PARADIGMHOLDINGS, INC. PREFERREDSTOCK PURCHASE AGREEMENT FEBRUARY27, 2009 Table ofContents

 

(b)          Investment Intent.  Such Purchaser is acquiring the Securities as principal for its own account for investment purposes and not with a view to distributing or reselling such Securities or any part thereof in violation of applicable securities laws, without prejudice, however, to such Purchaser’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 Purchaser to hold the Securities for any period of time.  Such Purchaser understands that the Securities have not been registered under the Securities Act, and therefore the Securities may not be sold, assigned or transferred unless pursuant to (i) an effective registration statement under the Securities Act with respect thereto or (ii) an available exemption from the registration requirements of the Securities Act.

 

(c)          Purchaser Status.  At the time such Purchaser 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 Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act.

 

(d)          Experience of such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

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

 

(f)          Purchase of Common Stock.  Other than pursuant to the transactions contemplated by this Agreement and the other Transaction Documents, no Purchaser has purchased any Common Stock on the open market or otherwise in the 12 months preceding the date of this Agreement.

 

(g)          Access to Data.  Such Purchaser has received and reviewed information about the Company and has had an opportunity to discuss the Company’s business, management and financial affairs with its management and to review the Company’s facilities.  The foregoing, however, does not limit or modify the representations and warranties made by the Company in this Agreement or any other provision in this Agreement or the right of the Purchasers to rely thereon.

 

(h)          Manipulation of Price.  During the 12-month period immediately preceding the Closing Date, such Purchaser has not, and to its knowledge no one acting on its or any of its officers’ or Affiliates’ behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in 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 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.

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

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Transfer Restrictions.

 

(a)          The Securities may only be disposed of pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, and in compliance with any applicable state securities laws.  In connection with any transfer of Securities other than pursuant to an effective registration statement or to the Company, except as otherwise set forth herein, the Company may require the transferor 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 under the Securities Act.  Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with its transfer agent, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Company that it is an “accredited investor” as defined in Rule 501(a) 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 any other applicable Transaction Document) and shall have the rights of a Purchaser under this Agreement.

 

(b)          The Purchasers agree to the imprinting on any certificate evidencing Securities, except as otherwise permitted by Section 4.1(c), of a restrictive legend in substantially the form as follows, together with any additional legend required by (i) any applicable state securities laws and (ii) any securities exchange upon which such Securities may be listed:

 

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE] 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 COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.  NOTWITHSTANDING THE FOREGOING, THESE SECURITIES [AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

(c)          Certificates evidencing Securities shall not be required to contain the legend set forth in Section 4.1(b) (i) following any sale of such Securities pursuant to an effective Registration Statement covering the resale of such Securities under the Securities Act, (ii) following any sale of such Securities in compliance with Rule 144, (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission).  The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the Effective Date if required by the Company’s transfer agent to effect the removal of the legend hereunder.  Following the Effective Date or at such earlier time as a legend is no longer required for certain Securities, the Company will no later than three (3) Trading Days following the delivery by a Purchaser to the Company or the Company’s transfer agent of a legended certificate representing such Securities, deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in Section 4.1(b).  For so long as any Purchaser owns Securities, the Company will not effect or publicly announce its intention to effect any exchange, recapitalization or other transaction that effectively requires or rewards physical delivery of certificates evidencing the shares of Common Stock.

 

(d)          The Company acknowledges and agrees that a Purchaser may from time to time pledge or grant a security interest in some or all of the Securities in connection with a bona fide margin agreement secured by the Securities and, if required under the terms of such agreement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including 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 shareholders thereunder.

 

4.2           Dilution.  The Company acknowledges that the issuance of the Securities (including the Underlying Shares) will result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Securities (including the Underlying Shares) pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim that the Company may have against any Purchaser.

4.3           Furnishing of Information.  As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  Upon the request of any Purchaser, the Company shall deliver to such Purchaser a written certification of a duly authorized officer as to whether it has complied with the preceding sentence.  As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available in accordance with paragraph (c) of Rule 144 such information as is required for the Purchasers to sell the Securities under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request to satisfy the provisions of Rule 144 applicable to the issuer of securities relating to transactions for the sale of securities pursuant to Rule 144.

 

4.4           Integration.  The Company shall not, and shall use its reasonable best 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 in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

 

4.5           Reservation and Listing of Securities.

 

(a)          The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents, prior to the Amendment Date, the Available Underlying Shares, and as of the Amendment Date, in such amount as may be required to fulfill its obligations in full under the Transaction Documents.

 

(b)          The Company shall, as applicable (i) prepare and timely file with each Trading Market an additional shares listing application covering all of the shares of Common Stock issued or issuable under the Transaction Documents, (ii) use reasonable best efforts to cause such shares of Common Stock to be approved for listing on each Trading Market as soon as practicable thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) use reasonable best efforts to maintain the listing of such Common Stock on each such Trading Market or another Eligible Market.

 

(c)          In the case of a breach by the Company of Section 4.5(a), in addition to the other remedies available to the Purchasers, the Purchasers shall have the right to require the Company to either: (i) use its reasonable best efforts to obtain the required shareholder approval necessary to permit the issuance of such shares of Common Stock as soon as is possible, but in any event not later than the 60th day after such notice, or (ii) within five (5) Trading Days after delivery of a written notice, pay cash to such Purchaser, as liquidated damages and not as a penalty, in an amount equal to the number of shares of Common Stock not issuable by the Company times 115% of the average Closing Price over the five (5) Trading Days immediately prior to the date of such notice or, if greater, the five (5) Trading Days immediately prior to the date of payment (the “Cash Amount”).  If the exercising or converting Purchaser elects the first option under the preceding sentence and the Company fails to obtain the required shareholder approval on or prior to the 60th day after such notice, then within three (3) Trading Days after such 60th day, the Company shall pay the Cash Amount to such Purchaser, as liquidated damages and not as a penalty or as an exclusive remedy hereunder.

4.6           Subsequent Placements.

 

(a)          Without the prior consent of Hale Capital, from the date hereof and for so long as (x) an aggregate of not less than fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to purchase an aggregate of not less than twenty percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of the Common Stock issuable upon exercise of all Warrants on the Closing Date, the Company will not, directly or indirectly, effect any Subsequent Placement, other than Permitted Issuances.

 

(b)          If, from the date hereof and for so long as (x) an aggregate of not less than fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to purchase an aggregate of not less than twenty percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of the Common Stock issuable upon exercise of all Warrants on the Closing Date, the Company is permitted to effect any Subsequent Placement, the Company will not effect such Subsequent Placement (including, with respect to clause (II) hereof, any Permitted Issuance) unless the Company shall have (I) first received the consent of Hale Capital in accordance with Section 4.6(a), and (II) shall have complied with all other provisions of this Section 4.6:

 

(i)           The Company shall deliver to each Purchaser a written notice (the “Offer”) of any proposed or intended issuance or sale or exchange of the securities being offered (the “Offered Securities”) in any Subsequent Placement, which Offer shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the Persons or entities to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with each Purchaser (A) a pro rata portion of the Offered Securities based on such Purchaser’s pro rata portion of the Preferred Shares then outstanding (the “Basic Amount”), and (B) with respect to each Purchaser that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Purchasers as such Purchaser shall indicate it will purchase or acquire should the other Purchasers subscribe for less than their Basic Amounts (the “Undersubscription Amount”).

 

(ii)           To accept an Offer, in whole or in part, a Purchaser must deliver a written notice to the Company prior to the end of the ten Trading Day period after the Offer, setting forth the portion of the Purchaser’s Basic Amount that such Purchaser elects to purchase and, if such Purchaser shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Purchaser elects to purchase (in either case, the “Notice of Acceptance”).  If the Basic Amounts subscribed for by all Purchasers are less than the total of all of the Basic Amounts, then each Purchaser who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), each Purchaser who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Purchaser bears to the total Basic Amounts of all Purchasers that have subscribed for Undersubscription Amounts, subject to rounding by the Company’s Board of Directors to the extent it deems reasonably necessary.

(iii)           The Company shall have 35 Trading Days from the expiration of the period set forth in Section 4.6(b)(ii) above to issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by the Purchasers (the “Refused Securities”), but only to the offerees described in the Offer and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer.

 

(iv)           In the event the Company shall propose to sell less than all of the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4.6(b)(iii) above), then each Purchaser may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that the Purchaser elected to purchase pursuant to Section 4.6(b)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Purchasers pursuant to Section 4.6(b)(ii) above prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities.  In the event that any Purchaser so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Purchasers in accordance with Section 4.6(b)(i) above.

 

(v)           Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, the Purchasers shall acquire from the Company, and the Company shall issue to the Purchasers, the number or amount of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 4.6(b)(iv) above if the Purchasers have so elected, upon the terms and conditions specified in the Offer.  The purchase by the Purchasers of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and the Purchasers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Company the Purchasers and their respective counsel.

 

(vi)           Any Offered Securities not acquired by the Purchasers or other Persons in accordance with Section 4.6(b)(iii) above may not be issued, sold or exchanged until they are again offered to the Purchasers under the procedures specified in this Agreement.

(c)          If at any time while (x) an aggregate of not less than fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to purchase an aggregate of not less than twenty percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of the Common Stock issuable upon exercise of all Warrants on the Closing Date, the Company proposes to directly or indirectly effect a Subsequent Placement (including any Permitted Issuance), then the Company shall offer to, upon the consummation of such Subsequent Placement, repurchase an amount of the Preferred Shares held by the Purchasers, any Warrants held by the Purchasers and any Common Stock held by the Purchasers, in each case in such maximum amounts with respect to each Purchaser as elected by such Purchaser, for an aggregate price (as determined below) equal to the lesser of (i) the aggregate amount of the Subsequent Placement; provided that with respect to any Permitted Issuance, such amount shall be limited to twenty-five percent (25%) of the aggregate amount thereof, and (ii) the aggregate amount required to repurchase all of the Preferred Shares, all of the Warrants and all Common Stock elected to be repurchased by the Purchasers, as applicable, pursuant to this Section 4.6(c).  All Preferred Shares repurchased under this Section 4.6(c) shall be repurchased at a price equal to one hundred twenty-five percent (125%) of the then current Stated Value (as defined in the Certificate of Designations) of the Preferred Shares purchased plus one hundred percent (100%) of all accrued but unpaid cash dividends thereon as of the date of repurchase; provided that any Preferred Shares repurchased with the proceeds of a Permitted Issuance shall be repurchased at a price equal to one hundred percent (100%) of the then current Stated Value of the Preferred Shares plus one hundred percent (100%) of all accrued but unpaid cash dividends thereon as of the date of repurchase.  All Warrants repurchased under this Section 4.6(c) shall be repurchased at a price per Warrant equal to such Warrant’s Repurchase Price (as defined in the applicable Warrant) in respect of the portion of such Warrant being repurchased.  All Common Stock repurchased under this Section 4.6(c) shall be repurchased at a price equal to one hundred twenty-five percent (125%) of the greater of (X) the applicable Exercise Price(s) (as defined in the applicable Warrant) paid for such shares of Common Stock, and (Y) the then current fair market value of such shares of Common Stock; provided that any Common Stock repurchased with the proceeds of a Permitted Issuance shall be repurchased at a price equal to one hundred percent (100%) of the greater of clauses (X) and (Y) in this sentence.

 

(d)          The restrictions contained in this Section 4.6 shall not apply to issuances of Excluded Stock.

 

4.7           Exercise Procedures.  The form of Exercise Notice included in the Warrants sets forth the totality of the procedures required by the Purchasers in order to exercise the Warrants.  No other information or instructions shall be necessary to enable the Purchasers to exercise the Warrants.  The Company shall honor exercises of the Warrants, and, prior to the Amendment Date, shall deliver all Available Underlying Shares, and, as of the Amendment Date, all Underlying Shares, in each case in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

4.8           Securities Laws Disclosure; Publicity.  Within two (2) Business Days following the Closing Date, the Company shall issue a press release reasonably acceptable to the Purchasers disclosing the transactions contemplated hereby.  Within two (2) Business Days of the Closing Date, the Company shall file a Current Report on Form 8-K with the Commission (the “8-K Filing”) describing the material terms of the transactions contemplated by the Transaction Documents and including as exhibits to such Current Report on Form 8-K this Agreement and the forms of the Certificate of Designations and the Warrants, in the form required by the Exchange Act.  Thereafter, the Company shall timely file any filings and notices required by the Commission or applicable law with respect to the transactions contemplated hereby and provide copies thereof to the Purchasers promptly after filing.  The Company shall, at least two (2) Trading Days prior to the filing or dissemination of any disclosure required by this paragraph, provide a copy thereof to the Purchasers for their review.  The Company and the Purchasers shall consult with each other in issuing any press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory agency or Trading Market with respect to the transactions contemplated hereby, and neither party shall issue any such press release or otherwise make any such public statement, filing or other communication without the prior consent of the other, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement, filing or other communication.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market (other than the Registration Statement, the 8-K Filing and any exhibits to filings made in respect of this transaction in accordance with periodic filing requirements under the Exchange Act, the Proxy Materials to be filed pursuant to Section 4.21 and any application to list additional shares filed with the Trading Market), without the prior written consent of such Purchaser, except to the extent such disclosure (but not any disclosure as to the controlling Persons thereof) is required by law, Trading Market regulations or the Commission, in which case the Company shall provide the Purchasers with prior notice of such disclosure.  If at any time the Purchasers do not have a designee or observer on the Company’s Board of Directors and any Purchaser has notified the Company that it does not wish to receive any material nonpublic information, the Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any such Purchaser with any material nonpublic information regarding the Company or any of its Subsidiaries without the express written consent of such Purchaser.  In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, a Purchaser shall have the right to require the Company to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material nonpublic information.  No Purchaser shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure.  In addition, if at any other time, a Purchaser so requests, the Company will confirm to such Purchaser in writing that the Company does not believe that such Purchaser, or any employee, officer, director, agent or representative of such Purchaser, has been provided any material non-public information relating to the Company by the Company or any Subsidiary, or any of their respective employees, officers, directors, agents or representatives.  In the event that the Company is unable to make such confirmation, or any Purchaser otherwise requests, the Company will make public disclosure of any information in the possession of such Purchaser which the Company or such Purchaser believes might constitute material non-public information relating to the Company.  No Purchaser shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure.  Subject to the foregoing, neither the Company nor any Purchaser shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).  Each press release disseminated by the Company during the 12 months prior to the Closing Date did not at the time of release 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, not misleading.

4.9           Use of Proceeds.  The Company shall use the net proceeds from the sale of the Securities hereunder to repay certain existing Indebtedness of the Company set forth on Schedule 4.9 (which shall be repaid by the Company as promptly as practicable after the Closing and which shall then be deemed paid for purposes of this Agreement as of the Closing) and for general working capital purposes.

 

4.10           Covenants.

 

(a)          At any time while (x) an aggregate of not less than fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to purchase an aggregate of not less than twenty percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of the Common Stock issuable upon exercise of all Warrants on the Closing Date, the Company shall:

 

(i)           (A) other than pursuant to Section 4.19, do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (B) continue to conduct its business substantially as now conducted or as otherwise currently contemplated and permitted under this Agreement; and (C) at all times maintain, preserve and protect in all material respects all of its assets and properties used or useful in the conduct of its business, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices;

 

(ii)           keep adequate books and records with respect to its business activities in which proper entries, reflecting all bona fide financial transactions, are made in accordance with GAAP;

 

(iii)           at all times maintain, as of the last Trading Day of each fiscal quarter ending after the date hereof (A) an amount of Cash of not less than 80% of the amount of Cash projected for such fiscal quarter as set forth on Schedule 4.10(a), and (B) an amount of Net Cash of not less than 80% of the amount of Cash projected for such fiscal quarter as set forth on Schedule 4.10(a).  For purposes hereof, “Cash” shall mean all cash and cash equivalents, as shown on the consolidated balance sheet of the Company prepared in accordance with GAAP and included in the then most recent SEC Report, and “Net Cash” shall mean Cash minus Indebtedness (including without limitation Permitted Indebtedness).

(iv)           at all times maintain, at all times during each fiscal quarter ending after the date hereof, gross revenues, determined in accordance with GAAP, of not less than 80% of the amount of gross revenues projected for such fiscal quarter set forth on Schedule 4.10(a);

 

(v)           at all times maintain, as of the last Trading Day of each fiscal quarter ending after the date hereof, EBITDA, determined in accordance with GAAP, of not less than 80% of the amount of EBITDA projected for such fiscal quarter as set forth on Schedule 4.10(a); and

 

(vi)           at all times maintain, as of the last Trading Day of each fiscal quarter, Working Capital of not less than the amount of Working Capital projected for such fiscal quarter as set forth on Schedule 4.10(a).

 

(b)          Notwithstanding anything to the contrary, as long as (x) an aggregate of not less than fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to purchase an aggregate of not less than twenty percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of the Common Stock issuable upon exercise of all Warrants on the Closing Date, the Company shall not, directly or indirectly, and including in each case with respect to any Subsidiary (as applicable), without the affirmative vote of Hale Capital:

 

(i)           by operation of law or otherwise, (A) form or acquire any Subsidiary, (B) amend or restate the Company’s Articles of Incorporation or other organizational or charter documents (including the Certificate of Designations) or convert into any other organizational form, other than pursuant to Section 4.19, (C) liquidate, dissolve or wind up the Company, other than pursuant to Section 4.19, or (D) other than pursuant to Section 4.19, merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or acquire or be acquired by, or sell all or substantially all of the assets or capital stock to, any Person or any operating division of any Person;

 

(ii)           other than pursuant to Section 4.19, sell, dispose of, license or transfer, directly or indirectly, any capital stock or any assets or property (including without limitation any payment of cash, capital stock and/or other consideration in connection with any settlement by or judgment against the Company or any Subsidiary) with a value, individually or in the aggregate (including all such sales, dispositions, licenses or transfers), equal to or greater than $100,000, or that are otherwise material to the Company or its business;

 

(iii)           undergo any Fundamental Transaction, other than pursuant to clauses (i), (ii) or (vi) of the definition thereof if and only if the Company does not solicit, participate (other than as required by applicable law), consent to, enter into or fail to reasonably resist or prevent any action contemplated by the applicable clause;

(iv)           (A) authorize the creation or issuance or issue of any capital stock other than Permitted Issuances or issuances of Excluded Stock in accordance with the definitions thereof and subject to the conditions of this Agreement or pursuant to Sections 4.6, 4.19 or 4.21 subject to the conditions contained therein, (B) reclassify any capital stock, or (C) directly or indirectly, redeem, purchase or otherwise acquire any capital stock or set aside any monies for such a redemption, purchase or other acquisition of its capital stock; provided that the Company may (v) issue capital stock in respect of the Preferred Shares if specifically permitted pursuant to the Certificate of Designations and in all events in accordance with the terms thereof and of Section 4.6, (x) directly or indirectly, redeem, purchase or otherwise acquire Securities if specifically permitted pursuant to the Certificate of Designations or Section 4.6 and in all events in accordance with the terms of the Certificate of Designations and of Section 4.6, or if allowed pursuant to Section 4.22 of this Agreement and in all events in accordance with the terms thereof, (y) repurchase the capital stock of former employees, officers, directors or consultants pursuant to any plan, agreement or arrangement described in Schedule 3.1(g) in accordance with its terms on the date hereof, or (z) comply with any cashless exercise rights of the Warrants;

 

(v)           set aside, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares or other interests in the Company, other than distributions (v) in respect of the Preferred Shares if specifically permitted pursuant to the Certificate of Designations and in all events in accordance with the terms thereof and of Section 4.6, (w) to directly or indirectly, redeem, purchase or otherwise acquire Securities if specifically permitted pursuant to the Certificate of Designations or Section 4.6 and in all events in accordance with the terms of the Certificate of Designations and of Section 4.6, or if allowed pursuant to Section 4.22 of this Agreement and in all events in accordance with the terms thereof, (x) of Common Stock upon the conversion of any Convertible Securities or Options outstanding as of the date hereof and set forth in Schedule 3.1(g), pursuant to the terms of such Convertible Securities or Options, as applicable, as of the date hereof, (y) of Common Stock as a dividend on the Common Stock distributed pro rata to the holders thereof, and (z) of assets to repurchase the capital stock of former employees, officers, directors or consultants pursuant to any plan, agreement or arrangement described in Schedule 3.1(g) in accordance with its terms on the date hereof;

 

(vi)           accelerate any payments which are not currently due under any maintenance, license or any other agreement or contract with any customer or supplier, other than in the ordinary course of business and consistent with past practice between the Company and the applicable customer or supplier;

 

(vii)           create, incur, assume or suffer to exist any Indebtedness of any kind, other than (A) pursuant to the Senior Facility, and (B) trade payables incurred in the ordinary course of business consistent with past practice, in the case of clause (A) in no event to exceed $4,500,000 at all times after the Closing (clauses (A) and (B) collectively, “Permitted Indebtedness”);

(viii)         create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than: (A) Liens incurred by the Company, pursuant to Permitted Indebtedness; (B) carriers’, warehousemen’s, materialmen’s and mechanics’ Liens arising by operation of law or that are not material in amount and Liens arising from taxes, assessments, charges or claims that are not yet due or that remain payable without penalty; (C) Liens on real property that 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; (D) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, and mechanic’s Liens, carrier’s Liens and other Liens to secure the performance of tenders, statutory obligations, contract bids, government contracts, performance and return of money bonds and other similar obligations, incurred in the ordinary course of business, whether pursuant to statutory requirements, common law or contractual arrangements; (E) Liens upon any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment incurred solely for the purpose of financing the acquisition of such equipment, so long as such Lien extends only to the equipment financed, and any accessions, replacements, substitutions and proceeds (including insurance proceeds) thereof or thereto; and (F) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation of goods (clauses (A) through (F) collectively, “Permitted Liens”);

 

(ix)           make directly or indirectly any payment in respect or on account of any Indebtedness, other than Permitted Indebtedness;

 

(x)           notwithstanding anything to the contrary contained in this Agreement (A) seek to amend or modify, or request any waiver of, any provision of the Senior Facility, or (B) request to draw any funds under the Senior Facility such that the aggregate amount owed by the Company under the Senior Facility at any given time would be in excess of $4,500,000;

 

(xi)           approve or adopt stock option plan or similar employee incentive plan other than any plan described in Schedule 3.1(g) or as approved by the Company’s Board of Directors, in all cases in an aggregate amount not to exceed three percent (3%) of the outstanding Common Stock on a fully-diluted basis in any 12-month period and other than the Management Pool;

 

(xii)           increase or decrease, or authorize the increase or decrease, of the number of members of the Company’s Board of Directors or any committee thereof, other than pursuant to Section 9(c) of the Certificate of Designations;

 

(xiii)          (A) appoint, hire, suspend or terminate the employment, or (B) materially modify the compensation (including with respect to salary, bonus, incentives or severance), other than in the case of this clause (B) pursuant to employment arrangements existing as of the date of this Agreement and set forth on Schedule 3.1(m)(i), of any executive officer; or

(xiv)         enter into any agreement to do any of the foregoing or cause or permit any Subsidiary of the Corporation directly or indirectly to take any actions described in clauses (i) through (xiii) above.

 

4.11           Repurchase of Securities.  Each of the parties hereto agrees that all repurchases of Securities by the Company pursuant to Section 4.6 hereof will be paid, with respect to the Preferred Shares, pro rata to the holders thereof based upon the number of Preferred Shares being purchased from each of such holders and, with respect to the Warrants, pro rata to the holders thereof based upon the number of Underlying Shares subject to the Warrants being repurchased from each of such holders, and with respect to Common Stock, pro rata to the holders thereof based upon the number of shares of Common Stock being repurchased from each of such holders.

 

4.12           No Impairment.  At all times after the date hereof, the Company will not take or permit any action, or cause or permit any Subsidiary to take or permit any action that impairs or adversely affects the rights of the Purchasers under any Transaction Document.

 

4.13           [Intentionally Omitted.]

 

4.14           Indemnification.  If any Purchaser or any of its Affiliates or any officer, director, partner, controlling person, employee or agent of a Purchaser or any of its Affiliates (a “Related Person”) becomes involved in any capacity in any Proceeding brought by or against any Person in connection with or as a result of the transactions contemplated by the Transaction Documents, the Company will indemnify and hold harmless such Purchaser or Related Person for its reasonable legal and other expenses (including the reasonable costs of any investigation, preparation and travel) and for any Losses incurred in connection therewith, as such expenses or Losses are incurred, excluding only Losses that result directly from such Purchaser’s or Related Person’s gross negligence or willful misconduct.  In addition, the Company shall indemnify and hold harmless each Purchaser and Related Person from and against any and all Losses, as incurred, arising out of or relating to any misrepresentation or breach by the Company or any Subsidiary of any of the representations, warranties or covenants made by the Company or any Subsidiary in this Agreement or any other Transaction Document, or any allegation by a third party that, if true, would constitute such a breach or misrepresentation.  The conduct of any Proceedings for which indemnification is available under this paragraph shall be governed by Section 6.6(c) below.  The indemnification obligations of the Company under this paragraph shall be in addition to any liability that the Company or any Subsidiary may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Purchasers and any such Related Persons.  If the Company or any Subsidiary breaches its obligations under any Transaction Document, then, in addition to any other liabilities the Company may have under any Transaction Document or applicable law, the Company shall pay or reimburse the Purchasers on demand for all costs of collection and enforcement (including reasonable attorneys fees and expenses).  Without limiting the generality of the foregoing, the Company specifically agrees to reimburse the Purchasers on demand for all costs of enforcing the indemnification obligations in this paragraph.

4.15           Shareholders Rights Plan.  No claim will be made or enforced by the Company or any other Person that any Purchaser is an “Acquiring Person” or any similar term under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.16           Delivery of Certificates.  In addition to any other rights available to a Purchaser, if the Company fails to deliver or cause to be delivered to such Purchaser a certificate representing Common Stock on the date on which delivery of such certificate is required by any Transaction Document, and if after such date such Purchaser purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such Purchaser of the shares that the Purchaser anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three Trading Days after such Purchaser’s request and in such Purchaser’s discretion, either (i) pay cash to such Purchaser in an amount equal to such Purchaser’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to such Purchaser a certificate or certificates representing such Common Stock and pay cash to such Purchaser in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Price on the date of the event giving rise to the Company’s obligation to deliver such certificate.

 

4.17           Access.  In addition to any other rights provided by law or set forth herein, from and after the date of this Agreement and for so long as any Preferred Shares remain outstanding, the Company shall, and shall cause each of the Subsidiaries, to give each Purchaser and its representatives, at the request of the Purchasers, access during reasonable business hours to (a) all properties, assets, books, contracts, commitments, reports and records relating to the Company and the Subsidiaries, and (b) the management, accountants, lenders, customers and suppliers of the Company and the Subsidiaries; provided, however, that the Company shall not be required to provide such Purchaser access to any information or Persons if the Company reasonably determines that access to such information or Persons (x) would adversely affect the attorney-client privilege between the Company and its counsel and cannot be provided to the Purchasers in a manner that would avoid the adverse affect on the attorney-client privilege between the Company and its counsel, (y) would result in the disclosure of trade secrets, material nonpublic information or other confidential or proprietary information and cannot be provided to the Purchasers in a manner that would avoid the disclosure of trade secrets, material nonpublic information or other confidential or proprietary information, or (z) would violate the requirements of any Governmental Authority, applicable law or regulation with respect to the confidentiality of information or security clearances and cannot be provided to the Purchasers in a manner that would not violate any such requirements, law or regulation; provided further that the Company shall be required to provide such Purchaser with access to the information contemplated in clause (y) if the Purchaser signs a customary confidentiality agreement with the Company with respect to such information.

4.18           Amendments to Transaction Documents.  So long as (x) an aggregate of not less than fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to purchase an aggregate of not less than twenty percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of the Common Stock issuable upon exercise of all Warrants on the Closing Date, the Company shall not, and shall not permit any of its Subsidiaries to, enter into or become or remain subject to any agreement or instrument, except for the Transaction Documents, that would prohibit or require the consent of any Person to any amendment, modification or supplement to any of the Transaction Documents.

 

4.19           Amended Certificate.  Promptly after attaining approval of the Proposal in accordance with Section 4.21, but in no event later than two (2) Business Days thereafter (the “Amendment Date”), the Company shall file amended and restated articles of incorporation and/or such other applicable merger, organizational or charter documents (the “Amended Certificate”), in a form reasonably satisfactory to Purchasers, which shall provide for among other things (i) an increase in the number of shares of Common Stock so as to allow for the full issuance of the Underlying Shares, (ii) reincorporation of the Company under the laws of the State of Delaware or Nevada, (as determined in the discretion of Hale Capital), (iii) the approval of certain rights granted to the holders of the Preferred Shares pursuant to Section 8(a) of the Certificate of Designations, and (iv) the amendment of Section 9(b)(ii) of the Certificate of Designations so that the text of such section is identical to the text set forth in Section 4.10(b)(ii) of this Agreement.

 

4.20           Stock Split.  Promptly after attaining approval of the Proposal in accordance with Section 4.21, the Company shall cause a reverse stock split of the Common Stock on terms reasonably acceptable to the Purchasers, subject only to the shareholder approval required by the Amended Certificate, as may be amended from time to time, the by-laws or any other applicable state laws.

 

4.21           Shareholder Approval.

 

(a)          The Company shall seek, and use its reasonable best efforts to obtain as soon as possible, but in no event later than 105 days following the date hereof, or 195 days in the event the Proxy Materials shall be reviewed by the Commission (the “Shareholder Approval Date”), shareholder approval of the Amended Certificate, including with respect to the issuance of the Underlying Shares, the reincorporation of the Company and the approval of certain rights of the holders of Preferred Shares, pursuant to Section 4.19, in accordance with the organizational documents of the Company and all applicable laws (the “Proposal”).

 

(b)          As soon as practicable following the date of this Agreement, but in no event later than 60 days following the date of this Agreement, the Company shall prepare and file with the Commission preliminary Proxy Materials in connection with the special meeting of the shareholders of the Company (the “Meeting”) seeking approval of the Proposal.  The Company shall use its reasonable best efforts to cause such preliminary Proxy Materials to reach the “no further comment” stage as soon as possible (the “Clearance Date”) and to hold the Meeting as soon as possible following the Clearance Date and in no event later than 60 days following the Clearance Date.

(c)          The Company’s Board of Directors shall recommend approval of the Proposal by the Company’s shareholders, provided that such recommendation shall not as a result of events occurring after the date hereof, in the sole determination of the Company’s Board of Directors, constitute a breach of a directors’ fiduciary duties to the Company or its shareholders.  The Company shall provide the Purchasers an opportunity to review and comment on the Proxy Materials by providing copies of such Proxy Materials and any revised version thereof to the Purchasers at least three (3) days prior to its filing with the Commission.  The Company shall provide the Purchasers excerpts of all correspondence from or to the Commission or its staff concerning the Proposal promptly after the same is sent or received by the Company and summaries of any comments of the Commission’s staff concerning the Proposal which the Company receives orally promptly after receiving such oral comments.  The Company shall (i) furnish to the Purchasers and their legal counsel a copy of the definitive Proxy Materials and any amendments or supplements thereto promptly after the same are first mailed to shareholders or filed with the Commission, (ii) inform the Purchasers of the progress of solicitation of proxies for the Meeting, and (iii) inform the Purchasers of any adjournment of the Meeting and report the result of the vote of shareholders of the Company on the proposal at the conclusion of the Meeting.

 

(d)          If for any reason the Proposal is not approved at the Meeting, the Company shall take such additional actions as are necessary to hold an additional special meeting of its shareholders to consider the Proposal and in conjunction therewith shall hire a nationally recognized proxy solicitation firm, selected by Hale Capital which is reasonably acceptable to the Company, to assist the Company in obtaining the necessary shareholder votes to approve the Proposal.

 

(e)          The Company shall bear all costs and expenses of the preparation, mailing and filing of the Proxy Materials.

 

4.22           Certain Rights of the Company.  If at any time a Purchaser and/or any transferee(s) of that Purchaser realizes cash proceeds with respect to the Preferred Shares, Warrants and Common Stock received upon exercise of the Warrants (for purposes of clarity, including pursuant to any dividends, redemptions or other payments made thereto in respect of the Preferred Shares) held by that Purchaser and/or any such transferee(s), in the aggregate equal to or in excess of (x) the Aggregate Purchase Price paid by that Purchaser as set forth on Schedule A, plus (y) two hundred percent (200%) of such Aggregate Purchase Price, then the Company shall have the option to repurchase all outstanding Preferred Shares held by that Purchaser and/or any such transferee(s) for no additional consideration by the Company.  Each Purchaser shall be required to provide the Company and, if applicable, such transferee(s), with written notice of the occurrence of the foregoing with respect to such Purchaser within five (5) Business Days of such occurrence and the Company shall have the option to exercise the foregoing right by providing written notice to such Purchaser and/or, if applicable, such transferee(s) within 30 days of its receipt of such Purchaser’s written notice; provided that the Company may provide notice to such Purchaser and/or, if applicable, such transferee(s) once such Purchaser and/or, if applicable, such transferee(s) have realized cash proceeds as set forth in clauses (x) and (y) above.

ARTICLE V.

CONDITIONS

 

5.1           Conditions Precedent to the Obligations of the Purchasers.  The obligation of each Purchaser to acquire Securities at the Closing is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the following conditions:

 

(a)          Representations and Warranties.  The representations and warranties of the Company and each other Purchaser contained herein shall be true and correct in all material respects (except to the extent such representations and warranties are qualified as to materiality, in which case such representations and warranties 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 time;

 

(b)          Performance.  The Company and each other Purchaser 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;

 

(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 reasonably could be expected to have or result in, individually or in the aggregate, 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 an Eligible Market;

 

(f)          Due Diligence.  The Purchasers shall have satisfactorily completed their due diligence in their sole discretion;

 

(g)          Legal Opinions.  The Purchasers shall have received the opinion of Company’s legal counsel, in the form attached hereto as Exhibit G, with such changes as may be approved by the Purchasers;

 

(h)          Secretary of State Certificates.  The Purchasers shall have received Certificates, as of a recent date, of the Secretary of State of the States of Wyoming, Nevada and Maryland and each other jurisdiction where a Subsidiary is organized showing the Company and each Subsidiary (other than the Non-Active Subsidiary), as applicable, to be validly existing in their respective jurisdictions of organization and in good standing;

(i)          Officer’s Certificates of Company and the Subsidiaries.  The Purchasers shall have received a certificate signed by an authorized officer of each of the Company and the Subsidiaries (other than the Non-Active Subsidiary) dated as of the Closing Date certifying that (i) attached thereto are true and complete copies of all organizational documents thereof, together with any and all amendments thereto, and that the same are in full force and effect, and (ii) with respect to the Company, attached thereto are true and complete copies of resolutions adopted by the Company’s Board of Directors, authorizing the execution, delivery and performance by the Company of the Transaction Documents to which it is a party, and that the same are in full force and effect;

 

(j)          Closing Certifications of the Company.  The Purchasers shall have received a certificate signed by an authorized officer of the Company certifying that, as of the Closing Date, (i) each of the conditions set forth in this Section 5.1 has been satisfied (except to the extent waived in writing by the Purchasers) and (ii) no Event of Default (as defined in the Certificate of Designations), or event which, with the giving of notice or the passing of time, would constitute an Event of Default, exists as of such date;

 

(k)          Preferred Stock Exchange Agreement.  The Preferred Stock Exchange Agreement attached as Exhibit E hereto, duly executed by the Company and each of the Persons holding Series A Preferred Stock of the Company listed on the signature pages thereto and delivered to the Purchasers on the date of this Agreement, shall remain in full force and effect, and the consummation of the exchange of the Series A Preferred Stock by such Persons contemplated thereby shall occur at the Closing;

 

(l)          Preferred Stock Redemption Agreement.  The Preferred Stock Redemption Agreement attached as Exhibit F hereto, duly executed by the Company and each of the Persons holding Series A Preferred Stock of the Company listed on the signature pages thereto and delivered to the Purchasers on the date of this Agreement, shall remain in full force and effect, and the consummation of the redemption of the Series A Preferred Stock by such Persons contemplated thereby shall occur immediately following the Closing;

 

(m)          Shareholder Agreement.  The Shareholder Agreement attached as Exhibit I hereto, duly executed by the Company and each of the Persons listed on Schedule I attached thereto and delivered to the Purchasers on the date of this Agreement, shall remain in full force and effect;

 

(n)          Other Documents.  All other Transaction Documents, opinions, certificates and other instruments and all proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Purchasers.  The Purchasers shall have received copies of all other documents, opinions, certificates and instruments required to be delivered at the Closing pursuant to Section 2.2(a) hereof and all other documents, opinions, certificates and instruments reasonably requested thereby, with respect to the transactions contemplated by this Agreement and the other Transaction Documents in form and substance satisfactory to the Purchasers;

 

(o)          Financial Tests.  The Company shall have achieved the financial tests set forth on Schedule 4.10(a); and

 

(p)          Financial Plan.  The Company and Hale Capital shall have agreed upon a two (2)-year financial plan for the Company.

5.2           Conditions Precedent to the Obligations of the Company.  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 the Purchasers contained herein shall be true and correct in all material respects (except to the extent such representations and warranties are qualified as to materiality, in which case such representations and warranties 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 Purchasers 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 the Purchasers at or prior to the Closing;

 

(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)          Other Documents.  The Company shall have received copies of all other documents, opinions, certificates and instruments required to be delivered at the Closing pursuant to Section 2.2(b) hereof and all other documents, opinions, certificates and instruments reasonably requested thereby, with respect to the transactions contemplated by this Agreement and the other Transaction Documents in form and substance satisfactory to the Company.

 

ARTICLE VI.

REGISTRATION RIGHTS

 

6.1           Demand Registration.

 

(a)          If at any time the Company shall receive a Registration Request, then the Company shall, within 10 days of the receipt thereof, give written notice of such request to all holders of Registrable Securities and, subject to the limitations of Section 6.1(b), shall use its reasonable best efforts to prepare and file a Registration Statement under the Securities Act with respect to all Registrable Securities which the applicable holders thereof request to be registered within 10 days of the mailing of such notice by the Company, in accordance with Section 6.3 (as expeditiously as practicable) in any event not later than the Filing Date, and use its reasonable best efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event not later than the Required Effectiveness Date.

(b)          If the applicable holders thereof intend to distribute the Registrable Securities covered by their request by means of an underwriting (whether it is on a firm commitment or best efforts (i.e., registered direct) basis), they shall so advise the Company as a part of their request made pursuant to this Section 6.1 and the Company shall include such information in the written notice referred to in Section 6.1(a).  In such event, the right of any such holder to include such holder’s Registrable Securities in such registration shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the holders participating in the underwriting and such holder) to the extent provided herein.  A majority in interest of the holders of Registrable Securities participating in the underwriting, in consultation with the Company, shall select the managing underwriter or underwriters in such underwriting.  All holders proposing to distribute Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the underwriter or underwriters so selected for such underwriting by a majority in interest of such holders; provided, however, that no holder (or any of their assignees) shall be required to make any representations, warranties or indemnities except as they relate to such holder’s ownership of shares and authority to enter into the underwriting agreement and to such holder’s intended method of distribution, and the liability of such holder shall be limited to an amount equal to the net proceeds from the offering received by such holder.  Notwithstanding any other provision of this Section 6.1, if the underwriter advises a holder that marketing factors require a limitation of the number of shares to be underwritten, then the holder shall so advise the Company and the Company shall so advise all holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated as follows: (i) first, among the Purchasers that have elected to participate in such underwritten offering, in proportion (as nearly as practicable) to the aggregate amount of Registrable Securities held by all such Purchasers, until such Purchasers have included in the underwriting all shares requested by such Purchasers to be included, (ii) then, among other holders of Registrable Securities that have elected to participate in such underwritten offering, in proportion (as nearly as practicable) to the aggregate amount of Registrable Securities held by all such holders, until such holders have included in the underwriting all shares requested by such holders to be included, and (iii) thereafter, among all other holders of Common Stock, if any, that have the right and have elected to participate in such underwritten offering, in proportion (as nearly as practicable) to the amount of shares of Common Stock owned by such holders.  Without the consent of a majority in interest of the holders of Registrable Securities participating in a registration referred to in Section 6.1(a), no securities other than Registrable Securities shall be covered by such registration if the inclusion of such other securities would result in a reduction of the number of Registrable Securities covered by such registration or included in any underwriting or if, in the opinion of the managing underwriter, the inclusion of such other securities would adversely impact the marketing of such offering.  Notwithstanding anything contained herein, in the event the Commission or applicable federal securities laws and regulations prohibit the Company from including all Registrable Securities requested by the holders thereof to be registered in any Registration Statement, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities as is the maximum amount permitted by the Commission or such federal securities laws and regulations.

 

(c)          The Company shall be obligated to effect only four (4) registrations pursuant to Registration Requests under this Section 6.1 (an offering which is not consummated shall not be counted for this purpose).

6.2           Piggyback Registration.

 

(a)          If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the holders of Registrable Securities) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-8 (or similar or successor form) relating solely to the sale of securities to participants in a Company stock plan or to other compensatory arrangements to the extent includable on Form S-8 (or similar or successor form), or a registration on Form S-4 (or similar or successor form)), the Company shall, at such time, promptly give each holder of Registrable Securities written notice of such registration.  Upon the written request of any holder of Registrable Securities received by the Company within 10 Trading Days after mailing of such notice by the Company in accordance with this Agreement, the Company shall use its reasonable best efforts to cause to be filed a Registration Statement including the maximum amount of Registrable Securities that each such holder (collectively, the “Electing Holders”) has so requested to be registered and which is permitted to be registered by the Commission or applicable federal securities laws and regulations, and use its reasonable best efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof.  If such registration involves an underwritten offering to the public, all Electing Holders must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company or other selling shareholders.  If, at any time after giving notice of the Company’s intention to register any securities pursuant to this Section 6.2 and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all holders of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of holders of Registrable Securities under Section 6.1.  The Company shall have no obligation under this Section 6.2 to make any offering of its securities, or to complete an offering of its securities that it proposes to make.

 

(b)          If such registration involves an underwritten offering to the public, if the managing underwriter of the underwritten offering shall inform the Company by letter of the underwriter’s opinion that the number of Registrable Securities requested to be included in such registration would, in its opinion, materially adversely affect such offering, including the price at which such securities can be sold, and the Company has so advised the Electing Holders in writing, then the Company shall include in such registration, to the extent of the number that the Company is so advised can be sold in (or during the time of) such offering, (i) first, all securities proposed by the Company to be sold for its own account, then (ii) to the extent that the number of shares of Common Stock proposed to be sold by the Company or the other holders of Registrable Securities pursuant to Section 6.2(a) is less than the number of shares of Common Stock that the Company has been advised can be sold in such offering without having the material adverse effect referred to above, such Registrable Securities requested by Electing Holders who are Purchasers to be included in such registration, allocated pro rata among such Electing Holders as nearly as practicable to the respective amounts of Registrable Securities requested to be included in such registration, shall first be included (and in no event shall the amount of Registrable Securities of the selling Purchasers included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, then (iii) such other securities covered by other registration rights, allocated pro rata among the holders of such other rights in proportion, as nearly as practicable, to the respective amounts of such securities requested to be included in such registration.  All other shareholders of the Company shall be excluded from the proposed offering before any Electing Holder is required to reduce his, hers or its shares being offered under the registration statement.

6.3           Demand Registration Procedures.  In connection with the Company’s registration obligations hereunder with respect to a Registration Statement pursuant to Section 6.1, the Company shall:

 

(a)          Not less than three (3) Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall furnish to each holder of Registable Securities and its counsel copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such holders and their counsel.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which holders holding a majority of the Registrable Securities shall reasonably object.

 

(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 until all of the Registrable Securities registered thereunder have been sold, 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 any Registration Statement or any amendment thereto and as promptly as reasonably possible provide the holders of Registrable Securities and their counsel true and complete copies of all correspondence from and to the Commission relating to a Registration Statement, but, if any holder has not signed a confidentiality agreement with the Company, not any correspondence which would result in the disclosure to such holder of material nonpublic 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 disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance with the intended methods of disposition by the holders thereof set forth in the applicable Registration Statement as so amended or in such Prospectus as so supplemented.

(c)          Notify the holders of Registrable Securities to be sold pursuant to any Registration Statement and their counsel as promptly as reasonably possible, and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day thereafter, of any of the following events:  (i) the Commission notifies the Company whether there will be a “review” of any Registration Statement; (ii) the Commission comments in writing on any Registration Statement (in which case the Company shall deliver to each holder of Registrable Securities a copy of such comments and of all written responses thereto, but, if any holder has not signed a confidentiality agreement with the Company, no information which the Company reasonably believes would constitute material nonpublic information concerning the Company ); (iii) any Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other federal or state Governmental Authority requests any amendment or supplement to any Registration Statement or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included or incorporated by reference in any Registration Statement become ineligible for inclusion or incorporation therein or any statement made in any Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Registration Statement, Prospectus or other document is required so that 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 the light of the circumstances under which they were made, not misleading.

 

(d)          Use its reasonable best efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as practicable.

 

(e)          Furnish to each holder of Registrable Securities and its counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

 

(f)          Promptly deliver to each holder of Registrable Securities and its counsel, without charge, as many copies of the 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 of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

 

(g)          (i) In the time and manner required by each Trading Market, if applicable, prepare and file with such Trading Market an additional shares listing application covering all of the Registrable Securities; (ii) use its reasonable best efforts to cause such Registrable Securities to be approved for listing on each Trading Market, as applicable, as soon as reasonably practicable thereafter; (iii) provide to the Holder evidence of such listing; and (iv) use its reasonable best efforts to maintain the listing of such Registrable Securities on each such Trading Market or another Eligible Market.

(h)          Prior to any public offering of Registrable Securities pursuant to any Registration Statement, use its reasonable best efforts to register or qualify or cooperate with the selling holders of Registrable Securities and their counsel 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 such jurisdictions within the United States as any such holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective until all of the Registrable Securities registered or qualified thereunder have been sold 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 a Registration Statement.

 

(i)          Subject to Section 4.17, cooperate with the holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by this 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.

 

(j)          Upon the occurrence of any event described in Section 6.3(c)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statement 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, neither the affected Registration Statement nor such 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 the light of the circumstances under which they were made, not misleading.

 

(k)          Cooperate with any due diligence investigation undertaken by the holders of Registrable Securities in connection with the sale of Registrable Securities pursuant to a Registration Statement, including without limitation by making available any documents and information.

 

(l)          If holders of a majority of the Registrable Securities being offered pursuant to a Registration Statement select underwriters (whether on a firm commitment or best efforts basis) for the offering, the Company shall enter into and perform its obligations under an underwriting (or similar) agreement, in usual and customary form, including, without limitation, by providing customary legal opinions, comfort letters and indemnification and contribution obligations.

 

(m)          In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering.

 

(n)          Comply with all applicable rules and regulations of the Commission.

(o)          The Company shall not be required to deliver any document pursuant to any provision of this Section 6.3 to any holder of Registrable Securities that is not selling Registrable Securities under the applicable Registration Statement.

 

(p)          The Company shall not identify any holder of Registrable Securities as an underwriter in any public disclosure or filing with the Commission or any Trading Market without the prior written consent of such holder.  If the Company is required by law to identify any such holder as an underwriter in any public disclosure or filing with the Commission or any Trading Market, it must notify such holder in writing in advance and such holder shall have the option, in its sole discretion, to consent to such identification as an underwriter or to elect to have its Registrable Securities be removed from such Registration Statement.  If any holder of Registrable Securities does not make such election within five (5) Business Days of such holder’s receipt of such Notice, such holder shall be deemed to have elected to have its Registrable Securities be deemed to be removed from such Registration Statement.

 

6.4           Piggyback Registration Procedures.  In connection with the Company’s registration obligations hereunder with respect to a Registration Statement pursuant to Section 6.2, the Company shall:

 

(a)          Not less than three (3) Trading Days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto, (i) furnish to the Electing Holders and their counsel copies of all such documents proposed to be filed, and (ii) cause the Company’s officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.

 

(b)          (i) 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; (ii) as promptly as reasonably possible provide the Electing Holders and their counsel true and complete copies of all correspondence from and to the Commission relating to a Registration Statement; and (iii) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the offering.

 

(c)          Notify the Electing Holders and their counsel as promptly as reasonably possible, and (if requested by any such person) confirm such notice in writing no later than one (1) Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a “review” of any Registration Statement; (ii) the Commission comments in writing on any Registration Statement (in which case the Company shall deliver to each Electing Holder a copy of such comments and of all written responses thereto); (iii) any Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Governmental Authority requests any amendment or supplement to a Registration Statement or related Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Piggy-Back Registration Statement become ineligible for inclusion therein or any statement made in any Piggy-Back Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Registration Statement, related Prospectus or other document is required so that 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)          Furnish to each Electing Holder and its counsel, without charge at least one (1) conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such person (excluding those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

 

(e)          Promptly deliver to each Electing Holder and its counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) related to the Registration Statement 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 Electing Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

 

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

 

(g)          Comply with all applicable rules and regulations of the Commission.

 

(h)          Upon the occurrence of any event described in Section 6.4(c)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to such a Registration Statement 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, neither such Registration Statement nor its related 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.

 

6.5           Registration Expenses.  The Company shall pay (or reimburse the holders of Registrable Securities for) all fees and expenses incident to the performance of or compliance with this Agreement by the Company, including without limitation (a) all registration and filing fees and expenses, including without limitation those related to filings with the Commission, any Trading Market and in connection with applicable state securities or Blue Sky laws, (b) printing expenses (including without limitation expenses of printing certificates for Registrable Securities and of printing prospectuses requested by the holders of Registrable Securities), (c) messenger, telephone and delivery expenses, (d) reasonable fees and disbursements of counsel for the Company and reasonable fees and disbursements of one (1) counsel for the holders of Registrable Securities, (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, and (f) all listing fees to be paid by the Company to the Trading Market.  Notwithstanding the foregoing, the Company shall not be obligated to pay any sales or brokerage commission incurred by the holders of Registrable Securities in connection with any sale of Registrable Securities.

6.6           Indemnification.

 

(a)          Indemnification by the Company.  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Purchaser, holder of Registrable Securities, the officers, directors, partners, members, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Purchaser or holder of Registrable Securities (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) 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 (1) any untrue or alleged untrue statement of a material fact contained in the 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 the light of the circumstances under which they were made) not misleading, or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon information regarding such Purchaser or holder of Registrable Securities furnished in writing to the Company by such Purchaser or holder of Registrable Securities expressly for use therein, or to the extent that such information relates to such Purchaser or holder of Registrable Securities or such Purchaser’s or holder of Registrable Securities’ proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser or holder of Registrable Securities expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Sections 6.3(c)(v)-(vii) or 6.4(c)(v)-(vii), the use by such Purchaser or holder of Registrable Securities of an outdated or defective Prospectus after the Company has notified such Purchaser or holder of Registrable Securities in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Section 6.7.  The Company shall notify the Purchasers and the holders of Registrable Securities promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.

(b)          Indemnification by Purchasers.  Each Purchaser shall, severally and not jointly, 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 all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of any 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 to the extent, but only to the extent, that (i) such untrue statement or omission is based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use in such Registration Statement or Prospectus, or to the extent that such information relates to such Purchaser or such Purchaser’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Purchaser expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Sections 6.3(c)(v)-(vii) or 6.4(c)(v)-(vii), the use by such Purchaser of an outdated or defective Prospectus after the Company has notified such Purchaser in writing that the Prospectus is outdated or defective and prior to the receipt by such Purchaser of the Advice contemplated in Section 6.7.  In no event shall the liability of any selling Purchaser hereunder be greater in amount than the dollar amount of the net proceeds received by such Purchaser upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c)          Conduct of Indemnification Proceedings.  If any Proceeding 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 Proceeding 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:  (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (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).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding 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 Proceeding 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 Proceeding.

 

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 Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within 10 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 6.5(a) or (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 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 6.5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding 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 6.5(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 6.5(d), no Purchaser shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Purchaser from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

The indemnity and contribution agreements contained in this Section 6.5 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6.7           Dispositions.  Each Purchaser 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.  Each Purchaser further agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 6.3(c)(v), (vi) or (vii) or 6.4(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such Registrable Securities under the Registration Statement until such Purchaser’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Sections 6.2(j) or 6.3(j), 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.

 

6.8           No Piggyback on Registrations.  Except as set forth on Schedule 6.8 or with the prior written consent of the holders of a majority of the Registrable Securities, neither the Company nor any of its security holders (other than the Purchasers in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities, and the Company shall not enter into any agreement providing for any such right to any of its security holders to be included in the Registration Statement for the Registrable Securities.

6.9           Default on Registration.  If: (a) any Registration Statement is not filed on or prior to its Filing Date (provided that if the Company files such Registration Statement without affording the Purchasers the opportunity to review and comment on the same as required by Sections 6.3 and 6.4, the Company shall not be deemed to have satisfied this clause (a)), or (b) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five (5) Trading Days after the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be “reviewed,” or will not be subject to further review, or (c) the Company fails to respond to any comments made by the Commission within 10 Trading Days after the receipt of such comments, (except if such comments relate to the financial statements of the Company or other accounting related issues, in which case, such response period shall be extended for such period of time as may be required for the Company’s auditors to provide responses to such comments, provided that the Company is during such period continually using all commercially reasonable efforts to obtain such responses, and provided, further, that such period of time shall in no event exceed 20 Trading Days (an “Accounting Extension”)), or (d) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commission by the Required Effectiveness Date, or (e) after a Registration Statement is filed with and declared effective by the Commission, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective without being succeeded within 10 Trading Days by an amendment to such Registration Statement or by a subsequent Registration Statement filed with and declared effective by the Commission, or the Purchasers are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities for more than 15 consecutive calendar days or more than an aggregate of 30 calendar days during any 12-month period (which need not be consecutive calendar days), or (f) an amendment to a Registration Statement is not filed by the Company with the Commission within 10 Trading Days after the Commission’s having notified the Company that such amendment is required in order for such Registration Statement to be declared effective (except to the extent such period is exceeded pursuant to an Accounting Extension), or (g) the Common Stock is not listed or quoted, or is suspended from trading on an Eligible Market for a period of three (3) Trading Days (which need not be consecutive Trading Days), (any such failure or breach being referred to as an “Event,” and for purposes of clause (a) or (d) the date on which such Event occurs, or for purposes of clause (b) the date on which such five (5) Trading Day period is exceeded, or for purposes of clauses (c), (e) or (f) the date which such 10 Trading Day-period is exceeded, or for purposes of clause (g) the date on which such three (3) Trading Day period is exceeded, being referred to as “Event Date”), then:  (x) on each such Event Date the Company shall pay to each Purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to the lesser of (A) one percent (1%) of the purchase price paid with respect to the maximum amount of Registrable Securities that could under applicable federal securities laws and regulations be registered for resale by such Purchaser pursuant to this Agreement, and (B) one percent (1%) of the purchase price paid with respect to the total number of Registrable Securities requested to be registered by such Purchaser; and (y) on each monthly anniversary of each such Event Date thereof (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to the lesser of (A) two percent (2%) of the purchase price paid with respect to the maximum amount of Registrable Securities that could under applicable federal securities laws and regulations be registered for resale by such Purchaser pursuant to this Agreement, and (B) two percent (2%) of the purchase price paid with respect to the total number of Registrable Securities requested to be registered by such Purchaser.  Such payments shall be in partial compensation to the Purchasers and shall not constitute the Purchaser’s exclusive remedy for such events.  If the Company fails to pay any liquidated damages pursuant to this Section 6.9 in full within five (5) Business Days after the date payable, the Company will pay interest thereon at the Default Rate to the Purchaser, accruing daily from the date such liquidated damages are due until such amounts, plus all such interest thereon, are paid in full.  This Section 6.9 shall not apply to a delay to the extent caused by (i) the Purchasers or (ii) the Company’s independent auditors or the Commission, if such delay is outside the control of the Company and not related to any action or inaction on the part of the Company, the Subsidiaries or any of their respective officers or directors.  Notwithstanding the foregoing, to the extent that the Company is unable to satisfy any of its obligations pursuant to this Section 6.9 with respect to any portion of the Registrable Securities as a result of applicable securities laws, rules or regulations, the liquidated damages payable by the Company pursuant to this Section 6.9 shall be proportionately reduced in respect thereof.

ARTICLE VII.

MISCELLANEOUS

 

7.1           Termination.  This Agreement may be terminated by Hale Capital, by written notice to the other parties, if the Closing has not been consummated within five business days of the date hereof; provided that no such termination will affect the right of any party to sue for any breach by the other party (or parties).

 

7.2           Fees and Expenses.  At the Closing, the Company shall pay to the Purchasers in cash by wire transfer of immediately available funds (i) the legal and due diligence fees and expenses incurred by them in connection with the preparation and negotiation of the Transaction Documents, which is $270,000 as of the Closing; and (ii) the financing origination fees set forth on Schedule 7.2.  In lieu of the foregoing payments, the Purchasers may retain such amounts at the Closing.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the issuance of any Securities.

 

7.3           Entire Agreement.  The Transaction Documents, together with the Exhibits and Schedules thereto and the respective nondisclosure agreements between the Company and the Purchasers, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.  At or after the Closing, and without further consideration, the Company will execute and deliver to the Purchasers such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

 

7.4           Notices.  Any and all notices or other communications or deliveries required or permitted to be provided under this Agreement or any other Transaction Document shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Agreement later than 6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, specifying next business day delivery or (iv) upon actual receipt by the party to whom such notice is required to be given if delivered by hand.  The address for such notices and communications shall be as follows:

 

If to the Company:	Paradigm Holdings, Inc. 9715 Key West Ave. 3rd Floor Rockville, MD 20850 Attn.: Peter B. LaMontagne Tel.: (301) 468-1200 Fax: (240) 235-4380

With a copy to:	K&L Gates Wachovia Financial Center, Suite 3900, 200 South Biscayne Boulevard Miami, Florida  33131-2399 Attn.:  Clayton E. Parker Tel.: (305) 539-3306 Fax: (305) 358-7095
If to the Purchasers:	To the address set forth under such Purchaser’s name on the signature pages attached hereto.
With a copy to:	Proskauer Rose LLP 1585 Broadway New York, NY 10036 Attn.:  Adam J. Kansler Tel.: (212) 969-3000 Fax: (212) 969-2900

 

or such other address as may be designated in writing hereafter, in the same manner, by such Person by two Trading Days’ prior notice to the other party in accordance with this Section 7.4.

 

7.5           Amendments; Waivers.  No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by Hale Capital and the Company, or, in the case of a waiver, by Hale Capital.  Any waiver executed by Hale Capital shall be binding on the Company all Purchasers hereunder and all holders of Preferred Shares and/or Warrants, as applicable.  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.  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 Purchasers under Article VI and that does not directly or indirectly affect the rights of other Purchasers may be given by Purchasers holding at least a majority of the Registrable Securities to which such waiver or consent relates.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered on identical terms to all of the parties to the Transaction Documents that are holders of Preferred Shares.

 

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

7.7           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder, other than pursuant to the reincorporation as contemplated by Section 4.19, without the prior written consent of the Purchasers.  Any Purchaser may assign its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof and of the applicable Transaction Documents that apply to the “Purchasers.”  Notwithstanding anything to the contrary herein, Securities may be pledged to any Person in connection with a bona fide margin account or other loan or financing arrangement secured by such Securities.

 

7.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Related Person is an intended third party beneficiary of Section 4.14 and each Indemnified Party is an intended third party beneficiary of Section 6.4 and (in each case) may enforce the provisions of such Sections directly against the parties with obligations thereunder.

 

7.9           Governing Law; Venue; Waiver of Jury Trial.  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 (except for matters governed by corporate law in the State of Wyoming), without regard to the principles of conflicts of law thereof.  each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan.  each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Agreement), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper.  each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  nothing 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 Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  if either party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorneys’ fees and other reasonable costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

7.10           Survival.  The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery, exercise and/or conversion of the Securities, as applicable.

 

7.11           Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof.

 

7.12           Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt in good faith 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.

 

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

 

7.14           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.

 

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

7.16           Payment Set Aside.  To the extent that the Company makes a payment or payments to any Purchaser hereunder or any Purchaser enforces or exercises its rights hereunder or 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 by 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.

 

7.17           Usury.  To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document.  Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate.  It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate of interest applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law.  If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

7.18           Independent Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document.  The decision of each Purchaser to purchase Securities pursuant to this Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of the Subsidiary which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any other Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions.  Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document.  The Company hereby confirms that it understands and agrees that the Purchasers are not acting as a “group” as that term is used in Section 13(d) of the Exchange Act.  Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no other Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment hereunder.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

7.19           Adjustments in Share Numbers and Prices.  In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof, each reference in this Agreement to a number of shares or a price per share shall be amended to appropriately account for such event.

 

7.20            Liquidated Damages.  The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

7.21           Fundamental Transaction.  The Company and each Purchaser acknowledges and agrees that for purposes of the Certificate of Designations, notwithstanding any term of the Certificate of Designations to the contrary, no action taken for the purpose of changing the Company’s jurisdiction of incorporation pursuant to Section 4.19 of this Agreement or otherwise specifically contemplated pursuant to Section 4.19 or Section 4.20 of this Agreement for the purposes set forth therein shall constitute a Fundamental Transaction as such term is defined in the Certificate of Designations.

 

7.22           Settlements and Judgments.  The Company and each Purchaser acknowledges and agrees that for purposes of the Certificate of Designations, notwithstanding any term of the Certificate of Designations to the contrary, any breach of the covenant contained in Section 4.10(b)(ii) of this Agreement shall constitute a breach of Section 9(b)(ii) of the Certificate of Designations and shall constitute an Event of Default under Section 9(c)(iv) of the Certificate of Designations.

 

7.23           Construction.  The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

 

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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.

 

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SIGNATURE PAGES OF PURCHASERS FOLLOW.]

 

 

 

 

 

“Black-Scholes value” means the value of the applicable Warrant based on the Black and Scholes Option Pricing model obtained from the “OV” function on Bloomberg determined on the applicable date and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the applicable Warrant as of the applicable date of determination, (ii) an expected volatility equal to the greater of 80% and the 100-day volatility obtained from the “HVT” function on Bloomberg as of the applicable date of determination, and (iii) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being in connection with the applicable triggering event.

[See attached Term Sheet]