Document:

exv10w1

 

Exhibit 10.1

EXECUTION VERSION

SECURITIES PURCHASE AGREEMENT

     This
Securities Purchase Agreement (this “Agreement”) is dated as of
August 30, 2004, among TeleCommunication Systems, Inc., a Maryland corporation
(the “Company”), and the investors identified on the signature pages hereto
(each, an “Investor” and collectively, the
“Investors”).

     WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain securities of the Company, as more fully described in
this Agreement; and

     WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Investor so identified on its signature page hereto (the “Designated
Investor”) desires to make certain amendments to the terms and conditions of
that certain Subordinated Convertible Debenture issued by the Company to it on
January 13, 2004 (the “Debenture”).

     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 the Investors agree
as follows:

ARTICLE I.

DEFINITIONS

     1.1 Definitions. In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms shall
have the meanings indicated in this Section 1.1:

          “Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation
pending or threatened in writing against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.

          “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.

          “Business Day” means any day except Saturday, Sunday and any day which is
a federal legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.

          “Closing” means the closing of the purchase and sale of the Securities
pursuant to Article II.

 

 

          “Closing Date” means the Business Day immediately following the date on
which all of the conditions set forth in Sections 6.1 and 6.2 hereof are
satisfied, or such other date as the parties may agree in writing.

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means the Class A common stock of the Company, par value
$0.01 per share, and any securities into which such common stock may hereafter
be reclassified.

          “Common Stock Equivalents” means any securities of the Company or any
Subsidiary which entitle the holder thereof to acquire Common Stock at any
time, 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 or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.

          “Company Counsel” means Piper Rudnick LLP.

          “Company Deliverables” has the meaning set forth in Section 2.2(a).

          “Disclosure Materials” has the meaning set forth in Section 3.1(h).

          “Effective Date” means the date that the Registration Statement required
by Sections 2(a) or 2(b) of the Registration Rights Agreement is first declared
effective by the Commission.

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

          “GAAP” means U.S. generally accepted accounting principles applied on a
consistent basis during the periods involved.

          “Investment Amount” means, with respect to each Investor, the Investment
Amount indicated on such Investor’s signature page to this Agreement.

          “Investor Deliverables” has the meaning set forth in Section 2.2(b).

          “Investor Party” has the meaning set forth in Section 4.7.

          “Lien” means any lien, charge, encumbrance, security interest, right of
first refusal or other restrictions of any kind; other than restrictions on
transfer of securities arising under federal or state securities laws and
regulations.

          “Material Adverse Effect” means any of (i) a material and adverse effect
on the legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) an adverse impairment

 

 

to the Company’s ability to perform on a timely basis its obligations
under any Transaction Document.

          “New York Courts” means the state and federal courts sitting in the City
of New York, Borough of Manhattan.

          “Per Share Purchase Price” equals $4.00.

          “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.

          “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Investors of the Shares.

          “Registration Rights Agreement” means the Registration Rights Agreement,
dated as of the date of this Agreement, among the Company and the Investors, in
the form of Exhibit B hereto

          “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” has the meaning set forth in Section 3.1(h).

          “Securities” means the Shares.

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

          “Shares” means the shares of Common Stock issued or issuable to the
Investors pursuant to this Agreement.

          “Short Sales” include, without limitation, all “short sales” as defined in
Rule 3b-3 of the Exchange Act (or any successor thereto) and 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.

          “Subsidiary” means any subsidiary of the Company listed on Schedule
3.1(a) hereto.

          “Trading Day” means (i) a day on which the Common Stock is traded on a
Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock
is not listed on a Trading Market (other than the OTC Bulletin Board), a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any
Trading Market, a day on which the Common Stock is

 

 

quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices); provided, that in the event that the
Common Stock is not listed or quoted as set forth in (i), (ii) and (iii)
hereof, then Trading Day shall mean a Business Day.

          “Trading Market” means whichever of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or The Nasdaq SmallCap
Market on which the Common Stock is listed or quoted for trading on the date in
question.

          “Transaction Documents” means this Agreement, the Registration Rights
Agreement and the Waiver Agreement dated as of the date hereof by and between
the Company and certain of the Investors.

          “Waiver Agreement” means the Waiver Agreement, dated as of the date of
this Agreement, among the Company and certain of the Investors, in the form of
Exhibit C hereto.

ARTICLE II.

PURCHASE AND SALE

     2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Investor,
and each Investor shall, severally and not jointly, purchase from the Company,
the Shares representing such Investor’s Investment Amount. The Closing shall
take place at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New
York, NY 10022 on the Closing Date or at such other location or time as the
parties may agree.

     2.2 Closing Deliveries. (a) At the Closing, the Company shall
deliver or cause to be delivered the following (the “Company
Deliverables”):

               (i) to each Investor other than the Designated Investor a facsimile copy
of a certificate evidencing a number of Shares equal to such Investor’s
Investment Amount divided by the Per Share Purchase Price, registered in the
name of such Investor (provided that originals of the same are delivered
pursuant to the terms of Section 4);

               (ii) to the Designated Investor, as consideration for the covenants,
agreements and amendments set forth in Article V hereof, (A) a facsimile copy
of a certificate evidencing a number of Shares equal to the sum of (x) such
Investor’s Investment Amount divided by the Per Share Purchase Price and (y)
200,000 shares of Common Stock, registered in the name of such Investor
(provided that originals of the same are delivered pursuant to the terms
of Section 4.12) and (B) $1,000,000 by wire transfer of immediately available
funds (the “Designated Investor Cash Consideration”) to the account or accounts
specified by the Designated Investor in writing (provided that, at the
Designated Investor’s option, the Designated Investor may chose to offset the
Designated Investor Cash Consideration against the dollar amount deliverable by
such Investor pursuant to clause (b)(i) of this Section);

 

 

               (iii) the legal opinion of Company Counsel, in substantially the form
attached hereto as Exhibit B, addressed to the Investors;

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

               (v) the Waiver Agreement, duly executed by the Company; and

          (b) At the Closing, each Investor shall deliver or cause to be delivered
to the Company the following (the “Investor Deliverables”):

               (i) its Investment Amount, in United States dollars and in immediately
available funds, by wire transfer to the account or accounts designated in
writing by the Company for such purpose (provided that, at the
Designated Investor’s option, the Designated Investor may chose to apply the
Designated Investor Cash Consideration against its Investment Amount; and
provided, further that, the Designated Investor may apply the
interest payment described in Section 5.2(a) against its Investment Amount in
accordance with that section);

               (ii) the Registration Rights Agreement, duly executed by such Investor;
and

               (iii) the Waiver Agreement, duly executed by such Investor.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each Investor:

          (a) Subsidiaries. The Company has no direct or indirect
subsidiaries other than the Subsidiaries. Except as disclosed in Schedule
3.1(a), the Company owns, directly or indirectly, all of the capital stock
of each Subsidiary free and clear of any and all 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 under
the Company’s Amended and Restated Articles of Incorporation
(the “Charter”),
the Maryland General Corporation Law (the “MGCL”) or any contract to which the
Company is a party. Neither the Company nor any Subsidiary is party to any
joint venture, nor has any ownership interest in any other entity other than as
disclosed on Schedule 3.1(a) and in the SEC Reports.

          (b) Organization and Qualification. The Company and each
Subsidiary are 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 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
its Subsidiaries is duly qualified to conduct its respective 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, has not had or could not reasonably be
expected to result in a Material Adverse Effect, either individually or in the
aggregate.

          (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 required by the
Company in connection therewith. 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 as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors’ rights and
remedies, (ii) laws relating to the availability of specific performance,
injunctive relief or other equitable principles of general application or (iii)
with respect to the indemnification provisions of the Registration Rights
Agreement, public policy.

          (d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
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, 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) 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 has not had or could not reasonably be
expected to result in a Material Adverse Effect, either individually or in the
aggregate.

          (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, regulatory authority, stock market,
stock exchange or trading facility or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more
Registration Statements in accordance with the terms and conditions of the
Registration Rights Agreement, (ii) filings required by state securities laws,
(iii) the filing of a Notice of Sale of Securities on Form D with

 

 

the Commission under Regulation D of the Securities Act (iv) the filings
required in accordance with Section 4.5, (iv) the filing of a Notification of
Listing of Additional Shares with The Nasdaq Stock Market and (v) those that
have been made or obtained prior to the date of this Agreement.

          (f) Issuance of the Securities. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens.

          (g) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (x) 225,000,000 shares of Common Stock, of
which 24,735,590 are issued and outstanding, 75,000,000 shares of Class B
Common Stock, of which 8,756,101 are issued and outstanding, 16,296,757 shares
of Common Stock are reserved for issuance pursuant to the Company’s stock
option and purchase plans and 19,154 shares of Common Stock are reserved for
issuance pursuant to securities (other than the Debentures and the Warrants to
Purchase Common Stock of the Company issued on January 13, 2004 pursuant to the
2003 Securities Purchase Agreement (collectively, the “Warrants”)) exercisable
or exchangeable for, or convertible into, shares of Common Stock, and (y) no
shares of preferred stock. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except
as set forth on

Schedule 3.1(g), no securities of the Company are
entitled to preemptive or similar rights, and 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 under
the Charter, the MGCL or any contract to which the Company is a party except
for the participation rights granted to the investors party to that certain
Securities Purchase Agreement dated as of December 18, 2003 (the “2003
Securities Purchase Agreement”). Except as specified in the SEC Reports or on
Schedule 3.1(g), there are no outstanding options, warrants, scrip
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 issue and sale of the Securities
will not, immediately or with the passage of time, obligate the Company to
issue shares of Common Stock or other securities to any Person (other than the
Investors) 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 other than pursuant to the terms of (A) that certain Subordinated
Convertible Debenture issued on January 13, 2004 to The Riverview Group LLC and
(B) the Warrants.

          (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 twelve
months preceding the date hereof (or such shorter period as the Company was
required by law to file such reports) (the foregoing materials being
collectively referred to herein as the “SEC Reports” and, together with the
Schedules to this Agreement, the “Disclosure Materials”) on a timely basis or
has timely filed 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 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, except to the extent that such SEC Reports may
have been subsequently amended or supplemented to correct such misstatement or
omission. 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 GAAP applied on a consistent basis during the periods involved, except as
may be otherwise specified in such financial statements or the notes thereto,
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) Press Releases. The press releases disseminated by the Company
during the twelve months preceding the date of this Agreement taken as a whole
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made
and when made, not misleading.

          (j) Material Changes. Since the date of the latest audited
financial statements included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2003, except as specifically disclosed in the SEC
Reports or subsequent press releases, (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, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables, accrued expenses and
other liabilities 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 or the identity of its auditors, (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 plans. The Company does not have pending before
the Commission any request for confidential treatment of information.

          (k) Litigation. There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, has had or could, if there were an unfavorable decision to the
Company, reasonably be expected to result in a Material Adverse Effect, either
individually or in the aggregate. Neither the Company nor any Subsidiary, nor
any director or officer thereof (in his or her capacity as such), 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,
except as specifically disclosed in the SEC Reports. There has not been, and
to the knowledge of the Company there is not pending any investigation by the

 

 

Commission involving the Company or any current or former director or
officer of the Company (in his or her capacity as such). The Commission has
not issued 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.

          (l) 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.

          (m) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (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 or regulatory authority, stock market, stock exchange or trading
facility, including without limitation all foreign, federal, state and local
laws relating to taxes, environmental protection, occupational health and
safety, product quality and safety and employment and labor matters, except as
have not, individually or in the aggregate, had or could not reasonably be
expected to result in a Material Adverse Effect. The Company is in compliance
with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended,
and the rules and regulations thereunder, that are applicable to it, except
where such noncompliance has not had or could not reasonably be expected to
result in a Material Adverse Effect.

          (n) 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 has not had or could not reasonably be expected to
result in a Material Adverse Effect, either individually or in the aggregate,
and neither the Company nor any Subsidiary has received any notice of any
Action relating to the revocation or modification of any such permits.

          (o) Title to Assets. The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them that is
material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective
businesses, 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. 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, except as has not had or could not reasonably be expected to result
in a Material Adverse Effect, either individually or in the aggregate.

          (p) 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 has, individually
or in the aggregate, had or could reasonably be expected to result in a
Material Adverse Effect (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, except where such infringement has not
had or could not reasonably be expected to have a Material Adverse Effect.
Except as set forth in the SEC Reports, to the knowledge of the Company all
such Intellectual Property Rights are enforceable and, to the knowledge of the
Company there is no existing infringement by another Person of any of the
Intellectual Property Rights.

          (q) 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. The Company has no reason to believe
that it will not be able to renew its and the Subsidiaries’ 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 on terms
consistent with market for the Company’s and such Subsidiaries’ respective
lines of business.

          (r) 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 that would be required to be
disclosed now or in the future in the SEC Reports pursuant to the requirements
of Item 404 of Regulation S-K promulgated under the Securities Act.

          (s) Internal Accounting Controls. 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. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company
and designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company’s Form 10-K or 10-Q, as the case may be, is
being prepared. The Company’s certifying officers have evaluated the
effectiveness of the Company’s controls and procedures in accordance with

 

 

Item 307 of Regulation S-K under the Exchange Act for the Company’s most
recently ended fiscal quarter or fiscal year-end (such date, the “Evaluation
Date”). The Company presented in its most recently filed Form 10-K or Form
10-Q the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is described in Item
308(c) of Regulation S-K under the Exchange Act) or, to the Company’s
knowledge, in other factors that could significantly affect the Company’s
internal controls.

          (t) Certain Fees. Except as described in Schedule 3.1(t),
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
contemplated by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such
Investor which fees or commissions shall be the sole responsibility of such
Investor) 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.

          (u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately following the Closing will not have become, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

          (v) Certain Registration Matters. Assuming the accuracy of the
Investors’ representations and warranties set forth in Section 3.2(b)-(e), no
registration under the Securities Act is required for the offer and sale of the
Shares by the Company to the Investors under the Transaction Documents. The
Company is eligible to register the resale of its Common Stock by the Investors
on Form S-3 promulgated under the Securities Act. Except as specified in
Schedule 3.1(v), the Company has not granted or agreed to grant to any
Person any rights (including “piggy-back” registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.

          (w) Listing and Maintenance Requirements. Except as specified in
the SEC Reports, the Company has not, in the two years preceding the date
hereof, received notice from any Trading Market to the effect that the Company
is not in compliance with the listing or maintenance requirements thereof, and
the Company has no reason to believe that it will not continue to be in
compliance with such requirements in the immediately foreseeable future. The
Company is in compliance with the listing and maintenance requirements for
continued listing or quotation of the Common Stock on the Trading Market on
which the Common Stock is currently listed or quoted. The issuance and sale of
the Securities under the Transaction Documents does not contravene the rules
and regulations of the Trading Market on which the Common Stock is currently
listed or quoted, and no approval of the shareholders of the Company thereunder
is required for the Company to issue and deliver to the Investors the
Securities contemplated by Transaction Documents.

 

 

          (x) Application of Takeover Protections. The Company has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Charter or the laws of its state of incorporation that is or could become
applicable to the Investors as a result of the Investors and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including without limitation the Company’s issuance of the
Securities and the Investors’ ownership of the Securities.

          (y) No Additional Agreements. The Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.

          (z) Disclosure. The Company confirms that neither it nor any
Person acting on its behalf has provided any Investor or its agents or counsel
with any information that the Company believes constitutes material, non-public
information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information. The Company
understands and confirms that the Investors will rely on the foregoing
representations and the covenants set forth elsewhere in this Agreement in
effecting transactions in the Common Stock. The Company’s representations and
warranties set forth in this Agreement are true and correct 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.

          (aa) Solvency. Based on the financial condition of the Company as
of the Closing Date (and assuming that the Closing shall have occurred), (i)
the Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the current
cash flow of the Company, together with the proceeds the Company would receive
at the Closing, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its debt when such amounts are required to be paid.
The Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of cash to be
payable on or in respect of its debt).

The Investors acknowledge that the Company does not make and has not made any
representations, warranties or agreements with respect to the transactions
contemplated hereby other than those specifically set forth in the Transaction
Documents.

     3.2 Representations and Warranties of the Investors. Each Investor
hereby, for itself and for no other Investor, represents and warrants to the
Company as follows (except in the case

 

 

of Section 3.2(k) which contains only the representations and warranties
of the Designated Investor):

          (a) Organization; Authority. Such Investor is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations thereunder. The execution, delivery and performance by such
Investor of the transactions contemplated by this Agreement has been duly
authorized by all necessary corporate or, if such Investor is not a
corporation, such partnership, limited liability company or other applicable
like action, on the part of such Investor. Each of the Transaction Documents
has been duly executed by such Investor, and when delivered by such Investor in
accordance with terms hereof, will constitute the valid and legally binding
obligation of such Investor, enforceable against it in accordance with its
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors’ rights and
remedies, (ii) laws relating to the availability of specific performance,
injunctive relief or other equitable principles of general application or (iii)
with respect to the indemnification provisions of the Registration Rights
Agreement, public policy.

          (b) Investment Intent. Such Investor is acquiring the Securities
as principal for its own account for investment purposes only and not with a
view to or for distributing such Securities or any part thereof in violation of
applicable federal and state securities laws; provided, however that such
representation is made without prejudice, to such Investor’s right at all
times to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Securities for any period of time. Such Investor is acquiring the
Securities hereunder in the ordinary course of its business. Such Investor does
not have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.

          (c) Investor Status. At the time such Investor was offered the
Securities, it was, and at the date hereof it is an “accredited investor” as
defined in Rule 501(a) under the Securities Act. Such Investor is not a
registered broker-dealer under Section 15 of the Exchange Act.

          (d) Reliance on Exemptions. Such Investor understands that the
Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of U.S. federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Investor’s compliance with, the representations, warranties,
agreements, acknowledgements and understandings of the Investor set forth in
this Section 3.2 in order to determine the availability of such exemption and
the eligibility of the Investor to acquire the Securities.

          (e) General Solicitation. Such Investor 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) Access to Information. Such Investor acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Securities;
(ii) access to information about the Company and the Subsidiaries and their
respective financial condition, results of operations, business, properties and
management sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Investor or its representatives or counsel shall modify, amend or affect such
Investor’s right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company’s representations and warranties contained
in the Transaction Documents.

          (g) Limited Ownership. The purchase by such Investor of the
Securities issuable to it at Closing will not result in beneficial ownership by
such Investor in excess of 19.999% of either (i) the voting power of the
Company or (ii) the total number shares of Common Stock outstanding.

          (h) Certain Trading Activities. Such Investor has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Investor, engaged in any transactions in the securities
of the Company (including, without limitations, any Short Sales involving the
Company’s securities) since the time that such Investor was in possession of
material, nonpublic information regarding the transaction contemplated hereby.

          (i) Independent Investment Decision. Such Investor has
independently evaluated the merits of its decision to purchase Securities
pursuant to the Transaction Documents, such decision has been independently
made by such Investor and such Investor confirms that it has only relied on the
advice of its own Investor’s business and/or legal counsel and not on the
advice of any other Investor’s business and/or legal counsel in making such
decision. Such Investor has not relied on the business or legal advice of Roth
Capital Partners, LLC or any of its agents, counsel or Affiliates in making its
investment decision hereunder, and each Investor confirms that none of such
Persons has made any representations or warranties to it in connection with the
transactions contemplated by the Transaction Documents.

          (j) Residency. Each Investor is a resident of that jurisdiction
specified below its address on its signature page hereto.

          (k) Ownership of the Debenture. The Designated Investor is the
sole and exclusive holder of the Debenture and no other Person has any interest
therein, and the Designated Investor holds good and marketable title to the
Debenture, free and clear of any material liens, defects, restrictions and
encumbrances. There are no existing contracts or agreements with, or rights
in, any third party to acquire the Debenture or any interest therein.

 

 

The Company acknowledges and agrees that no Investor has made or makes 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 (a) The Company and the Investors, severally and not jointly, agree
that the Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of the Securities
other than pursuant to an effective registration statement, to the Company, to
an Affiliate of an Investor 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, 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 an Investor hereunder and under the Registration
Rights Agreement.

	 	 	     (b) Certificates evidencing the Securities will contain the
following legend, until such time as they are not required under
Section 4.1(c):
	 
	 	 	THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT SECURED BY SUCH SECURITIES.

     The Company acknowledges and agrees that an Investor may from time to time
pledge, and/or grant a security interest in some or all of the Securities
pursuant to a bona fide margin agreement in connection with a bona fide margin
account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent
of the Company and no legal opinion of legal counsel to the pledgee, secured
party or pledgor shall be required in connection with the pledge, but such
legal opinion may be required in connection with a subsequent transfer
following default by the Investor transferee of the

 

 

pledge. No notice shall be required of such pledge. At the appropriate
Investor’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 the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of selling stockholders thereunder.

          (c) Certificates evidencing the Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) following a sale or
transfer of such Shares pursuant to an effective registration statement
(including the Registration Statement), or (ii) following a sale or transfer of
such Shares pursuant to Rule 144 (assuming the transferor is not, and does not
become, an Affiliate of the Company), or (iii) while such Shares are eligible
for sale under Rule 144(k). 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.

     4.2 Furnishing of Information. As long as any Investor owns the
Securities, from the date hereof and ending on the second (2nd) anniversary of
the Closing Date, 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 Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Shares 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 the Shares without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.

     4.3 Integration. The Company shall not, and shall use its
commercially reasonable efforts to ensure that no Affiliate of the Company
shall, 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 pursuant to the
Transaction Documents in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Investors, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market in a manner that would require
stockholder approval of the sale of the securities to the Investors.

     4.4 Subsequent Registrations. Other than pursuant to the
Registration Statement, prior to the Effective Date, the Company may not file
any registration statement (other than on Form S-8) with the Commission with
respect to any securities of the Company.

     4.5 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York
time) on the Trading Day following the execution of this Agreement the Company
shall issue a press release (in a form previously approved by the Investors)
announcing the execution of this Agreement, and by 9:00 a.m. (New York time) on
the Trading Day following the Closing Date, the Company shall issue a press
release (in a form previously approved by the Investors) announcing the
Closing. On the Trading Day following the execution of this Agreement, the
Company will file

 

 

a Current Report on Form 8-K announcing the execution of this Agreement
and disclosing the material terms of the Transaction Documents, and on the
Trading Day following the Closing Date the Company will file a Current Report
on Form 8-K announcing the Closing and attach as exhibits thereto the
Transaction Documents). In addition, the Company will make such other filings
and notices in the manner and time required by the Commission and the Trading
Market on which the Common Stock is listed. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Investor, or include the
name of any Investor in any filing with the Commission (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.

     4.6 Limitation on Issuance of Future Priced Securities. During the
six months following the Closing Date, the Company shall not issue any “Future
Priced Securities” as such term is described by NASD IM-4350-1.

     4.7 Indemnification of Investors.

          (a) In addition to the indemnity provided in the Registration Rights
Agreement, the Company will indemnify and hold the Investors and their
directors, officers, shareholders, partners, employees and agents (each, an
“Investor Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation (collectively, “Losses”) that any such Investor Party
may suffer or incur as a result of or relating to any misrepresentation, breach
or inaccuracy of any representation, warranty, covenant or agreement made by
the Company in any Transaction Document.

          (b) If any Action shall be brought or asserted against any Investor Party
entitled to indemnity hereunder, such Investor Party shall promptly notify the
Company in writing, and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Investor Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Investor Party to give such notice shall not
relieve the Company of its obligations or liabilities hereunder, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced
the Company.

          (c) Each Investor Party shall have the right to employ separate counsel in
any such Action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Investor Party or
Parties unless: (1) the Company has agreed in writing to pay such fees and
expenses; (2) the Company shall have failed promptly to assume the defense of
such Action and to employ counsel reasonably satisfactory to such Investor
Party in any such Action; or (3) the named parties to any such Action
(including any impleaded parties) include both such Investor Party and the
Company, and such Investor Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to

 

 

represent such Investor Party and the Company (in which case, if such
Investor Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Company; provided, however, that in the event one or more
Investors is a party to such Action, the Company shall only be required to pay
the expenses of one law firm serving as counsel to said Investors, unless and
to the extent that such Investors have been advised by counsel that a conflict
of interest is likely to exist if the same counsel were to represent such
Investors on a particular issue). The Company shall not be liable for any
settlement of any such Action effected without its written consent, which
consent shall not be unreasonably withheld. The Company shall not, without the
prior written consent of the Investor Party, effect any settlement of any
pending Action in respect of which any Investor Party is a party, unless such
settlement includes an unconditional release of such Investor Party from all
liability on claims that are the subject matter of such Action.

          (d) All fees and expenses of the Investor Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Action in a manner not inconsistent with this Section)
shall be paid to the Investor Party, as incurred, within thirty (30) Trading
Days of written notice thereof to the Company (regardless of whether it is
ultimately determined that an Investor Party is not entitled to indemnification
hereunder; provided, that the Company may require such Investor Party to
undertake to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Investor Party is not entitled to
indemnification hereunder).

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

     4.9 Listing of Securities. The Company agrees, (i) if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application the Shares, and will take such other action as is
necessary or desirable to cause the Shares to be listed on such other Trading
Market as promptly as possible, and (ii) it will take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all material respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market.

     4.10 Sales by Investors. Each Investor covenants to sell any
Securities sold by it in compliance with applicable prospectus delivery
requirements, if any, or otherwise in compliance with the requirements for an
exemption from registration under the Securities Act and the rules and
regulations promulgated thereunder. No Investor will make any sale, transfer
or other disposition of the Securities in violation of federal or state
securities laws.

     4.11 Trading Activities. Each Investor covenants that neither it
nor any Person acting on its behalf or pursuant to any understanding with it
will engage in any transactions in the

 

 

securities of the Company (including Short Sales involving the Company’s
securities) prior to the time that the transactions contemplated by this
Agreement are publicly disclosed by the Company following the Closing. Such
Investor covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company such Investor will
maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of the transactions
contemplated hereby).

     4.12 Delivery of Share Certificates. As soon as practicable after
the Closing, but in no event more than five (5) business days after the
Closing, the Company agrees to cause manually executed originals of a
certificate evidencing a number of Shares being issued to the Investor
hereunder, registered in the name of such Investor to be delivered to such
Investor at the address specified herein for delivery of notices.

     4.13 Stand-Still. Except as specifically authorized by the Board
of Directors of the Company, during the three-year period commencing on the
date of this Agreement, neither the Investors nor any of their Affiliates will
directly or indirectly do any of the following:

     (a) make, or in any way participate directly or indirectly, any
“solicitation” of “proxies” (as such terms are defined or used in Regulation
14A under the Exchange Act) or become a “participant” in any “election contest”
(as such terms are defined or used in Rule 14a-11 under the Exchange Act) with
respect to the Company, or initiate, propose or otherwise solicit stockholders
of the Company for the approval of one or more stockholder proposals with
respect to the Company or induce or attempt to include any other Person to
initiate any stockholder proposal;

     (b) otherwise act alone or in concert with others, to seek to control the
management, Board of Directors, policies or affairs of the Company, or solicit,
propose, seek to effect or negotiate with any other Person with respect to any
form of business combination, recapitalization or similar transaction with
respect to the Company or any Affiliate thereof, solicit, make or propose or
encourage or negotiate with any other Person with respect to, or announce an
intent to make, any tender offer or exchange offer for any securities of the
Company entitled to vote, or securities convertible into or exercisable or
exchangeable for such securities, or disclose an intent, purpose, plan or
proposal with respect to the Company or any Voting Securities inconsistent with
the provisions of this Section 4.13, including an intent, purpose, plan or
proposal that is conditioned on or would require the Company to waive the
benefit of or amend any provision of this Section 4.13, or assist, participate
in, facilitate, encourage or solicit any effort or attempt by any Person to do
any of the foregoing; or

     (c) encourage or render advice to or make any recommendation or proposal
to any Person, or participate, aid and abet or otherwise induce any Person, to
engage in any of the actions prohibited by this Section 4.13.

ARTICLE V.

COVENANTS OF THE DESIGNATED INVESTOR AND

AMENDMENTS TO THE TERMS OF THE DEBENTURE

 

 

     5.1 Agreements of the Designated Investor. Notwithstanding
anything to the contrary contained in the Debenture, the Designated Investor
covenants and agrees that on or before December 31, 2004, it will convert,
pursuant to the terms of Section 3(b) of the Debenture, all Principal (as such
term is defined in the Debenture) and accrued and unpaid Late Charges (as such
term is defined in the Debenture) with respect to such Principal into shares of
Common Stock pursuant to the terms of the Debenture.

     5.2 Amendments. Notwithstanding anything to the contrary contained
in the Debenture, the Company and the Designated Investor hereby agree that:

          (a) Interest (as such term is defined in the Debenture) on the Debenture
shall cease to accrue as of the Closing Date, and any accrued but unpaid
Interest as of the Closing Date (the “Accrued Interest”) will be payable on or
before December 31, 2004, at the Company’s option, pursuant to the terms of the
Debenture (any such date of payment to be considered an “Interest Date” for the
purposes of the Debenture); provided that the Designated Investor, upon
written request to the Company (which request may be approved or rejected in
the Company’s sole discretion), may off-set the amount of such Accrued Interest
against its Investment Amount in full satisfaction of such its obligation to
pay such Accrued Interest pursuant to the terms of the Debenture;

          (b) on and after the Closing Date, the provisions of Sections 5, 7(a),
8(d), 11 (to the extent implicated by Section 5), 12, 14, 17 and 18(a) of the
Debenture shall be void and of no further force and effect; and

          (c) on the earlier of (X) the date on which the Designated Investor has
complied with all of the obligations set forth above in Section 5.1 and (Y)
December 31, 2004, the provisions of Section 6 of the Debenture shall be void
and of no further force and effect

ARTICLE VI.

CONDITIONS PRECEDENT TO CLOSING

     6.1 Conditions Precedent to the Obligations of the Investors to
Purchase Securities. The obligation of each Investor to acquire Securities
at the Closing is subject to the satisfaction or waiver by such Investor, at or
before the Closing, of each of the following conditions:

          (a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date, (except that representations and warranties that are
qualified by materiality shall be true and correct in all respects) as of the
date when made and as of the Closing as though made on and as of such date;

          (b) Performance. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing (except that covenants, agreements and
conditions that are qualified by materiality shall have been performed,
satisfied and complied with in all respects);

 

 

          (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents;

          (d) Adverse Changes. Since the date of execution of this
Agreement, no event or series of events shall have occurred that has had or
could reasonably be expected to result in a Material Adverse Effect;

          (e) No Suspensions of Trading in Common Stock; Listing. Trading in
the Common Stock shall not have been suspended by the Commission or any Trading
Market (except for any suspensions of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company)
at any time since the date of execution of this Agreement, and the Common Stock
shall have been at all times since such date listed for trading on a Trading
Market; and

          (f) Company Deliverables. The Company shall have delivered the
Company Deliverables in accordance with Section 2.2(a).

     6.2 Conditions Precedent to the Obligations of the Company to sell
Securities. The obligation of the Company to sell Securities at the
Closing is subject to the satisfaction or waiver by the Company, at or before
the Closing, of each of the following conditions:

          (a) Representations and Warranties. The representations and
warranties of each Investor contained herein shall be true and correct in all
material respects (except that representations and warranties that are
qualified by materiality shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made on and as of such
date;

          (b) Performance. Each Investor shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Investor at or prior to the Closing (except that covenants,
agreements and conditions that are qualified by materiality shall have been
performed, satisfied and complied with in all respects);

          (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents; and

          (d) Investors Deliverables. Each Investor shall have delivered its
Investors Deliverables in accordance with Section 2.2(b).

 

 

ARTICLE VII.

MISCELLANEOUS

     7.1 Fees and Expenses. At the Closing, the Company shall pay to
Schulte Roth & Zabel LLP, counsel to the Investors, $30,000, and to Bryan Cave
LLP, counsel for the placement agent, $25,000 as partial reimbursement for its
legal fees in connection with the preparation of the Transaction Documents (it
being understood that Bryan Cave LLP has only rendered legal advice to the
placement agent, and not to the Company or any Investor in connection with the
transactions contemplated hereby, and that each of the Company and each
Investor has relied for such matters on the advice of its own respective
counsel). Except as specified in the immediately preceding sentence, 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 the
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the sale of the Shares.

     7.2 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 specifically set forth herein and supersede
all prior agreements, understandings, discussions and representations, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.

     7.3 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
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 6:30
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 specified in this Section on a day that is
not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the 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 follows:

	 	 	 
	If to the Company:

	 	TeleCommunication Systems, Inc.

275 West Street

Annapolis, Maryland 21401

Facsimile No.: 410-280-1048

Attention: Chief Financial Officer
	 
	 	 
	With a copy to:

	 	Piper Rudnick LLP

6225 Smith Avenue

Baltimore, Maryland 21209

Facsimile No.: (410) 580-3763

Attention: Wilbert H. Sirota, Esq.

 

 

	 	 	 
	If to an Investor:

	 	To the address set forth under such Investor’s name
on the signature pages hereof;
	 
	 	 
	With a copy to:

	 	Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Facsimile No.: (212) 593-5955

Attention: Eleazer N. Klein, Esq.

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

     7.4 Amendments; Waivers; No Additional Consideration. No provision
of this Agreement may be waived or amended except in a written instrument
signed by the Company and the Investors holding a majority of the Shares. 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. No consideration shall be offered or paid to any Investor to amend or
consent to a waiver or modification of any provision of any Transaction
Document unless the same consideration is also offered to all Investors who
then hold Shares.

     7.5 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.
This Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.

     7.6 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 the Investors. Any
Investor may assign any or all of its rights under this Agreement to any Person
to whom such Investor 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 “Investors.”

     7.7 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 4.7 (as to each
Investor Party).

 

 

     7.8 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement 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 Actions 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, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts 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 the any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Action, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Action has been commenced
in an improper or inconvenient forum. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any
such Action 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 contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence a Action to enforce any provisions of a Transaction Document, then the
prevailing party in such Action shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Action.

     7.9 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery of the Shares. The agreements and
covenants contained herein shall survive the Closing in accordance with their
respective terms.

     7.10 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.

     7.11 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.

     7.12 Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents,

 

 

whenever any Investor exercises a right, election, demand or option under
a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Investor may rescind
or withdraw, in its sole discretion from time to time upon written notice to
the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights.

     7.13 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.
If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of such
mutilated certificate or instrument as a condition precedent to any issuance of
a replacement.

     7.14 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Investors 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.

     7.15 Payment Set Aside. To the extent that the Company makes a
payment or payments to any Investor pursuant to any Transaction Document or an
Investor enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

     7.16 Independent Nature of Investors’ Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in
any Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents.
Each Investor

 

 

acknowledges that no other Investor has acted as agent for such Investor
in connection with making its investment hereunder and that no Investor will be
acting as agent of such Investor in connection with monitoring its investment
in the Securities or enforcing its rights under the Transaction Documents.
Each Investor 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 Investor to be joined as an additional party in any proceeding for
such purpose. The Company acknowledges that each of the Investors has been
provided with the same Transaction Documents for the purpose of closing a
transaction with multiple Investors and not because it was required or
requested to do so by any Investor.

     7.17 Limitation of Liability. Notwithstanding anything herein to
the contrary, the Company acknowledges and agrees that the liability of an
Investor arising directly or indirectly, under any Transaction Document of any
and every nature whatsoever shall be satisfied solely out of the assets of such
Investor, and that no trustee, officer, other investment vehicle or any other
Affiliate of such Investor or any investor, shareholder or holder of shares of
beneficial interest of such a Investor shall be personally liable for any
liabilities of such Investor.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

 

 

     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.

	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	/s/ Thomas M. Brandt, Jr.
	 	 	 	 	

	 	 	 	 	Name: Thomas M. Brandt, Jr.
	 	 	 	 	Title: Senior Vice President
and Chief Financial Officer

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR INVESTORS FOLLOW]

 

 

     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.

	 	 	 
	 	
NAME OF INVESTOR
	 	Riverview Group, LLC

	 	
AUTHORIZED SIGNATORY
	 	By:	/s/ David Nolan
	 	 	

Name: David Nolan
	 	 	Title: Vice Chairman

	 	 	 	 	 
	 	 	Investment Amount: $	 	8,000,000

	 	 	
Tax ID No.:
	 	113485705

	 	 	
ADDRESS FOR NOTICE
	 	 	c/o:	 	 

	 	 	Street:
	 	666 Fifth Avenue

	 	 	City/State/Zip:
	 	New York, NY 10103

	 	 	Attention:
	 	Dan Cardella

	 	 	Tel:
	 	(212) 841-4100

	 	 	
Fax:
	 	(212) 977-1667

	 	 	
DELIVERY INSTRUCTIONS

(if different from above)
	 	 	c/o:
	 

	 	 	
Street:
	 	 

	 	 	
City/State/Zip:
	 	 

	 	 	
Attention:
	 	 

	 	 	
Tel:
	 	 

 

     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.

	 	 	 
	 	NAME OF INVESTOR
	 	033 Growth Partners I, LP

	 	AUTHORIZED SIGNATORY
	 	By:  	/s/ Lawrence C. Longo, Jr.

	 	 	Name: Lawrence C. Longo, Jr.
	 	 	Title:   Chief Operating Officer for

            033 Asset Management, LLC,

            its Investment Manager

	 	 	 	 	 
	 	 	Investment Amount: $	 	987,696

	 	 	Tax ID No.:	 	04-3510149

	 	 	ADDRESS FOR NOTICE
	 	 	c/o:	 	Lawrence C. Longo, Jr.

	 	 	Street:	 	033 Asset Management LLC
125
High Street, Suite 1405

	 	 	City/State/Zip:	 	Boston, MA 02110

	 	 	Attention:	 	 

	 	 	Tel:	 	617-371-2015

	 	 	Fax:	 	617-371-2002

	 	 	DELIVERY INSTRUCTIONS
(if different from above)
	 	 	c/o:	Morgan Stanley

	 	 	Street:	 	1225 Avenue of the Americas
28th Floor

	 	 	City/State/Zip:	 	New York, NY 10020

	 	 	Attention:
	 	Michael Cardaci

	 	 	Tel:	 	212-762-5184

 

     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.

	 	 	 
	 	NAME OF INVESTOR
	 	033 Growth Partners II, LP

	 	AUTHORIZED SIGNATORY
	 	By:  	/s/ Lawrence C. Longo, Jr.

	 	 	Name: Lawrence C. Longo, Jr.
	 	 	Title:   Chief Operating Officer for

            033 Asset Management, LLC,

            its Investment Manager

	 	 	 	 	 
	 	 	Investment Amount: $	 	304,744

	 	 	Tax ID No.:	 	04-3510150

	 	 	ADDRESS FOR NOTICE
	 	 	c/o:	 	Lawrence C. Longo, Jr.

	 	 	Street:	 	033 Asset Management LLC
125
High Street, Suite 1405

	 	 	City/State/Zip:	 	Boston, MA 02110

	 	 	Attention:	 	 

	 	 	Tel:	 	617-371-2015

	 	 	Fax:	 	617-371-2002

	 	 	DELIVERY INSTRUCTIONS
(if different from above)
	 	 	c/o:	Morgan Stanley

	 	 	Street:	 	1225 Avenue of the Americas
28th Floor

	 	 	City/State/Zip:	 	New York, NY 10020

	 	 	Attention:
	 	Michael Cardaci

	 	 	Tel:	 	212-762-5184

 

     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.

	 	 	 
	 	NAME OF INVESTOR
	 	Oyster Pond Partners, LP

	 	AUTHORIZED SIGNATORY
	 	By:  	/s/ Lawrence C. Longo, Jr.

	 	 	Name: Lawrence C. Longo, Jr.
	 	 	Title:   Chief Operating Officer for

            033 Asset Management, LLC,

            its Investment Manager

	 	 	 	 	 
	 	 	Investment Amount: $	 	220,492

	 	 	Tax ID No.:	 	04-3510154

	 	 	ADDRESS FOR NOTICE
	 	 	c/o:	 	Lawrence C. Longo, Jr.

	 	 	Street:	 	033 Asset Management LLC
125
High Street, Suite 1405

	 	 	City/State/Zip:	 	Boston, MA 02110

	 	 	Attention:	 	 

	 	 	Tel:	 	617-371-2015

	 	 	Fax:	 	617-371-2002

	 	 	DELIVERY INSTRUCTIONS
(if different from above)
	 	 	c/o:	Morgan Stanley

	 	 	Street:	 	1225 Avenue of the Americas
28th Floor

	 	 	City/State/Zip:	 	New York, NY 10020

	 	 	Attention:
	 	Michael Cardaci

	 	 	Tel:	 	212-762-5184

 

     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.

	 	 	 
	 	NAME OF INVESTOR
	 	033 Growth
International Fund, Ltd.

	 	AUTHORIZED SIGNATORY
	 	By:  	/s/ Lawrence C. Longo, Jr.

	 	 	Name: Lawrence C. Longo, Jr.
	 	 	Title:   Chief Operating Officer for

            033 Asset Management, LLC,

            its Investment Manager

	 	 	 	 	 
	 	 	Investment Amount: $	 	487,068

	 	 	Tax ID No.:	 	N/A

	 	 	ADDRESS FOR NOTICE
	 	 	c/o:	 	Lawrence C. Longo, Jr.

	 	 	Street:	 	033 Asset Management LLC
125
High Street, Suite 1405

	 	 	City/State/Zip:	 	Boston, MA 02110

	 	 	Attention:	 	 

	 	 	Tel:	 	617-371-2015

	 	 	Fax:	 	617-371-2002

	 	 	DELIVERY INSTRUCTIONS
(if different from above)
	 	 	c/o:	Morgan Stanley

	 	 	Street:	 	1225 Avenue of the Americas
28th Floor

	 	 	City/State/Zip:	 	New York, NY 10020

	 	 	Attention:
	 	Michael Cardaci

	 	 	Tel:	 	212-762-5184exv10w2

 

Exhibit 10.2

EXECUTION VERSION

REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (this “Agreement”) is made and entered
into as of August 30, 2004, by and among TeleCommunication Systems, Inc., a
Maryland corporation (the “Company”), and the investors signatory hereto (each
a “Investor” and collectively, the “Investors”).

     This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Investors (the “Purchase
Agreement”).

     The Company and the Investors hereby agree as follows:

     1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement will have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following
terms have the respective meanings set forth in this Section 1:

          “Effective Date” means the date that the Registration Statement filed
pursuant to Section 2(a) or 2(b) is first declared effective by the Commission.

          “Effectiveness Date” means (a) with respect to the initial Registration
Statement required to be filed under Section 2(a), the earlier of: (a)(i) the
[60th] day following the Closing Date; provided, that, if the Commission
reviews and has written comments to the filed Registration Statement that would
require the filing of a pre-effective amendment thereto with the Commission,
then the Effectiveness Date under this clause (a)(i) shall be the [100th] day
following the Closing Date, and (ii) the fifth Trading Day following the date
on which the Company is notified by the Commission that the initial
Registration Statement will not be reviewed or is no longer subject to further
review and comments, and (b) with respect to any additional Registration
Statements that may be required pursuant to Section 2(b), the earlier of (i)
the [60th] day following (x) if such Registration Statement is required because
the Commission shall have notified the Company in writing that certain
Registrable Securities were not eligible for inclusion on a previously filed
Registration Statement, the date or time on which the Commission shall indicate
as being the first date or time that such Registrable Securities may then be
included in a Registration Statement, or (y) if such Registration Statement is
required for a reason other than as described in (x) above, the date on which
the Company first knows, or reasonably should have known, that such additional
Registration Statement(s) is required; provided, that, if the Commission
reviews and has written comments to such additional filed Registration
Statement that would require the filing of a pre-effective amendment thereto
with the Commission, then the Effectiveness Date under this clause (b)(i) shall
be the [100th] day following the date that the Company first knows, or
reasonably should have known, that such additional Registration Statement is
required under such Section and (ii) the fifth Trading Day following the date
on which the Company is notified by the Commission that such additional

 

 

Registration Statement will not be reviewed or is no longer subject to
further review and comments.

          “Effectiveness Period” has the meaning set forth in Section 2(a).

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

          “Filing Date” means (a) with respect to the initial Registration Statement
required to be filed under Section 2(a), the 30th day following the Closing
Date, and (b) with respect to any additional Registration Statements that may
be required pursuant to Section 2(b), the 30th day following (x) if such
Registration Statement is required because the Commission shall have notified
the Company in writing that certain Registrable Securities were not eligible
for inclusion on a previously filed Registration Statement, the date or time on
which the Commission shall indicate as being the first date or time that such
Registrable Securities may then be included in a Registration Statement, or (y)
if such Registration Statement is required for a reason other than as described
in (x) above, the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement(s) is required.

          “Holder” or “Holders” means the holder or holders, as the case may be,
from time to time of Registrable Securities.

          “Indemnified Party” has the meaning set forth in Section 5(c).

          “Indemnifying Party” has the meaning set forth in Section 5(c).

          “New York Courts” means the state and federal courts sitting in the City
of New York, Borough of Manhattan.

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

          “Registrable Securities” means (i) the Shares and (ii) any securities
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event, or any conversion price adjustment with
respect to any of the securities referenced in (i) above.

          “Registration Statement” means the initial registration statement required
to be filed in accordance with Section 2(a) and any additional registration
statement(s) required to be filed under Section 2(b), including (in each case)
the Prospectus, amendments and supplements to such registration statements or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference therein.

2

 

          “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.

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

          “Rule 424” means Rule 424 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.

     2. Registration.

          (a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a Registration Statement covering the resale of all
Registrable Securities not already covered by an existing and effective
Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415, on Form S-3 (except if the Company is not then eligible
to register for resale the Registrable Securities on Form S-3, in which case
such registration shall be on another appropriate form for such purpose). Such
Registration Statement shall contain (except if otherwise required pursuant to
written comments received from the Commission upon a review of such
Registration Statement) a “Plan of Distribution” section in form and substance
substantially the same as the “Plan of Distribution” section included in the
Company’s Registration Statement on Form S-3 (No. 333-112759) (the “Plan of
Distribution Section”). The Company shall cause such Registration Statement to
be declared effective under the Securities Act as soon as possible but, in any
event, no later than its Effectiveness Date, and shall use its reasonable best
efforts to keep the Registration Statement continuously effective under the
Securities Act until the date which is the earlier of (i) the later to occur of
(A) two years after its Effective Date, and (B) such time as all of the
Registrable Securities covered by such Registration Statement may be sold by
the Holders pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable
to the Company’s transfer agent and the affected Holders and (ii) such time as
all of the Registrable Securities covered by such Registration Statement have
been publicly sold by the Holders (the “Effectiveness Period”).

          (b) If for any reason the Commission does not permit all of the
Registrable Securities to be included in the Registration Statement filed
pursuant to Section 2(a), or for any other reason any outstanding Registrable
Securities are not then covered by an effective Registration Statement, then
the Company shall prepare and file by the Filing Date for such Registration
Statement, an additional Registration Statement covering the resale of all
Registrable Securities not already covered by an existing and effective
Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415, on Form S-3 (except if the Company is not then eligible
to register for resale the Registrable Securities on Form S-3, in which case
such registration shall be on another appropriate form for such purpose). Each
such Registration Statement shall contain (except if otherwise required
pursuant to written comments received from the Commission upon a review of such
Registration Statement) a “Plan of Distribution” section in form and substance
substantially the same as the Plan of Distribution

3

 

Section. The Company shall cause each such Registration Statement to be
declared effective under the Securities Act as soon as possible but, in any
event, by its Effectiveness Date, and shall use its reasonable best efforts to
keep such Registration Statement continuously effective under the Securities
Act during the entire Effectiveness Period.

          (c) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (provided, however that if (A) the Company files a Registration
Statement without affording the Holders the opportunity to review and comment
on the same as required by Section 3(a) hereof or (B) the Investors reasonably
object to the form of the presentation of the information relating to the
selling stockholders or under the heading “Plan of Distribution” in the
Registration Statement, then, in either case, the Company shall not be deemed
to have satisfied this clause (i)), or (ii) a Registration Statement is not
declared effective by the Commission on or prior to its required Effectiveness
Date, or (iii) after its Effective Date, without regard for the reason
thereunder or efforts therefor, such Registration Statement ceases for any
reason to be effective and available to the Holders as to all Registrable
Securities to which it is required to cover at any time prior to the expiration
of its Effectiveness Period for more than an aggregate of 20 Trading Days
(which need not be consecutive) (any such failure or breach being referred to
as an “Event,” and for purposes of clauses (i) or (ii) the date on which such
Event occurs, or for purposes of clause (iii) the date which such 20 Trading
Day-period is exceeded, being referred to as “Event Date”), then in addition to
any other rights the Holders may have hereunder or under applicable law: (x) on
each such Event Date the Company shall pay to each Holder an amount in cash, as
liquidated damages and not as a penalty, equal to 2.0% of the aggregate
Investment Amount paid by such Holder for Shares pursuant to the Purchase
Agreement; and (y) on each monthly anniversary of each such Event Date (if the
applicable Event shall not have been cured by such date) until the applicable
Event is cured, the Company shall pay to each Holder an amount in cash, as
liquidated damages and not as a penalty, equal to 2.0% of the aggregate
Investment Amount paid by such Holder for Shares pursuant to the Purchase
Agreement (provided that, in the event that an Event is cured other than on a
monthly anniversary of the Event Date, the liquidated damages provided
hereunder shall accrue through the cure date on a pro rata basis for that
portion of the month prior to the cure date). If the Company fails to pay any
amounts pursuant to this Section in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 8% per annum (or
such lesser maximum amount that is permitted to be paid by applicable law) to
the Holder, accruing daily from the date such amounts are due until such
amounts, plus all such interest thereon, are paid in full.

          (d) Each Holder agrees to furnish to the Company a completed Questionnaire
in the form attached to this Agreement as Annex A (a “Selling Holder
Questionnaire”). The Company shall not be required to include the Registrable
Securities of a Holder in a Registration Statement and shall not be required to
pay any liquidated or other damages under Section 2(c) to any Holder who fails
to furnish to the Company a fully completed Selling Holder Questionnaire at
least two Trading Days prior to the Filing Date (subject to the requirements
set forth in Section 3(a)).

     3. Registration Procedures.

          In connection with the Company’s registration obligations hereunder, the
Company shall:

4

 

          (a) Not less than four Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto, the
Company shall furnish to each Holder copies of the “Selling Stockholders”
section of such document, the “Plan of Distribution” and any risk factor
contained in such document that specifically addresses the transactions
contemplated by the Transaction Documents or the Selling Stockholders, as
proposed to be filed which documents will be subject to the review of such
Holder. The Company shall not file a Registration Statement, any Prospectus or
any amendments or supplements thereto in which the “Selling Stockholder”
section thereof differs from the disclosure received from a Holder in its
Selling Holder Questionnaire (as amended or supplemented).

          (b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep such Registration
Statement continuously effective as to the applicable Registrable Securities
for its Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible to any comments received from the
Commission with respect to each Registration Statement or any amendment thereto
and, as promptly as reasonably possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to such
Registration Statement that would not result in the disclosure to the Holders
of material and non-public information concerning the Company; and (iv) comply
in all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the Registration Statements and the disposition of
all Registrable Securities covered by each Registration Statement.

          (c) Notify the Holders as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than three Trading Days prior to such filing)
and (if requested by any such Person) confirm such notice in writing no later
than one Trading Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to a Registration Statement
is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a “review” of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company
shall provide true and complete copies thereof and all written responses
thereto to each of the Holders that pertain to the Holders as a Selling
Stockholder or to the Plan of Distribution, but not information which the
Company believes would constitute material and non-public information); and (C)
with respect to each Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or
any other federal or state governmental authority for amendments or supplements
to a Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the
Registrable Securities or the initiation of any Actions for that purpose; (iv)
of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Action for such purpose; and (v) of the occurrence of any
event or passage of time that makes the

5

 

financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

          (d) Use its reasonable best efforts (which shall not require the filing of
any court action) to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

          (e) Furnish to each Holder, without charge, at least one conformed copy of
each Registration Statement and each amendment thereto and all exhibits to the
extent requested by such Person (including those previously furnished) promptly
after the filing of such documents with the Commission.

          (f) Promptly deliver to each Holder, without charge, as many copies of
each Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto, except after delivery of any notice
described in Section 3(c)(ii)-(v) and subject to Section 6(d).

          (g) Prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the selling
Holders in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer
and sale under the securities or Blue Sky laws of all jurisdictions within the
United States, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statements; provided, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or subject the Company to any material tax in any such jurisdiction where it is
not then so subject.

          (h) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to the Registration Statements, which certificates shall
be free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

          (i) Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective

6

 

amendment, to the affected Registration Statements or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, no Registration Statement nor any Prospectus will contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

     4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (A) with respect to
filings required to be made with any Trading Market on which the Common Stock
is then listed for trading, and (B) in compliance with applicable state
securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is reasonably requested
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition,
the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. The Company shall also reimburse the Holders for the fees and
disbursements to legal counsel in connection with registration, filing or
qualification pursuant to Sections 2 and 3 of this Agreement which amount shall
be limited to $5,000 for each Registration Statement.

     5. Indemnification.

          (a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, investment advisors, partners, members and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all Losses, as incurred, arising out of or relating to any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or

7

 

such Holder’s proposed method of distribution of Registrable Securities
and was reviewed and expressly approved in writing by such Holder expressly for
use in the Registration Statement, such Prospectus or such form of Prospectus
or in any amendment or supplement thereto (it being understood that the Holders
have approved the form and substance of the Plan of Distribution Section for
this purpose) or (2) in the case of an occurrence of an event of the type
specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of any Advice contemplated by Section 6(d) or an amended or supplemented
Prospectus, but only if and to the extent that following the receipt of the
Advice or the amended or supplemented Prospectus the misstatement or omission
giving rise to such Loss would have been corrected. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Action of
which the Company is aware in connection with the transactions contemplated by
this Agreement.

          (b) Indemnification by Holders. Each Holder shall, severally and not
jointly (in proportion to the respective number of shares included by each such
Holder, if Registrable Securities are included in the securities as to which
such registration, qualification or compliance is being effected,
notwithstanding any termination of this Agreement) indemnify and hold harmless
the Company, its directors, officers, agents and employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against any and all Losses, as incurred, arising
solely out of or based solely upon: (x) such Holder’s failure to comply with
the prospectus delivery requirements of the Securities Act or (y) any untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in light of the circumstances under
which they were made) or necessary to make the statements therein not
misleading to the extent, but only to the extent that, (1) such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
or to the extent that such information relates to such Holder or such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement (it being understood that the Holder has approved the
form and substance of the Plan of Distribution Section for this purpose), such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (2) in the case of an occurrence of an event of the type specified in
Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
an Advice or an amended or supplemented Prospectus, but only if and to the
extent that following the receipt of the Advice or the amended or supplemented
Prospectus the misstatement or omission giving rise to such Loss would have
been corrected. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. Each Holder shall notify the Company
promptly of the institution, threat or assertion of any Action of which the
Holder is aware in connection with the transactions contemplated by this
Agreement.

8

 

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

          An Indemnified Party shall have the right to employ separate counsel in
any such Action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Action and to employ counsel reasonably satisfactory
to such Indemnified Party in any such Action; or (3) the named parties to any
such Action (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the
Indemnifying Party; provided, however, that in the event one or more Investors
is a party to such Action, the Company shall only be required to pay the
expenses of one law firm serving as counsel to said Investors, unless and to
the extent that such Investors have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Investors on a particular issue). The Indemnifying Party shall not be liable
for any settlement of any such Action effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Action in respect of which any Indemnified Party is a
party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Action.

          All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Action in a manner not inconsistent with this Section)
shall be paid to the Indemnified Party, as incurred, within ten Trading Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

          (d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the

9

 

amount paid or payable by such Indemnified Party as a result of such
Losses, in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys’ or other reasonable fees or
expenses incurred by such party in connection with any Action to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

          The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no Holder
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such Holder from the sale of
the Registrable Securities subject to the Action exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.

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

     6. Miscellaneous.

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

          (b) No Piggyback on Registrations. Except as and to the extent specified
in Schedule 3.1(v) to the Purchase Agreement, neither the Company nor any of
its security holders (other than the Holders in such capacity pursuant hereto)
may include securities of the Company in a Registration Statement other than
the Registrable Securities, and the Company shall not during the Effectiveness
Period enter into any agreement providing any such right to any of its security
holders.

10

 

          (c) Compliance. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement.

          (d) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(c), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

          (e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of
such determination and, if within fifteen days after receipt of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.

          (f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this Section 6(f), may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of no less than a majority in interest of the then outstanding
Registrable Securities. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of certain Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates. 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.

          (g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of

11

 

successful transmission) at the facsimile number specified in this Section
prior to 6:30 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 specified in this Section on a
day that is not a Trading Day or later than 6:30 p.m. (New York City time) on
any Trading Day, (c) the 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 follows:

	 	 	 
	If to the Company:

	 	TeleCommunication Systems, Inc.

275 West Street, Suite 400

Annapolis, MD 21401

Attn: Thomas M. Brandt, Jr.

Telephone: (410) 263-7616

Fax: (410) 280-1048
	 
	 	 
	With a copy to:

	 	Piper Rudnick LLP

6225 Smith Avenue

Baltimore, MD 21209-3600

Attn: Wilbert H. Sirota, Esq.

Telephone: (410) 580-3000

Fax: (410) 580-3763
	 
	 	 
	If to a Investor:

	 	To the address set forth under such Investor’s
name on the signature pages hereto.

If to any other Person who is then the registered Holder:

	 	 	 
	 

	 	To the address of such Holder as it appears in
the stock transfer books of the Company

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

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

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

12

 

          (j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement 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 Actions concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement (whether brought against a
party hereto or its respective Affiliates, employees or agents) will be
commenced in the New York Courts. Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any Action, any claim that it is not personally subject
to the jurisdiction of any New York Court, or that such Action has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Action 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 contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any Action arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Action to enforce any provisions of this Agreement, then the
prevailing party in such Action shall be reimbursed by the other party for its
attorney’s fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Action.

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

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

          (m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

          (n) Independent Nature of Investors’ Obligations and Rights. The
obligations of each Investor under this Agreement are several and not joint
with the obligations of each other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under this Agreement. Nothing contained herein or in any Transaction
Document, and no action taken by any Investor pursuant thereto, shall be deemed
to constitute the Investors as a partnership, an association, a joint venture
or any other kind of entity, or create a presumption that the Investors are in
any way acting in concert or as a group with respect to

13

 

such obligations or the transactions contemplated by this Agreement or any
other Transaction Document. Each Investor acknowledges that no other Investor
will be acting as agent of such Investor in enforcing its rights under this
Agreement. Each Investor shall be entitled to independently protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Investor to be joined as
an additional party in any Action for such purpose. The Company acknowledges
that each of the Investors has been provided with the same Registration Rights
Agreement for the purpose of closing a transaction with multiple Investors and
not because it was required or requested to do so by any Investor.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES TO FOLLOW]

14

 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

	 	 	 
	 	TELECOMMUNICATION SYSTEMS, INC.
	 	By:	/s/ Thomas M. Brandt, Jr.
	 	 	

Name: Thomas M. Brandt, Jr.
	 	 	
Title: Senior Vice President and Chief Financial Officer

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF INVESTORS TO FOLLOW]

 

 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

NAME OF INVESTING ENTITY

Riverview Group, LLC

AUTHORIZED SIGNATORY

By: /s/ David Nolan

Name: David Nolan

Title: Vice Chairman

ADDRESS FOR NOTICE

c/o:

Street: 666
Fifth Avenue

City/State/Zip:
New York, NY 10103

Attention:
Dan Cardella

Tel: (212) 841-4100

Fax: (212) 977-1667

Email:
dcardella@mlp.com

16

 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

NAME OF INVESTING ENTITY

033
Growth Partners I, LP

AUTHORIZED SIGNATORY

By: /s/
Lawrence C. Longo, Jr.

Name: Lawrence C. Longo, Jr.

Title: Chief Operating Officer for 033 Asset Management, LLC,

its Investment Manager

ADDRESS FOR NOTICE

c/o:
Lawrence C. Longo, Jr.

033 Asset Management, LLC

Street: 125
High Street, Suite 1405

City/State/Zip:
Boston MA 02110

Attention:

Tel:
617-371-2015

Fax:
617-371-2002

Email:

17

 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

NAME OF INVESTING ENTITY

033
Growth Partners II, LP

AUTHORIZED SIGNATORY

By: /s/
Lawrence C. Longo, Jr.

Name: Lawrence C. Longo, Jr.

Title: Chief Operating Officer for 033 Asset Management, LLC,

its Investment Manager

ADDRESS FOR NOTICE

c/o:
Lawrence C. Longo, Jr.

033 Asset Management, LLC

Street: 125
High Street, Suite 1405

City/State/Zip:
Boston MA 02110

Attention:

Tel:
617-371-2015

Fax:
617-371-2002

Email:

18

 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

NAME OF INVESTING ENTITY

Oyster
Pond Partners, LP

AUTHORIZED SIGNATORY

By: /s/
Lawrence C. Longo, Jr.

Name: Lawrence C. Longo, Jr.

Title: Chief Operating Officer for 033 Asset Management, LLC,

its Investment Manager

ADDRESS FOR NOTICE

c/o:
Lawrence C. Longo, Jr.

033 Asset Management, LLC

Street: 125
High Street, Suite 1405

City/State/Zip:
Boston MA 02110

Attention:

Tel:
617-371-2015

Fax:
617-371-2002

Email:

19

 

     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

NAME OF INVESTING ENTITY

033
Growth International Fund, Ltd.

AUTHORIZED SIGNATORY

By: /s/
Lawrence C. Longo, Jr.

Name: Lawrence C. Longo, Jr.

Title: Chief Operating Officer for 033 Asset Management, LLC,

its Investment Manager

ADDRESS FOR NOTICE

c/o:
Lawrence C. Longo, Jr.

033 Asset Management, LLC

Street: 125
High Street, Suite 1405

City/State/Zip:
Boston MA 02110

Attention:

Tel:
617-371-2015

Fax:
617-371-2002

Email:

20

 

Annex A

TELECOMMUNICATION SYSTEMS, INC.

Selling Securityholder Questionnaire

The undersigned beneficial owner of common stock (the “Common Stock”), of
TeleCommunication Systems, Inc. (the “Company”) understands that the Company
has filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a Registration Statement for the registration and resale of the
Registrable Securities, in accordance with the terms of the Registration Rights
Agreement, dated as of August [   ], 2004 (the “Registration Rights Agreement”),
among the Company and the Investors named therein. A copy of the Registration
Rights Agreement is available from the Company upon request at the address set
forth below. All capitalized terms used and not otherwise defined herein shall
have the meanings ascribed thereto in the Registration Rights Agreement.

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

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

QUESTIONNAIRE

	1.	 	Name.

	 	(a)	 	Full Legal Name of Selling Securityholder
	 
	 	 	 	

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

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

21

 

	2.	 	Address for Notices to Selling Securityholder:
	 
	 	 	

	 
	 	 	

	 
	 	 	

	 	 	Telephone:
	 	 	Fax:
	 	 	Contact Person:
	 
	3.	 	Beneficial Ownership of Registrable Securities:

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

	 
	 	 	 	

	 
	 	 	 	

	4.	 	Broker-Dealer Status:

	 	(a)	 	Are you a broker-dealer?

Yes  o               No  o

	 	Note:	 	If yes, the Commission’s staff has indicated that you should be
identified as an underwriter in the Registration Statement.
	 
	 	(b)	 	Are you an affiliate of a broker-dealer?

Yes  o               No  o

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

Yes  o               No  o

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

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

22

 

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

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

	 
	 	 	 	

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

	 
	 	 	

The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the
date hereof and prior to the Effective Date for the Registration Statement.

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus. The
undersigned understands that such information will be relied upon by the
Company in connection with the preparation or amendment of the Registration
Statement and the related prospectus.

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

	 	 	 	 	 
	Dated: 	Beneficial Owner:

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

23

 

	 	 	 
	 	 	Piper Rudnick LLP

6225 Smith Avenue

Baltimore, MD 21209-3600

Attn: Wilbert H. Sirota, Esq.

Telephone: (410) 580-3000

Fax: (410) 580-3763

 

24

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