SECURITIES PURCHASE AND EXCHANGE AGREEMENT

 

E.             Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in substantially the form attached hereto as Exhibit D (the “ Registration Rights Agreement ”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Conversion Shares and the Warrant Shares (each as defined below) under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

 

NOW, THEREFORE , the Company and each Buyer hereby agree as follows:

 

1.                                        PURCHASE OF SERIES A-1 SHARES, SERIES A-2 SHARES, EXCHANGE NOTES, AND WARRANTS; OPTION TO PURCHASE ADDITIONAL SERIES A-1 SHARES .

 

(a)           Purchase of Series A-1 Shares and Preferred Warrants .  Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each such Buyer severally, but not jointly, agrees to purchase and acquire from the Company on the First Closing Date (as defined below), the number of Series A-1 Shares set forth opposite such Buyer’s name in Column (3) on the Schedule of Buyers and the Preferred Warrants set forth opposite such Buyer’s name in Column (4) on the Schedule of Buyers.  This paragraph shall not apply to any Buyer for which the number of shares of Series A-1 Shares set forth next to the Buyer’s name on the Schedule of Buyers is zero (0).

 

(b)           Purchase of Series A-2 Shares and Preferred Warrants .  Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each such Buyer severally, but not jointly, agrees to purchase and acquire from the Company on the First Closing Date (as defined below), the number of Series A-2 Shares set forth opposite such Buyer’s name in Column (5) on the Schedule of Buyers and the Preferred Warrants set forth opposite such Buyer’s name in Column (6) on the Schedule of Buyers.  This paragraph shall not apply to any Buyer for which the number of shares of Series A-2 Shares set forth next to the Buyer’s name on the Schedule of Buyers is zero (0).

 

(c)           Purchase of Exchange Notes and Exchange Warrants .  Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, on the First Closing Date (as defined below), the Company shall issue to each Buyer, and each Buyer severally, but not jointly, agrees to purchase and acquire from the Company an Exchange Note in the aggregate principal amount set forth opposite the Buyer’s name in Column (7) on the Schedule of Buyers and the Exchange Warrants set forth opposite the Buyer’s name in Column (8) on the Schedule of Buyers.  This paragraph shall not apply to any Buyer for which the amount of Exchange Notes set forth next to the Buyer’s name on the Schedule of Buyers is zero (0).  The Company agrees and acknowledges that the Exchange Notes, Exchange Warrants, and Series A-2 Shares are being issued hereunder to the Buyers thereof solely in exchange for other securities of the Company for purposes of Rule 144(d)(3)(ii) under the 1933 Act.

 

(d)           Purchase Price .  The purchase price for the Series A-1 Shares (together with the related Preferred Warrants described in Section 1(a) above) shall be $5.00 per Series A-1 Share.  The purchase price for the Series A-2 Shares (including the related Preferred Warrants described in Section 1(b) above) shall be $5.00 principal amount of Existing Notes per Series A-2

 

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Share.  The purchase price for the Exchange Notes (including the related Exchange Warrants described in Section 1(c) above) shall be equal to $1.00 for each $1.00 of principal amount under the Exchange Notes.

 

(e)           Payment of Purchase Price .  On the First Closing Date (as defined below), the aggregate purchase price to be paid by each Buyer for all of the Preferred Shares, Exchange Notes, and Warrants being purchased hereunder (referred to as the “ Investment Amount ”) shall be paid in the form of:  (i) cash, in the amount set forth opposite the Buyer’s name in Column (2) on the Schedule of Buyers, by wire transfer of immediately available funds in accordance with the Company’s written wire instructions and (ii) the surrender and exchange of all rights under the Existing Notes, with the total remaining value, including unpaid principal and accrued but unpaid interest, set forth opposite the Buyer’s name in Column (1) on the Schedule of Buyers, and the surrender and exchange of all rights under and with respect to the Existing Warrants.  Upon the First Closing and receipt of the Investment Amounts described above, the Company shall deliver to each Buyer the Series A-1 Shares, the Series A-2 Shares, the Exchange Notes, and the Warrants which such Buyer is then purchasing, duly executed on behalf of the Company and registered in the name of such Buyer or its designee.

 

(f)            Option to Purchase Series A-1 Shares .

 

(i)            The Company hereby grants to the Buyers of Preferred Stock (as defined below) an option (the “ Series A-1 Option ”), upon the terms and subject to the conditions herein contained, to purchase up to an aggregate of one million (1,000,000) Series A-1 Shares (the “ Option Shares ”) for a purchase price of $5.00 per Series A-1 Share.  Notwithstanding the foregoing and subject to the terms and conditions set forth below in this Section 1(f), (A) the Buyers of Series A-1 Shares (the “ A-1 Buyers ”) shall have the first right to purchase the first three hundred fifty thousand (350,000) Option Shares (the “ Initial Option Shares ”) pursuant to this Series A-1 Option and (B) the Buyers of Series A-2 Shares (the “ A-2 Buyers ”) shall have the first right to purchase the remaining six hundred fifty thousand (650,000) Option Shares plus the Initial Option Shares, if any, not purchased by the A-1 Buyers (the “ Remaining Shares ”).  The right of the A-2 Buyers to purchase the Remaining Shares shall be contingent upon (1) the purchase by the A-1 Buyers of all, but not less than all, of the Initial Option Shares or (2) the failure of the A-1 Buyers to purchase all of the Initial Option Shares on or before the date that is five (5) months from the date of the First Closing (the “ Remaining Share Condition ”).

 

(ii)           With regard to the purchase of the Initial Option Shares, each A-1 Buyer shall be entitled to purchase a maximum number of Initial Option Shares pursuant to the Series A-1 Option in the same proportion as its purchase obligation set forth in Column (3) on the Schedule of Buyers; provided that any A-1 Buyer may assign its rights to purchase Initial Option Shares under this Section 1(f)(ii) to any other Buyer.  The Series A-1 Option may be exercised by the A-1 Buyers for the purchase of Initial Option Shares by delivering an Exercise Notice (as defined below) to the Company at any time and from time to time after the date hereof up until 5:00 p.m., New York City time, on the date that is five (5) months from the date of the First Closing.  Any A-1 Buyer who elects to purchase Initial Option Shares in accordance with this Section 1(f)(ii) must provide the Company with written notice (an “ Exercise Notice ”) stating that such Buyer is exercising its Series A-1 Option and setting forth the number of Initial

 

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Option Shares such Buyer intends to purchase.

 

(iii)          Upon the occurrence of the Remaining Share Condition, each A-2 Buyer shall be entitled to purchase a maximum number of Remaining Shares pursuant to the Series A-1 Option in the same proportion as its purchase obligation set forth in Column (5) on the Schedule of Buyers; provided that any A-2 Buyer may assign its rights to purchase Remaining Shares under this Section 1(f)(iii) to any other Buyer.  The Series A-1 Option may be exercised by the A-2 Buyers for the purchase of Remaining Shares by delivering an Exercise Notice to the Company at any time after the Remaining Share Condition occurs and from time to time thereafter until 5:00 p.m., New York City time, on the date that is six (6) months from the date of the First Closing (the “ Option Expiration Date ”).

 

(iv)          In addition to any other limitation provided herein, in no event shall any part of the Series A-1 Option be exercisable unless the applicable Exercise Notice is delivered to the Company on or before the Option Expiration Date, provided that in the event that the A-1 Buyers purchased all of the Initial Option Shares pursuant to the Series A-1 Option and the A-2 Buyers did not purchase all of the Remaining Shares pursuant hereto, then the A-1 Buyers shall have the right to purchase any Remaining Shares not purchased by the A-2 Buyers (the “ Remaining Unpurchased Shares ”) by delivering to the Company an Exercise Notice with respect thereto no later than thirty (30) days after the Option Expiration Date.  Each A-1 Buyer shall have the right to purchase the Remaining Unpurchased Shares in the same proportion as its purchase obligation set forth in Column (3) on the Schedule of Buyers; provided that any A-1 Buyer may assign its rights to purchase the Remaining Unpurchased Shares under this Section 1(f)(iv) to any other Buyer.

 

(v)           Notwithstanding anything in this Agreement to the contrary, upon the Company’s receipt of an Exercise Notice, if the Board of Directors of the Company determines in good faith that the Company’s anticipated capital resources (including access to borrowing availability under credit facilities) will be sufficient to fund the Company’s operations for a period of at least twelve (12) months after the Company’s receipt of the Exercise Notice, then the Company shall have the right to refuse the exercise of the Series A-1 Option by delivering, prior to the Option Closing Date (as defined below), a written notice to the exercising Buyers stating that the Board of Directors has made such determination, in which event the Buyers will not have the right to exercise the Series A-1 Option (a “ Refusal Notice ”).  After any such Refusal Notice, the Buyers will have the right to deliver a subsequent Exercise Notice at any time after the thirtieth (30 th ) day after receipt of the Refusal Notice, subject to the Company’s right to issue a Refusal Notice again at such time.  Notwithstanding the foregoing, in the event that a Refusal Notice is delivered in response to an Exercise Notice properly delivered by the A-1 Buyers on or before the date that is five (5) months from the date of the First Closing, then the A-2 Buyers shall not have a right to purchase any Remaining Shares unless the A-1 Buyers are first provided with an opportunity to purchase the Initial Option Shares covered by such Exercise Notice.  In addition, in the event that a Refusal Notice is delivered in response to an Exercise Notice properly delivered by the A-2 Buyers prior to the Option Expiration Date, then the A-1 Buyers shall not have the right to purchase any Remaining Unpurchased Shares unless the A-2 Buyers are first provided with an opportunity to purchase the Remaining Shares covered by such Exercise Notice.

 

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(g)           Closing .  The purchase and sale of the Series A-1 Shares, the Series A-2 Shares, the Exchange Notes, and the Warrants (the “ First Closing ”) shall occur on the First Closing Date at the offices of Foley & Lardner LLP, 100 North Tampa Street, Suite 2700, Tampa, Florida 33602.  The date and time of the First Closing (the “ First Closing Date ”) shall be 10:00 a.m., New York, NY Time, on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the First Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and each Buyer).  The closing with respect to each exercise of the Series A-1 Option shall occur on a date (each such date, an “ Option Closing Date ”) specified by the exercising Buyer that is not less than fifteen (15) business days nor more than twenty (20) business days following the date upon which such Buyer provides the Company with an Exercise Notice.  The First Closing Date and each Option Closing Date are herein referred to as a “ Closing Date ” and each closing hereunder is referred to as a “ Closing .”

 

(h)           Certain Definitions .  For purposes of this Agreement, the following capitalized terms shall have the following meanings:

 

(i)            “ Conversion Shares ” means shares of Common Stock issuable upon the conversion of the Preferred Shares or Exchange Notes.

 

(ii)           “ Preferred Shares ” means shares of Series A-1 Shares and/or Series A-2 Shares, as applicable.

 

(iii)          “ Schedule of Buyers ” means the Schedule of Buyers attached to this Agreement.

 

(iv)          “ Securities ” means the Exchange Notes, Preferred Shares, Conversion Shares, and Warrant Shares.

 

(v)           “ Series A-1 Shares ” means shares of Series A-1 Preferred (including any shares issued as dividends on the Series A-1 Preferred), and “ Series A-2 Shares ” means shares of Series A-2 Preferred (including any shares issued as dividends on the Series A-2 Preferred).

 

(vi)          “ Warrants ” means the Preferred Warrants and Exchange Warrants.

 

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

 

2.             BUYER’S REPRESENTATIONS AND WARRANTIES .

 

Each Buyer represents and warrants with respect to only itself that:

 

(a)           No Public Sale or Distribution .  Such Buyer is acquiring the Preferred Shares, the Exchange Notes, and the Warrants, as applicable, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided , however , that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in

 

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accordance with or pursuant to a registration statement or an exemption from the registration requirements of the 1933 Act and applicable state securities laws.  Such Buyer presently does not have any agreement or understanding, directly or indirectly, with any person to distribute any of the Securities.

 

(b)           Qualified Institutional Buyer; Accredited Investor Status .  Such Buyer is a “qualified institutional buyer” as defined in Rule 144A under the 1933 Act (a “ QIB ”) and/or such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

 

(c)           Transfer or Resale .  In connection with such Buyer’s subsequent offers to sell, such Buyer (i) will offer the Securities for resale only upon the terms and conditions set forth in this Agreement (the “ Exempt Resales ”), and (ii) will solicit offers to buy the Securities only from, and will offer and sell the Securities only to, (A) persons reasonably believed by such Buyer to be QIBs or (B) persons reasonably believed by such Buyer to be an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “ Accredited Investor ”) or (C) persons reasonably believed by such Buyer to be non-U.S. persons referred to in Regulation S under the 1933 Act (“ Non-U.S. Persons ”), and in connection with each such sale, it will take reasonable steps to ensure that the purchaser of such Securities is aware that such sale is being made in reliance on Rule 144A, Regulation D or Regulation S, as applicable.

 

(d)           General Solicitation .  No form of general solicitation or general advertising in violation of the 1933 Act has been or will be used nor will any offers in any manner involving a public offering within the meaning of Section 4(2) of the 1933 Act or, with respect to any Securities to be sold in reliance on Regulation S, by means of any directed selling efforts be made by such Buyer or any of its representatives in connection with the offer and sale of any of the Securities.

 

(e)           Reliance on Exemptions .  Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments, and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.

 

(f)            Information .  Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer.  Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received what such Buyer and its advisors, if any, believe to be satisfactory answers to any such inquiries.  Such Buyer understands that its investment in the Securities involves a high degree of risk.  Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.

 

(g)           No Governmental Review .  Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made

 

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any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(h)           Restrictions .  Such Buyer understands that except as provided in this Agreement and the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, such as Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor rule thereto) (collectively, “ Rule 144 ”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person (as defined in Section 3(p)) through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) except as set forth in the Registration Rights Agreement, neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.  The Securities may be pledged in connection with a bona fide margin account or other loan secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document (as defined below), including, without limitation, this Section 2(h); provided , that in order to make any sale, transfer or assignment of Securities, such Buyer and its pledgee makes such disposition in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

 

(i)            Legends .  Buyer understands that the certificates or other instruments representing the Preferred Shares, the Exchange Notes and the Warrants and, until such time as the resale of the Conversion Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the certificates representing the Securities, except as set forth below, shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN/THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,

 

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OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the 1933 Act or (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the 1933 Act.

 

(j)            Validity; Enforcement .  This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies, and except that any rights to indemnity or contribution under the Transaction Documents (as defined below) may be limited by federal and state securities laws and public policy considerations.

 

(k)           No Conflicts .  The execution, delivery and performance by such Buyer of this Agreement and the Registration Rights Agreement and the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Buyer, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.

 

(l)            Residency .  Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.  Such Buyer represents that it was not organized solely for purposes of making an investment in the Company.

 

(m)          Certain Trading Activities .  Such Buyer has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Buyer, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales (as defined in Regulation SHO promulgated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) involving the Company’s securities) since the time that such Buyer was first contacted by the Company or any other Person regarding an investment in the

 

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Company.  Such Buyer 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) prior to the time that the transactions contemplated by this Agreement are publicly disclosed by the Company.  Such Buyer has maintained, and covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to Section 4(e) such Buyer will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction) and any information other than the terms of this transaction that the Company provided to such Buyer on a confidential basis.

 

(n)           No Group .  Other than affiliates of such Buyer who are also Buyers under this Agreement, such Buyer is not under common control with or acting in concert with any other Buyer and is not part of a “group.”  Other than Carlyle Liquid, LLC, Carlyle Holdings, LLC, Abdi Mahamedi, Atlantic Realty, and Ricardo Salas (the “ Affiliated Investors ”), no Buyer, together with its affiliates, will, following any Closing, beneficially own more than 10% of the voting power of the Company’s then-outstanding capital stock.

 

(o)           Buyer Due Diligence .  Such Buyer acknowledges that, except for the matters that are expressly covered by the provisions of this Agreement, including the exhibits and schedules hereto, such Buyer is relying on its own investigation and analysis in entering into this Agreement and consummating the transactions contemplated hereby.  Such Buyer is informed and sophisticated in the transactions contemplated by this Agreement and has undertaken such investigation, and has been provided with and has evaluated such documents and information, as it has deemed necessary in connection with the execution, delivery and performance of this Agreement.  Such Buyer is consummating the transactions contemplated by this Agreement without any representation or warranty, expressed or implied, by the Company except as expressly set forth in this Agreement and the exhibits and schedules hereto.  Such Buyer acknowledges and agrees that the Company does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.

 

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY .

 

The Company represents and warrants to each of the Buyers that:

 

(a)           Organization and Qualification .  The Company and its “ Subsidiaries ” (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) are corporations or other legal entities duly organized and validly existing in good standing under the laws of the jurisdictions in which they are organized, as set forth on Schedule 3(a) , and have the requisite power and authorization to own their properties and to carry on their business as now being conducted.  The Company and each Subsidiary is duly qualified as a foreign corporation or other legal entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, as set forth on Schedule 3(a) , except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.  As used in this Agreement, “ Material Adverse Effect ” means any material adverse effect on the business, properties, assets,

 

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operations, results of operations, or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole.  The Company has no Subsidiaries except as set forth on Schedule 3(a) .

 

(b)           Authorization; Enforcement; Validity .  The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Securities, the Registration Rights Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5) and each of the other agreements entered into by the parties hereto in connection with the Transactions contemplated by this Agreement (collectively, the “ Transaction Documents ”) and to issue the Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Preferred Shares, the Exchange Notes and the Warrants and the reservation for issuance and the issuance of the Conversion Shares and the Warrant Shares issuable upon conversion, issuance or exercise thereof, as the case may be, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction Documents of even date herewith have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies, and except that any rights to indemnity or contribution under the Transaction Documents may be limited by federal and state securities laws and public policy considerations.

 

(c)           Issuance of Securities .  The Preferred Shares, the Exchange Notes and the Warrants are duly authorized and, upon issuance in accordance with the terms hereof, shall be free from all taxes, liens and charges with respect to the issue thereof.  Upon the filing of the Charter Amendment (as defined in Section 4(m) hereof) with the Delaware Secretary of State, the number of shares of Common Stock which equals the sum of 100% of the number of shares of Common Stock issuable upon conversion of the Preferred Shares and the Exchange Notes and exercise of the Warrants to be issued at the First Closing will be duly authorized and reserved for issuance.  Upon conversion, exercise or issuance in accordance with the terms of the Preferred Shares, the Exchange Notes and the Warrants, the Conversion Shares and the Warrant Shares, as the case may be, will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock.  Assuming the accuracy of each of the representations and warranties of the Buyers contained in Section 2, the issuance by the Company of the Securities is exempt from the registration requirements of Section 5 of the 1933 Act.

 

(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 hereby and thereby (including, without limitation, the issuance of the Preferred Shares, the Exchange Notes and the Warrants and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of the certificate of incorporation, any certificate of designations, preferences and rights of any outstanding series

 

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of preferred stock or the bylaws of the Company or any of its Subsidiaries, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, except which are the subject of written waivers or consents which have been obtained or effected on or prior to the applicable Closing Date or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market (as defined below)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii), for such breaches or defaults as could not reasonably be expected to have a Material Adverse Effect.

 

(e)           Consents .  Except as disclosed in Schedule 3(e) , the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the First Closing Date (other than filings and reports relating to the offer and sale of the Securities required under Regulation D or applicable securities or “Blue Sky” laws as contemplated under Section 4(b) of this Agreement), and the Company and its Subsidiaries are unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings pursuant to the preceding sentence.  The Company is not in violation of the listing requirements of the Principal Market (as defined below) and has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.

 

(f)            Acknowledgment Regarding Buyer’s Purchase of Securities .  The Company acknowledges and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that, except as set forth on Schedule 3(f) , no Buyer is (i) an officer or director of the Company, (ii) an “affiliate” of the Company (as defined in Rule 144) or (iii) to the knowledge of the Company, a “beneficial owner” of more than 10% of the Common Stock (as defined for purposes of Rule 13d-3 of the Exchange Act).  The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the Transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the Transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities.

 

(g)           No General Solicitation; Placement Agent’s Fees .  Neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than for

 

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persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby.

 

(h)           No Integrated Offering .  None of the Company, its Subsidiaries, any of their affiliates, and any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.

 

(i)            Rights Agreement .  The Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company .

 

(j)            SEC Documents .  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof (whether or not required to be filed), and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “ SEC Documents ”).  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and, to the Company’s knowledge, none of the SEC Documents, at the time they were filed with the SEC, 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 the light of the circumstances under which they were made, not misleading.

 

(k)           Financial Statements .  As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

(l)            Absence of Certain Changes .  Except as disclosed in Schedule 3(l)  or in the SEC Documents, since December 31, 2008 (i) there has been no Material Adverse Effect, and (ii) the Company has not (A) declared or paid any dividends, (B) sold any assets, individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business, or (C) had capital expenditures, individually or in the aggregate, in excess of $250,000.  The Company has not taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary

 

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bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.  The Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the First Closing, will not be Insolvent (as defined below).  For purposes of this Section 3(l), “ Insolvent ” means (i) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, or (ii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature.

 

(m)          Conduct of Business .  Neither the Company nor its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or Bylaws or their organizational charter or bylaws, respectively.  Except as disclosed in Schedule 3(m) , neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect.  Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the OTC Bulletin Board (the “ Principal Market ”) other than violations which could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect and has no knowledge of any facts or circumstances which would reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future.  Except as disclosed on Schedule 3(m), since January 1, 2006, (i) the Common Stock has been designated for quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market.

 

(n)           Regulatory Permits .  The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

(o)           Equity Capitalization .  As of the date hereof, the number of shares and type of all authorized, issued, and outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance under the Plans (as defined below), is set forth in Schedule 3(o) .  All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable.  All of such outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company.  Except as disclosed in the SEC Documents and other than pursuant to this Agreement and as contemplated by the Company’s employee and director benefit, incentive, or option plans disclosed in the Company’s SEC Documents (the “ Plans ”), (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, and (ii) there are no

 

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agreements, understandings, claims, antidilution protection or other commitments or rights of any character whatsoever that could require the Company to issue additional shares of capital stock of the Company or adjust the purchase or exercise price of any such instrument.  Except as disclosed in the SEC Documents, there are no agreements or arrangements (other than the Registration Rights Agreement) under which the Company is obligated to register the sale of any of its securities under the 1933 Act.

 

(p)           Indebtedness and Other Contracts .  Except as disclosed in Schedule 3(p)  or in the SEC Documents, neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness, or (ii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness.  For purposes of this Agreement:  (x) “ Indebtedness ” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations (as defined below) in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

 

(q)           Absence of Litigation .  Except as disclosed in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, the Common Stock or any of the Company’s Subsidiaries that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

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(r)            Insurance .  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

(s)           Employee Relations .  Except as disclosed in Schedule 3(s) , neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that their relations with their employees are good.  No executive officer of the Company (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company.  No executive officer of the Company, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant.  The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(t)            Title .  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(t)  or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries.  Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

 

(u)           Intellectual Property Rights .  To the knowledge of the Company and except as set forth in the SEC Documents, the Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights (“ Intellectual Property Rights ”) necessary to conduct their respective businesses as now conducted.  The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual Property Rights of others.  Except as set forth in Schedule 3(u) , there is no claim, action or proceeding being made or brought, or to the knowledge of the Company, being threatened, against the Company or its Subsidiaries regarding its Intellectual Property Rights which could have a Material Adverse Effect.

 

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(v)           Environmental Laws .  The Company and its Subsidiaries (i) are in material compliance with any and all Environmental Laws (as hereinafter defined), (ii) have received all material permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in material compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.  The term “ Environmental Laws ” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “ Hazardous Materials ”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

(w)          Tax Status .  The Company and each of its Subsidiaries (i) has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction in which such filings are required, (ii) has paid all taxes and other governmental assessments and charges that are owed by it, including all taxes shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and for which adequate reserves have been established on the Company’s books, and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction.

 

(x)            Disclosure .  The Company confirms that it has not provided any of the Buyers or their respective agents or counsel with any information that will constitute material, nonpublic information on the First Closing Date, other than information and documentation regarding the transactions contemplated by this Agreement, which information shall be included on the 8-K Filing (as defined in Section 4(e) below).  The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company.  The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 

(y)           Manipulation of Price .  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid anyone any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.

 

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(z)            Internal Accounting and Disclosure Controls .  The Company and each of its Subsidiaries maintains 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 generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference.  Except as set forth in the SEC Documents, the Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure.  Except as set forth in the SEC Documents, during the twelve months prior to the date hereof neither the Company nor any of its Subsidiaries have received any notice or correspondence from any accountant relating to any potential material weakness in any part of the system of internal accounting controls of the Company or any of its Subsidiaries.

 

(aa)         Investment Company Status .  The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of  1940, as amended.

 

(bb)         U.S. Real Property Holding Corporation .  The Company is not, nor has ever been, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Buyer’s request.

 

(cc)         Bank Holding Company Act .  Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “ BHCA ”) and to regulation by the Board of Governors of the Federal Reserve System (the “ Federal Reserve ”).  Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five (25%) or more of the total equity of a bank or any  equity that is subject to the BHCA and to regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(dd)         Trading Activities .  It is understood and acknowledged by the Company that, except as set forth in Section 4(l) of this Agreement (which contains certain covenants by the Buyers):  (i) none of the Buyers have been asked to agree, nor has any Buyer agreed, to desist

 

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from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) any Buyer, and counter parties in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and acknowledges that one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Conversion Shares and the Warrant Shares are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted.  The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the Notes, the Warrants or any of the documents executed in connection herewith, except to the extent such hedging and/trading activities violate the provisions of Section 4(l) of this Agreement.

 

(ee)         Shell Company Status .  The Company is not, nor has it at any time previously been, considered a “shell company” within the meaning of Rule 144(i)(1)(i) (or any successor rule) under the 1933 Act.

 

4.              COVENANTS .

 

(a)           Best Efforts .  Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.

 

(b)           Form D and Blue Sky .  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing.  The Company shall, on or before any applicable Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following any Closing Date.

 

(c)           Reporting Status .  With a view to making available to the Buyers the benefits of Rule 144 promulgated under the 1933 Act or any similar rule or regulation of the Commission that may at any time permit the Buyers to sell securities of the Company to the public without registration, the Company shall use its commercially reasonable efforts to: (i) make and keep public information available, as those terms are understood and defined in Rule 144; (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the 1933 Act and the Exchange Act; and (iii) furnish to each Buyer, so long as such Buyer owns Registrable Securities (as defined in the Registration Rights Agreement) (the “ Reporting Period ”), promptly upon request, (A) a written statement by the Company, if true, that it has complied with the applicable reporting requirements of Rule 144, the 1933 Act and the

 

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Exchange Act, (B) a copy of the most recent annual or quarterly report of the Company and copies of such other reports and documents so filed by the Company, (C) the information required by Rule 144A(d)(4) (or any successor rule) under the 1933 Act, and (D) such other information as may be reasonably requested to permit the Buyers to sell such securities pursuant to Rule 144 without registration.

 

(d)           Fees .  The Company shall be responsible for the payment of any placement agent’s fees, transfer taxes or stamp duties, financial advisory fees, or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby.  Except as otherwise set forth in this Agreement or in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

 

(e)           Disclosure of Transactions and Other Material Information .  On or before 8:30 a.m., New York, NY Time, on the fourth Business Day following the date hereof, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the Exchange Act, and attaching the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement), the form of Exchange Note, the Security Agreement, and the Registration Rights Agreement) as exhibits to such filing (including all attachments, the “ 8-K Filing ”).  Neither the Company nor any Buyer shall issue any press releases or any other public statements with respect to the Transactions; provided , however , that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such Transactions (i) in substantial conformity with the 8-K Filing and (ii) as is required by applicable law and regulations.

 

(f)            Reservation of Shares .  From and after the filing of the Charter Amendment with the Delaware Secretary of State, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, 100% of the Conversion Shares and the Warrant Shares.

 

(g)           Sales by Buyers .  Each Buyer will 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 1933 Act and the rules and regulations promulgated thereunder.  No Buyer will make any sale, transfer or other disposition of the Securities in violation of the federal or state securities laws.

 

(h)           Like Treatment of Noteholders .  The terms of the Exchange Note(s) issued to each Buyer pursuant to the terms of this Agreement and the Transaction Documents shall be identical in all material respects.  In addition, neither the Company nor any of its affiliates shall, directly or indirectly, pay or cause to be paid any consideration (immediate or contingent), whether by way of interest, fee, payment for the redemption or conversion of the Exchange Notes, or otherwise, to any Buyer of Exchange Notes or holder of Exchange Notes, for or as an inducement to, or in connection with the solicitation of, any consent, waiver or amendment of any terms or provisions of the Transaction Documents, unless such consideration is required to be paid to all Buyers of Exchange Notes or holders of Exchange Notes bound by such consent, waiver or amendment.  The Company shall not, directly or indirectly, redeem any Exchange

 

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Notes unless such offer of redemption is made pro rata to all Buyers of Exchange Notes or holders of Exchange Notes, as the case may be, on identical terms.  For clarification purposes, this provision constitutes a separate right granted by the Company to each Buyer of Exchange Notes and negotiated separately by each Buyer of Exchange Notes, is intended for the Company to treat the Buyers of Exchange Notes as a class, and shall not in any way be construed as the Buyers of Exchange Notes acting in concert or as a group with respect to the purchase, disposition or voting of Exchange Notes or otherwise.

 

(i)            Indemnification .  In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any material misrepresentation or breach of any material representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any material covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or an