Document:

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT, dated as of \s\ December 20, 2006 (the “Agreement”), is made by and between WESTCOTT PRODUCTS CORPORATION, a Delaware corporation (the “Company”) and Wayne Bassham our President, Todd Albiston our Vice President, and Kent Faulkner our Secretary, collectively (the “Rights Holders”).

 

W I T N E S S E T H:

 

WHEREAS, on December 20, 2006, the Company issued 600,000 “unregistered” and “restricted” shares of the Company’s common stock to the “Rights Holders” for a total of services rendered over the past five years in their capacities as officers and directors and in exchange for entering into a “Registration Lock-up Agreement” (attached hereto) requiring that such shares not be resold without an effective Registration (the “Registrable Shares”);

 

WHEREAS, the Company has agreed to provide “mandatory” and “piggy back” registration rights with respect to the Registrable Shares;

 

WHEREAS, to induce the Rights Holders to execute and deliver the Registration Lock-up Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Rights Holders hereby agree as follows:

 

1.  Definitions.

 

(a)  As used in this Agreement, the following terms shall have the following meanings:

 

(i)  “Registration Statement” means a registration statement or registration statements of the Company filed under the Securities Act covering the Warrant Shares.

 

(ii)  “Register,” “Registered,” and “Registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the “Commission”).

 

Capitalized terms used herein and not otherwise defined herein shall have the meanings set-forth in the Securities Purchase Agreement.

 

2.  Registration.

 

 (i)  Mandatory Registration Statement. Upon receipt of written demand by the Rights Holders, following an acquisition, merger or reorganization, the Company shall prepare, and, as soon as practicable but in no event later than 120 calendar days after the date of such notice the Company shall prepare, and file with the Commission a Registration Statement or Registration Statements (as is necessary) on Form S-3 or on Form SB-2, covering the resale of all of the Registrable Securities. In the event that Forms S-3 or SB-2 are unavailable for such a registration, the Company shall use such other form as is available for such a registration. Any Registration Statement prepared pursuant hereto shall register for resale all of the Registrable Securities. Such Registration Statement shall state that, in accordance with Rule 416 under the Securities Act, it also covers such indeterminate number of
additional Shares as may become issuable (i) to prevent dilution resulting from stock splits or stock dividends. The Company shall use its best efforts to have the Registration Statement declared effective within the earliest to occur of (i) 120 days following the initial filing; or (ii) if the Commission elects not to conduct a review of the Registration Statement, the date which is five business days after the date upon which either the Company or its counsel is so notified, whether 

 

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orally or in writing. The Company shall at all times use its best efforts to file each required Registration Statement or amendment to a Registration Statement as soon as practicable after the date the Company becomes obligated to file such Registration Statement or amendment, as the case may be, and to cause each such Registration Statement or amendment to become effective as soon as possible thereafter.

 

 (ii)  Piggy Back Registration Rights. If the Company decides, including as required under any demand registration rights agreement, to register any of its Common Shares or securities convertible into or exchangeable for Common Shares under the Act on a form which is suitable for an offering for cash or shares of the Company held by third parties and which is not a registration solely to implement an employee benefit plan, a registration statement on Form S-4 (or successor form) or a transaction to which Rule 145 or any other similar rule of the SEC is applicable, the Company will promptly give written notice to the Rights Holders of its intention to effect such a registration. Subject to Section 2(ii)(a) below, the Company shall include all of the Common Shares that the Rights Holders request to be included in such a registration by a written notice delivered to the Company within
fifteen (15) days after the notice given by the Company.

	
             
 	
            (a)
 	
            If the registration, as described in Section 2(ii) above, involves an underwritten offering or limitation imposed by the Securities and Exchange Commissions interpretation of Rule 415, the Company will not be required to register Common Shares in excess of the amount that the principal underwriter reasonably and in good faith recommends may be included in such offering (a “CUTBACK”), which recommendation, and supporting reasoning, shall be delivered to the Rights Holders. If such a Cutback occurs, the number of shares that are entitled to included in the registration and underwriting shall be allocated in the following manner: (i) first, to the Company for any securities it proposes to sell for its own account, (ii) second, to the Rights Holders requiring such registration, and (iii) third, to other holders of stock
of the Company requesting inclusion in the registration, pro rata among the respective holders thereof on the basis of the number of shares for which each such requesting holder has requested registration.
 

	
             
 	
            (b)
 	
            In the event of a CUTBACK the Rights Holders may tender the Registrable shares not included in such Registration for re-issuance by the Company on a basis of 1 for 1 whereby Counsel for the Company will provide a mutually acceptable opinion regarding the tradeability of such shares under Section 4(1) of the Securities Act relying on Rule 144 wherein the Rights Holders hereby acknowledge that such holding period will restart upon reissuance.
 

 

 (iii)     The Company shall keep each Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold; (ii) the date on which the Registrable Securities (in the opinion of counsel to the Rights Holders) may be immediately sold without restriction (including without limitation as to volume by each holder thereof) without registration under the Securities Act and; (iii) the date which is 24 months following the date on which the Registration Statement was declared effective (the “Registration Period”).

 

3.  Obligations of the Company. In connection with the registration of the Registrable Securities, the Company shall do each of the following:

 

 (a)  Prepare and file with the Commission the Registration Statement required by Section 2 of this Agreement and such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectuses used in connection with the Registration Statement, each in such form as to which the Rights Holders and its counsel shall not have objected, as may be necessary to keep the Registration effective at all times during the Registration Period, and, during the Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement;

 

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 (b)  Furnish to the Rights Holders, promptly after the Registration Statement is prepared and publicly distributed, filed with the Commission, or received by the Company, a copy of the Registration Statement, each preliminary prospectus, each final prospectus, and all amendments and supplements thereto and such other documents, as the Rights Holders may reasonably request in order to facilitate the disposition of its Registrable Securities;

 

 (c)  Use all best efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Rights Holders may reasonably request; (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period; (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period; and (iv) take all other actions necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions, provided that in connection therewith, the Company shall not be required to qualify as a foreign corporation or to file a general
consent to the service of process in any jurisdiction;

 

 (d)  As promptly as practicable after becoming aware of such event, notify the Rights Holders of the occurrence of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and to use its best efforts to promptly prepare a supplement or amendment to the Registration Statement or other appropriate filing with the Commission to correct such untrue statement or omission, and to deliver a number of copies of such supplement or amendment to the Rights Holders as the Rights Holders may reasonably request;

 

 (e)  As promptly as practicable after becoming aware of such event, notify the Rights Holders who holds Registrable Securities being sold (or, in the event of an underwritten offering, the underwriters) of the issuance by the Commission of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time, and to use its best efforts to promptly obtain the withdrawal of such stop order or other suspension of effectiveness;

 

 (f)  If the offering is underwritten, at the request of the Rights Holders, to furnish on the date that Registrable Securities are delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to any Rights Holders selling Registrable Securities in connection with such underwriting, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act and (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with
the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements or other financial data contained therein); and (ii) a letter dated such date from the Company’s independent public accountants addressed to the underwriters and to the Rights Holders, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five (5) business days prior to the date of such letter) with respect to such registration as such underwriters may reasonably request; and

 

 (g)  Cooperate with the Rights Holders to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and to enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Rights Holders may reasonably request, and registered in such names as the Rights Holders may request; and, within five business days after a Registration Statement which includes Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Rights Holders) an appropriate instruction and opinion of such counsel.

 

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4.  Obligations of the Rights Holders. In connection with the registration of the Registrable Securities, the Rights Holders shall have the following obligations:

 

 (a)  Take all other reasonable actions necessary to expedite and facilitate the disposition by the Rights Holders of the Registrable Securities pursuant to the Registration Statement.

 

 (b)  Furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities, and the Rights Holders shall execute such documents in connection with such registration as the Company may reasonably request.

 

 (c)  The Rights Holders, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder.

 

 (d)  The Rights Holders agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(d) or 3(e) above, it will immediately discontinue disposition of its Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such copies of the supplemented or amended prospectus contemplated by Section 3(d) or 3(e) shall be furnished to the Rights Holders.

 

5.  Expenses of Registration. All expenses, other than underwriting discounts and commissions and other fees and expenses of investment bankers and other than brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Section 3, with respect to each Registration Statement filed pursuant hereto, shall be borne by the Company.

 

6.  Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement:

 

 (a)  The Company will indemnify and hold harmless the Rights Holders, each of its officers, directors, Rights Holders and members, and each person, if any, who controls the Rights Holders within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, “Claims”) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the Commission) or the omission to state therein any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state or foreign securities law or any rule or regulation under the Securities Act, the Exchange Act or any state or foreign securities law (the matters in foregoing clauses (i) through (iii) being, collectively, “Violations”). 

 

Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) shall not: (i) apply to any Claim arising out of or based upon a modification which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) with respect to any preliminary prospectus, inure to the benefit of any such person 

 

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from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the final prospectus, as then amended or supplemented, if such final prospectus was timely made available by the Company pursuant to Section 3(b) hereof; (iii) be available to the extent that such Claim is based upon a failure of the Rights Holders to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(b) hereof; or (iv) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Rights Holders pursuant to Section 9. The Rights Holders will indemnify the Company and its officers and directors against any Claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company, by or on behalf of the Rights Holders, expressly for use in connection with the reparation of the Registration Statement, subject to such limitations and conditions as are applicable to the Indemnification provided by the Company in this Section 6.

 

 (b)  Promptly after receipt by an Indemnified Person under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and to the extent that the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person, provided, however, that an Indemnified Person shall have the right to retain its own counsel with the reasonable fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained
by the indemnifying party, the representation by such counsel of the Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding. In such event, the Company shall pay for only one separate legal counsel for the Rights Holders, and such legal counsel shall be selected by the Rights Holders. The failure to deliver written notice to an indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person under this Section 6, except to the extent that the indemnifying party is materially prejudiced in its ability to such action.

 

 (c)  No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of an unconditional and irrevocable release from all liability in respect of such claim or litigation.

 

7.  Contribution. To the extent any indemnification by an indemnifying party is prohibited or limited under applicable law, the indemnifying party agrees to contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, liability or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the Indemnified Person on the other hand in connection with the statements or omissions which resulted in such Claim, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and the Indemnified Person shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact on which such Claim is based relates to information supplied by the indemnifying party or by the
Indemnified Person, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the forgoing: (i) no contribution shall be made under circumstances where the payor would not have been liable for indemnification under the fault standards set forth in Section 6; (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net proceeds received by such seller from the sale of such Registrable Securities. The Company and the Rights Holders agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro-rata allocation (even if the Rights Holders
and any other party were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in this Section.

 

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8.  Reports Under Exchange Act. 

 

With a view to making available to the Rights Holders the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Rights Holders to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

 

 (i)  make and keep public information available, as those terms are understood and defined in Rule 144;

 

 (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

 

 (iii) furnish to the Rights Holders so long as the Rights Holders owns Registrable Securities, promptly upon request: (i) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act; (ii) a copy of the most recent annual or periodic report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested to permit the Rights Holders to sell such securities pursuant to Rule 144 without registration.

 

9.  Assignment of the Registration Rights. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by Rights Holders to any transferee of all or any portion of the Registrable Shares if: (a) Rights Holders agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of: (i) the name and address of such transferee or assignee; and (ii) the securities with respect to which such registration rights are being transferred or assigned; (c) at or before the time the Company receives the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (d) the transfer of the relevant securities complies with the restrictions set forth in Section 4 of the Securities Purchase Agreement.

 

10. Amendment of Registration Rights. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Rights Holders. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon Rights Holders and the Company.

 

 

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11. Miscellaneous.

 

 (a)  A person or entity is deemed to be a holder of Registrable Shares whenever such person or entity owns of record such Registrable Shares. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Shares the Company shall act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Shares.

 

 (b)  Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission and mailing a copy of such confirmation postage prepaid by certified mail, return receipt requested) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by 10 days advance written notice to each of the other parties hereto.

 

COMPANY:

 

Westcott Products Corporation

8867 South Capella Way

Sandy, UT  84093

Attention: Wayne Bassham, President

Tel:  (801) 631-7969

Fax: (801) 278-9290

 

With a copy to:

 

Branden T. Burningham, Esq.

455 East 500 South, Suite #205

Salt Lake City, Utah  84111 

Tel:  (801)  363-7411

Fax: (801)  355-7126

 

RIGHTS HOLDERS:

 

8867 South Capella Way

Sandy, UT  84093

Attention: Wayne Bassham

Tel: __________________

Fax: __________________

 

With a copy to:

_______________________

_______________________

_______________________

 

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 (c)  Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

 (d)  This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the County of Utah or the state courts of the State of Utah sitting in the County of Utah in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original. 

 

The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such validity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. Subject to the provisions of Section 10 hereof, this Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

 

 (e)  This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

 

 (f)  Subject to the requirements of Section 9 hereof, this Agreement shall inure for the benefit of and be binding upon the successors and assigns of each of the parties hereto.

 

 (g)  All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

 

	
             
 	
            IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned.
 

 

“COMPANY”

 

WESTCOTT PRODUCTS CORPORATION

 

By: ________________________

Name: Wayne Bassham

Title: President

 

“RIGHTS HOLDERS”

 

 

	
             
 	
            By: ________________________  
 

Name: Wayne Bassham

 

	
             
 	
            By: ________________________  
 

Name: Kent Faulkner

 

	
             
 	
            By: ________________________  
 

Name: Todd Albiston

 

 

8Exhibit
10.1

 

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”)
is dated as of December 20, 2006, by and among Callisto Pharmaceuticals, Inc.,
a Delaware corporation (the “Company”), and the purchasers identified on
the signature pages hereto (each, including its successors and assigns, a “Purchaser”
and collectively the “Purchasers”).

WHEREAS, subject to the terms and conditions set
forth in this Agreement and pursuant to Section 4(2) of the Securities Act of
1933, as amended (the “Securities Act”) and Rule 506 promulgated
thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual
covenants contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
Company and each Purchaser agrees as follows:

ARTICLE I

DEFINITIONS

1.1           Definitions. 
In addition to the terms defined elsewhere in this Agreement: (a)
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Certificate of Designation (as defined herein), and (b)
the following terms have the meanings indicated in this Section 1.1:

“Action” shall have the meaning
ascribed to such term in Section 3.1(j).

 “Actual Minimum” means, as of any date,
the maximum aggregate number of shares of Common Stock then issued or
potentially issuable in the future pursuant to the Transaction Documents,
including any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and shares of Preferred Stock, ignoring any conversion or exercise
limits set forth therein, and assuming that any previously unconverted shares
of Preferred Stock are held until the second anniversary of the date of
determination and all dividends are paid in shares of Common Stock until such
second anniversary.

“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.  With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.

“Certificate of Designation” means the Certificate of Designation Designating Series A Convertible Preferred Stock to be filed prior to the Closing by the Company with the Secretary of State of Delaware, in the form of Exhibit A attached hereto.
 

“Closing”
means the closing of the purchase and sale of the Securities pursuant to Section
2.1.

 “Closing
Date” means the Trading Day when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and
(ii) the Company’s obligations to deliver the Securities have been satisfied or
waived.

“Commission”
means the Securities and Exchange Commission.

“Common
Stock” means the common stock of the Company, par value $.0001 per share,
and any securities into which such common stock shall hereinafter have been
reclassified into.

“Common Stock Equivalents” means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.

“Company
Counsel” means Sichenzia Ross Friedman Ference LLP.

 “Conversion Price” shall have the
meaning ascribed to such term in the Articles of Amendment.

“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1
hereof.

“Effective
Date” means the date that the initial Registration Statement filed by the
Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.

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

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder, convertible
securities, options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date
of this Agreement to increase the number of such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions, provided any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business
of the Company and in which the

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 Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company
is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.

 “GAAP” shall have the meaning ascribed
to such term in Section 3.1(h).

“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.

 “Material Adverse Effect” shall have
the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the
meaning ascribed to such term in Section 3.1(m).

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

“Preferred Stock” means the up to 700,000 shares of the Company’s Series A Convertible Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Designation.
 

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

“Registration
Rights Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B
attached hereto.

“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.

 “Required Approvals” shall have the
meaning ascribed to such term in Section 3.1(e).

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

“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities”
means the Preferred Stock, the Warrants and the Underlying Shares.

 

3

 

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

 “Shareholder Approval”
means such approval as may be required by the applicable rules and regulations
of the Trading Market (or any successor entity) from the shareholders of the
Company with respect to the transactions contemplated by the Transaction
Documents, including the issuance of all of the Underlying Shares and shares of
Common Stock issuable upon exercise of the Warrants in excess of 19.99% of the issued
and outstanding Common Stock on the Closing Date.

 

“Stated
Value” means $10 per share of Preferred Stock.

“Subscription
Amount” shall mean, as
to each Purchaser, the amount to be paid for the Preferred Stock purchased
hereunder as specified below such Purchaser’s name on the signature page of
this Agreement and next to the heading “Subscription Amount”, in United States
Dollars and in immediately available funds.

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a).

“Trading
Day” means a day on which the Common Stock is traded on a Trading Market.

“Trading Market” means the following
markets or exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the Over-The-Counter Bulletin Board, the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or
the Nasdaq National Market.

 “Transaction Documents” means this
Agreement, the Certificate of Designation, the Warrants, the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

“Underlying
Shares” means the shares of Common Stock issuable upon conversion of the
Preferred Stock, upon exercise of the Warrants and issued and issuable in lieu
of the cash payment of dividends on the Preferred Stock.

 

“Warrants”
means collectively the Common Stock purchase warrants, in the form of Exhibit C
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to 5 years.

 “Warrant Shares” means the shares of
Common Stock issuable upon exercise of the Warrants.

 

4

ARTICLE II

PURCHASE
AND SALE

2.1           Closing.  On
the Closing Date, upon the terms and subject to the conditions set forth
herein, concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and each Purchaser agrees to
purchase in the aggregate, severally and not jointly, up to $7,000,000 of
shares of Preferred Stock with an aggregated Stated Value equal to such
Purchaser’s Subscription Amount and Warrants as determined by pursuant to
Section 2.2(a)(iii).  The aggregate
number of shares of Preferred Stock sold hereunder shall be up to 700,000.  Each Purchaser shall deliver to the Company
via wire transfer or a certified check immediately available funds equal to
their Subscription Amount and the Company shall deliver to each Purchaser their
respective shares of Preferred Stock and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing.  Upon satisfaction of the
conditions set forth in Section 2.2, the Closing shall occur at the offices of
Company Counsel, or such other location as the parties shall mutually agree.

2.2                                                         Deliveries.

a)                                      On the Closing
Date, the Company shall deliver or cause to be delivered to each Purchaser the
following:

(i)                                     this Agreement
duly executed by the Company;

(ii)                                  a certificate
evidencing a number of shares of Preferred Stock equal to such Purchaser’s
Subscription Amount divided by the Stated Value, registered in the name of such
Purchaser;

(iii)                               a Warrant
registered in the name of such Purchaser to purchase up to a number of shares
of Common Stock equal to 100% of such Purchaser’s Subscription Amount divided
by the Conversion Price immediately prior to the Closing Date, with an exercise
price equal to $0.75, subject to adjustment therein;

(iv)                              the
Registration Rights Agreement duly executed by the Company; and

(v)                                 a certificate,
dated the Closing Date, duly executed by an officer of the Company to the
effect that the conditions specified in Sections 2.3(b)(i) and 2.3(b)(ii) have
been satisfied.

b)                                     On the Closing
Date, each Purchaser shall deliver or cause to be delivered to the Company the
following:

(i)                                     this Agreement
duly executed by such Purchaser;

(ii)                                  such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company; and

(iii)                               the
Registration Rights Agreement duly executed by such Purchaser.

 

5

 

2.3                                                         Closing
Conditions.

a)                                      The obligations
of the Company hereunder in connection with the Closing are subject to the
following conditions being met:

(i)                                     the accuracy in
all material respects when made and on the Closing Date of the representations
and warranties of the Purchasers contained herein;

(ii)                                  all
obligations, covenants and agreements of the Purchasers required to be performed
at or prior to the Closing Date shall have been performed; and

(iii)                               the delivery by
the Purchasers of the items set forth in Section 2.2(b) of this Agreement.

b)                                     The respective
obligations of the Purchasers hereunder in connection with the Closing are
subject to the following conditions being met:

(i)                                     the accuracy in
all material respects when made and on the Closing Date of the representations
and warranties of the Company contained herein;

(ii)                                  all
obligations, covenants and agreements of the Company required to be performed
at or prior to the Closing Date shall have been performed;

(iii)                               the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;

(iv)                              there shall have been no Material Adverse Effect with respect to the Company
since the date hereof; and

(v)                                 From the date
hereof to the Closing Date, trading in the Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior
to the Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each

 

6

case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Preferred Stock at the Closing.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1           Representations and Warranties of
the Company.  Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the “Disclosure Schedules”) which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
the representations and warranties set forth below to each Purchaser.

(a)           Subsidiaries.  All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a).  Except as set forth on Schedule 3.1(a),
the Company owns, directly or indirectly, all of the capital stock or other
equity interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities.

(b)           Organization
and Qualification.  Each of the
Company and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. 
Neither the Company nor any Subsidiary is in violation or default of any
of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case
may be, could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations, assets,
business, prospects or financial condition of the Company and the Subsidiaries,
taken as a whole, or (iii) a material adverse effect on the Company’s ability
to perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”)
and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.

(c)           Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations thereunder. 
The execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Company
and no further action is

 

7

 

required by the Company in connection
therewith other than in connection with the Required Approvals.  Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

(d)           No
Conflicts.  The execution, delivery
and performance of the Transaction Documents by the Company and the
consummation by the Company of the other transactions contemplated thereby do
not and will not: (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or assets
of the Company or any Subsidiary, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding
to which the Company or any Subsidiary is a party or by which any property or
asset of the Company or any Subsidiary is bound or affected, or (iii) subject
to the Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.

(e)           Filings,
Consents and Approvals.  The Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section 4.6,
(ii) the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the issuance
and sale of the Preferred Stock and Warrants and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby, (iv) the
filing of Form D with the Commission and such filings as are required to be
made under applicable state securities laws and (vi) the approvals set forth on
Schedule 3.1(e) (collectively, the “Required Approvals”).

(f)            Issuance
of the Securities.  The Preferred
Stock and the Underlying Shares are duly authorized and, when issued and paid
for in accordance with the applicable Transaction Documents, will be duly and
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer

 

8

 

provided for in the Transaction
Documents.  The Company has reserved from
its duly authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Actual Minimum on the
date hereof.  The Company has not, and to
the knowledge of the Company, no Affiliate of the Company has sold, offered for
sale or solicited offers to buy or otherwise negotiated in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Purchasers, or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market.

(g)           Capitalization.  The capitalization of the Company is as
described in the Company’s most recent report filed with the Commission.  Except as set forth on Schedule 3.1(g), the
Company has not issued any capital stock since such filing other than pursuant
to the employee stock option plan.  No
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents which shall not have been waived
prior to Closing.  Except as disclosed in
the Company’s reports filed with the Commission, issued pursuant to the
Company’s stock incentive plan or as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares
of Common Stock.  The issuance and sale
of the Securities will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in violation
of any preemptive rights or similar rights to subscribe for or purchase
securities, except as set forth on Schedule 3.1(g).  No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for
the issuance and sale of the shares of Preferred Stock.

(h)           SEC
Reports; Financial Statements.  The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any
such extension.  As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of

 

9

 

the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

(i)            Material
Changes.  Since the date of the
latest audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, except as disclosed in Schedule 3.1(i),
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plan or restricted stock plan.

(j)            Litigation.  Except as set forth in SEC Reports, there is
no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect.  Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company.  The Commission has not
issued

 

10

 

any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

(k)           Labor
Relations.  No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company which could reasonably be expected to result in a
Material Adverse Effect.

(l)            Compliance.  Except as set forth in the SEC Reports or on
Schedule 3.1(l), neither the Company nor any Subsidiary (i) is in material default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other material
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental
body, or (iii) is or has been in violation of any statute, rule or regulation
of any governmental authority, including without limitation all foreign, federal,
state and local laws applicable to its business except in each case as could
not have a Material Adverse Effect.

(m)          Regulatory
Permits.  The Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not have or reasonably be
expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

(n)           Title
to Assets.  Except as set forth on Schedule
3.1(n), the Company and the Subsidiaries have good and marketable title in
fee simple to all real property owned by them that is material to the business
of the Company and the Subsidiaries and good and marketable title in all
personal property owned by them that is material to the business of the Company
and the Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries and Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject to
penalties.  Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance.

(o)           Patents
and Trademarks.  The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could have a Material Adverse Effect

 

11

 

(collectively, the “Intellectual Property
Rights”).  Neither the Company nor
any Subsidiary has received a written notice that the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights of others.

(p)           Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged.  To the best of Company’s knowledge, such
insurance contracts and policies are accurate and complete.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

(q)           Transactions
With Affiliates and Employees. 
Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company 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, in each case in excess
of $60,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company and restricted stock agreements under any
restricted stock plan of the Company.

(r)            Sarbanes-Oxley;
Internal Accounting Controls.  Except
as set forth in the SEC Reports, the Company is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date.  The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

(s)           Certain
Fees.  No brokerage or finder’s fees
or commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions

 

12

 

contemplated by this Agreement, except as set
forth on Schedule 3.1(s).  The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.

(t)            Private
Placement. Assuming the accuracy of the Purchasers representations and
warranties set forth in Section 3.2, no registration under the Securities Act
is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

(u)           Investment
Company. The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the shares of Preferred Stock, will not be or be
an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.  The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.

(v)           Listing and Maintenance Requirements.  The Company’s Common Stock is registered
pursuant to Section 15(d) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration.  Except as
disclosed on Schedule 3.1(v), the Company has not, in the 12 months preceding
the date hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.

(w)          Disclosure. 
The Company understands and confirms that the Purchasers will rely on
the foregoing representations and covenants in effecting transactions in
securities of the Company.  All disclosure
provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with respect to
such representations and warranties and do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

(x)            No Integrated Offering. Assuming the accuracy of
the Purchasers’ representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable

 

13

 

shareholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of
the Company are listed or designated. 

(y)           Tax Status. 
Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.

(z)            No General Solicitation.  Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. 
The Company has offered the Securities for sale only to the Purchasers
and certain other “accredited investors” within the meaning of Rule 501 under
the Securities Act.

(aa)         Acknowledgment Regarding Purchasers’ Purchase of
Securities.  The Company acknowledges
and agrees that each of the Purchasers is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby.  The
Company further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives. 
The Company
further understands and acknowledges that (a) one or more Purchasers may engage
in hedging activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
value of the Underlying Shares deliverable with respect to Securities are being
determined and that such hedging activities will be done in accordance with all
applicable laws, rules and regulations 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.

3.2           Representations and Warranties of the Purchasers.  Each Purchaser hereby, for itself and for no
other Purchaser, represents and warrants as of the date hereof and as of the
Closing Date to the Company as follows:

(a)           Organization;
Authority.  Such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such

 

14

Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. 
Each Transaction Document to which it is a party has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.

(b)           Purchaser
Representation.  Such Purchaser
understands that the Securities are “restricted securities” and have not been
registered under the Securities Act or any applicable state securities law and
is acquiring the Securities as principal for its own account and not with a
view to or for distributing or reselling such Securities or any part thereof,
has no present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the distribution
of such Securities (this representation and warranty not limiting such
Purchaser’s right to sell the Securities pursuant to the Registration Statement
or otherwise in compliance with applicable federal and state securities
laws).  Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Such Purchaser
does not have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.

(c)           Purchaser
Status.  At the time such Purchaser
was offered the Securities, it was, and at the date hereof it is, and on each
date on which it exercises any Warrants, it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act.  Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act.

(d)           Experience
of Such Purchaser.  Such Purchaser,
either alone or together with its representatives, has 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
Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

(e)           General Solicitation.  Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.

(f)            Certain Trading Activities.
 Such Purchaser has not, directly or indirectly,

 

15

nor has any Person acting on behalf of or pursuant to any understanding
with such Purchaser, engaged in (i) any Short Sales (defined below) involving
the Company’s securities during the 30 Trading Days immediately preceding the
date hereof or (ii) any transactions in any securities of the Company following
the date on which such Purchaser was aware of this Transaction (other than this
Transaction); provided, however, that the restrictions contained in this
Section 3.2(f) shall not apply after the date that the Company publicly
discloses the consummation of the transactions contemplated hereby.  For
purposes of this Section, “Short Sales” include, without limitation, all types
of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, short sales, swaps and similar arrangements
(including on a total return basis), and sales and other transactions through non-US broker dealers
or foreign regulated brokers having the effect of hedging the securities or
investment made under this Agreement.

(g)           Material Non-Public Information.  Such Purchaser understands that any material
non-public information provided to such Purchaser pursuant to a confidentiality
agreement is preliminary and subject to change at any time prior to any public
announcement, if any.  Such Purchaser
acknowledges that there can be no assurance that the Company will consummate or
execute any transaction or agreement disclosed to such Purchaser and considered
by the Company to be material non-public information.  Such Purchaser hereby represents that it is
not entering into this Agreement solely on the basis of any material non-public
information provided to such Purchaser.

The Company acknowledges and
agrees that each Purchaser does not make or has not made any representations or
warranties with respect to the transactions contemplated hereby other than
those specifically set forth in this Section 3.2.

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1           Transfer Restrictions.

(a)           The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any
transfer of Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of a Purchaser or in connection
with a pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act.  As a condition
of transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.

(b)           The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Securities substantially in the following
form:

 

16

 

[NEITHER]
THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE]
[CONVERTIBLE]] HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under
the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. 
Such a pledge or transfer would not be subject to approval of the
Company and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith.  Further, no notice shall be required of such
pledge.  At the appropriate Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as
a pledgee or secured party of Securities may reasonably request in connection
with a pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.

(c)           Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including the Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any
shares of

 

17

 

Preferred Stock or any portion of a Warrant is
converted or exercised (as applicable) at a time when there is an effective
registration statement to cover the resale of the Underlying Shares, or if such
Underlying Shares may be sold under Rule 144(k) or if such legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations thereof) then such Underlying Shares shall
be issued free of all legends.  The
Company agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 4.1(c), it will, no later than five
Trading Days following the delivery by a Purchaser to the Company or the
Company’s transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the “Legend
Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and
other legends.  The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.

 

(d)           Each Purchaser, severally and not
jointly with the other Purchasers, agrees that the removal of the restrictive
legend from certificates representing Securities as set forth in this Section
4.1 is predicated upon the Company’s reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom.

 

4.2           Acknowledgment of Dilution.  The Company acknowledges that the issuance of
the 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 the Transaction Documents, including without limitation its
obligation to issue the Underlying Shares pursuant to the Transaction
Documents, 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.

4.3           Furnishing of Information.  As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act.  As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to the Exchange Act, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144. 
The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

4.4           Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the

18

registration under the Securities Act of the sale of the Securities to
the Purchasers or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market.

4.5           Conversion and Exercise Procedures.  The form of Notice of Exercise included in
the Warrants and the Notice of Conversion included in the Articles of Amendment
set forth the totality of the procedures required of the Purchasers in order to
exercise the Warrants or convert the Preferred Stock.  No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Preferred Stock.  The Company shall honor exercises of the
Warrants and conversions of the Preferred Stock and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.

4.6           Securities Laws Disclosure;
Publicity.  The Company agrees that
no later than one Trading Day after the Closing Date it shall issue a press
release announcing the Closing. Within four Trading Days after the Closing
Date, the Company shall issue a Current Report on Form 8-K disclosing the
material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto.  The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication.

4.7           Non-Public Information.  The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

4.8           Use of Proceeds. 
Except as set forth on Schedule 4.8 attached hereto, the Company
shall use the net proceeds from the sale of the Securities hereunder for
working capital purposes.

4.9           Indemnification of Purchasers.   Subject to the provisions of this Section
4.9, the Company will indemnify and hold the Purchasers and their directors,
officers, shareholders, partners, employees and agents (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses (collectively, “Losses”), including
all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their respective Affiliates,
by any

 

19

stockholder
of the Company who is not an Affiliate of such Purchaser, with respect to any
of the transactions contemplated by the Transaction Documents (unless such
action is based upon a breach of such Purchaser’s representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or
malfeasance).  If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought
pursuant to this Agreement, such Purchaser Party shall promptly notify the Company
in writing, and the Company shall have the right to assume the defense thereof
with counsel of its own choosing.  Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Purchaser Party except to the
extent that (i) the employment thereof has been specifically authorized by the
Company in writing, (ii) the Company has failed after a reasonable period of
time to assume such defense and to employ counsel or (iii) in such action the
Purchaser Party reasonable concludes that, either (x) one or more defenses are
available to the Purchaser Party that are not available to the Company or (y) a
conflict or potential conflict exists between the Company, on the one hand, and
such Purchaser Party, on the other hand, that would make such separate
representation advisable.  The Company
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement or
in the other Transaction Documents.

4.10         Contribution. 
If the indemnification provided for in this Article IV from the Company
is unavailable to a Purchaser Party hereunder in respect of any Losses referred
to herein, then the Company, in lieu of indemnifying such Purchaser Party,
shall contribute to the amount paid or payable by such Purchaser Party as a
result of such Losses in such proportion as is appropriate to reflect the
relative fault of the Company and Purchaser Party in connection with the
actions which resulted in such Losses, as well as any other relevant equitable
considerations.  The relative faults of
the Company and such Purchaser Party shall be determined by reference to, among
other things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, the
Company or such Purchaser Party, and the parties relative intent, knowledge,
access to information and opportunity to correct or prevent such action.  The amount paid or payable by a party as a
result of the Losses referred to above shall be deemed to include any legal or
other fees, charges or expenses reasonably incurred by such party in connection
with any investigation or proceeding.

 

4.11         Reservation
and Listing of Securities.   The
Company shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in such amount as may
be required to fulfill its obligations in full under the Transaction Documents.

 

20

4.12         Equal Treatment of Purchasers.  No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents.  For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended to treat for the Company
the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

 

ARTICLE V

MISCELLANEOUS

5.1           Termination. 
This Agreement may be terminated by any Purchaser, by written notice to
the other parties, if the Closing has not been consummated on or before
September __, 2006; provided that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).

5.2           Fees and Expenses. 
Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.  The
Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the issuance of any Securities.

5.3           Entire Agreement. 
The Transaction Documents, together with the exhibits and schedules
thereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.

5.4           Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on
a Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party
to whom such notice is required to be given. 
The address for such notices and communications shall be as set forth on
the signature pages attached hereto.

21

5.5           Amendments; Waivers.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.

5.6           Construction. 
The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.  The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be
applied against any party.

5.7           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns.  The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser.  Any Purchaser
may assign any or all of its rights under this Agreement and the Registration
Rights Agreement to any Person to whom such Purchaser assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
the “Purchasers”.

5.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.9.

5.9           Governing Law. 
All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, borough of Manhattan for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.  Nothing

22

contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.  The parties hereby
waive all rights to a trial by jury.  If
either party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

5.10         Survival.  The
representations and warranties contained herein shall survive the Closing and
the delivery, exercise and/or conversion of the Securities, as applicable for
the applicable statue of limitations.

5.11         Execution. 
This Agreement may be executed in two or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the
same counterpart.  In the event that any
signature is delivered by facsimile transmission, 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
signature page were an original thereof.

5.12         Severability. 
If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

5.13         Replacement of Securities.  If any certificate or instrument evidencing
any Securities 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
Securities.

5.14         Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction Documents.  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 agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

5.15         Independent Nature of Purchasers’
Obligations and Rights.  The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. 
Nothing contained herein

23

or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Document.  Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation
of the Transaction Documents.  The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.

 

[SIGNATURE PAGE FOLLOWS]

 

 

24

 

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

 

	
  CALLISTO PHARMACEUTICALS, INC.

  	
  Address for Notice:

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Callisto Pharmaceuticals, Inc.

  
	
   

  	
  Name: Gary Jacob, Ph.D.

  	
  420 Lexington Avenue, Suite 1609

  
	
   

  	
  Title: Chief Executive Officer

  	
  New York, NY 10170

  
	
   

  	
   

  
	
  With a copy to (which shall not constitute notice):

  	
   

  
	
  Jeffrey J. Fessler, Esq.

  	
   

  
	
  Sichenzia Ross Friedman Ference LLP

  	
   

  
	
  1065 Avenue of the Americas

  	
   

  
	
  New York, New York 10018

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
				

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER
FOLLOWS]

25

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

 

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

Name of Investing Entity:                                                                                                                   

Signature of Authorized Signatory of Investing Entity:                                                                                               

Name of Authorized Signatory:                                                                                                         

Title of Authorized Signatory:                                                                                                           

Email Address of Authorized Signatory:                                                                                      

Tax ID number of Investing Entity:                                                                                 

 

Address
for Notice of Investing Entity:

 

 

 

 

Address
for Delivery of Securities for Investing Entity (if not same as above):

 

 

 

 

 

Subscription
Amount:

Shares
of Preferred Stock:

Warrant
Shares:

 

 

[SIGNATURE PAGES CONTINUE]

 

26

Annex A

 

CLOSING
STATEMENT

 

Pursuant to the attached Securities Purchase
Agreement, dated as of the date hereto, the purchasers shall purchase up to
$_____ of Preferred Stock and Warrants from Callisto Pharmaceuticals, Inc. (the
“Company”).  All funds will be
disbursed in accordance with this Closing Statement.

 

Disbursement Date:           ___, 2006

 

	
   

  
	
   

  
	
  I.

  	
  PURCHASE PRICE

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Gross Proceeds to be Received

  	
  $

  
	
   

  	
   

  	
   

  
	
  II.

  	
  DISBURSEMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Total Amount Disbursed:

  	
  $

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WIRE INSTRUCTIONS:

  	
   

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

 

27

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}]]