SERIES D PREFERRED STOCK PURCHASE AGREEMENT Dated as of August 27, 2009 by and among XStream Systems, Inc. and the Investors named herein

Exhibit 10.6

EXECUTION COPY

SERIES D PREFERRED STOCK PURCHASE AGREEMENT

Dated as of August 27, 2009

by and among

XStream Systems, Inc.

and

the Investors named herein

TABLE OF CONTENTS


ARTICLE I DEFINITIONS AND INTERPRETATION			2

1.1. Definitions			2
1.2. Interpretation			9
1.3. Accounting Principles			10

ARTICLE II AUTHORIZATION AND SALE OF SERIES D PREFERRED SHARES; CLOSING			10

2.1. Authorization of the Series D Preferred Shares			10
2.2. Purchase and Sale of Series D Units			10
2.3. Closings			11
2.4. Delivery of Series D Units; Payment of Purchase Price			11
2.5. Waiver of Preemptive Rights			11

ARTICLE III CONDITIONS OF THE INVESTORS’ OBLIGATIONS			11

3.1. Closing			11
3.2. Waiver			13

ARTICLE IV CONDITIONS OF THE COMPANY’S OBLIGATIONS			13

4.1. Closing			13
4.2. Waiver			14

ARTICLE V COVENANTS			14

5.1. Financial Statements and Other Information			14
5.2. Inspection Rights			16
5.3. Fiscal Year			16
5.4. Insurance			16
5.5. Tax Matters			16
5.6. Payment of Indebtedness			17
5.7. Compliance With Laws; Obligations			17
5.8. Preservation of Corporate Existence and Property			17
5.9. Board			17
5.10. Board of Subsidiaries			17
5.11. Use of Proceeds			17
5.12. Regulatory Compliance Cooperation			18
5.13. Reservation of Common Stock			18
5.14. Certain Insurance Coverage			19
5.15. Second A&R Securityholders’ Agreement			19

ARTICLE VI TRANSFER OF RESTRICTED SECURITIES			19

6.1. General Provisions			19
6.2. Rule 144A			19
6.3. Legend			19
6.4. Legend Removal			19

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ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE COMPANY			19

7.1. Organization, Qualifications and Corporate Power			19
7.2. Authorization; No Conflicts			20
7.3. Subsidiaries and Investments			21
7.4. Authorized Capital Stock			21
7.5. Financial Statements			23
7.6. Absence of Undisclosed Liabilities			23
7.7. No Material Adverse Effect			23
7.8. Title to Properties; Leasehold Interests			23
7.9. Tax Matters			24
7.10. Contracts and Commitments			24
7.11. Intellectual Property Rights			26
7.12. Compliance with Laws; Litigation			26
7.13. Brokers			27
7.14. Governmental Approvals; No Registration			27
7.15. Insurance			28
7.16. Employees			28
7.17. Officers			28
7.18. ERISA			28
7.19. Environmental Matters			29
7.20. Related Party Transactions			30
7.21. Accounts Receivable			30
7.22. Investment Company			30
7.23. Real Property Holding Corporation			30
7.24. Disclosure			31

ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR			31

8.1. Organization			31
8.2. Authorization			31
8.3. Brokers			31
8.4. Investment Representations			31
8.5. Residence			32
8.6. No Knowledge of Breach			32

ARTICLE IX MISCELLANEOUS			33

9.1. Survival of Representations and Warranties			33
9.2. Amendments and Waivers			33
9.3. Successors and Assigns			33
9.4. Remedies			33
9.5. Indemnification			33
9.6. Severability			34
9.7. Notices			34
9.8. Governing Law			35
9.9. Submission to Jurisdiction; Waiver of Jury Trial			35
9.10. Attorneys’ Fees			35
9.11. Execution in Counterparts			35
9.12. Transaction Expenses			35
9.13. Xxxxxxxxx Xxxxxxx Represents the Company			36
9.14. Entire Agreement			36

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APPENDICES


Appendix I		Names of Investors and Amounts of Series D Units Purchased
Appendix II		Notice Information for each Investor

EXHIBITS


Exhibit A-1		Series D Certificate of Designation
Exhibit A-2		Second Amended Series A Designation
Exhibit A-3		Amended Series B Designation
Exhibit A-4		Amended Series C Designation
Exhibit B		Form of A&R Registration Rights Agreement
Exhibit C		Form of Second A&R Securityholders’ Agreement
Exhibit D		Form of Series D Warrant Agreement
Exhibit E		Form of A&R Series B Warrant Agreement
Exhibit F		Form of A&R Series C Warrant Agreement
Exhibit G		A&R By-laws

DISCLOSURE SCHEDULES


Schedule 7.1(a)		Organization, Qualifications and Corporate Power
Schedule 7.2		Authorization; No Conflicts
Schedule 7.4		Capitalization
Schedule 7.5		Financial Statements
Schedule 7.6		Absence of Undisclosed Liabilities
Schedule 7.7		No Material Adverse Effect
Schedule 7.8		Title to Properties; Leasehold Interests
Schedule 7.10(a)		Contracts and Commitments
Schedule 7.11		Intellectual Property Rights
Schedule 7.12		Compliance with Laws; Litigation
Schedule 7.17		Officers
Schedule 7.18		ERISA
Schedule 7.19		Environmental Matters
Schedule 7.20		Related-Party Transactions

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SERIES D PREFERRED STOCK PURCHASE AGREEMENT

SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of August 27, 2009, by and among XStream Systems, Inc., a Delaware corporation (the “Company”), and each of the Investors listed on Appendix I hereto (collectively, the “Investors”).

RECITALS

WHEREAS, the Company desires to issue and sell to the Investors, and the Investors desire to purchase from the Company, an aggregate of up to Seven Hundred Thousand (700,000) shares of authorized and unissued shares of Series D Redeemable Convertible Preferred Stock, $.0001 par value per share, of the Company (the “Series D Preferred Stock”), which shares of Series D Preferred Stock are convertible into shares of common stock, $.0001 par value per share, of the Company (the “Common Stock”), along with warrants to purchase shares of Common Stock;

WHEREAS, the shares of Series D Preferred Stock and the shares of Common Stock into which they are convertible shall have the respective rights, preferences and privileges specified in the Series D Certificate of Designation, the form of which is attached as Exhibit A hereto (the “Series D Certificate of Designation”), all on the terms and subject to the conditions set forth herein;

WHEREAS, the Company and the Other Preferred Stockholders are party to that certain Registration Rights Agreement, dated as of the First Closing Date, as amended by that certain First Amendment, dated as of the Second Closing Date (the “Registration Rights Agreement”);

WHEREAS, the Company, the Other Preferred Stockholders and certain other holders of the Common Stock are also party to that certain Amended and Restated Securityholders’ Agreement, dated as of the Second Closing Date, as amended by that certain Amendment, dated as of the Third Closing Date, and as further amended by that certain Second Amendment, dated as of June 1, 2009 (the “A&R Securityholders’ Agreement”);

WHEREAS, as a condition to entering into this Agreement, the Company, the Investors and the holders of at least a majority of the Registrable Securities (as defined in the Registration Rights Agreement) are required to enter into an Amended and Restated Registration Rights Agreement, substantially in the form of Exhibit B attached hereto (the “A&R Registration Rights Agreement”), concurrently with the execution and delivery of this Agreement;

WHEREAS, as another condition to entering into this Agreement, the Company, the Investors and the holders of at least a majority of the outstanding shares of Common Stock on a fully-diluted basis (including a majority of the Other Preferred Stock voting as a separate class and on a fully-diluted and as converted basis) are required to enter into a Second Amended and Restated Securityholders’ Agreement, substantially in the form of Exhibit C attached hereto (the “Second A&R Securityholders’ Agreement”), concurrently with the execution and delivery of this Agreement;

WHEREAS, as additional conditions to entering into this Agreement, the Company and at least a majority of the holders of the Series B Warrants are required to enter into an Amended and Restated Series B Warrant Agreement, substantially in the form of Exhibit E attached hereto (the “A&R Series B Warrant Agreement”) and the Company and at least a majority of the holders of the Series C Warrants are required to enter into an Amended and Restated Series C Warrant Agreement, substantially in the form of Exhibit F attached hereto (the “A&R Series B Warrant Agreement”);

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I
DEFINITIONS AND INTERPRETATION

1.1. Definitions. For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.1:

“A&R By-laws” means the Amended and Restated By-laws of the Company as in effect on the date of this Agreement, a copy of which is attached hereto as Exhibit G.

“A&R Registration Rights Agreement” has the meaning set forth in the Recitals.

“A&R Securityholders’ Agreement” has the meaning set forth in the Recitals.

“A&R Series B Warrant Agreement” has the meaning set forth in the Recitals.

“A&R Series C Warrant Agreement” has the meaning set forth in the Recitals.

“Affiliate” means, with respect to any particular Person, any other Person that directly or indirectly controls, is controlled by or is under common control with such particular Person. For the purpose of this definition, “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the first paragraph of this Agreement.

“Amended Series B Designation” means the Amended Certificate of Designation relating to the Series B Preferred Stock substantially, in the form attached as Exhibit A-2, as may be amended from time to time.

“Amended Series C Designation” means the Amended Certificate of Designation relating to the Series C Preferred Stock, substantially in the form attached as Exhibit A-3, as may be amended from time to time.

“Board” means the Board of the Directors of the Company.

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“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq.

“Certificate of Incorporation” means the Certificate of Incorporation of the Company, as amended to date (after giving effect to the filing of the Second Amended Series A Designation, the Amended Series B Designation, the Amended Series C Designation and the Series D Certificate of Designation with the Delaware Secretary of State), and as may be further amended or restated from time to time.

“Closing” has the meaning set forth in Section 2.3.

“Closing Date” has the meaning set forth in Section 2.3.

“Code” means the Internal Revenue Code of 1986, as amended, and any reference to any particular Code section shall be interpreted to include any revision of or successor to that section regardless of how numbered or classified.

“Common Stock” has the meaning set forth in the Recitals.

“Company” has the meaning set forth in the first paragraph of this Agreement.

“Contract” means all contracts, agreements, commitments, understandings and arrangements, whether written or oral.

“Conversion Common Shares” means (i) the Common Stock issued or issuable upon conversion or redemption of the Series D Preferred Shares, (ii) the Common Stock issued or issuable upon the exercise of the Warrants and (iii) any Common Stock issued or issuable with respect to the securities referred to in clauses (i) or (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reincorporation. For purposes of this Agreement, any Person who holds Series D Preferred Shares or Warrants shall be deemed to be the holder of the Conversion Common Shares obtainable upon conversion of the Series D Preferred Shares or exercise of the Warrants, regardless of any restriction or limitation on the conversion of the Series D Preferred Shares or exercise of the Warrants; such Conversion Common Shares shall be deemed to be in existence, and such Person shall be entitled to exercise the rights of a holder of Conversion Common Shares hereunder. As to any particular Conversion Common Shares, such shares shall cease to be Conversion Common Shares when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (y) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then in force) or (z) repurchased by the Company

“Court Order” means any judgment, order, award or decree of any foreign, federal, state, local or other court or tribunal and any award in any arbitration proceeding.

“Environmental Laws” means all Requirements of Laws derived from or relating to all federal, state and local laws or regulations relating to or addressing the environment, health or safety, including CERCLA, OSHA and RCRA and any state equivalent thereof.

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“ERISA” has the meaning set forth in Section 7.16.

“Event of Noncompliance” has the meaning set forth in the Series D Certificate of Designation.

“First Closing Date” means March 14, 2007.

“GAAP” means United States generally accepted accounting principles, consistently applied (except for any change required by GAAP).

“Governmental Authority” means any foreign, federal, state, local or other government, governmental, statutory or administrative authority or regulatory body or any court, tribunal or judicial or arbitral body.

“GT” means Xxxxxxxxx Traurig, P.A.

“Indebtedness” means, with respect to any Person at any date, without duplication: (i) all obligations of such Person for borrowed money or in respect of loans or advances; (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations in respect of letters of credit, whether or not drawn, and bankers’ acceptances issued for the account of such Person; (iv) all interest rate or currency caps, collars, swaps or other similar protection agreements of such Person (valued on a market quotation basis); (v) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business consistent with past practice which are not more than one hundred twenty (120) days past due, unless the same are being contested in good faith by actions approved by the Board and with respect to which the Company has set aside adequate reserves therefor in accordance with GAAP); (vi) any commitment by which a Person assures a creditor against loss (including contingent reimbursement obligations with respect to letters of credit); (vii) any obligations under leases that are required to be capitalized in accordance with GAAP; (viii) any indebtedness secured by a Lien on a Person’s assets; or (ix) any guarantee or other contingent obligation (including obligations to repurchase, reimburse or keep well) in respect of the items set forth in the foregoing clauses (i) through (viii).

“Indemnified Liabilities” has the meaning set forth in Section 9.5.

“Indemnitees” has the meaning set forth in Section 9.5.

“Intellectual Property Rights” means all (i) patents, patent applications, patent disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names, URL’s, logos and corporate names and registrations and applications for registration thereof, together with all of the goodwill associated therewith, (iii) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) mask works and registrations and applications for registration thereof, (v) computer software, data, data bases and documentation thereof, (vi) trade secrets and other confidential information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques,

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research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial and marketing plans and customer and supplier lists and information), (vii) other intellectual property rights and (viii) copies and tangible embodiments thereof (in whatever form or medium).

“Investment,” as applied to any Person, means (i) any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or ownership interest (including partnership interests, membership interests and joint venture interests) of any other Person, and (ii) any capital contribution by such Person to any other Person.

“Investors” has the meaning set forth in the first paragraph of this Agreement.

“IRS” means the United States Internal Revenue Service.

“Knowledge” or “aware” means (i) the actual knowledge or awareness of Xxxxx Xxxx and (ii) the knowledge that such person should have after reasonable investigation in the performance of such person’s duties.

“Latest Balance Sheet” has the meaning set forth in Section 7.5.

“Liens” means any mortgage, pledge, security interest, encumbrance, lien, claim or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against the Company or any Affiliate, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to reflect ownership by a third party of property leased to the Company under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person (other than any subordination arising in the ordinary course of business).

“Material Adverse Effect” means an adverse effect of One Hundred Thousand Dollars and 00/100 ($100,000.00) or more on the condition (financial or otherwise), operating results, business, prospects, assets, operations, employee relations or customer or supplier relations of the Company and its Subsidiaries, taken as a whole; provided, however, that no change, circumstance, effect, event or fact shall be deemed to be a Material Adverse Effect to the extent that it is caused by the execution or public announcement of this Agreement or the transactions contemplated hereby.

“Material Contracts” has the meaning set forth in Section 7.10(b).

“OSHA” means the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq.

“Other Preferred Stock” means the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.

“Other Preferred Stockholders” means the holders of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.

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“Party” means any of the Company and the Investors.

“Permitted Liens” means (i) liens with respect to Taxes not yet due and payable or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP, (ii) mechanics’, materialmen’s or contractors’ liens or encumbrances or any similar lien or restriction and (iii) easements, rights-of-way, restrictions and other similar charges and encumbrances not interfering with the ordinary conduct of the business of the Company.

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity or any department, agency or political subdivision thereof or any other entity.

“Purchase Price” has the meaning set forth in Section 2.4(b).

“Qualified IPO” has the meaning set forth in the Series D Certificate of Designation.

“RCRA” means the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., and the rules and regulations promulgated thereunder.

“Registration Rights Agreement” has the meaning set forth in the Recitals.

“Regulatory Problem” has the meaning set forth in Section 5.12(a)(ii).

“Requesting Investor” has the meaning set forth in Section 5.12(a)(i).

“Requirements of Laws” means any foreign, federal, state and local laws, statutes, regulations, rules, codes, ordinances, orders or requirements enacted, adopted, issued or promulgated by any Governmental Authority (including those pertaining to electrical, building, zoning, subdivision, land use, environmental and occupational safety and health requirements) or common law.

“Restricted Securities” means (i) the Series D Preferred Stock issued hereunder, (ii) the Common Stock issued upon conversion or redemption of the Series D Preferred Stock, (iii) the Warrants issued hereunder, (iv) the Common Stock issued upon exercise of the Warrants and (v) any securities issued with respect to the securities referred to in clauses (i), (ii), (iii) or (iv) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reincorporation. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the Securities Act or (c) otherwise transferred and new certificates for them not bearing the Securities Act legend prescribed by Section 6.3 have been delivered by the Company in accordance with Section 6.4. Whenever any particular securities cease to be Restricted

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Securities, the holder thereof shall be entitled to receive from the Company, without being charged therefor by the Company, new securities of like tenor not bearing a Securities Act legend of the character prescribed by Section 6.3.

“Schedule” means any schedule attached to this Agreement.

“SEC” means the United States Securities and Exchange Commission, including any governmental authority or agency succeeding to the functions thereof.

“Second A&R Securityholders’ Agreement” has the meaning set forth in the Recitals.

“Second Amended Series A Designation” means the Second Amended Certificate of Designation relating to the Series A Preferred Stock, substantially in the form attached as Exhibit A-1, as may be amended from time to time.

“Second Closing Date” means December 19, 2007.

“Securities Act” means the Securities Act of 1933.

“Securities Exchange Act” means the Securities Exchange Act of 1934.

“Series A Preferred Stock” means the Series A Redeemable Convertible Preferred Stock, $.0001 par value per share of the Company.

“Series B Preferred Stock” means the Series B Redeemable Convertible Preferred Stock, $.0001 par value per share of the Company.

“Series B Warrant” means a warrant to purchase one share of Common Stock in the form attached as Exhibit A to the Series B Warrant Agreement.

“Series B Warrant Agreement” means the Series B Warrant Agreement, dated as of the Second Closing Date, by and among the Company and the holders of the Series B Warrants, as amended by that certain Amendment, dated as of the Third Closing Date, pursuant to which the Series B Warrants are issued.

“Series C Preferred Stock” means the Series C Redeemable Convertible Preferred Stock, $.0001 par value per share of the Company.

“Series C Warrant” means a warrant to purchase one share of Common Stock in the form attached as Exhibit A to the Series C Warrant Agreement.

“Series C Warrant Agreement” means the Series C Warrant Agreement, dated as of the Second Closing Date, by and among the Company and the holders of the Series C Warrants, as amended by that certain Amendment, dated as of the Third Closing Date, pursuant to which the Series C Warrants are issued.

“Series D Certificate of Designation” has the meaning set forth in the Recitals.

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“Series D Preferred Shares” has the meaning set forth in Section 2.1.

“Series D Preferred Stock” has the meaning set forth in the Recitals.

“Series D Unit” means one Series D Preferred Share and five (5) Series D Warrants.

“Series D Warrant” means a warrant to purchase one share of Common Stock in the form attached as Exhibit A to the Series D Warrant Agreement.

“Series D Warrant Agreement” means the Warrant Agreement dated as of the Closing Date in substantially the form attached hereto as Exhibit D under which the Series D Warrants will be issued.

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of the gains or losses of such limited liability company, partnership, association or other business entity or shall be or control (or have the power to control) a managing director, manager or general partner of such limited liability company, partnership, association or other business entity.

“Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means:

(i) any federal, state, local or foreign net income, gross income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or environmental tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any Governmental Authority; and

(ii) any liability of the Company for the payment of amounts with respect to payments of a type described in clause (i) as a result of any obligation of the Company under any Tax sharing or indemnity arrangement.

“Tax Return” means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including any information return, claim for refund, amended return or declaration of estimated Tax.

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“Third Closing Date” means May 30, 2008.

“Transaction Documents” means the A&R Registration Rights Agreement, Second A&R Securityholders’ Agreement, the A&R Series B Warrant Agreement, the A&R Series C Warrant Agreement, the Second Amended Series A Designation, the Amended Series B Designation, the Amended Series C Designation, the Series D Warrant Agreement and each of the other agreements, documents and instruments expressly contemplated hereby and thereby.

“Warrant” means any of, and “Warrants” means all of, the Series D Warrants.

1.2. Interpretation.

(a) As used in this Agreement and each Transaction Document, unless the context clearly indicates otherwise:

(i) words used in the singular include the plural and words in the plural include the singular;

(ii) reference to any Person includes such Person’s successors and assigns, but only if such successors and assigns are permitted by this Agreement or such other Transaction Document, and reference to a Person in a particular capacity excludes such Person in any other capacity;

(iii) reference to any gender includes the other gender;

(iv) whenever the words “include,” “includes” or “including” are used in this Agreement or any Transaction Document, they shall be deemed to be followed by the words “without limitation” or “but not limited to” or words of similar import;

(v) reference to any Article, Section, Exhibit or Schedule means such Article or Section of, or such Exhibit or Schedule to, this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition;

(vi) the words “herein,” “hereunder,” “hereof,” “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof;

(vii) reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

(viii) reference to any law (including statutes and ordinances) means such law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability, and reference to any particular provision of any

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law shall be interpreted to include any revision of or successor to that provision regardless of how numbered or classified;

(ix) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”;

(x) in the event of any conflict between the provisions of the body of this Agreement and the Exhibits or Schedules hereto, the provisions of the body of this Agreement shall control; and

(xi) the titles to Articles and headings of Sections contained in this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of or to affect the meaning or interpretation of this Agreement.

(b) This Agreement and each of the Transaction Documents were negotiated by the Parties with the benefit of legal representation, and no rule of construction or interpretation otherwise requiring this Agreement or any of the Transaction Documents to be construed or interpreted against any Party shall apply to any construction or interpretation hereof. Subject to Section 9.6, this Agreement shall be interpreted and construed to the maximum extent possible so as to uphold the enforceability of each of the terms and provisions hereof, it being understood and acknowledged that this Agreement was entered into by the Parties after substantial negotiations and with full awareness by the Parties of the terms and provisions hereof and the consequences thereof.

1.3. Accounting Principles. The classification, character and amount of all assets, liabilities, capital accounts and reserves and of all items of income and expense to be determined, and any consolidation or other accounting computation to be made, and the interpretation of any definition containing any financial term, pursuant to this Agreement shall be determined and made in accordance with GAAP.

ARTICLE II
AUTHORIZATION AND SALE OF SERIES D PREFERRED SHARES; CLOSING

2.1. Authorization of the Series D Preferred Shares. Prior to the Closing, the Company shall authorize (i) the issuance and sale to the Investors of an aggregate of up to Seven Hundred Thousand (700,000) shares of Series D Preferred Stock (the “Series D Preferred Shares”) having the rights and preferences set forth in Series D Certificate of Designation, (ii) the reservation for issuance of Seven Hundred Thousand (700,000) shares of Common Stock upon conversion or redemption of the Series D Preferred Shares and (iii) the reservation for issuance of an additional Two Million One Hundred Thousand (2,100,000) shares of Common Stock upon exercise of the Warrants.

2.2. Purchase and Sale of Series D Units. Subject to the terms and the conditions set forth herein, and in reliance upon the representations and warranties of the Company and each Investor set forth herein or in any certificate or other document delivered pursuant hereto, the Company shall issue, sell and deliver to such Investor, free and clear of all Liens (except as set forth in the A&R Registration Rights Agreement and the Second A&R Securityholders’

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Agreement), and such Investor shall purchase at the Closing the number of Series D Units set forth opposite such Investor’s name in the column labeled “Series D Units Purchased at Closing” on Appendix I from the Company at a purchase price of $3.00 per Series D Unit. The Series D Preferred Shares shall accrue dividends from the date of issuance.

2.3. Closings. The closing of the purchase and sale of the Series D Units shall take place at the offices of GT, 0000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxx Xxxxx, Xxxxxxx at 10:00 a.m., local time, on the date of this Agreement, or at such other place or time or on such other date as shall be agreed to by the Company and the Investors (the “Closing”). The time and date on which the Closing is actually held is sometimes referred to herein as the “Closing Date”.

2.4. Delivery of Series D Units; Payment of Purchase Price.

(a) Subject to satisfaction or waiver of the conditions set forth in Article IV, at the Closing, the Company shall issue and deliver to each Investor purchasing Series D Units, free and clear of all Liens (except as set forth in the A&R Registration Rights Agreement and the Second A&R Securityholders’ Agreement), (i) a stock certificate, duly executed by the Company and registered in the Company’s stock ledger in the name of such Investor or such Investor’s nominee, evidencing all of the Series D Preferred Shares being purchased by such Investor at the Closing and (ii) a warrant certificate, duly executed by the Company and registered in the Company’s ledger in the name of such Investor or such Investor’s nominee, evidencing all of the Series D Warrants being purchased by such Investor at the Closing

(b) Subject to satisfaction or waiver of the conditions set forth in Article III, as payment in full for the Series D Units being purchased by an Investor at the Closing under this Agreement, and against delivery of the stock and warrant certificates therefor as described in subparagraph (a) above, such Investor shall deliver at the Closing the amount set opposite such Investor’s name in the column labeled “Purchase Price” on Appendix I hereto to the account of the Company by wire transfer of immediately payable funds or check (the “Purchase Price”).

2.5. Waiver of Preemptive Rights. Upon delivery of its executed counterpart to the Second A&R Securityholders’ Agreement in accordance with Section 4.1(b)(iv), each of the holders of the Series A Preferred Shares consents to the issuance by the Company of, and waives its preemptive rights in respect of, the Series D Preferred Stock.

ARTICLE III
CONDITIONS OF THE INVESTORS’ OBLIGATIONS

3.1. Closing. The obligation of an Investor to purchase Series D Units at the Closing is subject to the fulfillment to the satisfaction of such Investor at or prior to the Closing of each of the following conditions:

(a) Each of the representations and warranties of the Company contained in Article VII shall be true, correct and complete on and as of the Closing Date as though then made, except for such representations and warranties which expressly speak as of a certain date, which representations and warranties shall be true, correct and complete in all material respects as of the date specified;

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(b) All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with;

(c) On or prior to the Closing Date, any authorizations, consents, approvals or permits of any Governmental Authority that are required by law in connection with the lawful sale and issuance of the Series D Units, and the consummation of the transactions contemplated by this Agreement and each of the Transaction Documents, shall have been duly obtained by the Company and shall be effective on and as of the Closing Date, except for any notice filings pursuant to Regulation D under the Securities Act and pursuant to applicable state securities laws not required to be made on or prior to the Closing Date;

(d) No Event of Noncompliance (as defined in Series D Certificate of Designation), or event which with notice or lapse of time or both would constitute such an event, shall have occurred; and

(e) The Company shall have delivered to the Investors each of the following:

(i) Stamped filed copy of the Certificate of Incorporation, as amended to date including evidence of the filing of the Second Amended Series A Designation, the Amended Series B Designation, the Amended Series C and the Series D Certificate of Designation relating to the Series D Preferred Stock;

(ii) Certificate of Good Standing and Certificate of Status of the Company, as applicable, issued as of a recent date by the Secretary of State of the States of Delaware and Florida;

(iii) Certificate of the Chief Executive Officer or the President of the Company, dated the Closing Date, to the effect that the conditions specified in Sections 3.1(a) through 3.1(d) have been satisfied fully;

(iv) Certificate of the Secretary or an Assistant Secretary of the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Investors, as to: (A) no amendments to the Certificate of Incorporation since the date of certification referenced in Section 3.1(e)(i) above; (B) the A&R By-laws; (C) the resolutions duly adopted by the Board authorizing and approving, as appropriate, the execution, delivery and performance of this Agreement and each of the Transaction Documents to which the Company is a party and the transactions contemplated hereby and thereby, including the issuance, sale and delivery of the Series D Units and the reservation for issuance of the Conversion Common Shares; (D) resolutions duly adopted by a majority of the stockholders of the Company approving the Second Amended Series A Designation, the Amended Series B Designation, the Amended Series C Designation and the Series D Designation; and (D) the incumbency and signatures of the officers of the Company authorized to execute and deliver this Agreement and any of the Transaction Documents to which the Company is a party;

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(v) stock certificates representing the Series D Preferred Shares, duly executed by the Company and registered in the names of the Investors (or their nominees);

(vi) its executed counterpart to this Agreement;

(vii) the Series D Warrant Agreement, duly executed by the Company, together with Warrant Certificates (as defined in the Series D Warrant Agreement), duly executed by the Company and registered in the names of the Investors (or their nominees);

(viii) the Second A&R Securityholders’ Agreement, duly executed by the Company, the Investors, and the holders of at least a majority of the outstanding shares of Common Stock on a fully-diluted basis (including a majority of the Other Preferred Stock voting as a separate class and on a fully-diluted and as converted basis);

(ix) the A&R Registration Rights Agreement, duly executed by the Company, the holders of a majority of the Registrable Securities (as defined in the Registration Rights Agreement) and the Investors;

(x) the A&R Series B Warrant Agreement, duly executed by the Company and at least a majority of the holders of the Series B Warrants;

(xi) the A&R Series C Warrant Agreement, duly executed by the Company and at least a majority of the holders of the Series C Warrants; and

(xii) such other documents, instruments, approvals or opinions relating to the transactions contemplated by this Agreement as the Investors may reasonably request.

3.2. Waiver.

(a) Any condition specified in this Article III may be waived if consented to in writing by an Investor.

(b) In the event that either or both of the conditions specified in Section 3.1(a) or 3.1(b) is waived in writing by an Investor in connection with the Closing, such waiver shall serve as a waiver of such Investor’s (but not any other Investor’s) rights or remedies against the Company for any claims or losses based solely on such waived condition not being satisfied at the applicable Closing, but shall not constitute a waiver by such Investor of any rights or remedies accruing to such Investor thereafter.

ARTICLE IV
CONDITIONS OF THE COMPANY’S OBLIGATIONS

4.1. Closing. The obligation of the Company to issue, sell and deliver the Series D Units at the Closing is subject to the fulfillment to the reasonable satisfaction of the Company at or prior to the Closing of each of the following conditions:

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(a) Each of the representations and warranties of the Investors contained in Article VIII shall be true, correct and complete on and as of the Closing Date as though then made, except for such representations and warranties which expressly speak as of a certain date, which representations and warranties shall be true, correct and complete in all material respects as of the date specified; and

(b) The Investors shall have delivered to the Company each of the following:

(i) the Purchase Price in accordance with Section 2.4(b);

(ii) its executed counterpart signature page to this Agreement;

(iii) its executed counterpart signature page to the A&R Registration Rights Agreement; and

(iv) its executed counterpart signature page to the Second A&R Securityholders’ Agreement, duly executed by each Investor.

(i) executed counterparts to the Second A&R Securityholders’ Agreement from the holders of at least a majority of the outstanding shares of Common Stock on a fully-diluted basis (including a majority of the Other Preferred Stock voting as a separate class and on a fully-diluted and as converted basis);

(ii) executed counterparts to the A&R Registration Rights Agreement from the holders of a majority of the Registrable Securities (as defined in the Registration Rights Agreement);

(iii) executed counterparts to the A&R Series B Warrant Agreement from at least a majority of the holders of the Series B Warrants;

(iv) executed counterparts to the A&R Series C Warrant Agreement from at least a majority of the holders of the Series C Warrants; and

(v) approval of the Second Amended Series A Designation, the Amended Series B Designation, the Amended Series C Designation and the Series D Designation from a majority of the stockholders of the Company.

4.2. Waiver. Any condition specified in this Article IV may be waived if consented to in writing by the Company.

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ARTICLE V
COVENANTS

5.1. Financial Statements and Other Information.

(a) The Company shall deliver to the Investors or holders of any Conversion Common Shares:

(i) as soon as available but in any event within thirty (30) days after the end of each monthly accounting period in each fiscal year (other than the third monthly accounting period in each fiscal quarter), unaudited statements of income and cash flows of the Company for such monthly period and for the period from the beginning of the fiscal year to the end of such month, and an unaudited balance sheet of the Company as of the end of such monthly period, setting forth in each case comparisons to the Company’s annual budget and to the corresponding period in the preceding fiscal year, and all such statements shall be prepared in accordance with GAAP, subject to the absence of footnote disclosures and to normal year-end adjustments, and shall be certified by the Company’s Chief Financial Officer;

(ii) as soon as available but in any event within forty-five (45) days after the end of each fiscal quarter in each fiscal year (other than the fourth fiscal quarter of each year), unaudited statements of income and cash flows of the Company for such fiscal quarter and for the period from the beginning of the fiscal year to the end of such fiscal quarter, and an unaudited balance sheet of the Company as of the end of such fiscal quarter, setting forth in each case comparisons to the Company’s annual budget and to the corresponding period in the preceding fiscal year, and all such statements shall be prepared in accordance with GAAP, subject to the absence of footnote disclosures and to normal year-end adjustments, and shall be certified by the Company’s Chief Financial Officer;

(iii) as soon as available but in any event within ninety (90) days after the end of each fiscal year, audited statements of income and cash flows of the Company for such fiscal year, and an audited balance sheet of the Company as of the end of such fiscal year prepared in accordance with GAAP, and accompanied by, with respect to the consolidated portions of such statements, an opinion of an independent accounting firm of recognized regional standing selected by the Board and reasonably acceptable to a majority of the Investors, together with comparisons to the Company’s annual budget and to the preceding fiscal year;

(iv) accompanying the financial statements referred to in subparagraphs (ii) and (iii), an officer’s certificate stating that there is no event in existence that, with notice or the passage of time or both, might become an Event of Noncompliance or, if any such event exists, specifying the nature and period of existence thereof and what actions the Company has taken or has proposed to take with respect thereto;

(v) promptly upon receipt thereof, any additional reports, management letters or other detailed information concerning significant aspects of the Company’s operations or financial affairs given to the Company by its independent accountants (and not otherwise contained in other materials provided hereunder); and

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(vi) within ten (10) days after transmission thereof, copies of all financial statements, proxy statements, reports and any other general written communications that the Company sends to its stockholders and copies of all press releases and other statements made available generally by the Company to the public concerning material developments in the Company’s business and not otherwise posted on the Company’s external website;

provided that any Investor or holder of Series D Preferred Shares or Conversion Common Shares shall be entitled to provide notice to the Company that it elects not to receive copies of the financial statements and other documentation referred to in this Section 5.1(a); and provided further that the Company shall be entitled to satisfy its obligations under this Section 5.1(a) through electronic delivery of the financial statements and other documentation referred to in this Section 5.1(a) or by making such information available through a password-protected website.

(b) Each of the financial statements referred to in subparagraphs (i-iii) shall fairly present in all material respects the financial condition of the Company as of the dates and for the periods stated therein, subject in the case of the unaudited financial statements to changes resulting from normal year-end adjustments (none of which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect).

5.2. Inspection Rights. The Company shall permit each holder of Series D Preferred Shares or Conversion Common Shares or its representative, upon reasonable notice and during normal business hours and at such other times as such holder may reasonably request, to (i) visit and inspect any of the properties of the Company and its Subsidiaries, (ii) examine the corporate and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom (subject to the obligations set forth in Section 7.5 (Confidentiality) of the Second A&R Securityholders’ Agreement) and (iii) discuss the affairs, finances and accounts of the Company and its Subsidiaries with the directors, officers and auditors of the Company (it being agreed that this provision shall constitute permission by the Company granted to such auditors to discuss the affairs, finances and accounts of the Company and its Subsidiaries with such holder in accordance with the terms hereof).

5.3. Fiscal Year. The Company shall maintain, and shall cause each of its Subsidiaries to maintain, a fiscal year ending on December 31.

5.4. Insurance. The Company shall, and shall cause each of its Subsidiaries to, maintain or cause to be maintained with nationally recognized insurers, insurance with respect to its properties and businesses and the properties and businesses of its Subsidiaries against loss or damage as may be required by law or as is customary for companies similarly situated and which reflects the Company’s reasonable and good-faith business judgment as to the types and amounts of insurance that should be carried in light of conditions in the insurance industry, and upon request provide a holder of Series D Preferred Shares or Conversion Common Shares with evidence of the same. The insurance coverage of the Company and its Subsidiaries shall be evaluated annually by the Board.

5.5. Tax Matters. The Company will, and will cause each of its Subsidiaries to, pay or cause to be paid all Taxes levied upon any of its properties or assets or those of its

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Subsidiaries or in respect of its or their respective franchises, businesses, income or profits before the same become delinquent, except (i) that (unless and until foreclosure, sale or other similar proceedings shall have been commenced) no such charge need be paid if being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted if (x) such reserve or other appropriate provision, if any, as shall be required by sound accounting practice shall have been made therefor, and (y) no property or assets are in imminent danger of forfeiture and (ii) for such failures to pay or cause to pay which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. The Company will withhold all amounts for Taxes required to be withheld by it under Requirements of Law. The Company will treat the Series D Preferred Shares and the Conversion Common Shares as stock of the Company for federal, state and local income tax purposes (except to the extent different treatment were to be required by law).

5.6. Payment of Indebtedness. The Company shall, and cause each of its Subsidiaries to, pay all Indebtedness of the Company and each of its Subsidiaries aggregating at least One Hundred Thousand Dollars and 00/100 ($100,000.00) as and when the same shall become due and payable (subject to any applicable grace periods).

5.7. Compliance With Laws; Obligations. The Company shall, and shall cause each of its Subsidiaries to, comply with all applicable Requirements of Laws and with all contracts and agreements to which it is a party or shall become a party the violation of which Requirements of Laws, contracts or agreements, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and the Company shall perform, and shall cause each of its Subsidiaries to perform, all obligations which it has or shall incur, the violation or lack of performance of which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.8. Preservation of Corporate Existence and Property. The Company shall, and shall cause each of its Subsidiaries to, preserve and maintain (i) its corporate existence, (ii) its rights, franchises and privileges and (iii) all its assets and properties in adequate working order and condition, with the exception of (x) ordinary wear and tear, (y) casualty losses covered by insurance or where the failure to be so fully covered did not constitute a breach of Section 5.4 and (z) as otherwise approved by the Board.

5.9. Board. The Company shall hold meetings of its Board not less often than once each fiscal quarter, such meetings to be held in person or via telephone conference call, or any combination thereof as permitted by the A&R By-laws.

5.10. Board of Subsidiaries. The Company shall cause the board of directors of each Subsidiary of the Company to be the same as the Board, in accordance with the terms of the Second A&R Securityholders’ Agreement.

5.11. Use of Proceeds. The Company shall use the proceeds of the sale of the Series D Preferred Shares to provide for general corporate purposes and to make payments required pursuant to the terms of a settlement agreement with Xxxxxxx International, Inc. and Xxxxxxx Electronics, Inc. currently being negotiated at the time of this Agreement and disclosed on Schedule 7.6 (Absence of Undisclosed Liabilities) and Schedule 7.12 (Compliance with Laws;

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Litigation). The Company agrees that it shall not, and it shall not permit any of its Subsidiaries to, use, directly or indirectly, any of the proceeds from the sale of the Series D Preferred Shares for the purpose, whether immediate, incidental or ultimate, of “purchasing or carrying margin stock” within the meaning of Regulations G, U and X of the Board of Governors of the Federal Reserve System, as amended from time to time.

5.12. Regulatory Compliance Cooperation.

(a) If any Investor determines that it has a Regulatory Problem, the Company shall take all such actions as are reasonably requested by such Investor (a “Requesting Investor”) in order to (i) effectuate and facilitate any transfer by such Investor of any securities of the Company then held by such Investor, (ii) permit such Investor (or any Affiliate of such Investor) to exchange all or any portion of the voting equity then held by such Investor on a share-for-share basis for shares of a class of nonvoting equity of the Company, which nonvoting equity shall be identical in all respects to such voting equity, except that such nonvoting equity shall be convertible into voting equity on such terms as are requested by such Investor in light of regulatory considerations then prevailing, and (iii) amend this Agreement, the Certificate of Incorporation and other related agreements to effectuate and reflect the foregoing. Such actions may include:

(i) entering into such additional agreements as are requested by such Investor to permit any Person(s) designated by such Investor to exercise any voting power that is relinquished by such Investor upon any exchange of Common Stock for nonvoting common stock of the Company; and

(ii) entering into such additional agreements, adopting such amendments to the Certificate of Incorporation and A&R By-laws and taking such additional actions as are reasonably requested by such Investor in order to effectuate the intent of the foregoing.

(b) For purposes of this Agreement, a “Regulatory Problem” means any set of facts or circumstances where it has been asserted by any governmental regulatory agency (or any Investor believes that there is a substantial risk of such assertion) that such Investor and its Affiliates are not entitled to hold, or exercise any significant right with respect to, the Series D Preferred Shares or the Conversion Common Shares. The Requesting Investor shall pay all expenses and costs, including the Company’s reasonable expenses and costs, incurred in connection with a Regulatory Problem.

5.13. Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion or redemption of the Series D Preferred Shares, such number of shares of Common Stock issuable upon the conversion or redemption of all outstanding Series D Preferred Shares. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all Taxes and Liens other than those created by the holder of such shares of Common Stock.

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5.14. Certain Insurance Coverage. The Company shall at all times maintain in full force and effect directors and officers insurance and indemnification policy providing coverage in amounts deemed appropriate by a majority of the independent directors of the Board.

5.15. Second A&R Securityholders’ Agreement. The Company agrees to cause each Person who acquires shares of capital stock of the Company after the date hereof to execute a joinder to the Second A&R Securityholders’ Agreement in which such Person agrees to be bound by all of the terms and conditions of the Second A&R Securityholders’ Agreement.

ARTICLE VI

TRANSFER OF RESTRICTED SECURITIES

6.1. General Provisions. Restricted Securities are transferable only pursuant to (a) public offerings registered under the Securities Act, (b) Rule 144 or Rule 144A of the SEC (or any similar rule or rules then in force) if such rule is available and (c) any other legally available means of transfer (including, if applicable, in accordance with the terms of the Second A&R Securityholders’ Agreement), which may include an opinion of counsel reasonably satisfactory to the Company of the legality of such transfer. Notwithstanding the foregoing, the Restricted Securities are subject to certain restrictions on transfer as set forth in the Second A&R Securityholders’ Agreement.

6.2. Rule 144A. Upon the request of any Investor, the Company shall promptly supply to such Investor or its prospective transferees all information regarding the Company required to be delivered in connection with a transfer pursuant to Rule 144 or Rule 144A under the Securities Act.

6.3. Legend. Each certificate or instrument representing Restricted Securities shall be imprinted with a legend, among other legends, in substantially the form required by Section 7.4 (Legend) of the Second A&R Securityholders’ Agreement.

6.4. Legend Removal. If any Restricted Securities become eligible for sale pursuant to Rule 144(k) under the Securities Act, the Company shall, upon the request of the holder of such Restricted Securities, remove the legend set forth in Section 7.4 (Legend) of the Second A&R Securityholders’ Agreement from the certificates for such Restricted Securities.

ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

As an inducement to the Investors to enter into this Agreement and to purchase the Series D Units, and except as set forth on the Disclosure Schedule attached hereto specifically identifying the Section of this Article VII to which such exception relates (which in each case shall constitute the sole representation and warranty as to which such exception shall apply), the Company hereby represents and warrants to the Investors and agrees as follows:

7.1. Organization, Qualifications and Corporate Power.

(a) The Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the State of its organization. The

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Company and each of its Subsidiaries has full legal and corporate power and authority to own or lease and to operate and use its properties and assets and to carry on its business as now conducted and as proposed to be conducted by it. The Company and each of its Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the business it is conducting, or the operation, ownership or leasing of its properties, makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Schedule 7.1(a) sets forth for the Company and each of its Subsidiaries their respective states of incorporation and the other jurisdictions in which they are qualified to do business as a foreign corporation. No other jurisdiction has demanded, requested or otherwise indicated that the Company or any of its Subsidiaries is required to so qualify.

(b) The Company has full legal and corporate power and authority (i) to execute, deliver and perform this Agreement and each of the Transaction Documents, (ii) to issue, sell and deliver the Series D Preferred Shares and the Conversion Common Shares and (iii) to carry out fully and perform its obligations under the terms hereof and thereof.

(c) The Company and each of its Subsidiaries are in compliance in all material respects with all of the terms and provisions of their respective organizational documents. The Company has made available to the Investors true, complete and accurate copies of (i) the Certificate of Incorporation, (ii) the A&R By-laws, (iii) the minute books of the Company and each of its Subsidiaries and (iv) the stock ledger of the Company and each of its Subsidiaries.

7.2. Authorization; No Conflicts.

(a) Except as set forth in Schedule 7.2, the execution, delivery and performance of this Agreement and each of the Transaction Documents, and the issuance, sale and delivery of the Series D Preferred Shares and the Conversion Common Shares, have been duly authorized and approved by all requisite corporate action of the Company. This Agreement has been duly authorized, executed and delivered by the Company and (assuming the due execution and delivery hereof by each of the Investors) is the valid and binding obligation of the Company enforceable in accordance with its terms, and each of the Transaction Documents to which the Company is a party has been duly authorized by the Company and, upon execution and delivery by the Company and (assuming the due execution and delivery thereof by each of the other parties thereto), will be a valid and binding obligation of the Company enforceable in accordance with its respective terms, in each case subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement thereof or by general equitable principles, (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent any indemnification provisions may be limited by applicable federal or state securities laws.

(b) Except as set forth in Schedule 7.2, neither the execution and delivery of this Agreement or any of the Transaction Documents or the consummation of any of the transactions contemplated hereby or thereby nor compliance with or fulfillment of the terms, conditions and provisions hereof or thereof will:

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(i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights under, or result in the creation or imposition of any Lien upon any of the assets or properties of the Company or any of its Subsidiaries, under (A) their respective organizational documents, (B) any note, instrument, contract, agreement, mortgage, lease, license, franchise, permit or other authorization, right, restriction or obligation to which the Company or any of its Subsidiaries is a party or any of their respective assets or properties is subject or by which the Company or any of its Subsidiaries is bound, (C) any Court Order to which the Company or any of its Subsidiaries is a party or any of their respective assets or properties is subject or by which the Company or any of its Subsidiaries is bound, or (D) any Requirements of Laws affecting the Company, any of its Subsidiaries or any of their respective assets or properties, except for, in the case of this clause (D), any matters that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; or

(ii) require the approval, consent, authorization or act of, or the making by the Company or any of its Subsidiaries of any declaration, filing or registration with, any Person, except for any notice filings required to be made pursuant to Regulation D under the Securities Act and pursuant to applicable state securities laws.

7.3. Subsidiaries and Investments. The Company does not have and never has had any Subsidiaries. The Company does not, directly or indirectly, (i) own of record or beneficially or hold the right to acquire any outstanding voting securities or other equity interests in any Person or (ii) control or direct the operations of any Person.

7.4. Authorized Capital Stock.

(a) As of August 10, 2009, the authorized capital stock of the Company shall consist solely of (i) Thirty Million (30,000,000) shares of Common Stock, of which One Million Seven Hundred Sixty Seven Thousand One Hundred Fifty Six (1,767,156) shares are issued and outstanding; and (ii) Six Million (6,000,000) shares of preferred stock, $.0001 par value per share, of which (A) Nine Hundred Sixty Two Thousand One Hundred One (962,101) shares have been designated Series A Preferred Stock and all of which are issued and outstanding, (B) One Million Eight Hundred Thousand (1,800,000) shares have been designated Series B Preferred Stock, of which One Million Six Hundred Nineteen Thousand One Hundred Twenty Seven (1,619,127) shares are issued and outstanding and (C) One Million Three Hundred Fifty (1,350,000) shares have been designated as Series C Preferred Stock, of which Three Hundred Sixty Five Thousand Nine Hundred Ninety Six (365,996) shares are issued and outstanding. The Company has reserved for issuance (i) sufficient shares of Common Stock for issuance upon conversion or redemption of all outstanding or authorized shares of the Other Preferred Stock, (ii) Two Million Six Hundred Thousand (2,600,000) shares of Common Stock upon exercise of options pursuant to its Amended and Restated 2004 Stock Option Incentive Plan, as amended by that certain First Amendment, dated as of July 23, 2009, (iii) Nine Million (9,000,000) shares of Common Stock upon exercise of the Series B Warrants and (iv) Six Million Seven Hundred Fifty Thousand (6,750,000) shares of Common Stock upon exercise of the Series C Warrants.

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(b) Immediately after the Closing and assuming the issuance and sale of all of the Series B Units, the capitalization of the Company shall be as set forth on Schedule 7.4, which reflects the capitalization of the Company both on an actual shares outstanding basis and on a fully diluted basis assuming conversion of all convertible securities and the exercise of all outstanding options and warrants and all options reserved for future grant under any stock option plans and sets forth any other right to purchase shares of capital stock of the Company or any of its Subsidiaries.

(c) Except as set forth in Schedule 7.4, no Person is entitled to any preemptive right or right of first refusal with respect to the issuance of any Series D Preferred Shares, except as contemplated by the Second A&R Securityholders’ Agreement or the Second Amended Series A Designation. There are no outstanding preemptive rights, options, warrants, conversion rights, agreements or other rights to purchase any of the authorized but unissued capital stock of the Company or any of its Subsidiaries or any securities convertible or exchangeable into any capital stock of the Company or any of its Subsidiaries, other than (i) those issued, reserved or committed to be issued pursuant to this Agreement, (ii) those contemplated by the Second A&R Securityholders’ Agreement and (iii) those set forth on the Schedule 7.4.

(d) Neither the Company nor any of its Subsidiaries is a party to any agreement with the holder of any of its securities that requires the Company or any of its Subsidiaries to purchase any of such securities from their holder under any circumstances, except for the redemption rights of the Series D Preferred Shares contemplated by the Certificate of Incorporation.

(e) Except as set forth in the Second A&R Securityholders’ Agreement or the Certificate of Incorporation, neither the Company nor any of its Subsidiaries is a party or subject to any agreement or understanding, and neither the Company nor any of its Subsidiaries has received any written notice of any agreement or understanding between any Persons, that affects or relates to the voting or giving of written consents with respect to any of the capital stock of the Company or any of its Subsidiaries.

(f) All outstanding securities of the Company and each of its Subsidiaries were issued in compliance with all federal and state securities laws.

(g) Neither the Company nor any of its Subsidiaries has registered any securities under the Securities Act or the Securities Exchange Act. Except as provided in the A&R Registration Rights Agreement, neither the Company nor any of its Subsidiaries is presently under any obligation or has granted any rights to register any of its securities under the Securities Act.

(h) The Series D Preferred Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid, non-assessable and free and clear of all Liens except any created by or through the holder thereof, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Second A&R Securityholders’ Agreement and under applicable state and federal securities laws, and will be issued in compliance with all state and federal securities laws.

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(i) The Conversion Common Shares issuable upon conversion or redemption of the Series D Preferred Shares have been duly and validly reserved for issuance and, upon issuance in accordance with the conversion or redemption provisions of the Series D Preferred Shares, will be duly and validly issued, fully paid, non-assessable and free and clear of all Liens except any created by or through the holder thereof, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Second A&R Securityholders’ Agreement and under applicable state and federal securities laws, and will be issued in compliance with all state and federal securities laws then in effect.

7.5. Financial Statements. Schedule 7.5 contains the unaudited balance sheet of the Company as of June 30, 2009 (the “Latest Balance Sheet”) and the related statements of income and cash flow (or the equivalent) for the six (6) month period then ended. Each of the foregoing financial statements has been prepared in accordance with GAAP. The foregoing financial statements present fairly the consolidated financial position, results of operations and cash flows of the Company and its Subsidiaries as of June 30, 2009.

7.6. Absence of Undisclosed Liabilities. Except as set forth in Schedule 7.6, neither the Company nor any of its Subsidiaries is subject to any liability (including unasserted claims), whether known or unknown, whether absolute, contingent, accrued or otherwise, that is not shown or which is in excess of amounts shown or reserved for in the Latest Balance Sheet, other than liabilities reasonably incurred after the date of the Latest Balance Sheet in the ordinary course of business consistent with past practice.

7.7. No Material Adverse Effect. Except as set forth in Schedule 7.7, since the date of the Latest Balance Sheet, there has not been any effect, change or development that, individually or in the aggregate with such other effects, changes or developments, has had, or could reasonably be expected to have, a Material Adverse Effect.

7.8. Title to Properties; Leasehold Interests. Except as set forth in Schedule 7.8:

(a) The Company or its Subsidiaries has good and marketable title to the assets and properties reflected on the Latest Balance Sheet or acquired since the date of the Latest Balance Sheet (other than properties and assets disposed of in the ordinary course of business consistent with past practice since the date of the Latest Balance Sheet), and all such properties and assets of the Company or its Subsidiaries are free and clear of all Liens (other than Permitted Liens).

(b) Each lease under which the Company or any of its Subsidiaries is a lessee of any property, real or personal, is a valid and subsisting agreement with respect to the Company or its Subsidiaries, as the case may be, and, to the Knowledge of the Company, with respect to the other parties thereto, without any material default of the Company or any of its Subsidiaries thereunder and, to the Knowledge of the Company, without any material default thereunder of any other party thereto.

(c) The Company or its Subsidiaries owns, or has a valid leasehold interest in, all the assets or properties used in, or necessary for, the conduct of its respective business as presently conducted.

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7.9. Tax Matters.

(a) (i) The Company and each of its Subsidiaries has timely filed all Tax Returns required to be filed by it; (ii) all such Tax Returns are complete and accurate in all material respects, disclose all Taxes required to be paid by the Company or any of its Subsidiaries for the periods covered thereby and have been prepared in compliance with all applicable laws and regulations; (iii) the Company or its Subsidiaries has timely paid all Taxes (whether or not shown on such Tax Returns) due and owing by it and has withheld and paid over to the appropriate taxing authority all Taxes which it is required by law to withhold or to collect for payment from amounts paid or owing to any employee, stockholder, creditor or other third party; (iv) neither the Company nor any of its Subsidiaries has waived or been requested to waive any statute of limitations in respect of Taxes which waiver is currently in effect; (v) neither the Company nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return; (vi) there is no action, suit, investigation, audit, claim or assessment pending or, to the Knowledge of the Company, proposed or threatened with respect to Taxes of the Company or any of its Subsidiaries, and no information related to Tax matters has been requested by any foreign, federal, state or local taxing authority; (vii) there are no Liens for Taxes upon the assets or properties of the Company or any of its Subsidiaries except Liens relating to current Taxes not yet due; (viii) there are no material unresolved questions or claims concerning the Company’s or any of its Subsidiaries’ Tax liability; and (ix) the Company is not and has not been an S corporation.

(b) Neither the Company nor any of its Subsidiaries is liable for the Taxes of another Person in a material amount (i) under Treasury Regulation § 1.1502-6 (or comparable provisions of state, local or foreign law), (ii) as a transferee or successor, (iii) by contract or indemnity or (iv) otherwise. Neither the Company nor any of its Subsidiaries is a party to any Tax sharing or indemnity agreements. Neither the Company nor any of its Subsidiaries has been a member of any affiliated group as defined in Section 1504 of the Code that has filed a consolidated return for federal income tax purposes (or any similar group under state, local or foreign law). Neither the Company nor any of its Subsidiaries has made any payments, is obligated to make payments or is a party to an agreement that could obligate it to make any payments that would not be deductible under Section 280G of the Code.

7.10. Contracts and Commitments.

(a) Except as expressly contemplated by this Agreement or as set forth in Schedule 7.10(a), neither the Company nor any of its Subsidiaries is a party to or bound by any:

(i) Contract for the employment of any officer, individual employee or other Person or Contract relating to loans to officers, directors or Affiliates;

(ii) Contract under which the Company or any of its Subsidiaries has advanced, loaned or extended credit to any other Person amounts that in the aggregate exceed Ten Thousand Dollars and 00/100 ($10,000.00);

(iii) Contract that provides for, or relates to, the incurrence by the Company or any of its Subsidiaries of debt for borrowed money, other Indebtedness or

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the mortgaging, pledging or otherwise placing a Lien on any material asset or material group of assets of the Company or any of its Subsidiaries;

(iv) Contract that provides for a guarantee of any obligation of any Person or provides that the Company or any of its Subsidiaries must assume or become liable for any Indebtedness of any Person;

(v) Contract under which the Company or any of its Subsidiaries is lessee of or holds or operates any property, real or personal, owned by any other Person;

(vi) Contract under which the Company or any of its Subsidiaries is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the Company or any of its Subsidiaries;

(vii) assignment, license, indemnification or agreement with respect to any intangible property (including any Intellectual Property Rights);

(viii) sales, distribution or franchise Contract;

(ix) Contract that is not terminable by the Company or any of its Subsidiaries upon less than thirty (30) days notice without penalty and that involves consideration in excess of Twenty Five Thousand Dollars and 00/100 ($25,000.00) in any twelve (12) month period;

(x) Contract that prohibits the Company or any of its Subsidiaries from freely engaging in any business or competing anywhere in the world; or

(xi) any other Contract that is material to the Company’s or any of its Subsidiaries’ operations or business prospects as currently contemplated.

(b) Each of the Contracts listed in Schedule 7.10(a) (collectively, the “Material Contracts”) constitutes a valid and binding obligation of the Company or, if applicable, one of its Subsidiaries and, to the Knowledge of the Company, of each other party thereto and is in full force and effect and (except for those Material Contracts that by their terms will expire prior to the applicable Closing Date or are otherwise terminated prior to the applicable Closing Date in accordance with the provisions hereof) will continue in full force and effect after the Closings, in each case without breaching the terms thereof or resulting in the forfeiture or impairment of any rights thereunder and without the consent, approval or act of, or the making of any filing with, any other party. The Company and, if applicable, its Subsidiaries, have fulfilled and performed their material obligations under each Material Contract, and neither the Company nor any of its Subsidiaries is in, or alleged to be in, default under or breach of, nor is there or is there alleged to be any basis for termination of, any Material Contract, and to the Knowledge of the Company no other party to any of the Material Contracts has breached or defaulted thereunder, and no event has occurred and no condition or state of facts exists that, with the passage of time or the giving of notice or both, would constitute such a default or breach by the Company, any of its Subsidiaries or, to the Knowledge of the Company, by any such other party. Neither the Company nor any of its Subsidiaries has any present expectation or intention

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of not fully performing all its obligations under each Material Contract, and the Company does not have Knowledge of any anticipated breach by any other party to any Material Contract.

7.11. Intellectual Property Rights.

(a) Schedule 7.11 contains a complete and accurate list of all material (i) patented or registered Intellectual Property Rights owned or used by the Company or any of its Subsidiaries, (ii) pending patent applications and applications for registrations of other Intellectual Property Rights filed by the Company or any of its Subsidiaries, (iii) unregistered trade names and corporate names owned or used by the Company or any of its Subsidiaries and (iv) unregistered trademarks, service marks, copyrights, mask works and computer software owned or used by the Company or any of its Subsidiaries, other than “off the shelf” computer software. Schedule 7.11 also contains a complete and accurate list of all exclusive licenses granted by the Company or any of its Subsidiaries to any third party with respect to any Intellectual Property Rights and all licenses and other rights granted by any third party to the Company or any of its Subsidiaries with respect to any Intellectual Property Rights, in each case identifying the subject Intellectual Property Rights. Except as set forth on Schedule 7.11, the Company or its Subsidiaries owns all right, title and interest to, or has the right to use pursuant to a valid license, all Intellectual Property Rights necessary for the operation of the business of the Company and its Subsidiaries as presently conducted and as presently proposed to be conducted, free and clear of all Liens. Except as set forth on Schedule 7.11, the loss or expiration of any Intellectual Property Right or related group of Intellectual Property Rights owned or used by the Company or any of its Subsidiaries has not had, and is not reasonably expected to have, a Material Adverse Effect, and no such loss or expiration is threatened, pending or reasonably foreseeable.

(b) Except as set forth in Schedule 7.11, (i) there have been no claims made against the Company or any of its Subsidiaries asserting the invalidity, misuse or unenforceability of any of the Intellectual Property Rights listed in Schedule 7.11, and, to the Knowledge of the Company, there are no grounds for the same; (ii) neither the Company nor any of its Subsidiaries has received any written notices of, and, to the Knowledge of the Company, there is not a reasonable likelihood of, any infringement or misappropriation by, or conflict with, any third party with respect to such Intellectual Property Rights (including any demand or request that the Company or any of its Subsidiaries license any rights from a third party); (iii) the conduct of the Company’s and its Subsidiaries’ business has not infringed, misappropriated or conflicted with and does not infringe, misappropriate or conflict with any Intellectual Property Rights of other Persons; and (iv) to the Knowledge of the Company, the Intellectual Property Rights owned by or licensed to the Company or any of its Subsidiaries have not been infringed, misappropriated or conflicted by other Persons. The transactions contemplated by this Agreement will not have, and are not reasonably expected to have, a Material Adverse Effect on the Company’s or its Subsidiaries’ right, title and interest in and to the Intellectual Property Rights listed in Schedule 7.11.

7.12. Compliance with Laws; Litigation. Except (i) for the matters covered by the representations set forth in Sections 7.11 (Intellectual Property), 7.14 (Government Approvals; No Registration), 7.18 (ERISA), 7.19 (Environmental Matters) and 7.22 (Investment Company),

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as to which the representations in Sections 7.12(a) and 7.12(b) shall not apply, and (ii) as set forth in Schedule 7.12:

(a) The assets of the Company and its Subsidiaries and their uses comply with all applicable Requirements of Laws and Court Orders, except where the failure to do so could not be reasonably expected to have a Material Adverse Effect.

(b) The Company and its Subsidiaries have complied with all Requirements of Laws and Court Orders that are applicable to their respective assets or businesses, except where the failure to do so could not be reasonably expected to have a Material Adverse Effect.

(c) The Company and its Subsidiaries own, hold or possess all necessary permits, licenses, franchises and other authorizations from a Governmental Authority required to conduct their respective businesses substantially as conducted presently, except where the failure to do so could not be reasonably expected to have a Material Adverse Effect; and neither the Company nor any of its Subsidiaries is in default in any material respect under any such permit, license, franchise or other authorization.

(d) There are no civil, criminal, administrative or regulatory lawsuits, claims, suits, proceedings, arbitrations or investigations pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries or affecting in any material respect its or their properties or assets nor, to the Knowledge of the Company, is there any basis for any of the same, and there are no lawsuits, claims or proceedings pending or threatened in which the Company or any of its Subsidiaries is the plaintiff or claimant.

(e) There are no civil, criminal, administrative or regulatory lawsuits, claims, suits, proceedings, arbitrations or investigations pending or, to the Knowledge of the Company, threatened against the executive officers of the Company or any of its Subsidiaries by reason of the past employment relationship of any such officer.

(f) To the Knowledge of the Company, no legislative or regulatory proposal or other proposal for any change in any Requirement of Law, in each case which is specifically focused on the industries in which the Company or any of its Subsidiaries operates, is pending which, if adopted, could adversely affect the Company’s or its Subsidiaries ability to conduct their respective businesses as currently conducted or planned to be conducted.

7.13. Brokers. Neither the Company nor any of its Subsidiaries has any Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement for which the Company or any of its Subsidiaries shall have any liability or responsibility to such broker, finder or similar agent.

7.14. Governmental Approvals; No Registration.

(a) Subject to the accuracy of the representations and warranties of the Investors set forth in Article VIII, no permit, consent, approval or authorization of, or registration or filing with, any Governmental Authority is or will be required in connection with the execution, delivery and performance by the Company of this Agreement or any of the Transaction Documents, or the issuance, sale and delivery of the Series D Preferred Shares or the

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reservation for issuance of the Conversion Common Shares, or the consummation by the Company of any other transactions contemplated hereby or thereby, other than with respect to the A&R Registration Rights Agreement, the registration of the shares covered thereby with the SEC and filings pursuant to Regulation D under the Securities Act and state securities laws.

(b) Without limiting the generality of the foregoing, none of the Company, any director, officer or employee of the Company prior to the date of either Closing or, to the Knowledge of the Company, any other Person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company) under circumstances which might require the integration of such security with the Series D Preferred Shares under the Securities Act, in any such case so as to subject the offering, issuance or sale of any of the Series D Preferred Shares to the registration provisions of the Securities Act.

7.15. Insurance. The Company and its Subsidiaries have in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow each of them to replace any of its properties that might be damaged or destroyed. Neither the Company nor any of its Subsidiaries has any self-insurance or co-insurance programs.

7.16. Employees. To the Knowledge of the Company, no executive officer or key employee of the Company or any of its Subsidiaries or any group of employees of the Company or any of its Subsidiaries has any plans to terminate employment with the Company or any of its Subsidiaries. The Company and each of its Subsidiaries has complied in all material respects with all laws relating to the employment of labor (including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other Taxes, and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), and, to the Knowledge of the Company, neither the Company nor any of its Subsidiaries has any labor relations problems (including any union organizational activities, threatened or actual strikes or work stoppages or grievances). Neither the Company nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement or any other Contract with any labor union. None of the Company, any of its Subsidiaries or, to the Knowledge of the Company, any of its or their employees is subject to any noncompete, nondisclosure, confidentiality, employment, consulting or similar agreements, affecting or in conflict with the present business activities of the Company or any of its Subsidiaries.

7.17. Officers. Set forth in Schedule 7.17 is a list of the names of the officers of the Company, together with the title or job classification of each such person and the total compensation paid or anticipated to be paid to each such person by the Company and its Subsidiaries for services rendered in 2009. Except as set forth in Schedule 7.17, none of such persons has an employment agreement or understanding, whether oral or written, with the Company or any of its Subsidiaries.

7.18. ERISA. Except as set forth in Schedule 7.18:

(a) Multiemployer Plans. The Company does not have any obligation, and has never been required, to contribute to (or any other liability, including current or potential

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withdrawal liability, with respect to) any “multiemployer plan” (as defined in Section 3(37) of ERISA).

(b) Retiree Welfare Plans. The Company does not maintain or have any obligation to contribute to (or any other liability with respect to) any plan or arrangement, whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retired or terminated employees (except for limited continued medical benefit coverage required to be provided under Section 4980B of the Code or as required under applicable state law).

(c) Defined Benefit Plans. The Company does not maintain, contribute to or have any liability under (or with respect to) any employee plan that is a tax-qualified “defined benefit plan” (as defined in Section 3(35) of ERISA), whether or not terminated.

(d) Defined Contribution Plans. The Company does not maintain, contribute to or have any liability under (or with respect to) any employee plan that is a tax-qualified “defined contribution plan” (as defined in Section 3(34) of ERISA), whether or not terminated.

(e) Other Plans. The Company does not maintain, contribute to or have any liability under (or with respect to) any plan or arrangement providing benefits to current or former employees, including any bonus plan, profit sharing, stock option, employee stock purchase or other plan or arrangement providing for deferred or other compensation, employee health or other welfare benefit plan or other arrangement, or severance agreements, programs, policies or arrangements, whether or not terminated and whether or not subject to ERISA.

(f) Unfunded Liability. No employee benefit plan maintained by the Company or to which the Company has an obligation to contribute, or with respect to which the Company has any other liability, has any material unfunded liability.

(g) Plan Qualification and Compliance. None of the employee benefit plans set forth in Schedule 7.18 is intended to be qualified under Section 401(a) of the Code. Each employee benefit plan set forth in Schedule 7.18 and all related trusts, insurance contracts and funds have been maintained, funded and administered in material compliance with their respective terms and with all applicable laws.

(h) The Company. For purposes of this Section 7.18, the term “Company” includes all entities under common control with the Company pursuant to Section 414(b) or (c) of the Code.

7.19. Environmental Matters. Except as set forth in Schedule 7.19:

(a) the operations of the Company and each of its Subsidiaries comply with all applicable Environmental Laws, except where the failure to do so could not be reasonably expected to have a Material Adverse Effect;

(b) neither the Company nor any of its Subsidiaries is or has been subject to any judicial or administrative proceeding, Court Order or settlement alleging or addressing a violation of or liability under any Environmental Law;

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(c) no material quantity of hazardous wastes, substances or materials or oil or petroleum products have been generated, transported, used, disposed, stored or treated by the Company or any of its Subsidiaries; and

(d) no material quantity of hazardous wastes, substances or materials or oil or petroleum products has been released, discharged, disposed, transported, placed or otherwise caused by the Company or any of its Subsidiaries to enter the soil or water in, under or upon any real property owned, leased or operated by the Company or any of its Subsidiaries.

7.20. Related-Party Transactions. Except (i) for the Transaction Agreements and (ii) as set forth in Schedule 7.20, no employee, officer, stockholder or director of the Company or any of its Subsidiaries, or member of his or her immediate family, or any corporation, partnership, trust or other entity in which any such person owns any beneficial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is indebted to the Company or any of its Subsidiaries, nor is the Company or any of its Subsidiaries indebted (or committed to make loans or extend or guarantee credit) to any of such persons, other than, with respect to officers or other employees of the Company or its Subsidiaries, for (a) payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company or its Subsidiaries and (c) other standard employee benefits made generally available to all employees. To the Knowledge of the Company, none of such persons has any direct or indirect ownership interest in any Person with which the Company or any of its Subsidiaries is affiliated or with which the Company or any of its Subsidiaries has a business relationship, or any Person that competes with the Company or any of its Subsidiaries, except employees, officers, stockholders or directors of the Company or its Subsidiaries and members of their immediate families who own 5% or less of the outstanding capital stock of any publicly traded company. To the Knowledge of the Company, no officer, stockholder or director of the Company or any of its Subsidiaries, or any member of his or her immediate family, is, directly or indirectly, a party to any Material Contract with the Company or any of its Subsidiaries (other than such Contracts as relate to any such person’s employment or ownership of capital stock of the Company).

7.21. Accounts Receivable. All accounts receivable of the Company and its Subsidiaries are valid, genuine and subsisting and have arisen from bona fide transactions in the ordinary course of business or other arm’s-length transactions. The Company’s allowance for doubtful accounts as reflected in the financial statements set forth in Schedule 7.5 is reasonable in accordance with GAAP as in effect for the periods to which such financial statements relate.

7.22. Investment Company. The Company is not an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended, nor is the Company, directly or indirectly, controlled by or acting on behalf of any Person that is an “investment company” within the meaning of such act.

7.23. Real Property Holding Corporation. The Company is not a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code and any regulations promulgated thereunder.

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7.24. Disclosure. To the Knowledge of the Company, none of the representations or warranties of the Company contained herein, none of the information contained in the Schedules referred to in this Article VII, and none of the other written information or documents furnished to any Investor or any of its representatives by the Company or its representatives in connection with the transactions contemplated by this Agreement, when taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading in any material respect. There is no fact that the Company has not disclosed to the Investors in writing and of which, to the Knowledge of the Company, has had, or could reasonably be expected to have, a Material Adverse Effect.

ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR

As an inducement to the Company to enter into this Agreement and to issue and sell the Series D Preferred Shares, each Investor, severally and not jointly, hereby represents and warrants to the Company as to himself, herself or itself only and agrees as follows:

8.1. Organization. If such Investor is not an individual, such Investor is duly organized, validly existing and in good standing under the laws of the jurisdiction of such Investor’s organization, with all requisite power and authority to own, lease and operate its properties and to carry on its respective businesses as now owned, leased and operated.

8.2. Authorization. The execution, delivery and performance of this Agreement and each of the Transaction Documents to which such Investor is a party have been duly authorized and approved by such Investor. This Agreement has been duly executed and delivered by such Investor and (assuming the due execution and delivery hereof by each of the other parties hereto) is the valid and binding obligation of such Investor enforceable against such Investor in accordance with its terms, and each of the Transaction Documents to which such Investor is a party has been duly authorized by such Investor and, upon execution and delivery by such Investor (assuming the due execution and delivery thereof by each of the other parties thereto), will be a legal, valid and binding obligation of such Investor enforceable against such Investor in accordance with its respective terms, in each case subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement thereof or by general equitable principles, (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent any indemnification provisions may be limited by applicable federal or state securities laws.

8.3. Brokers. Such Investor has no Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement for which such Investor shall have any liability or responsibility.

8.4. Investment Representations.

(a) Such Investor acknowledges that it has been furnished with such documents, materials and information as such Investor deems necessary or appropriate for evaluating an investment in the Company. Such Investor further acknowledges that it: (i) has

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had the opportunity to ask questions of, and receive answers from, the directors and officers of the Company, and Persons acting on the Company’s behalf, concerning the terms and conditions of the offering of the Series D Preferred Shares; (ii) has knowledge and experience in financial and business matters so as to be capable of evaluating and understanding the merits and risks of an investment in the Company; and (iii) is able to bear the economic risk of its investment in the Company and the Series D Preferred Shares and Conversion Common Shares in that such Investor can afford to hold the Series D Preferred Shares and Conversion Common Shares for an indefinite period and can afford a complete loss of its investment in the Company. Notwithstanding the foregoing, it is agreed and understood by the Parties that the acknowledgements made in this Section 8.4(a) shall not be construed to limit or modify in any way the representations and warranties of the Company contained in Article VII or the right of any Investor to rely on such representations and warranties.

(b) Such Investor represents that it is acquiring the Restricted Securities purchased hereunder for its own account, not as a nominee or agent, with the present intention of holding such securities for purposes of investment, and that it has no present intention of selling such securities in a public distribution in violation of the federal securities laws or any applicable state securities laws; provided, that nothing contained herein shall prevent such Investor and subsequent holders of Restricted Securities from transferring such securities in compliance with the provisions of Article IV.

(c) Such Investor is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act.

(d) Such Investor understands that the Restricted Securities being sold hereby have not been registered under the Securities Act, or applicable state securities laws, and are being issued in reliance on exemptions for private offerings contained in Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder and in reliance on exemptions from the registration requirements of certain state securities laws, on the basis that the Restricted Securities will be sold to a limited number of accredited investors. Because the Restricted Securities have not been registered under the Securities Act or applicable state securities laws, the Restricted Securities may not be re-offered or resold except through a valid and effective registration statement or pursuant to a valid exemption from the registration requirements under the Securities Act and applicable state securities laws, and with the delivery of an opinion of counsel to such effect reasonably satisfactory to the Company.

8.5. Residence. If such Investor is an individual, such Investor resides in the state or province identified in the address of such Investor set forth on Appendix II; if such Investor is a partnership, corporation, limited liability company or other entity, then the office or offices of such Investor’s principal place of business is located at the addresses or addresses of such Investor set forth on Appendix II.

8.6. No Knowledge of Breach. Such Investor does not have any actual knowledge, as of the Closing, of any misrepresentation or breach of warranty made by the Company in this Agreement.

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ARTICLE IX
MISCELLANEOUS

9.1. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by any Party in connection herewith will survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; provided, however, that: (i) the representations and warranties contained in Sections 7.5 (Financial Statements), 7.6 (Absence of Undisclosed Liabilities), 7.7 (No Material Adverse Effect), 7.10 (Contracts and Commitments), 7.12 (Compliance with Laws; Litigation), 7.14 (Government Approvals; No Registration), 7.15 (Insurance), 7.16 (Employees), 7.17 (Officers), 7.20 (Related-Party Transactions), 7.21 (Accounts Receivable), 7.22 (Investment Company), 7.23 (Real Property Holding Corporation), 7.24 (Disclosure) shall expire on March 31, 2010; and (ii) the representations and warranties contained in Sections 7.10 (Tax), 7.18 (ERISA) and 7.19 (Environmental Matters) shall expire upon the expiration of the applicable statute of limitations for claims related to the matters discussed in those Sections.

9.2. Amendments and Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended, modified or waived only if the Company shall have obtained the written consent of the holders of at least a majority of the outstanding Series D Preferred Shares and Conversion Common Shares voting as a single class on a common share equivalent basis. No course of dealing between the Company and any holder of any Series D Preferred Shares or Conversion Common Shares or any delay in exercising any rights hereunder or under the Certificate of Incorporation will operate as a waiver of any rights of any such holders. For purposes of this Agreement, Series D Preferred Shares held by the Company will not be deemed to be outstanding.

9.3. Successors and Assigns. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the Parties will bind and inure to the benefit of the respective successors and permitted assigns of the Parties, whether so expressed or not. In addition, the provisions of this Agreement which are for the benefit of the Investors or holders of Series D Preferred Shares or Conversion Common Shares are also for the benefit of, and enforceable by, any subsequent holders of any portion of such Series D Preferred Shares or Conversion Common Shares.

9.4. Remedies. Each holder of any Series D Preferred Share or Conversion Common Share shall have all rights and remedies set forth in this Agreement, the Certificate of Incorporation and any other agreement or contract that grants rights and remedies to such holders, and all rights that such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law.

9.5. Indemnification. In consideration of each Investor’s execution and delivery of this Agreement and acquisition of the Series D Preferred Shares and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless each Investor and each other holder of Series D Preferred Shares and Conversion Common Shares and all of their partners, officers, directors, employees and

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agents (including those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all losses, costs, penalties, fees, liabilities, damages, expenses, reasonable attorneys’ fees and disbursements, and interest (the “Indemnified Liabilities”), incurred by the Indemnitees as a result of, or arising out of, or relating to any third party actions, causes of action, suits, claims, investigations or proceedings relating to such Person being a stockholder of the Company (or a partner, officer, director, employee or agent of such stockholder); provided, however, that (a) the Company shall not be required to indemnify and hold harmless an Indemnitee under this Section to the extent that such Indemnified Liabilities arise from a violation of any Requirements of Laws by such Indemnitee and (b) the rights afforded to an Indemnitee under this Section are not cumulative with any other indemnification rights expressly conferred on such Indemnitee under any other Transaction Document or any other agreement between the Company and such Indemnitee. To the extent that the foregoing undertakings by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.

9.6. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law and in such a way as to, as closely as possible, achieve the intended economic effect of such provision and this Agreement as a whole, but if any provision contained herein is, for any reason, held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such provision or any other provisions hereof, unless such a construction would be unreasonable.

9.7. Notices.

All notices or other communications required or permitted hereunder shall be in writing and shall be deemed given or delivered (a) when delivered personally, (b) if transmitted by facsimile when confirmation of transmission is received, (c) if sent by registered or certified mail, postage prepaid, return receipt requested, three business days after mailing or (d) if sent by reputable overnight courier service, one business day after delivery to such service; and shall be addressed as follows:

If to the Company, to:

XStream Systems, Inc.
00000 000^xx Xxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000

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with a copy to:

Xxxxxxxxx Xxxxxxx, P.A.
0000 Xxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000

If to any Investor, to such Investor’s address as set forth on Appendix II hereto.

9.8. Governing Law. This Agreement and the appendices, exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Florida, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida. In furtherance of the foregoing, the internal law of the State of Florida shall control the interpretation and construction of this Agreement (and all schedules and exhibits hereto), even though under that jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.

9.9. Submission to Jurisdiction; Waiver of Jury Trial.

(a) Each of the Parties hereby irrevocably submits in any suit, action or proceeding arising out of or related to this Agreement or any of the Transaction Documents, or any of the transactions contemplated hereby or thereby, to the exclusive jurisdiction of the United States District Court for the Southern District of Florida and the jurisdiction of any court of the State of Florida located in Indian River County, Florida, and, to the extent permissible by law, waives any and all claims and objections that any such court is an inconvenient forum.

(b) Each of the Parties hereby expressly waives any right to trial by jury in any dispute, whether sounding in contract, tort or otherwise, between or among any of the Parties arising out of or related to the transactions contemplated by this Agreement or any of the Transaction Documents, or any other instrument or document executed or delivered in connection herewith or therewith. Any Party may file an original counterpart or a copy of this Agreement with any court as written evidence of the consent of the Parties to the waiver of their right to trial by jury.

9.10. Attorneys’ Fees. If any action or suit based upon or arising out of any actual or alleged breach by any Party of any representation, warranty or agreement in this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and expenses of such action or suit from the losing party, in addition to any other relief ordered by the court.

9.11. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which will be considered an original instrument, but all of which together will be considered one and the same agreement, and will become binding when one or more counterparts have been signed by and delivered to each of the Parties.

9.12. Transaction Expenses. Irrespective of whether the Closing is consummated, the Company shall pay all costs and expenses that it incurs in connection with the negotiation, execution, delivery and performance of this Agreement and the transactions contemplated hereby.

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9.13. Xxxxxxxxx Xxxxxxx Represents the Company. Each of the Investors hereby agrees and acknowledges that GT hereby renders advice and counsel solely to the Company. Each of the Investors hereby agrees and acknowledges that GT has not represented any of the Investors in connection with this Agreement and the Transaction Documents or any other agreement contemplated by the Transaction Documents or the transactions contemplated by or in connection to this Agreement or the Transaction Documents thereunder, and that EACH OF THE INVESTORS HAS BEEN AND IS HEREBY ADVISED TO RETAIN INDEPENDENT COUNSEL to advise each one of them regarding this Agreement and the Transaction Documents and any other agreement contemplated by this Agreement and the Transaction Documents. Each of the Investors hereby waives, releases and relinquishes any claim against GT or any of its shareholders, employees or agents from any conflict of interest arising from this Agreement, the Transaction Documents or the transactions contemplated in this Agreement or the Transaction Documents or any other agreement contemplated by this Agreement or the Transaction Documents.

9.14. Entire Agreement. This Agreement and the appendices, exhibits and schedules referred to herein, the Transaction Documents and the other documents delivered pursuant hereto contain the entire understanding of the Parties with regard to the subject matter contained herein or therein, and supersede all prior agreements, understandings or letters of intent between or among any of the Parties, including any summary of terms discussed or distributed between the Company and any Investor.

[Remainder of page intentionally left blank; signature pages follow.]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed the day and year first above written.


COMPANY: XSTREAM SYSTEMS, INC.
By:	/s/ Xxxxxxx Xxxxxxx
	Name:	Xxxxxxx Xxxxxxx
	Title:	Secretary

[Investor Signature Pages Follow]

Signature Page to the
Series D Preferred Stock Purchase Agreement

INVESTOR:

Signature Page to the
Series D Preferred Stock Purchase Agreement

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SERIES D PREFERRED STOCK PURCHASE AGREEMENT Dated as of August 27, 2009 by and among XStream Systems, Inc. and the Investors named herein

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