaser is in any way
acting in concert or as a group with others with respect to any matters. The Purchaser
acknowledges that no other purchaser has acted as agent for Purchaser in connection with
making its investment hereunder and that no other purchaser will be acting as agent of the
Purchaser in connection with monitoring its investment in the Offered Securities and
Underlying Common Stock or enforcing its rights under this Agreement. The Purchaser shall be
entitled to independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement, and it shall not be necessary for any other purchaser to
be joined as an additional party in any proceeding for such purpose.
	 
	19.	 	Replacement of Offered Securities and/or Underlying Common Stock. If any certificate
or instrument evidencing any of the Offered Securities and/or Underlying Common Stock is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of
such replacement Offered Securities and/or Underlying Common Stock.
	 
	20.	 	Stock Splits, Etc. The provisions of this Agreement shall be appropriately adjusted
to reflect any stock split, stock divided, reverse stock split, reorganization or other
similar event effected after the date hereof.

 

 

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

[Signature page follows]

 

 

ACCEPTED AND AGREED:

Number of Offered Securities Being Purchased:

Series B Convertible Preferred Stock: _____________

Series B Warrants: _______________

	 	 	 
	The Offered Securities
	 	 
	 	 	 
	Are to be issued in (check one box):

	 	Print Name of Purchaser
	 
	 	 
	 	 	 
	___individual name

	 	Print Name of Joint Purchaser
	 

	 	(if applicable)
	 
	 	 
	 	 	 
	___joint tenants
	 	Signature of Purchaser
	     with rights of Survivorship

	 	 
	 
	 	 
	 	 	 
	___tenants in the Entirety

	 	Signature of Joint Purchaser
	 
	 	 
	 	 	 
	___corporation (an officer must
sign)

	 	Address of Purchaser
	 
	 	 
	___partnership (all general Partners
must sign).
	 	 
	 
	 	 
	___limited liability company
	 	 

Accepted as of August ___, 2005

	 
	Viseon, inc.

	 
	By: John Harris, President

 

 

SUMMARY INSTRUCTION SHEET FOR PURCHASER

(to be read in conjunction with the entire

Purchase Agreement which this follows)

A. Complete the following items on BOTH Purchase Agreements (Please sign two originals):

	 	1.	 	Page 29 — Signature:

	 	(i)	 	Name of Purchaser (Individual or Institution)
	 
	 	(ii)	 	Name of Individual representing Purchaser (if an Institution)
	 
	 	(iii)	 	Title of Individual representing Purchaser (if an Institution)
	 
	 	(iv)	 	Signature of Individual Purchaser or Individual representing Purchaser

	 	2.	 	Appendix I — Investor Questionnaire:
	 
	 	 	 	Provide the information requested by the Investor Questionnaire.
	 
	 	3.	 	Return BOTH properly completed and signed Purchase Agreements including the
properly completed Appendix I to (initially by facsimile with hard copy by overnight
delivery):

ThinkEquity Partners LLC

31 West 52nd Street, 17th Floor

New York, New York 10019

Attention: Nicholas Oust

Facsimile: (212) 468-7044

B. Instructions regarding the transfer of funds for the purchase of the Offered Securities will be
sent by facsimile to the Purchaser by the Placement Agent at a later date.

C. Upon the resale of the Underlying Common Stock or the Warrant Shares by the Purchasers after the
Registration Statement covering the Underlying Common Stock and the Warrant Shares is effective, as
described in the Purchase Agreement, the Purchaser:

	 	(i)	 	must deliver a current prospectus of the Company to the buyer
(prospectuses must be obtained from the Company at the Purchaser’s request);
and
	 
	 	(ii)	 	must send a notice of sale in the form of Appendix II to the
Company so that the Underlying Common Stock or Warrant Shares may be properly
transferred.

 

 

APPENDIX I

INVESTOR QUESTIONNAIRE

     This questionnaire is being delivered to you by Viseon, Inc. (the “Company”) in connection
with the preparation of a Registration Statement on Form SB-2, (the “Registration Statement”)
pursuant to the Securities Act of 1933. The purpose of this questionnaire is to develop and verify
information used in preparation of the Registration Statement.

     If documents filed with the SEC contain any untrue statements or omit to state any material
fact, you, the Company and its respective officers, directors and controlling persons may be
subject to civil or criminal liabilities under the Securities Act of 1933. It is important,
therefore, that the information you supply be complete and accurate.

     Since the definitions of certain terms used in the questionnaire may be unfamiliar to you, you
may find it helpful to read the entire questionnaire and the definitions found throughout before
answering any of the questions. Particularly, the concepts of “voting power” and “investment
power” are important. “Voting power” means the power to vote, or to direct the voting of, the
shares, while “investment power” includes the power to dispose, or to direct the disposition, of
the shares. Other important concepts relating to “voting power” and “investment power” deal with
whether or not one or both of such powers are “sole” or “shared.” You have sole “voting power” or
sole “investment power” if you do not share these powers with any other person. You have shared
“voting power” or shared “investment power” if you share these powers with any other person.

     A response should be made to each item in the questionnaire. Indicate a negative response or
“not applicable” where appropriate. If inadequate space is provided for your answer, write on the
back of the page or attach a rider.

     AN INCORRECT OR INCOMPLETE ANSWER TO ANY OF THE QUESTIONS COULD SUBJECT THE COMPANY AND YOU
PERSONALLY TO LIABILITY UNDER THE SECURITIES LAWS. ACCORDINGLY, PLEASE GIVE THE QUESTIONNAIRE YOUR
CAREFUL ATTENTION.

 

 

APPENDIX I

Part I. Identification of Holder

	 	 	 
	The exact name that your Securities are to be registered in (this is
the name that will appear on your stock certificate(s)). You may use
a nominee name if appropriate:
	 	 
	 

	 	 
	 
	 	 
	The relationship between the Purchaser of the Securities and the
Registered Holder listed in response to item 1 above:
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	The mailing address of the Registered Holder listed in response to
item 1 above:
	 	 
	 

	 	 
	 
	 	 
	The Social Security Number or Tax Identification Number of the
Registered Holder listed in response to item 1 above:
	 	 
	 

	 	 

 

 

APPENDIX I

Part II. Holding of Securities

1 Securities Owned Outright by You. State below the number of shares of Common Stock that you
owned outright as of the date hereof. Include shares registered in your name individually and
shares held in the name of a bank, broker, nominee, depository or in “Street Name” for your
account. If the answer is none, please so state. You are presumed to have sole “voting power” and
sole “investment power” of all shares you own outright. If for any reason you do not have sole
“voting power” or sole “investment power” of all shares you own outright, please describe the
reasons for your lack of sole powers.

	 	 	 	Common Stock ______________________
	 
	 	 	 	Description of any reasons for lack of shared “voting power” or shared “investment
power”: ______________________

2 Securities Owned Jointly by You. State below the number of shares of Common Stock that you owned
directly but jointly with others as of the date hereof, even if the shares are held in the name of
a bank, broker, nominee, depository or in “Street Name” for your account. If the answer is none,
please so state. You are presumed to have shared “voting power” and shared “investment power” of
all shares you own jointly. If for any reason you do not share with another person “voting power”
or “investment power” of all shares you own jointly, please describe the reasons for your lack of
shared powers.

	 	 	 	Common Stock _________________________________
	 
	 	 	 	Identities of Joint Owners _________________________________
	 
	 	 	 	Description of any reasons for lack of shared “voting power” or shared “investment
power”: ______________________

3 Other Shares over Which You Have or Share Voting Power and/or Investment Power.

	 	(a)	 	State below the number of shares of Common Stock over which you indirectly
(through any corporation or other entity) or through any contract, arrangement,
understanding, relationship or otherwise, have sole or shared “voting power” or
“investment power” or both as of the date hereof, even though the shares are not held
for your direct benefit.
	 
	 	 	 	Common Stock _________________________________
	 
	 	(b)	 	For any shares reported pursuant to question 3(a) above, please indicate
whether your “voting power” and/or “investment power” is sole or shared and provide all
relevant details, such as (if applicable) with whom the power is shared, the nature of
the relationship and any underlying voting trust agreement, investment arrangement or
the like.

 

 

APPENDIX I

	 	(c)	 	For any shares reported pursuant to question 3(a) above, please also set forth
all other relevant information, such as a general indication of your capacity as
fiduciary, if any, and/or the name and nature of any party in whose name(s) any shares
are registered.

4 Disclaimer of Beneficial Ownership. The SEC’s definition of “beneficial ownership” for purposes
of the Registration Statement includes any securities of the Company over which you have “voting
power” or “investment power” as defined above. In certain circumstances, however, it may be
possible to disclaim this type of beneficial ownership. As to any shares listed above, if you wish
expressly to disclaim beneficial ownership for any purpose in the Registration Statement, please
indicate below the shares with respect to which you wish to disclaim beneficial ownership and the
basis for the disclaimer.

5 Securities Which You Have the Right to Acquire within 60 Days.

	 	(a)	 	State below the number of shares of Common Stock as to which you have the right
to acquire “voting power” and/or “investment power” within 60 days of the date hereof,
including, but not limited to, any right to acquire shares (a) upon the exercise of any
option, warrant or right; (b) upon the conversion of a security; (c) pursuant to the
power to revoke a trust, discretionary account or similar arrangement; or (d) pursuant
to the automatic termination of a trust, discretionary account or similar arrangement.
(Do not include shares listed in questions 1, 2 or 3 above.) Please also briefly
describe the nature of your right to acquire.
	 
	 	 	 	Common Stock ____________________________________________
	 
	 	(b)	 	For any shares reported pursuant to question 5(a) above, please indicate
whether your “voting power” and/or “investment power” will be sole or shared and
provide all relevant details, such as (if applicable) with whom the power will be
shared and the nature of the relationship that will give you such power.
	 
	 	(c)	 	As to any shares listed in question 5(a) above, if you wish expressly to
disclaim beneficial ownership for any purpose in the Registration Statement, please
indicate below the shares and circumstances.

6 Duplication of Ownership of Your Securities. Please state whether, to your knowledge, any of the
Reporting Persons (as defined at the end of this Question 6) shares ownership of, or “voting power”
or “investment power” over, any shares of Common Stock reported by you. Specifically identify any
such securities, identify which of the Reporting Persons shares ownership, “voting power” or
“investment power” and briefly describe the relationship by which the Reporting Person shares
ownership, “voting power” or “investment power”. For purposes of this Question 6, “Reporting
Persons” include the following persons:

Richard Craven

Brian Day

Digital Investors, LLC

Geoffrey Gerard

Albert B. Greco, Jr.

 

 

APPENDIX I

John C. Harris

Henry F. Harris, Sr.

Henry C.S. Mellon

John O’Donnell

Pequot Capital Management, Inc.

Charles Rey 

Schottenfeld Qualified Associates, LP

Richard Schottenfeld

Robert Wolf

7 Securities Owned by Your Family and Certain Relatives. Please set forth below the number of
shares of Common Stock registered in the name of, or otherwise owned by, your spouse, minor
children or your spouse’s or your relatives who live in your home. Indicate separately the
identity of the owner of all such shares. In the past, the SEC has taken the position that such
shares will ordinarily be regarded as “beneficially owned” by you, although absent special or
unusual circumstances you are not the “beneficial owner” of such shares under the SEC’s definition
of “beneficial ownership” for purposes of the Registration Statement, since you do not have “voting
power” or “investment power” (as defined above) over them. Unless special or unusual circumstances
obtain, therefore, these shares will not be included in the holdings of securities of the Company
shown for you in the Registration Statement. Depending on the number of such shares and certain
other factors, however, it may be necessary to refer to such shares in a footnote in the
Registration Statement for disclosure or clarification purposes. If such a reference is made, we
will include an appropriate disclaimer of ownership.

	 	 	 	Common Stock ____________________________________________

8 Certain Securities Held in Trust for Your Benefit. Please set forth below the number of shares
of Common Stock (i) held in a trust in which you have the right to the income (in whole or in part)
only and/or (ii) held in a trust in which you have a right to the principal (in whole or in part)
on or after the date hereof. Indicate shares and factual circumstances. [As noted above, although
absent special or unusual circumstances you are not the “beneficial owner” of such shares under the
SEC’s definition of “beneficial ownership” for purposes of the Registration Statement, it may be
necessary to refer to the shares held in trust in the Registration Statement for disclosure or
clarification purposes. If such a reference is made, we will include an appropriate disclaimer of
ownership.]

	 	 	 	Common Stock ____________________________________________

 

 

APPENDIX I

Part III. Miscellaneous

	1	 	Broker-Dealer Status.

	 	(a)	 	Please mark the appropriate statement below (one of the two statements must be
marked).
	 
	 	 	 	___I am a broker-dealer or an affiliate of a broker-dealer.
	 
	 	 	 	___I am neither a broker-dealer nor an affiliate of a broker-dealer.
	 
	 	(b)	 	If you indicated that you are a broker-dealer or an affiliate of a
broker-dealer, Please mark the appropriate statement below (one of the two statements
must be marked).
	 
	 	 	 	___I acquired the securities being registered on my behalf in the ordinary course
of business
	 
	 	 	 	___I acquired the securities being registered on my behalf other than in the
ordinary course of business
	 
	 	(c)	 	If you indicated that you are a broker-dealer or an affiliate of a
broker-dealer, please mark the appropriate statement below (one of the two statements
must be marked).
	 
	 	 	 	___At the time I acquired the securities being registered on my behalf, I had
entered into an agreement, understanding or arrangement with another person, either
directly or indirectly, to dispose of these securities
	 
	 	 	 	___At the time I acquired the securities being registered on my behalf, I had not
entered into an agreement, understanding or arrangement with another person, either
directly or indirectly, to dispose of these securities
	 
	 	(d)	 	If you indicated that you are a broker-dealer or an affiliate of a
broker-dealer, please provide immediately below a summary of the relevant details
relating to this status.

	2	 	Open Short Positions.

	 	(a)	 	Please mark the appropriate statement below (one of the two statements must be
marked).
	 
	 	 	 	___I currently have an open short position in the Common Stock.
	 
	 	 	 	___I do not currently have an open short position in the Common Stock.
	 
	 	(b)	 	Please read the excerpt set forth below, which contains a telephone
interpretation rendered by the staff of the SEC. After reading the excerpt, please
acknowledge

 

 

APPENDIX I

	 	 	 	that you have done so by marking the blank set forth immediately after the excerpt.
	 
	 	 	 	“An issuer filed a Form S-3 registration statement for a secondary offering of
common stock which is not yet effective. One of the selling shareholders wanted to
do a short sale of common stock “against the box” and cover the short sale with
registered shares after the effective date. The issuer was advised that the short
sale could not be made before the registration statement becomes effective, because
the shares underlying the short sale are deemed to be sold at the time such sale is
made. There would, therefore, be a violation of Section 5 if the shares were
effectively sold prior to the effective date.”
	 
	 	 	 	___I have read the excerpt set forth above.

3 Control Persons. A response to this question is required only of selling shareholders that are
entities. If the selling shareholder completing this questionnaire is an entity, such selling
shareholder should identify below the one or more individuals (i.e. natural persons) who exercise
the voting and dispositive powers with respect to the shares of Common Stock being registered on
behalf of such selling shareholder.

     This will confirm that the information given in answer to the items set forth above is true,
correct and complete. If no information is furnished with respect to any questions, you are hereby
authorized to assume that the answer is “Negative”, “No”, “None” or “Not Applicable”, as the case
may be.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	printed name of holder:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Date:	 	 
	 

	 	 	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

 

 

APPENDIX II

	 	 	 
	Print or Type:
	 
	 	 
	 
	[Transfer Agent]
	 
	 	 
	 
	[Address]
	 
	 	 
	Attention:
	 	 
	 

	 	 

PURCHASER’S CERTIFICATE OF SUBSEQUENT SALE

     The undersigned, [individually/ as an officer of/ a person duly authorized by]

                                                                                                                                            hereby certifies

          [fill in exact name of individual or institution as listed on share certificate ]

that [he/she/said institution] is the Purchaser of the shares evidenced by the attached certificate,

and as such, sold such shares on                                          in accordance with the terms of the Purchase

[date]                                        

Agreement and in accordance with Registration Statement number                                                             

[fill in the number of or otherwise identify the Registration Statement]

or otherwise in accordance with the Securities Act of 1933, as amended, and, in the case of a
transfer

pursuant to the Registration Statement, the requirement of delivering a current prospectus by the

Company has been complied with in connection with such sale.

	 	 	 
	Name of Purchaser
	 	 
	(Individual or Institution)
	 	 
	 

	 	 
	 
	 	 
	Name of Individual
representing Purchaser
	 	 
	(if an Institution)
	 	 
	 

	 	 
	 
	 	 
	Title of Individual
representing Purchaser
	 	 
	(if an Institution):
	 	 
	 

	 	 
	 
	 	 
	Signature by: Individual Purchaser

or Individual representing Purchaser:exv4w2

 

EXHIBIT
4.2

Viseon, Inc.

(formerly rsi systems, inc.)

SECURITIES PURCHASE AGREEMENT

 

SERIES B

CONVERTIBLE PREFERRED STOCK

AND

WARRANTS

 

Dated as of August 22, 2005

THE SECURITIES OFFERED FOR SALE PURSUANT TO THE TERMS OF THIS AGREEMENT AND ALL SECURITIES
THAT MAY BE ACQUIRED UPON CONVERSION OF THE SERIES B CONVERTIBLE PREFERRED STOCK OR THE EXERCISE OF
THE ACCOMPANYING WARRANTS HAVE NOT LBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS AND IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS AGREEMENT AND THE
OTHER INVESTMENT DOCUMENTS IDENTIFIED HEREIN.

 

 

Securities Purchase Agreement

for

Series B Convertible Preferred Stock

and

Warrants 

     This Securities Purchase Agreement (hereinafter the “Agreement”), dated as
of the 22nd day of August 2005, is entered into by and between Viseon,
Inc. f/k/a RSI Systems, Inc., a corporation duly authorized and existing pursuant to the
laws of the state of Nevada, with its principal offices located at 8445 Freeport Parkway, Suite
245, Irving, Texas 75063 (the “Company”), and CD Investment Partners, Ltd. (the “Purchaser” or the
“Investor”).

     Whereas, the Company proposes to issue and sell to the Investor, subject to the terms and
conditions stated herein, eighteen (18) shares of the Company’s Series B Convertible Preferred
Stock and eighteen (18) Series B Warrants (collectively, the “Offered Securities”), each to be
issued in a private placement pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder, and with respect to which ThinkEquity
Partners LLC (the “Placement Agent”) is acting as a placement agent.

     Now, Therefore, for and in consideration of the mutual agreements and covenants contained in
this Agreement, the Company and the Purchaser agree as follows:

	1.	 	Authorization of Sale of the Securities. Subject to the terms and conditions of this
Agreement, the Company has authorized the issuance and sale of eighteen (18) shares to the
Purchaser of the Company’s Series B Convertible Preferred Stock (the “Convertible Preferred”)
convertible into the Company’s common stock, par value $0.01 per share (the “Common Stock”),
the terms and conditions of which are set forth in the Certificate of Designation of Series B
Convertible Preferred Stock in the form attached hereto as Exhibit A and eighteen (18) Series
B Warrants to purchase up to four hundred fifty thousand (450,000) shares of Common Stock (the
“Warrant Shares”), with each Series B Warrant entitling the Purchaser to acquire twenty-five
thousand (25,000) shares of the Company’s Common Stock, at the purchase price of one
dollar and fifteen cents ($1.15) per share of Common Stock, subject to adjustment,
exercisable for five (5) years, subject to the terms, conditions and adjustments, as set forth
therein and evidenced by a warrant certificate in the form attached hereto as Exhibit B (the
“Warrants”).

	2.	 	Agreement to Sell and Purchase the Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, at the Closing (as defined in Section 3 herein below), the
Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the
Company, eighteen (18) units, each unit consisting of one share of the Company’s Series B
Convertible Preferred Stock and one Series B Warrant (each such unit, a “Unit”) for a purchase
price of Twenty-Five Thousand Dollars ($25,000) per Unit.

	3.	 	Purchase, Sale and Delivery of Offered Securities at the Closing. The completion of
the purchase and sale of the Offered Securities (the “Closing”) shall occur at the offices of
the Company’s counsel as soon as practicable and as agreed to by the parties hereto,

1

 

	 	 	within three business days following the execution of this Agreement, or on such later date
or at such different location as the parties shall agree in writing, but not prior to the
date that the conditions for Closing set forth below have been satisfied or waived by the
appropriate party (the “Closing Date”).

	 	(a)	 	At the Closing, the Purchaser will buy from the Company, on the terms and
conditions set forth herein, and the Company will issue, sell and deliver to the
Purchaser, the Offered Securities by delivering eighteen (18) shares of the Convertible
Preferred, the terms and conditions of which are set forth in the Designation of Series
B Convertible Preferred Stock in the form attached hereto as Exhibit A and eighteen
(18) Series B Warrants to purchase up to four hundred fifty thousand (450,000) shares
of Common Stock, with each Series B Warrant entitling the Purchaser to acquire
twenty-five thousand (25,000) shares of the Company’s Common Stock, at the purchase
price of one dollar and fifteen cents ($1.15) per share, subject to
adjustment, exercisable for five (5) years, subject to the terms, conditions and
adjustments, as set forth therein and evidenced by a warrant certificate in the form
attached hereto as Exhibit B each Warrant registered in the name of the Purchaser, or,
if so indicated on the Investor Questionnaire attached hereto as Appendix I, in such
nominee name(s) as designated by the Purchaser, and bearing an appropriate legend
referring to the fact that the Offered Securities were sold in reliance upon the
exemption from registration under the Securities Act provided by Section 4(2) thereof
and Rule 506 thereunder. The Purchaser and any other permitted holders (including, to
the extent set forth herein, subsequent transferees) of the Offered Securities will be
entitled to the benefits of a registration rights agreement of even date herewith
between the Company and the Purchaser (the “Registration Rights Agreement”), pursuant
to which the Company agrees to file a registration statement with the Securities and
Exchange Commission (the “Commission”) registering the resale of the Common Stock which
may be obtained upon the conversion or exercise of, or received as dividends on, the
Offered Securities (the “Underlying Common Stock”) under the Securities Act.

	4.	 	Conditions Precedent. The Company’s obligation to complete the purchase and sale of
the Offered Securities and deliver such stock certificate(s) and Warrants to the Purchaser at
the Closing 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 same-day funds in the full amount of
$450,000; (b) simultaneously with or prior to the Closing, the Company shall have sold
securities (the “Contemporaneous Offering”) to third party purchasers, who are not acting in
concert with the Purchaser, for an aggregate of a minimum of $8,000,000 and a maximum of
$10,000,000, which securities shall be on, and have, such terms and conditions as the Company
shall determine in its sole discretion; and (c) the accuracy in all material respects of the
representations and warranties made by the Purchaser (as if such representations and
warranties were made on the Closing Date) and the fulfillment in all material respects of
those undertakings of the Purchaser to be fulfilled prior to the Closing. The Purchaser has
made payment by wire transfer of funds in accordance with instructions from the Company in the
full amount of the purchase price of the Offered Securities ($450,000), which the Purchaser is
purchasing (the “Payment”). The Purchaser’s obligation to accept delivery of such stock
certificate(s) and Warrant certificate(s) and to pay for the Offered Securities evidenced
thereby shall be subject to

2

 

	 	 	the following conditions, any one or more of which may be waived by the Purchaser: (a) each
of the representations and warranties of the Company made herein shall be accurate in all
material respects (except where the representations and warranties already are qualified by
materiality) as of the Closing Date; (b) the delivery to the Purchaser by counsel to the
Company of a legal opinion in a form reasonably satisfactory to Purchaser’s counsel; (c) the
fulfillment in all material respects of those undertakings of the Company to be fulfilled
prior to Closing and (d) simultaneously with or prior to the Closing, the Company shall have
sold securities to third party purchasers, who are not acting in concert with the Purchaser,
for an aggregate of a minimum of $8,000,000 and a maximum of $10,000,000, which securities
shall be on, and have, such terms and conditions as the Company shall determine in its sole
discretion.

	5.	 	Representations and Warranties of the Company. The Company represents and warrants
to, and agrees with, the Purchaser that:

	 	(a)	 	As of the date of this Agreement, all reports that have been required to be
filed by the Company under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) have been filed under the Exchange Act and the rules and regulations of
the Commission thereunder. As of the date of this Agreement, all reports which have
been filed by the Company under the Securities Exchange Act, as amended (collectively,
the “Exchange Act Reports”), do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The Exchange Act
Reports, when they were filed with the Commission, conformed in all material respects
to the requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
	 
	 	(b)	 	The Company’s audited consolidated financial statements contained in the Form
10-KSB for the year ended June 30, 2004 (the “Form 10-KSB”) and the unaudited financial
statements contained in the Form 10-QSB for the quarter ended March 31, 2005 (the “Form
10-QSB”) including the notes contained therein present fairly, in accordance with U.S.
generally accepted accounting principles, the financial position of the Company as of
the dates indicated, and the results of its operations, cash flows and the changes in
stockholders’ equity for the periods therein specified, subject, in the case of
unaudited financial statements for interim periods, to normal year-end audit
adjustments; and such financial statements (including the related notes) have been
prepared in accordance with U.S. generally accepted accounting principles applied on a
consistent basis throughout the periods therein specified, except that unaudited
financial statements may not contain all footnotes required by generally accepted
accounting principles. All liabilities, contingent and other, of the Company and the
Subsidiaries (as defined herein), are set forth in the financial statements as of June
30, 2004 and March 31, 2005 contained in the Form 10-KSB and Form 10-QSB respectively.
Since March 31, 2005, (i) the Company and the Subsidiaries have not incurred any
liabilities or obligations, indirect, or contingent, or entered into any oral or
written agreement or other transaction that is not in the ordinary course of business
or that could reasonably be expected to result in a material reduction in the future
earnings of the Company and the Subsidiaries; (ii) the Company and the Subsidiaries
have not sustained any material loss or interference with their businesses or
properties from

3

 

	 	 	 	fire, flood, windstorm, accident or other calamity not covered by insurance; (iii)
other than dividends payable on the Company’s Series A Convertible Preferred Stock,
the Company and the Subsidiaries have not paid or declared any dividends or other
distributions with respect to their capital stock and neither the Company nor any of
the Subsidiaries is in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock of the Company or of any of the Subsidiaries other than as set forth in
Schedule 3(b), the sale of the Offered Securities hereunder, the sale of securities
pursuant to the Contemporaneous Offering, shares or options issued pursuant to
employee equity incentive plans or purchase plans approved by the Company’s Board of
Directors and repurchases of shares or options pursuant to repurchase plans already
approved by the Company’s Board of Directors; (v) there has not been any
indebtedness not incurred in the ordinary course of business that is material to the
Company and the Subsidiaries, taken as a whole; (vi) there has not been any other
event that has caused a Material Adverse Effect (as defined herein) and (vii) the
number of shares issuable and reserved for issuance pursuant to securities
exercisable for, or convertible into or exchangeable for any shares of capital stock
as of the date of this Agreement, is as described in Schedule 3(b) attached to this
Agreement.
	 
	 	(c)	 	Virchow, Krause & Company, LLP, Certified Public Accountants, which has
expressed its opinion with respect to the financial statements and the notes thereto of
the Company as of June 20, 2003 and 2004 and for each of the two years in the period
ended June 30, 2004 included in the Form 10-KSB, is an independent accountant as
required by the Securities Act and the rules and regulations promulgated thereunder.
	 
	 	(d)	 	As of March 31, 2005, the Company had outstanding capital stock as set forth in
the Form 10-QSB; the issued and outstanding shares of the Company’s Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and conform in all material respects to the description thereof
contained in the Form 10-QSB and the Form 10-KSB (the “Form 10-KSB” and together with
the Form 10-QSB, the “SEC Periodic Filings”). Except as set forth in Schedule 3(b) or
disclosed in the SEC Periodic Filings, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company’s stock, stock
bonus and other stock plans or arrangements and the options or other rights granted and
exercised thereunder, set forth in the SEC Periodic Filings accurately and fairly
presents all material information with respect to such plans, arrangements, options and
rights. With respect to each Subsidiary, to the extent relevant under applicable law,
(i) all the issued and outstanding shares of each Subsidiary’s capital stock have been
duly authorized and validly issued, are fully paid and nonassessable, have been issued
in compliance with applicable federal and state securities laws, and were not issued in
violation of or subject to any preemptive rights or other rights to

4

 

	 	 	 	subscribe for or purchase securities, and (ii) there are no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to purchase,
any securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of any Subsidiary’s capital stock or any such options, rights,
convertible securities or obligations.
	 
	 	(e)	 	The Offered Securities have been duly authorized by the Company and, when
delivered and paid for pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered, will be validly issued, fully paid and
non-assessable and will constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms.
	 
	 	(f)	 	The Company has been duly incorporated, is validly existing and in good
standing under the laws of the State of Nevada, with power and authority (corporate and
other) to own its properties and conduct its business as described in the Exchange Act
Reports. The Company is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to qualify would
not reasonably be expected to have a Material Adverse Effect (as defined herein).
	 
	 	(g)	 	Except as disclosed in the SEC Periodic Filings, the Company and the
Subsidiaries have no material contracts. Any contracts described in the SEC Periodic
Filings that are material to the Company and the Subsidiaries, taken as a whole, are in
full force and effect on the date hereof; and neither the Company nor any of the
Subsidiaries is, nor, to the Company’s knowledge, any other party, is in breach of or
default under any of such contracts that would have a Material Adverse Effect.
	 
	 	(h)	 	Except as disclosed in the SEC Periodic Filings, (1) there are no legal or
governmental actions, suits or proceedings pending and (2) to the Company’s knowledge,
there are no inquiries, investigations, or legal or governmental actions, suits, or
proceedings threatened to which the Company or any of the Subsidiaries is or may be a
party or of which property owned or leased by the Company or any of the Subsidiaries is
or may be the subject, or related to environmental or discrimination matters, which
actions, suits or proceedings, individually or in the aggregate, might reasonably be
expected to have a Material Adverse Effect. No labor disturbance by the employees of
the Company or any of the Subsidiaries exists or, to the Company’s knowledge, is
imminent that might reasonably be expected to have a Material Adverse Effect. Neither
the Company nor any of the Subsidiaries is party to or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body, administrative
agency or other governmental body which might reasonably be expected to have a Material
Adverse Effect.
	 
	 	(i)	 	Each wholly-owned subsidiary of the Company (each, a “Subsidiary”) has been
duly incorporated, is validly existing in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate and other) to
own its properties and conduct its business as described in the Exchange Act Reports;
each Subsidiary is duly qualified to do business as a foreign corporation

5

 

	 	 	 	in good standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification; all of the
issued and outstanding capital stock of each Subsidiary has been duly authorized and
validly issued and is fully paid and nonassessable and is owned by the Company free
from liens, encumbrances and defects. The Subsidiaries listed in Exhibit 21.1 to
the Form 10-KSB constitute the only subsidiaries of the Company.
	 
	 	(j)	 	When the Offered Securities are delivered and paid for pursuant to this
Agreement, the Offered Securities will be convertible into or exercisable for Common
Stock in accordance with the terms of the Offered Securities. The aggregate number of shares of Common Stock initially issuable upon conversion or exercise of, and as
payment of dividends on, the Offered Securities has been duly authorized and reserved
for issuance upon such conversion, exercise, or payment and, when issued upon such
conversion, exercise or payment, will be validly issued, fully paid and nonassessable.
The outstanding Common Stock of the Company has been duly authorized and validly
issued, is fully paid and nonassessable and conforms to the description thereof
contained in the Exchange Act Reports; and neither the shareholders of the Company nor
any other person or entity shall have any preemptive rights with respect to the Offered
Securities or the Underlying Common Stock. Except as set forth in the Exchange Act
Reports or on Schedule 3(b), there are no outstanding rights, options, warrants, right
of first refusal agreements, commitments or similar rights for the purchase or
acquisition from the Company or any of its Subsidiaries of any securities of the
Company or any of its Subsidiaries. The Offered Securities and the Underlying Common
Stock, when issued, will be free and clear of all pledges, liens, encumbrances and
other restrictions (other than those arising under federal or state securities laws as
a result of the private placement of the Offered Securities). No co-sale right, right
of first refusal or other similar right exists with respect to the Offered Securities
or the Underlying Common Stock or the issuance and sale thereof. Excepting certain
holders of the Company’s Series A Preferred Stock and Warrants, the issuance and sale
of the Offered Securities and the Underlying Common Stock will not result in a right of
any holder of Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. 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 Offered Securities or the Underlying Common Stock. The issuance and sale of the
Offered Securities and Underlying Common Stock under this Agreement does not contravene
the rules and regulations of any self-regulatory organization, exchange or market (an
“SRO”). Except for the registration rights listed on Schedule 2, no holder of any of
the securities of the Company has any rights (“demand,” “piggyback” or otherwise) to
have such securities registered by reason of the intention to file, filing or
effectiveness of a registration statement.
	 
	 	(k)	 	Except for the Engagement Letter Agreement between the Company and the
Placement Agent dated June 24, 2005 (the “Placement Agency Agreement”), there are no
contracts, agreements or understandings between the Company and any person in
connection with the sale of the Offered Securities that would give rise to a valid
claim against the Company or the Purchaser for a brokerage commission, finder’s fee or
other like payment.

6

 

	 	(l)	 	No consent, approval, authorization, or order of, or filing with, any
governmental agency or body, any SRO, or any court is required for the consummation of
the transactions contemplated by this Agreement and the Registration Rights Agreement
in connection with the issuance and sale of the Offered Securities and the Underlying
Common Stock by the Company except for post-Closing compliance with Blue Sky laws of
the jurisdictions, if any, where the Purchaser may reside and the order of the
Commission declaring the Registration Statement (as defined in the Registration Rights
Agreement) effective.
	 
	 	(m)	 	The Company has full legal right, corporate power and authority to enter into
this Agreement, the Registration Rights Agreement and the Offered Securities and to
perform the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the Offered
Securities by the Company and the consummation of the transactions contemplated herein
and therein will not violate any provision of the certificate of incorporation or
bylaws of the Company or any of the Subsidiaries and will not result in the creation of
any lien, charge, security interest or encumbrance upon any assets of the Company or
any of the Subsidiaries pursuant to the terms or provisions of, and will not (i)
conflict with, result in the breach or violation of, or constitute, either by itself or
upon notice or the passage of time or both, a default under (A) any agreement, lease,
franchise, license, permit or other instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries or any of
their respective properties may be bound or affected and in each case which would have
a Material Adverse Effect, or (B) to the Company’s knowledge, any statute or any
judgment, decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company or any of
the Subsidiaries or any of their respective properties where such conflict, breach,
violation or default is likely to result in a Material Adverse Effect. No consent,
approval, authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of this
Agreement, the Registration Rights Agreement or the Offered Securities or the
consummation of the transactions contemplated hereby or thereby, except for compliance
with the blue sky laws and federal securities laws applicable to the offering of the
Offered Securities to the Purchaser. Upon the execution and delivery of this Agreement,
the Registration Rights Agreement and the Offered Securities, and assuming the valid
execution and delivery thereof together with the Payment by the Purchaser, each of this
Agreement, the Registration Rights Agreement and the Offered Securities will constitute
a valid and binding obligation of the Company, enforceable 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 Company in
Section 7(b) hereof may be limited by federal or state securities laws or the public
policy underlying such laws.

7

 

	 	(n)	 	The Company and the Subsidiaries have good and marketable title to all real
properties and all other properties and assets reflected as owned by them in the
Current Exchange Act Reports (as defined herein), in each case free from liens and
encumbrances other than as set forth in the Company’s Form 10-KSB for the twelve month
period ending June 30, 2004 or in the Company’s Form 10-QSB for the three month period
ending March 31, 2005 filed with Commission (the “Current Exchange Act Reports”). All
real properties and all other properties and assets owned by the Company and the
Subsidiaries, that are material to the business of any of them or that have a value of
$25,000 or more, are free of any defects that would materially affect the value thereof
or materially interfere with the use made or to be made thereof by them. The Company
and its Subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions (i) that would materially interfere with the use
made or to be made thereof by them or (ii) are not materially significant in relation
to its business taken as a whole. The Company and the Subsidiaries own or lease all
such properties as are necessary to their respective operations as now conducted.
	 
	 	(o)	 	Neither the Company nor any of the Subsidiaries has been advised, nor has
reason to believe, that it is not conducting its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is conducting
its business, including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance would
not have a would have a material adverse effect on the business, assets, operations,
financial condition results of operations or prospects of the Company (a “Material
Adverse Effect”). Each of the Company and the Subsidiaries has all franchises,
licenses, certificates and other authorizations from such federal, state, local or
other foreign or domestic government or governmental agency, department or body that
are currently required for the operation of the business of the Company and the
Subsidiaries as currently conducted, except where the failure to posses currently such
franchises, licenses, certificates and other authorizations is not reasonably expected
to have a Material Adverse Effect. The Company and the Subsidiaries have not received
any notice of proceedings relating to the revocation or modification of any such permit
that, if the subject of an unfavorable decision, ruling or finding, could reasonably be
expected to have a Material Adverse Effect.
	 
	 	(p)	 	The Company and the Subsidiaries have, own, possess or can acquire adequate
trademarks, trade names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property (collectively, “intellectual
property rights”) necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of, or conflict with
the intellectual property rights owned by others with respect to such intellectual
property rights.
	 
	 	(q)	 	There are no pending actions, suits or proceedings against or affecting the
Company or any Subsidiary or any of their respective properties or officers or
directors, in their capacity as such, that, if determined adversely to the Company,
would have a Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under this Agreement, the

8

 

	 	 	 	Registration Rights Agreement or the Offered Securities or which are otherwise
material in the context of the sale of the Offered Securities; and to the best of
the Company’s knowledge and belief, no such actions, suits or proceedings are
threatened.
	 
	 	(r)	 	Each of the Company and the Subsidiaries 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 neither the Company nor any of the Subsidiaries has knowledge of a tax
deficiency that has been or might be asserted or threatened against it that might
reasonably be expected to have a Material Adverse Effect.
	 
	 	(s)	 	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
Offered Securities 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 complied with.
	 
	 	(t)	 	The Company is in compliance with the applicable requirements of the
Sarbanes-Oxley Act of 2002, and the rules and regulations thereunder, that are
currently in effect and is actively taking steps to ensure that it will be in
compliance with other applicable provisions of such Act not currently in effect at all
times after the effectiveness of such provisions except where such noncompliance would
not have or reasonably be expected to result in a Material Adverse Effect or which
would be reasonably likely to have a material adverse effect on the transactions
contemplated hereby or by the Registration Rights Agreement. The Company and each
Subsidiary maintains a system of internal accounting controls sufficient to provide the
Company’s management with timely and accurate information as to its financial position.
	 
	 	(u)	 	The Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by others within
those entities, particularly during the period in which the Company’s Form 10-KSB or
10-QSB, as the case may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures as of the date
required by the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder (such date, the “Evaluation Date”). The Company has presented in the
applicable Form 10-KSB or Form 10-QSB the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their evaluations
as of the Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Regulation S-B)
or, to the Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls. The Company meets the requirements for the use of Form
SB-2 for the registration of the resale of the Offered Securities and the Underlying
Common Stock by the Purchaser.

9

 

	 	(v)	 	The Company is not and is not required to be registered under Section 8 of the
United States Investment Company Act of 1940, as amended (the “Investment Company Act”)
and at all times maintains satisfactory controls and procedures to provide accurate
data upon which to base such statement; the Company’s intended use of the proceeds from
the sale of the Offered Securities are to retire long and short term indebtedness, and
for general working capital for the continued operation of its business and the Company
is not and, after giving effect to the offering and sale of the Offered Securities to
the Purchaser and the application of the proceeds thereof as described in this
Agreement, will not be an “investment company” or an “affiliated person” of, or
“promoter” or “ principal underwriter” for an investment company as such term is
defined in the Investment Company Act.
	 
	 	(w)	 	All offers and sales of securities by the Company have been made by the Company
in compliance with the Securities Act and the rules and regulations of the Commission
thereunder.
	 
	 	(x)	 	Assuming the accuracy of the representations of the Purchaser in the Investor
Questionnaire and herein, the offer and sale of the Offered Securities by the Company
to the Purchaser, and the issuance of the Underlying Common Stock, in the manner
contemplated by this Agreement will be exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereof and Regulation D thereunder and will
be exempt from the registration and qualification requirements of the laws of any
applicable state or United States jurisdiction.
	 
	 	(y)	 	The Company has not distributed and will not distribute prior to the Closing
Date any offering material in connection with the offering and sale of the Offered
Securities to the Purchaser other than the SEC Periodic Filings. Neither the Company
nor any person acting on its behalf has in the past or will hereafter take any action
independent of the Placement Agent to sell, offer for sale or solicit offers to buy any
securities of the Company that would subject the offer, issuance or sale of the Offered
Securities, as contemplated by this Agreement, to the registration requirements of
Section 5 of the Securities Act. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any offers or
sales in any security or solicited any offers to buy any security under circumstances
that would require registration under the Securities Act of the issuance of the Offered
Securities to Purchaser. The issuance of the Offered Securities to the Purchaser will
not be integrated with any other issuance of the Company’s securities (past, current or
future) for purposes of the Securities Act or any applicable rules of the Nasdaq Stock
Market. The Company will not make any offers or sales of any security that would cause
the offering of the Offered Securities to the Purchaser to be integrated with any other
offering of securities by the Company for purposes of any registration requirement
under the Securities Act or any applicable rules of the Nasdaq Stock Market.

10

 

	 	(z)	 	The Company is in material compliance with all applicable securities (or “Blue
Sky”) laws of the states of the United States, which including, without limitation, the
state in which the Purchaser resides.
	 
	 	(aa)	 	The Company and the Subsidiaries maintain insurance of the types and in the
amounts that the Company reasonably believes is adequate for their businesses,
including, but not limited to, insurance covering all real and personal property leased
by the Company and the Subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against by similarly situated
companies, all of which insurance is in full force and effect.
	 
	 	(bb)	 	The Company has not entered and will not enter into any contractual arrangement
with respect to the distribution of the Offered Securities or the Underlying Common
Stock except for this Agreement, the Registration Rights Agreement and the Placement
Agency Agreement.
	 
	 	(cc)	 	The Company is subject to the reporting requirements of the Exchange Act and
has filed all reports required thereby. There exist no facts or circumstances
(including without limitation any required approvals or waivers or any circumstances
that may delay or prevent the obtaining of accountant’s consents) that reasonably could
be expected to prohibit or delay the preparation and filing of the Registration
Statement on Form SB-2 that will be available for the resale of the shares of Common
Stock and the shares of Underlying Common Stock (including, without limitation, the
Warrant Shares) by the Purchaser.
	 
	 	(dd)	 	The Company has not taken, and will not take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the price of
the shares of the Common Stock to facilitate the sale or resale of the Offered
Securities.
	 
	 	(ee)	 	The Company has made available all material public information, as well as the
Howison and Arnott Opinion (as defined herein), in connection with the business of the
Company and the transactions contemplated by this Agreement, and no representation or
warranty made, nor any document, statement, or financial statement prepared or
furnished by the Company in connection herewith contains any untrue statement of
material fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein, in light of the circumstances under which they were
made, not misleading. The Company confirms that neither it nor any person acting on its
behalf has provided the Purchaser or any of its agents or counsel with any information
(including, without limitation, the disclosure and statements included in the Howison
and Arnott Opinion) that the Company believes constitutes material, non-public
information. The Company understands and confirms that the Purchaser will rely on the
foregoing representation in effecting transactions in securities of the Company.
	 
	 	(ff)	 	The Company shall not use the Purchaser’s name or the name of any of its
affiliates in any advertisement, announcement, press release or other similar public
communication unless it has received the prior written consent of the

11

 

	 	 	 	Purchaser for the specific use contemplated or as otherwise required by applicable
law or regulation.
	 
	 	(gg)	 	No transaction has occurred between or among the Company, any of the
Subsidiaries and their affiliates, officers or directors or any affiliate or affiliates
of any such officer or director that is required to have been described under
applicable securities laws in its Exchange Act filings and is not so described in such
filings.
	 
	 	(hh)	 	There is no transaction, arrangement or other relationship between the Company
and an unconsolidated or other off-balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect. There are no
such transactions, arrangements or other relationships with the Company that may create
contingencies or liabilities that are not otherwise disclosed by the Company in its
Exchange Act filings.
	 
	 	(ii)	 	For the purposes of this Agreement, the term “Intellectual Property” means all
intellectual property rights of the Company and its Subsidiaries, including (a) all
inventions, including discoveries related thereto, conceived of and reduced to practice
as of the date hereof, whether patentable or not in any jurisdiction, patents,
applications for patents (including, without limitation, divisions, continuations,
continuations in part and renewal applications), and any renewals, extensions or
reissues thereof, in any jurisdiction; (b) trademarks, service marks, brand names,
certification marks, trade dress, assumed names, trade names and other indications of
origin, the goodwill associated with the foregoing and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the foregoing,
including any extension, modification of or renewal of any such registration or
application; (c) computer software (including software, data, and related
documentation); (d) non-public information, trade secrets, know-how (including, without
limitation, research and development, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings and
specifications) and confidential information and rights in any jurisdiction to limit
the use or disclosure thereof by any person or entity; (e) writings or other works,
whether copyrightable or not in any jurisdiction, registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or extensions thereof;
(f) any similar intellectual property rights, and (g) any claims or causes of action
arising our of or related to any infringement or misappropriation of any of the
foregoing.

	 	(i)	 	The Company and its Subsidiaries own all right, title and
interest in and to all of the Intellectual Property owned by them, free and
clear of any and all liens, encumbrances or other adverse claims or interests
of any kind or nature, except as previously disclosed in any Current Exchange
Act Report.
	 
	 	(ii)	 	All of the Intellectual Property necessary to the operation of
the business of the Company and its Subsidiaries is, to the knowledge of the
Company, valid and enforceable, without any qualification, limitation or
restriction

12

 

	 	 	 	thereon or on the use thereof and the Company has not received any notice or
claim (whether written, oral or otherwise) challenging or questioning the
validity or enforceability of any of the Intellectual Property or indicating
an intention on the part of any third party to bring a claim that any of the
Intellectual Property is invalid or unenforceable or has been misused which
has not been previously disclosed in any Current Exchange Act Report or as
discussed in the attached due diligence opinion of Howison and Arnott (the
“Howison and Arnott Opinion”), nor is there a reasonable basis for a claim
that any of the Intellectual Property is invalid or unenforceable or has
been misused, and, with respect to all patents included in the Intellectual
Property, to the knowledge of the Company, there is no relevant prior art
pertaining to any issued patents thereof that was not disclosed during the
prosecution of the patent application(s) therefor and which if such prior
art had been disclosed may have affected the prosecution thereof or the
scope of the patent claims ultimately granted in respect thereof.
	 
	 	(iii)	 	The Company and its Subsidiaries have not taken any action or
failed to take any action (including the manner in which they have conducted
its business, or used or enforced, or failed to use or enforce, any of the
Intellectual Property) that would result in the abandonment, cancellation,
forfeiture, relinquishment, invalidation or unenforceability of any of the
Intellectual Property (including, with respect to the patents included in the
Intellectual Property, failing to disclose any known material prior art in
connection with the prosecution of patent applications, and with respect to the
copyrights included in the Intellectual Property, failing to disclose required
information to the United States Copyright Office or any other copyright
registry). The Company and each Subsidiary has taken reasonable steps to
protect and maintain its rights in and to the Intellectual Property. All
registered trademarks, service marks, and copyrights included in the
Intellectual Property have been registered or filed, and all patents included
in the Intellectual Property have been filed and obtained, in accordance with
all applicable legal requirements and are currently in effect and in compliance
with all applicable legal requirements (including, in the case of registered
trademarks or service marks, the timely post-registration filing of affidavits
of use and incontestability and renewal applications), and without limiting the
generality of any of the foregoing, the Company and its Subsidiaries have
timely paid all filing, examination, issuance, post registration and
maintenance fees, annuities and the like associated with or required with
respect to any of the Intellectual Property.
	 
	 	(iv)	 	No patent, trademark or service mark included in the
Intellectual Property has been or is now involved in any interference, reissue,
reexamination, opposition or cancellation proceeding, that is material to the
ownership, existence or validity of such Intellectual Property, which has not
been previously disclosed in any Current Exchange Act Report or as discussed in
the attached due diligence opinion of Howison and Arnott and, to the Company’s
knowledge and belief, (A) no such action is or has been threatened with respect
to any such patent, trademark or service mark, and

13

 

	 	 	 	(B) there is no patent or patent application of any third party potentially
interfering with any such patent.
	 
	 	(v)	 	To the knowledge of the Company, there has been no prior use of
any of the trademarks and service marks included in the Intellectual Property
by any third party, which would confer upon such party superior rights in such
marks. All registered trademarks or service marks included in the Intellectual
Property are being used, have been continuously used in the form appearing in,
and in connection with, the goods and services listed in their respective
registration certificates and applications therefor, respectively.
	 
	 	(vi)	 	The Company and the Subsidiaries have not disclosed, nor are
they under any contractual or other obligation to disclose, to another third
party any trade secrets included in the Intellectual Property, except pursuant
to a confidentiality and non-disclosure agreement, and, to the Company’s
knowledge, no third party has materially breached any such agreement.
	 
	 	(vii)	 	The Company has the right to practice all inventions disclosed
in the patents included in the Intellectual Property.
	 
	 	(viii)	 	The Intellectual Property constitutes all of the intellectual property rights
necessary for the conduct of the current business activities of the Company and
its Subsidiaries.

	 	(jj)	 	The Company and its Subsidiaries are not a party to any action or proceeding
that involves or involved a claim of infringement, misappropriation or other wrongful
use or exploitation, either (i) by the Company or any Subsidiary against any third
party or (ii) by any third party against the Company or any Subsidiary, pertaining to
the Company’s use of any of the Intellectual Property, nor has any such claim been made
(whether written oral or otherwise) or threatened or is there any reasonable basis
therefor, which has not been previously disclosed in any Current Exchange Act Report.
None of the Intellectual Property is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use, exercise, practice or other
exploitation thereof by the Company or any Subsidiary, with the exception of certain
Intellectual Property licensed to third parties. To the knowledge of the Company,
neither the Intellectual Property nor the products sold by the Company or any
Subsidiary enveloped, practiced, copied, modified (including the creation of
derivatives), displayed, made, sold, offered for sale, marketed, used, leased, licensed
or sublicensed, imported, exported or otherwise distributed, disposed of, otherwise
exercised or exploited by or for the Company, nor the activities or operations of
Company or any Subsidiary infringe, misappropriate or otherwise inappropriately
conflict with or violate, or has any of them infringed, misappropriated, or otherwise
inappropriately conflicted with or violated, any intellectual property right or other
right of any third party.
	 
	 	(kk)	 	Each current employee, independent contractor and consultant to the Company or
any of the Subsidiaries who has participated in the development of any of the
Intellectual Property has (a) executed an agreement requiring each of them to

14

 

	 	 	 	maintain in strict confidence the trade secrets and information of the Company and
the Subsidiaries related to the Intellectual Property and (b) properly assigned such
individual’s rights in such Intellectual Property to the Company or such Subsidiary,
as applicable, or such work product otherwise constitutes the property of the
Company or such Subsidiary, as applicable, as a work made for hire. The Company and
its Subsidiaries are not utilizing (A) any inventions of any independent contractors
or consultants, or confidential information (including trade secrets) of any third
party to which any independent contractors or consultants have been exposed, and (B)
any inventions of any employees of the Company or any of the Subsidiaries made, or
any confidential information (including trade secrets) of another person to which
any employees were exposed, prior to their employment by the Company or any
Subsidiary, as applicable, in each case excluding any inventions or confidential
information that have been duly assigned in writing to the Company or Subsidiary, as
applicable. To the Company’s knowledge and belief, at no time during the conception
of or reduction to practice of any of the Intellectual Property was any developer,
inventor or other contributor to such Intellectual Property operating under any
grants from any governmental entity or private source, or performing research
sponsored by any governmental entity or private source.
	 
	 	(ll)	 	Except as set forth in the Company’s Exchange Act Reports, none of the officers
or directors of the Company or any Subsidiary and, to the knowledge of the Company,
none of the employees of the Company or Subsidiary is presently a party to any
transaction with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
	 
	 	(mm)	 	Based on the financial condition of the Company as of the Closing Date (and
assuming that the Closing shall have occurred), (i) the Company’s fair saleable value
of its assets exceeds the amount that will be required to be paid on or in respect of
the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as now conducted and
as proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the current cash of
the Company, together with the proceeds that the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).

15

 

	 	(nn)	 	The Company acknowledges that the issuance of the Offered Securities may result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges that its
obligations under this Agreement, the Convertible Preferred and the Warrant, including
without limitation its obligation to issue the Underlying Common Stock (including,
without limitation, the Warrant Shares), are unconditional and absolute and not subject
to any right of set off, counterclaim, delay or reduction, regardless of the effect of
any such dilution or any claim the Company may have against the Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership of the
other stockholders of the Company.
	 
	 	(pp)	 	The Company acknowledges and agrees that, except for the information provided
in Part III, Section 2 of the Investor Questionnaire, (i) to the knowledge of the
Company, the Purchaser has not been asked to agree, nor has the Purchaser agreed, to
desist from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Offered Securities for any specified term; (ii) that past or future open market or
other transactions by the Purchaser, including short sales, and specifically including,
without limitation, short sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact the
market price of the Company’s publicly-traded securities; (iii) that the Purchaser, and
counter parties in “derivative” transactions to which the Purchaser is a party,
directly or indirectly, presently may have a “short” position in the Common Stock; and
(iv) that, to the knowledge of the Company, the Purchaser shall not be deemed to have
any affiliation with or control over any arm’s length counter party in any “derivative”
transaction. The Company further understands and acknowledges that (a) the Purchaser
may engage in hedging activities at various times during the period that the
Convertible Preferred, Warrants and/or Warrant Shares are outstanding and (b) such
hedging activities (if any) could reduce the value of the existing stockholders’ equity
interests in the Company at and after the time that the hedging activities are being
conducted. The Company acknowledges that such aforementioned hedging activities do not
constitute a breach of this Agreement, the Convertible Preferred, the Warrants or any
of the documents executed in connection with the transaction contemplated by this
Agreement.

	6.	 	Representations by the Purchaser: Resale by the Purchaser. The Purchaser represents,
warrants and acknowledges and agrees with the Company as follows:

	 	(a)	 	The Purchaser is an “Accredited Investor” (as such term is defined in Rule 501
of Regulation D promulgated under the Securities Act). By reason of his business and
financial experience, the Purchaser has such knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the merits and
risks of the investment in the Offered Securities and the Underlying Common Stock, has
the capacity to protect the Purchaser’s own interests and is able to bear the economic
risk of such investment. The Purchaser has had an opportunity to review all publicly
disclosed financial information, publicly available information from the Company’s
books and records and all regulatory

16

 

	 	 	 	filings of the Company and to ask questions of representatives of the Company
concerning the terms and conditions of the transactions contemplated by this
Agreement.
	 
	 	(b)	 	The Purchaser is acquiring the Offered Securities for the Purchaser’s own
account, for investment purposes only, and not with a view to the public sale or
distribution thereof in violation of the Securities Act. The Purchaser understands
that the Offered Securities and the Underlying Common Stock have not been registered
under the Securities Act or registered or qualified under any state securities law in
reliance upon specific exemptions therefrom, which exemptions depend upon, among other
things, the bona fide nature of the Purchaser’s investment intent as expressed herein.
Without limiting the foregoing, the Purchaser makes no representations or warranties
regarding the period of time that the Purchaser will remain a holder of the Offered
Securities.
	 
	 	(c)	 	The Purchaser is not purchasing the Offered Securities as a result of or
subsequent to any advertisement, article, notice or other communication published in
any newspaper magazine or similar media or broadcast over television or radio or
presented at any seminar.
	 
	 	(d)	 	The Purchaser is, and on the Closing Date will be, able to bear the economic
risk of an investment in the Offered Securities and is able to afford a complete loss
of such investment. The Purchaser has adequate means of providing for the Purchaser’s
current financial needs and contingencies, is able to bear the substantial economic
risks of an investment in the Offered Securities for an indefinite period of time, and
has no need for liquidity in such investment.
	 
	 	(e)	 	The Purchaser acknowledges that the Purchaser has been afforded (i) the
opportunity to ask such questions as he has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Offered Securities to the Purchaser, and the merits and risks of
investing in the Offered Securities; (ii) access to information about the Company and
the Company’s financial condition, results of operations, business, properties,
management and prospects sufficient to enable the Purchaser to evaluate the Purchaser’s
investment; and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to his investment.
	 
	 	(f)	 	The Purchaser understands and acknowledges that (i) the Offered Securities and,
upon conversion or exercise, the Underlying Common Stock are being offered and sold
without registration under the Securities Act in a private placement that is exempt
from the registration provisions of the Securities Act under Section 4(2) of the
Securities Act and Regulation D promulgated thereunder; (ii) neither the Offered
Securities nor the Underlying Common Stock have been registered under any Blue Sky law
of any state and (iii) the availability of such exemptions depends in part on, and the
Company is relying on the accuracy, completeness and truthfulness of, the
representations made by Purchaser herein and the statements made by the Purchaser in
the Investor Questionnaire. Purchaser hereby

17

 

	 	 	 	acknowledges and consents to such reliance by the Company. The Purchaser
understands further that in absence of an effective Registration Statement, the
Offered Securities can only be sold pursuant to some exemption from registration,
such as Rule 144 of the Act, which requires, among other conditions, that the
Offered Securities must be held for a minimum of one (1) year.
	 
	 	(g)	 	The Purchaser understands and recognizes that investment in the Offered
Securities involves substantial risks. The Purchaser has, by reason of the Purchaser’s
business or financial experience either alone or together with the Purchaser’s
representatives and professional advisers (who are unaffiliated with and who are not
compensated, directly or indirectly, by the Company or the Placement Agent or any
affiliate of either of them), such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Offered Securities and the Underlying Common Stock, has
so evaluated the merits and risks of the prospective investment in the Offered
Securities and the Underlying Common Stock. The Purchaser has evaluated the merits and
risks of such investment to the Purchaser’s satisfaction, and has the capacity to
protect Purchaser’s own interests in connection with the offering of the Offered
Securities to the Purchaser. The Purchaser further acknowledges that he has read the
Exchange Act Reports of the Company, including the risk factors identified therein.
The Purchaser further recognizes that no Federal or state agencies have passed upon the
offering of the Offered Securities to the Purchaser or made any finding or
determination as to the fairness of this investment.
	 
	 	(h)	 	The Purchaser has made a decision to purchase the Offered Securities based
solely upon the representations and warranties made by the Company in this Agreement,
the Purchaser’s review of the Exchange Act Reports and such other information made
available to the Purchaser by the Company in writing and is not relying on any
investigation or statements made by the Placement Agent. The Purchaser acknowledges
that the Placement Agent cannot make any assurances that the Exchange Act Reports or
other information supplied by the Company are accurate or complete.
	 
	 	(i)	 	The Company confirms that this Section 6(i) supersedes any legend requirements
of Section 7.03(d) of the Company’s By-Laws, which would otherwise be applicable to the
Offered Securities and the Underlying Common Stock. The Purchaser acknowledges that
each certificate representing the Offered Securities and the Underlying Common Stock
shall contain a legend substantially in the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE

18

 

SECURITIES LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH
REGISTRATION, PROVIDED THAT THE SELLER DELIVERS TO THE COMPANY AN
OPINION OF COUNSEL (WHICH OPINION IS REASONABLY SATISFACTORY TO THE
COMPANY) CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION. THE
INVESTOR SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

	 	(j)	 	Certificates evidencing the Offered Securities and Underlying Common Stock shall
not contain any legend (including the legend set forth above), (A) while a registration
statement covering the resale of such security is effective under the Securities Act
(provided, however, that the Purchaser’s prospectus delivery requirements under the
Securities Act will remain applicable), or (B) following any sale of any of the Offered
Securities and/or Underlying Common Stock pursuant to Rule 144, or (C) if the Offered
Securities and/or Underlying Common Stock are eligible for sale under Rule 144(k), or
(D) if such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of the SEC).
The Company shall use its best efforts to cause its counsel to issue a legal opinion
(at the Company’s expense) to the Company’s transfer agent promptly after the effective
date of any registration statement (the “Effective Date”) if required by the Company’s
transfer agent to effect the removal of the legend hereunder. The Company agrees that
following the Effective Date or at such time as such legend is no longer required under
this clause (ii), it will, no later than three trading days following the delivery by
the Purchaser to the Company or the Company’s transfer agent of a certificate
representing the Offered Securities and/or Underlying Common Stock issued with a
restrictive legend, deliver or cause to be delivered to the Purchaser a certificate
representing such Offered Securities and/or Underlying Common Stock that is free from
all restrictive and other legends. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company that enlarge(s) the
restrictions on transfer set forth herein. All costs and expenses related to the
removal of the legends and the reissuance of any of the Offered Securities or any of
the Underlying Common Stock shall be borne by the Company.
	 
	 	(k)	 	The Company acknowledges and agrees that the Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Offered Securities and/or Underlying
Common Stock to a financial institution that is an “accredited investor” as defined in
Rule 501(a) under the Securities Act and, if required under the terms of such
arrangement, the Purchaser may transfer pledged or secured Offered Securities and/or
Underlying Common Stock to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be

19

 

	 	 	 	required of such pledge. At the Company’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Offered
Securities and/or Underlying Common Stock may reasonably request in connection with
a pledge or transfer of the Offered Securities and/or Underlying Common Stock,
including, subject to the provisions of Section 2(g) of the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of selling stockholders thereunder.
	 
	 	(l)	 	The Purchaser has all requisite power and authority to enter into this
Agreement and the Registration Rights Agreement and to consummate the transactions
contemplated hereby and thereby. This Agreement and the Registration Rights Agreement
have been duly executed and delivered by the Purchaser. This Agreement and the
Registration Rights Agreement are legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or conveyance or similar laws relating to or limiting creditors’
rights generally or by equitable principles relating to enforceability and except as
rights of indemnity or contribution may be limited by federal or state securities or
other laws or the public policy underlying such laws.
	 
	 	(m)	 	Purchaser has the full legal right and power and all authority and approval
required (a) to execute and deliver, or authorize execution and delivery of, this
Agreement and all other instruments executed and delivered by or on behalf of it in
connection with the purchase of the Offered Securities, (b) to delegate authority
pursuant to a power of attorney and (c) to purchase and hold the Offered Securities;
(ii) the signature of the party signing on behalf of Purchaser is binding upon it; and
(iii) Purchaser has not been formed for the specific purpose of acquiring the Offered
Securities, unless each beneficial owner of such entity is qualified as an “accredited
investor” within the meaning of Regulation D and has submitted information
substantiating such individual qualification.
	 
	 	(n)	 	No consent, approval, authorization, or order of, or filing with, any
governmental agency or body or any court is required for the consummation of the
transactions contemplated by this Agreement and the Registration Rights Agreement by
the Purchaser, except for such as have been obtained prior to the date hereof.
	 
	 	(o)	 	The information furnished by the Purchaser herein and in the Investor
Questionnaire signed by Purchaser is true and accurate as of the date hereof and will
be true and accurate on the Closing Date, absent notification by the Purchaser to the
Company of any material change in the information contained therein prior to the
Closing Date.
	 
	 	(p)	 	The execution, delivery and performance this Agreement and the Registration
Rights Agreement will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or foreign,

20

 

	 	 	 	having jurisdiction over the Purchaser or any of the Purchaser’s properties, or any
agreement or instrument to which the Purchaser is a party or by which the Purchaser
is bound or to which any of the properties of the Purchaser is subject, or any
charter or by-laws of the Purchaser.
	 
	 	(q)	 	The Purchaser acknowledges that the Placement Agent will receive compensation
from the Company in connection with the offering of the Offered Securities to the
Purchaser, but is not guaranteeing or assuming responsibility for the operation or
possible liability of the Company, including, without limitation, compliance by the
Company with the agreements entered into in connection with the offering of the Offered
Securities to the Purchaser, and the Placement Agent will not supervise or participate
in the operation or management of the Company.
	 
	 	(r)	 	No person or entity acting on behalf, or under the authority, of the Purchaser
is or will be entitled to any broker’s, finder’s or similar fee or commission in
connection with this Agreement or the purchase by the Purchaser of the Offered
Securities.
	 
	 	(s)	 	PURCHASER HEREBY ACKNOWLEDGES THAT THE COMPANY HAS DELIVERED TO THE PURCHASER ALL
INFORMATION AND DOCUMENTS THAT PURCHASER HAS REQUESTED OF THE COMPANY. IN MAKING AN
INVESTMENT DECISION, THE PURCHASER HAS RELIED UPON THE PURCHASER’S OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING OF THE OFFERED SECURITIES TO THE PURCHASER,
INCLUDING THE MERITS AND RISKS INVOLVED.
	 
	 	(t)	 	The Purchaser acknowledges that the Placement Agent has been retained by the
Company to act as the Company’s placement agent in the offering of the Offered
Securities to the Purchaser and that, for its services, the Placement Agent will be
compensated by the Company.
	 
	 	(u)	 	The Purchaser acknowledges that upon execution and delivery of this Agreement
by the Company and the Purchaser, except as required by law or as may otherwise be
contemplated by this Agreement, the Purchaser is not entitled to cancel, terminate or
revoke this Agreement or any agreements of Purchaser hereunder and that this Agreement
and such other agreements shall survive the death or disability of the Purchaser and
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors, legal representatives and
permitted assigns.

	7.	 	Certain Agreements of the Company. The Company agrees with the Purchaser that:

	 	(a)	 	In addition to any and all other public statements or disclosures made by the
Company in its sole discretion (subject to the last sentence of this Section 7(a)), the
Company will issue a press release and file a Current Report on Form 8-K with the
Commission (i) disclosing the material terms of the transaction contemplated by this
Agreement by the day following the date hereof and (ii) regarding the Closing of the
purchase and sale of the Offered Securities, if

21

 

	 	 	 	practicable, on the date of the Closing or the following morning. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of the Purchaser, or
include the name of the Purchaser in any filing with the Commission or any SRO,
without the prior written consent of the Purchaser, except (i) as required by
federal securities law and (ii) to the extent such disclosure is required by law or
regulations, in which case the Company shall provide the Purchaser with prior notice
of such disclosure permitted under sub clause (i) or (ii). Furthermore, the Company
covenants and agrees that neither it nor any other Person acting on its behalf will
provide the Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto the
Purchaser shall have executed a written agreement regarding the confidentiality and
use of such information. The Company understands and confirms that the Purchaser
shall be relying on the foregoing representations in effecting transactions in
securities of the Company.
	 
	 	(b)	 	The Company shall indemnify and hold the Purchaser harmless from and against
all fees, commissions or other payments owing by the Company to the Placement Agent or
any other person or from acting on behalf of the Company with respect to the offering
of the Offered Securities to the Purchaser.
	 
	 	(c)	 	The Company will pay all expenses incidental to the performance of its
obligations under this Agreement and the Registration Rights Agreement including all
expenses in connection with the execution, issue, authentication, packaging and initial
delivery of the Offered Securities and, as applicable, the Underlying Common Stock, the
preparation of this Agreement, the Registration Rights Agreement, and amendments and
supplements thereto, and any other document relating to the issuance, offer, sale and
delivery of the Offered Securities and as applicable the Underlying Common Stock.
	 
	 	(d)	 	For the period commencing on the date hereof and ending on the 90th
day after the Effective Date of the Registration Statement, the Company will not offer,
sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, any
Common Stock or any securities which are convertible into, or exercisable for, Common
Stock, except for (i) shares of Common Stock issued or issuable pursuant to the Offered
Securities, specifically including all shares issuable upon conversion or exchange of,
or as dividends on, the Offered Securities, (ii) shares of Common Stock issued or
issuable pursuant to securities purchased by third party purchasers of the Company’s
securities in the Contemporaneous Offering, specifically including all shares issuable
upon conversion or exchange of, or as dividends on, such securities, (iii) shares of
Common Stock issued or issuable pursuant to the Company’s Series A Convertible
Preferred Stock, specifically including all conversion shares and all shares that may
be issued as dividends thereon, (iv) shares of Common Stock issued or issuable pursuant
to the Company’s Series A-1 Warrants, Series A-2 Warrants and Series A-Agent Warrants,
(v) shares of Common Stock issuable upon the exercise of any options or warrants
outstanding on the date of this Agreement, (vi) shares of Common Stock issuable
pursuant to or upon the conversion of any note, debenture, debt instrument and any
other written agreement to which the Company is a party on the date of this Agreement,
(vii) shares of Common Stock (including grants,

22

 

	 	 	 	options and warrants) issuable pursuant to or in accordance with any plan for which
the Company has filed a registration statement that has been declared effective
including, without limitation, the 1994 Stock Plan, the 2005 Stock Plan and the
Consultant Compensation Plan, or any other stock plan, option plan or written
agreements to which the Company is a party on the date of this Agreement including
all modifications and replacements thereof, (viii) shares of Common Stock issuable
pursuant to or in accordance with any grants, options, warrants, conversions or
otherwise for which the Company has filed a registration statement that has been
declared effective and (ix) shares of Common Stock issued or issuable pursuant to
the Company’s Series B-Agent Warrants (the securities described in sections (i)
through (ix) inclusive may sometimes be referred to herein as the “Excluded
Securities”). The Company will not at any time offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, any securities under circumstances
where such offer, sale, pledge, contract or disposition would cause the exemption
afforded by Section 4(2) of the Securities Act to cease to be applicable to the
offer and sale of the Offered Securities and the Underlying Common Stock to the
Purchaser hereunder.
	 
	 	(e)	 	The Company shall use the net proceeds received from the sale of the Offered
Securities solely for working capital, including the development of technology.

	8.	 	Conditions of the Obligations of the Purchaser. In addition to the conditions
precedent set forth in Section 4 of this Agreement, the obligations of the Purchaser to
purchase and pay for the Offered Securities on the Closing Date will be subject to the
accuracy of the representations and warranties on the part of the Company herein, to the
accuracy of the statements of officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder and to the following additional
conditions precedent:

	 	(a)	 	The Company shall have executed this Agreement and the Registration Rights
Agreement and delivered the same to the Purchaser.
	 
	 	(b)	 	The Purchaser shall have received copies of all documents and information,
which it may have reasonably requested in connection with the offering and sale of the
Offered Securities to the Purchaser.
	 
	 	(c)	 	The Company shall have caused its corporate and securities legal counsel,
respectively, to deliver to the Purchaser the legal opinions in substantially the forms
together attached hereto as Exhibit C.
	 
	 	(d)	 	The Company shall have caused its intellectual property counsel to deliver to
the Purchaser the Howison and Arnott Opinion relating to the Intellectual Property,
which is substantially in the form attached hereto as Exhibit D.
	 
	 	(e)	 	No stop order or suspension of trading shall have been imposed by Nasdaq, the
Commission, any SRO or any other governmental regulatory body with respect to public
trading in Common Stock of the Company.
	 
	 	(f)	 	Subsequent to the execution and delivery of this Agreement but prior to the
Closing Date, there shall not have occurred (i) a change in U.S. or international

23

 

	 	 	 	financial, political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of the Purchaser, be likely to prejudice
materially the success of the proposed issue, sale or distribution of the Offered
Securities, whether in the primary market or in respect of dealings in the secondary
market, or (ii) (A) any change, or any development or event involving a prospective
change, in the condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as one enterprise which, in the
judgment of the Purchaser is material and adverse and makes it impractical or
inadvisable to proceed with completion of the offering or the sale of (and payment
for) the Offered Securities to the Purchaser; (B) any material suspension or
material limitation of trading in securities generally on NASDAQ or any setting of
minimum prices for trading on NASDAQ, or any suspension of trading of any securities
of the Company on any exchange or in the over-the-counter market; (C) any banking
moratorium declared by United States Federal or New York authorities; or (D) any
outbreak or escalation of major hostilities in which the United States is involved,
any declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of the Purchaser, the effect
of any such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the offering or sale of
(and payment for) the Offered Securities to the Purchaser.
	 
	 	(g)	 	The Purchaser shall have received a certificate, dated as of the Closing Date,
of the Chief Executive Officer, President or the principal financial or accounting
officer of the Company in form a substance reasonably satisfactory to the Purchaser and
its counsel, in which such officers, to the effect that the representations and
warranties of the Company in this Agreement are true and correct, that the Company has
complied with all agreements and satisfied all conditions on its part to be performed
or satisfied hereunder at or prior to such Closing Date, and that there has been no
development or event that would constitute a Material Adverse Effect, nor any
development or event known to the Company that prospectively involves a Material
Adverse Effect.
	 
	 	(h)	 	Simultaneously with or prior to the Closing, the Company shall have sold
securities to third party purchasers, who are not acting in concert with the Purchaser,
for an aggregate of a minimum of $8,000,000 and a maximum of $10,000,000, which
securities shall be on, and have, such terms and conditions as the Company shall
determine in its sole discretion.
	 
	 	(i)	 	The Company and the Company’s transfer agent shall have executed irrevocable
instructions in the form attached hereto as Exhibit E (the “Irrevocable Transfer Agent
Instructions”), instructing such transfer agent, and any subsequent transfer agent, to
promptly issue certificates, registered in the name of the Purchaser or its nominee(s),
for the Underlying Common Stock in such amounts as specified from time to time by the
Purchaser to the Company upon conversion of the Series B Convertible Preferred Stock
and/or upon exercise of the Series B Warrants.
	 
	 	(j)	 	The Purchaser shall have received a certificate evidencing the incorporation
and good standing of the Company in Nevada issued by the Secretary of State of the

24

 

	 	 	 	State of Nevada as of a date within ten (10) days of the Closing Date, together with
a certificate evidencing the good standing of the Company as a foreign corporation
in the State of Texas issued by the Secretary of State of the State of Texas.
	 
	 	(k)	 	The Purchaser shall have received a certified copy of the Certificate of
Incorporation and the Certificate of Designation, as certified by the Secretary of
State of the State of Nevada as of a date within ten (10) days of the Closing Date.
	 
	 	(l)	 	The Purchaser shall have received from the Company a secretary’s certificate,
dated as of the Closing Date, certifying as to (A) resolutions, (B) the Articles of
Incorporation and (C) the Bylaws, each as in effect at the date hereof.
	 
	 	(m)	 	The Company will furnish the Purchaser such number of conformed copies of such
opinions, certificates, letters and documents as the Purchaser may reasonably request
in writing. The Purchaser may in its sole discretion waive compliance with any
conditions to the obligations of the Purchaser hereunder.

	9.	 	Survival of Certain Representations and Obligations. The respective indemnities,
agreements, representations, warranties and other statements of the Company or its officers
and of the Purchaser set forth in or made pursuant to this Agreement will remain in full force
and effect, regardless of any investigation, or statement as to the results thereof, made by
or on behalf of the Purchaser, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of and payment for
the Offered Securities.
	 
	10.	 	Notices. All notices, requests, demands, waivers, consents and other communications
hereunder shall be in writing, and (i) if sent to the Purchaser shall be delivered either in
person, by telegraphic, facsimile, or other electronic means, by overnight air courier or by
certified or registered mail, return receipt requested or (ii) if sent to the Company, shall
be delivered either in person, by telegraphic, facsimile, or other electronic means, by
overnight air courier, and shall be deemed to have been duly given and to have become
effective: (a) upon receipt if delivered in person or by telegraphic, facsimile or other
electronic means calculated to arrive on any Business Day prior to 5:00 p.m., local time, or
on the next succeeding Business Day if delivered on a non-business day or after 5:00 p.m.,
local time; (b) one Business Day after having been delivered to an air courier for overnight
delivery or (c) three Business Days after having been deposited in the United States mails as
certified or registered mail, return receipt requested, all fees prepaid, directed to the
parties at the following addresses (or at such other address as shall have been previously
given in writing in accordance with the terms hereof by any party hereto):

If to Purchaser, to the address set forth on the signature page hereof.

If to Viseon, Inc.:

	 	 	 
	 

	 	Viseon, Inc.
	 

	 	Attn: President
	 

	 	8445 Freeport Parkway Suite 245
	 

	 	Dallas, TX 75063

25

 

	 	 	 
	 

	 	With a copy to:
	 
	 	 
	 

	 	Albert B. Greco, Jr.
	 

	 	Law Offices of Albert B. Greco, Jr.
	 

	 	16901 N. Dallas Parkway, Suite 230
	 

	 	Addison, Texas 75001
	 

	 	Facsimile: 972-818-7343

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

	12.	 	Applicable Law: Consent to Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard to principles
of conflicts of laws. The Purchaser hereby submits to the exclusive jurisdiction of the
Federal and State courts situated in New York County, New York in any suit or proceeding
arising out of or relating to this Agreement or the transactions contemplated hereby.

	13.	 	Changes. This Agreement may not be modified, amended or waived except pursuant to an
instrument in writing signed by the Company and the Purchaser.

	14.	 	Entire Agreement. This Agreement and the other agreements and instruments executed
and delivered by the parties hereto in connection with the execution and delivery of this
Agreement or the consummation of the transaction contemplated by this Agreement constitute the
entire agreement between the parties hereto pertaining to the subject matter hereof, and any
and all other written or oral agreements relating to such subject matter are expressly
cancelled.

	15.	 	Successors and Assigns. This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the Company and the Purchaser, including without
limitation and without the need for an express assignment, affiliates of the Purchaser. The
Company may not assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Purchaser. Upon any transfer, the Company shall be obligated to such
transferee to perform all of its covenants under this Agreement as if such transferee were the
Purchaser.

	16.	 	Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, the Purchaser and the Company will be entitled
to specific performance under the Agreement. The parties agree that monetary damages may not
be adequate compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agree to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be adequate.

26

 

	17.	 	Independent Nature of Purchaser’s Obligations and Rights. The obligations of the
Purchaser under this Agreement are several and not joint with the obligations of any other
third party purchaser of the Company’s securities, and the Purchaser shall not be responsible
in any way for the performance of the obligations of any other third party purchaser. The
decision of the Purchaser to purchase the Offered Securities pursuant to this Agreement has
been made by the Purchaser independently of any other third party purchaser. Nothing
contained herein or any agreement of any such third party purchaser, and no action taken by
Purchaser pursuant hereto or any third party purchaser pursuant thereto, shall be deemed to
constitute the Purchaser and any third party purchaser as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Purchaser is in
any way acting in concert or as a group with third party purchasers with respect to any
matters. The Purchaser acknowledges that no third party purchaser has acted as agent for
Purchaser in connection with making its investment hereunder and that no third party purchaser
will be acting as agent of the Purchaser in connection with monitoring its investment in the
Offered Securities and Underlying Common Stock or enforcing its rights under this Agreement.
The Purchaser shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be necessary for
any third party purchaser to be joined as an additional party in any proceeding for such
purpose. To the extent that any such third party purchasers purchase the same or similar
securities as the Purchaser hereunder or on the same or similar terms and conditions pursuant
to the same or similar documents, all such matters are solely in the control of the Company,
not the action or decision of the Purchaser, and would be solely for the convenience of the
Company and not because it was required or requested to do so by the Purchaser or any such
third party purchaser.

	18.	 	Replacement of the Offered Securities and/or Underlying Common Stock. If any
certificate or instrument evidencing any of the Offered Securities and/or Underlying Common
Stock is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of
such replacement Offered Securities and/or Underlying Common Stock.

	19.	 	Stock Splits, Etc. The provisions of this Agreement shall be appropriately adjusted
to reflect any stock split, stock divided, reverse stock split, reorganization or other
similar event effected after the date hereof.

	20.	 	Termination. Purchaser may terminate this Agreement without any obligation or
liability hereunder or otherwise if the closing of the transaction contemplated by this
Agreement does not occur within three (3) business days after the execution of this Agreement.

[Signature page follows]

27

 

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

CD INVESTMENT PARTNERS, LTD.

By: CD Capital Management LLC

Its: Investment Manager

	 	 	 	 	 
	By:

	 	 

	 	 
	Its:

	 	 
	 	 

Address for Notice:

Two North Riverside Plaza, Suite 720

Chicago, Illinois 60606

Fax: (312) 559-1288

Attn: John D. Ziegelman

With copy to (which shall not constitute notice):

Greenberg Traurig

77 W. Wacker Drive, Suite 2500

Chicago, IL 60601

Tel: (312) 456-8400

Fax: (312) 456-8435

Attn: Peter H. Lieberman and Todd A. Mazur

Viseon, Inc.

 

By: John Harris, President

28

 

SUMMARY INSTRUCTION SHEET FOR PURCHASER

(to be read in conjunction with the entire

Purchase Agreement which this follows)

A. Complete BOTH the following items on the Purchase Agreement (Please sign two originals):

	 	1.	 	Page 29 — Signature:

	 	(i)	 	Name of the Purchaser (Individual or Institution)
	 
	 	(ii)	 	Name of Individual representing the Purchaser (if an Institution)
	 
	 	(iii)	 	Title of Individual representing the Purchaser (if an Institution)
	 
	 	(iv)	 	Signature of the Purchaser or Individual representing the Purchaser

	 	2.	 	Appendix I — Investor Questionnaire:
	 
	 	 	 	Provide the information requested by the Investor Questionnaire.
	 
	 	3.	 	Return BOTH including the properly completed Appendix I to (initially by
facsimile with hard copy by overnight delivery):

	 	 	 
	 

	 	ThinkEquity Partners LLC
	 

	 	31 West 52nd Street, 17th Floor
	 

	 	New York, New York 10019
	 

	 	Attention: Nicholas Oust
	 

	 	Facsimile: (212) 468-7044

B. Instructions regarding the transfer of funds for the purchase of the Offered Securities will be
sent by facsimile to the Purchaser by the Company at a later date.

C. Upon the resale of the Underlying Common Stock or the Warrant Shares by the Purchaser after the
Registration Statement covering the Underlying Common Stock and the Warrant Shares is effective, as
described in the Purchase Agreement, the Purchaser:

	 	(i)	 	must deliver a current prospectus of the Company to the buyer
(prospectuses must be obtained from the Company at the Purchaser’s request);
and
	 
	 	(ii)	 	must send a notice of sale in the form of Appendix II to the
Company so that the Underlying Common Stock or Warrant Shares may be properly
transferred.

1

 

APPENDIX I

INVESTOR QUESTIONNAIRE

     This questionnaire is being delivered to you by Viseon, Inc. (the “Company”) in connection
with the preparation of a Registration Statement on Form SB-2, (the “Registration Statement”)
pursuant to the Securities Act of 1933. The purpose of this questionnaire is to develop and verify
information used in preparation of the Registration Statement.

     If documents filed with the SEC contain any untrue statements or omit to state any material
fact, you, the Company and its respective officers, directors and controlling persons may be
subject to civil or criminal liabilities under the Securities Act of 1933. It is important,
therefore, that the information you supply be complete and accurate.

     Since the definitions of certain terms used in the questionnaire may be unfamiliar to you, you
may find it helpful to read the entire questionnaire and the definitions found throughout before
answering any of the questions. Particularly, the concepts of “voting power” and “investment
power” are important. “Voting power” means the power to vote, or to direct the voting of, the
shares, while “investment power” includes the power to dispose, or to direct the disposition, of
the shares. Other important concepts relating to “voting power” and “investment power” deal with
whether or not one or both of such powers are “sole” or “shared.” You have sole “voting power” or
sole “investment power” if you do not share these powers with any other person. You have shared
“voting power” or shared “investment power” if you share these powers with any other person.

     A response should be made to each item in the questionnaire. Indicate a negative response or
“not applicable” where appropriate. If inadequate space is provided for your answer, write on the
back of the page or attach a rider.

     AN INCORRECT OR INCOMPLETE ANSWER TO ANY OF THE QUESTIONS COULD SUBJECT THE COMPANY AND YOU
PERSONALLY TO LIABILITY UNDER THE SECURITIES LAWS. ACCORDINGLY, PLEASE GIVE THE QUESTIONNAIRE YOUR
CAREFUL ATTENTION.

 

 

APPENDIX I

Part I. Identification of Holder

	 	 	 
	The exact name that your securities are to be registered in (this is
the name that will appear on your stock certificate(s)). You may use
a nominee name if appropriate:
	 	 
	 

	 	 

	 
	 	 
	The relationship between the Purchaser of the securities and the
Registered Holder listed in response to item 1 above:
	 	 
	 

	 	 

	 
	 	 
	The mailing address of the Registered Holder listed in response to
item 1 above:
	 	 
	 

	 	 

	 
	 	 
	 

	 	 

	 
	 	 
	 

	 	 

	 
	 	 
	 

	 	 

	 
	 	 
	The Social Security Number or Tax Identification Number of the
Registered Holder listed in response to item 1 above:
	 	 
	 

	 	 

 

 

APPENDIX I

Part II. Holding of Securities

1 Securities Owned Outright by You. State below the number of shares of Common Stock that you
owned outright as of the date hereof. Include shares registered in your name individually and
shares held in the name of a bank, broker, nominee, depository or in “Street Name” for your
account. If the answer is none, please so state. You are presumed to have sole “voting power” and
sole “investment power” of all shares you own outright. If for any reason you do not have sole
“voting power” or sole “investment power” of all shares you own outright, please describe the
reasons for your lack of sole powers.

Common
Stock _________________________________________________________

Description of any reasons for lack of shared “voting power” or shared “investment
power”: ___________________________

2 Securities Owned Jointly by You. State below the number of shares of Common Stock that you owned
directly but jointly with others as of the date hereof, even if the shares are held in the name of
a bank, broker, nominee, depository or in “Street Name” for your account. If the answer is none,
please so state. You are presumed to have shared “voting power” and shared “investment power” of
all shares you own jointly. If for any reason you do not share with another person “voting power”
or “investment power” of all shares you own jointly, please describe the reasons for your lack of
shared powers.

Common
Stock _________________________________________________________

Identities
of Joint Owners ______________________________________

Description of any reasons for lack of shared “voting power” or shared “investment
power”: ___________________

3 Other Shares over Which You Have or Share Voting Power and/or Investment Power.

	 	(a)	 	State below the number of shares of Common Stock over which you indirectly
(through any corporation or other entity) or through any contract, arrangement,
understanding, relationship or otherwise, have sole or shared “voting power” or
“investment power” or both as of the date hereof, even though the shares are not held
for your direct benefit.
	 
	 	 	 	Common Stock _________________________________________________________
	 
	 	(b)	 	For any shares reported pursuant to question 3(a) above, please indicate
whether your “voting power” and/or “investment power” is sole or shared and provide all
relevant details, such as (if applicable) with whom the power is shared, the nature of
the relationship and any underlying voting trust agreement, investment arrangement or
the like.
	 
	 	(c)	 	For any shares reported pursuant to question 3(a) above, please also set forth
all other relevant information, such as a general indication of your capacity as

 

 

APPENDIX I

fiduciary, if any, and/or the name and nature of any party in whose name(s) any shares are registered.

4 Disclaimer of Beneficial Ownership. The SEC’s definition of “beneficial ownership” for purposes
of the Registration Statement includes any securities of the Company over which you have “voting
power” or “investment power” as defined above. In certain circumstances, however, it may be
possible to disclaim this type of beneficial ownership. As to any shares listed above, if you wish
expressly to disclaim beneficial ownership for any purpose in the Registration Statement, please
indicate below the shares with respect to which you wish to disclaim beneficial ownership and the
basis for the disclaimer.

5 Securities Which You Have the Right to Acquire within 60 Days.

	 	(a)	 	State below the number of shares of Common Stock as to which you have the right
to acquire “voting power” and/or “investment power” within 60 days of the date hereof,
including, but not limited to, any right to acquire shares (a) upon the exercise of any
option, warrant or right; (b) upon the conversion of a security; (c) pursuant to the
power to revoke a trust, discretionary account or similar arrangement; or (d) pursuant
to the automatic termination of a trust, discretionary account or similar arrangement.
(Do not include shares listed in questions 1, 2 or 3 above.) Please also briefly
describe the nature of your right to acquire.
	 
	 	 	 	Common Stock ____________________________________________________________________________
	 
	 	(b)	 	For any shares reported pursuant to question 5(a) above, please indicate
whether your “voting power” and/or “investment power” will be sole or shared and
provide all relevant details, such as (if applicable) with whom the power will be
shared and the nature of the relationship that will give you such power.
	 
	 	(c)	 	As to any shares listed in question 5(a) above, if you wish expressly to
disclaim beneficial ownership for any purpose in the Registration Statement, please
indicate below the shares and circumstances.

6 Duplication of Ownership of Your Securities. Please state whether, to your knowledge, any of the
Reporting Persons (as defined at the end of this Question 6) shares ownership of, or “voting power”
or “investment power” over, any shares of Common Stock reported by you. Specifically identify any
such securities, identify which of the Reporting Persons shares ownership, “voting power” or
“investment power” and briefly describe the relationship by which the Reporting Person shares
ownership, “voting power” or “investment power.” For purposes of this Question 6, “Reporting
Persons” include the following persons:

	 	 	 
	 

	 	Richard Craven
	 

	 	Brian Day
	 

	 	Digital Investors, LLC
	 

	 	Geoffrey Gerard
	 

	 	Albert B. Greco, Jr.
	 

	 	John C. Harris
	 

	 	Henry F. Harris, Sr.
	 

	 	Henry C.S. Mellon

 

 

	 	 	 
	 

	 	APPENDIX I
	 
	 	 
	 

	 	John O’Donnell
	 

	 	Pequot Capital Management, Inc.
	 

	 	Charles Rey
	 

	 	Schottenfeld Qualified Associates, LP
	 

	 	Richard Schottenfeld
	 

	 	Robert Wolf

7 Securities Owned by Your Family and Certain Relatives. Please set forth below the number of
shares of Common Stock registered in the name of, or otherwise owned by, your spouse, minor
children or your spouse’s or your relatives who live in your home. Indicate separately the
identity of the owner of all such shares. In the past, the SEC has taken the position that such
shares will ordinarily be regarded as “beneficially owned” by you, although absent special or
unusual circumstances you are not the “beneficial owner” of such shares under the SEC’s definition
of “beneficial ownership” for purposes of the Registration Statement, since you do not have “voting
power” or “investment power” (as defined above) over them. Unless special or unusual circumstances
obtain, therefore, these shares will not be included in the holdings of securities of the Company
shown for you in the Registration Statement. Depending on the number of such shares and certain
other factors, however, it may be necessary to refer to such shares in a footnote in the
Registration Statement for disclosure or clarification purposes. If such a reference is made, we
will include an appropriate disclaimer of ownership.

Common
Stock _________________________________________________________

8 Certain Securities Held in Trust for Your Benefit. Please set forth below the number of shares
of Common Stock (i) held in a trust in which you have the right to the income (in whole or in part)
only and/or (ii) held in a trust in which you have a right to the principal (in whole or in part)
on or after the date hereof. Indicate shares and factual circumstances. [As noted above, although
absent special or unusual circumstances you are not the “beneficial owner” of such shares under the
SEC’s definition of “beneficial ownership” for purposes of the Registration Statement, it may be
necessary to refer to the shares held in trust in the Registration Statement for disclosure or
clarification purposes. If such a reference is made, we will include an appropriate disclaimer of
ownership.]

Common
Stock _________________________________________________________

 

 

APPENDIX I

Part III. Miscellaneous

	1	 	Broker-Dealer Status.

	 	(a)	 	Please mark the appropriate statement below (one of the two statements must be
marked).
	 
	 	___ 	 	I am a broker-dealer or an affiliate of a broker-dealer.
	 
	 	___ 	 	I am neither a broker-dealer nor an affiliate of a broker-dealer.
	 
	 	(b)	 	If you indicated that you are a broker-dealer or an affiliate of a
broker-dealer, Please mark the appropriate statement below (one of the two statements
must be marked).
	 
	 	___ 	 	I acquired the securities being registered on my behalf in the ordinary course
of business
	 
	 	 	 	___ I acquired the securities being registered on my behalf other than in the
ordinary course of business
	 
	 	(c)	 	If you indicated that you are a broker-dealer or an affiliate of a
broker-dealer, please mark the appropriate statement below (one of the two statements
must be marked).
	 
	 	___ 	 	At the time I acquired the securities being registered on my behalf, I had
entered into an agreement, understanding or arrangement with another person, either
directly or indirectly, to dispose of these securities
	 
	 	___ 	 	At the time I acquired the securities being registered on my behalf, I had not
entered into an agreement, understanding or arrangement with another person, either
directly or indirectly, to dispose of these securities
	 
	 	(d)	 	If you indicated that you are a broker-dealer or an affiliate of a
broker-dealer, please provide immediately below a summary of the relevant details
relating to this status.

	2	 	Open Short Positions.

	 	(a)	 	Please mark the appropriate statement below (one of the two statements must be
marked).
	 
	 	 	 	___ I currently have an open short position in the Common Stock.
	 
	 	 	 	___ I do not currently have an open short position in the Common Stock.
	 
	 	(b)	 	Please read the excerpt set forth below, which contains a telephone
interpretation rendered by the staff of the SEC. After reading the excerpt, please
acknowledge that you have done so by marking the blank set forth immediately after the

 

 

APPENDIX I

excerpt.

“An issuer filed a Form S-3 registration statement for a secondary offering of
common stock which is not yet effective. One of the selling shareholders wanted to
do a short sale of common stock “against the box” and cover the short sale with
registered shares after the effective date. The issuer was advised that the short
sale could not be made before the registration statement becomes effective, because
the shares underlying the short sale are deemed to be sold at the time such sale is
made. There would, therefore, be a violation of Section 5 if the shares were
effectively sold prior to the effective date.”

___ I have read the excerpt set forth above.

3 Control Persons. A response to this question is required only of selling shareholders that are
entities. If the selling shareholder completing this questionnaire is an entity, such selling
shareholder should identify below the one or more individuals (i.e. natural persons) who exercise
the voting and dispositive powers with respect to the shares of Common Stock being registered on
behalf of such selling shareholder.

     This will confirm that the information given in answer to the items set forth above is true,
correct and complete. If no information is furnished with respect to any questions, you are hereby
authorized to assume that the answer is “Negative”, “No”, “None” or “Not Applicable”, as the case
may be.

PRINTED NAME OF HOLDER:

	 	 	 	 	 	 	 	 	 
	By:

	 	 

	 	 
	 	 	 	 
	 

	 	 	 	 	 	Date:
	 	 

	 
	 	 	 	 	 	 	 	 
	Name:

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Title:

	 	 
	 	 	 	 	 	 

 

 

APPENDIX I

Print or Type:

_____________________________
[Transfer Agent]

_____________________________
[Address]

Attention: ____________________

PURCHASER’S CERTIFICATE OF SUBSEQUENT SALE

               The undersigned, [individually/ as an officer of/ a person duly authorized by]

____________________________________________________________________________________ hereby certifies

     [fill in exact name of individual or institution as listed on share certificate ]

that [he/she/said institution] is the Purchaser of the shares evidenced by the attached
certificate, and as such, sold such shares on _______________ in accordance with the terms of the Purchase

        [date]

Agreement and in accordance with Registration Statement number _____________________________________________

                 
                                                                                             
[fill in the number of or otherwise

             
                                                                                                  identify the Registration Statement]

or otherwise in accordance with the Securities Act of 1933, as amended, and, in the case of a
transfer pursuant to the Registration Statement, the requirement of delivering a current prospectus by the Company has been complied with in connection with such sale.

	 	 	 
	Name of Purchaser
	 	 
	(Individual or Institution)
	 	 
	 

	 	 

	 
	 	 
	Name of Individual
	 	 
	representing Purchaser
	 	 
	(if an Institution)
	 	 
	 

	 	 

	 
	 	 
	Title of Individual
	 	 
	representing Purchaser
	 	 
	(if an Institution):
	 	 
	 

	 	 

	 
	 	 
	Signature by: Individual Purchaser
	 	 
	or Individual representing Purchaser:

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