UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 


FORM 8-K


 
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): May 15, 2006


 
NUTRACEA
(Exact Name of Registrant as Specified in Charter)


 

California
0-32565
87-0673375
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 
1261 Hawk’s Flight Court
El Dorado Hills, California
 
95762
(Address of Principal Executive Offices)
(Zip Code)

Registrant’s telephone number, including area code: (916) 933-7000

Same
(Former name or Former Address, if Changed Since Last Report.)


 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 




Item 1.01
Entry into a Material Definitive Agreement.

Private Placement

On May 12, 2006, NutraCea (“NutraCea or the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) in connection with a private placement of its securities to certain accredited investors for aggregate gross proceeds of approximately $17,560,000 million (approximately $16,180,000 million after estimated offering expenses). Pursuant to the Purchase Agreement, the investors purchased an aggregate of 17,560 shares of Series C Convertible Preferred Stock of the Company (the “Preferred Shares”) at a price of $1,000.00 per share. The Preferred Shares can be converted to shares of NutraCea common stock at a conversion rate of approximately 1,176 shares of common stock for each Preferred Share issued in the transaction. The Preferred Shares are subject to the terms and conditions of the Certificate of Determination, Preferences and Rights of Series C Preferred Stock. Additionally, the investors were issued warrants (the “Warrants”) to purchase an aggregate of 10,329,412 shares of NutraCea common stock at an exercise price of $1.35 per share. The Warrants have a term of five years and are immediately exercisable.

Pursuant to the Registration Rights Agreement, the Company is obligated to file a registration statement with the Securities and Exchange Commission within 30 days of the closing of the transaction covering the possible resale from time to time in the future of the shares of common stock underlying the Preferred Shares and the Warrants. The Registration Rights Agreement provides for certain payments by the Company to the investors if the registration statement is not filed or does not become effective before dates specified in that agreement. Each of the Company and the investors has agreed to indemnify the other party and certain affiliates against certain liability related to the registration statement.

Halpern Capital, Inc. acted as advisor and placement agent for the financing and received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 500,000 shares of the Company’s common stock at an exercise price per share of $1.35.

The foregoing summary of the terms and conditions of the Purchase Agreement, the Registration Rights Agreement and the Warrants does not purport to be complete and is qualified in its entirety by reference to the full text of each of the aforementioned documents attached as Exhibits hereto, and which are hereby incorporated herein by reference.

Item 3.02
Recent Sales of Unregistered Securities

Issuance of Preferred Shares and Warrants was completed in accordance with the exemption provided by Rule 506 of Regulation D of the Securities Act of 1933, as amended ("Securities Act") and/or Section 4(2) of the Securities Act. Each of the investors represented that it is an accredited investor, as defined in Rule 501 of Regulation D, and that it was acquiring the securities for its own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act.
 
Item 9.01
Financial Statements and Exhibits.
 
 
(a)
Exhibits .

3.1
Certificate of Determination, Preferences and Rights of Series C Convertible Preferred Stock.
4.1
Form of Warrant.
10.1
Securities Purchase Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein.
10.2
Registration Rights Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein.


 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
  
 
NUTRACEA
     
Date: May 15, 2006
By:
/s/ Todd C. Crow
 
 
Todd C. Crow
 
 
Chief Financial Officer
 
 
(Duly Authorized Officer)
 


 
Exhibit 3.1
 
_____________________

CERTIFICATE OF DETERMINATION, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK


We, Brad Edson and Margie Adelman, hereby certify that we are the President and Secretary, respectively, of NutraCea, a corporation organized and existing under the laws of the State of California (“ Corporation ”), and further, do hereby certify:


That pursuant to the authority conferred upon the Board of Directors by the Corporation’s Articles of Incorporation, the said Board of Directors on May 8, 2006 adopted the following resolution creating a series of 25,000 shares of Preferred Stock designated as Series C Convertible Preferred Stock, none of which shares have been issued:

RESOLVED, that the Board of Directors of the Corporation designates the Series C Convertible Preferred Stock and the number of shares constituting such series, and fixes the rights, preferences, privileges and restrictions relating to such series in addition to any set forth in the Articles of Incorporation as follows:
 


TERMS OF SERIES C PREFERRED STOCK

Section 1 .     Definitions . For the purposes hereof, the following terms shall have the following meanings:

Alternate Consideration ” shall have the meaning set forth in Section 9(e)(iii).

Authorization Trigger Date ” shall have the meaning set forth in Section 7(e)(iv).

Automatic Conversion Notice ” shall have the meaning set forth in Section 7(f).

Automatic Conversion Notice Date ” shall have the meaning set forth in Section 7(f).

Buy-In ” shall have the meaning set forth in Section 7(g).

Change of Control Transaction ” means the occurrence after the Original Issue Date of any of (a) an acquisition by an individual, legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 50% of the voting securities of the Corporation, (b) any merger or consolidation of the Corporation in which the shareholders immediately prior to such merger or consolidation do not continue to hold or have the right to direct the voting of more than 50% of the voting securities of the Corporation immediately after such merger or consolidation, (c) a sale of all or substantially all of the Corporation’s assets (the presentation of any such transaction for shareholder approval being conclusive evidence that such transaction involves the sale of all or substantially all of the assets of the Corporation) in one or a series of related transactions, (d) the Corporation’s directors immediately following the Original Issue Date and persons appointed by such persons do not continue to constitute a majority of the Corporation’s Board of Directors, or (e) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth above in (a), (b), (c) or (d).

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

Common Stock ” means the Corporation's common stock, no par value per share, and stock of any other class into which such shares may hereafter have been reclassified or changed.

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Common Stock Equivalent ” means any security or obligation which is by its terms, directly or indirectly, convertible into or exchangeable or exercisable for shares of Common Stock, including, without limitation, any option, warrant or other subscription or purchase right with respect to Common Stock or any Common Stock Equivalent.

Conversion Amount ” means the sum of the Stated Value at issue plus any accrued but unpaid dividends.

Conversion Date ” shall have the meaning set forth in Section 7(a).

Conversion Price ” shall have the meaning set forth in Section 7(b).

Conversion Shares ” means, collectively, the shares of Common Stock into which the shares of Series C Preferred Stock are convertible in accordance with the terms hereof.

Conversion Shares Registration Statement ” means a registration statement that meets the requirements of the Registration Rights Agreement and registers the resale of all Conversion Shares by the Holder to which the Holder is entitled pursuant to the Registration Rights Agreement, all as provided in the Registration Rights Agreement.

Equity Conditions ” shall mean, during the period in question, (a) the Corporation shall have duly and timely honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion in accordance with the terms of the Transaction Documents, if any, (b) all amounts owing by the Corporation in respect of the Series C Preferred Stock shall have been paid, (c) there is a current, effective Conversion Shares Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant to the Transaction Documents that the Holder is entitled to resell pursuant to a Conversion Shares Registration Statement (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (d) the Common Stock is trading on the Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for trading on the Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on the Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (f) all of the shares issued or issuable pursuant to the transaction proposed would not violate the limitations set forth in Section 6(d), and (g) no public announcement of a pending or proposed Fundamental Transaction, Change of Control Transaction or acquisition or other material, non-public transaction has occurred that has not been consummated.

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

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Exempt Issuance ” means the issuance of (a) shares of Common Stock or options or warrants to consultants, employees, officers or directors of the Corporation pursuant to the Corporation’s 2005 Equity Incentive Plan or pursuant to any equity incentive plan or agreement duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose; provided that the issuance of shares of Common Stock or options or warrants to consultants other than pursuant to the Corporation’s 2005 Equity Incentive Plan shall not be Exempt Issuances under this part (a) to the extent that the number of shares of Common Stock granted to consultants (or underlying options and warrants to purchase Common Stock) after the Closing Date exceeds, in any calendar year, three percent (3%) of the number of outstanding shares of Common Stock, as measured on the last day of the applicable year; provided further, that Common Stock, options and warrants granted to consultants at a per share price (or a per share exercise price plus the value of other consideration received by the Corporation, in the case of options or warrants) that equals or exceeds the Stated Value shall not be considered for purposes of calculating the three percent (3%) threshold, (b) securities upon the conversion of Series C Preferred Stock (c) shares of capital stock upon the exercise of or conversion of any convertible securities, options, warrants or rights to issue securities issued and outstanding on the Closing Date, provided that such securities have not been amended after the Closing Date to increase the number of such securities or reduce the exercise or conversion price thereof, (d) shares of Common Stock issued or issuable as a dividend or distribution on Series C Preferred Stock or pursuant to any event for which adjustment is made pursuant to Sections 9(a) or (b) hereof; (e) shares of Common Stock issued by the Corporation as a penalty pursuant to the Registration Rights Agreement or the Prior Registration Rights Agreement, (f) warrants to purchase the Corporation’s securities to Halpern Capital in connection with the issuance of the Series C Preferred Stock, (g) warrants issued pursuant to the Purchase Agreement, and (h) securities issued as consideration in connection with the acquisition of another business by the Company or in a strategic transaction, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Corporation and in which the Corporation receives benefits in addition to the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

Fundamental Transaction ” shall have the meaning set forth in Section 9(e)(iii) hereof.

Holder ” shall mean a holder of Series C Preferred Stock.

Issue Date ” shall have the meaning set forth in Section 9(c).

Junior Securities ” means the Common Stock and all other equity or equity equivalent securities of the Corporation other than the Series C Preferred Stock and any Parity Securities or Senior Securities (each as defined in Section 3) issued hereafter in accordance with the provisions of Section 5(a)(iii).

Liquidation ” shall have the meaning set forth in Section 6(a).

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Liquidation Amount ” shall have the meaning set forth in Section 6(a).

Liquidation Notice ” shall have the meaning set forth in Section 6(d).

Majority Holders ” shall have the meaning set forth in Section 5(a).

New Issuance ” shall have the meaning set forth in Section 9(c).

New Issue Price ” shall have the meaning set forth in Section 9(c).

Notice of Conversion ” shall have the meaning set forth in Section 7(a).

Optional Redemption ” shall have the meaning set forth in Section 8(a).

Optional Redemption Amount ” shall mean for the applicable share of Series C Preferred Stock, the sum of (i) 400% of the Stated Value of the Series C Preferred Stock and (ii) the accrued but unpaid dividends on such share of Series C Preferred Stock.

Optional Redemption Date ” shall have the meaning set forth in Section 8(a).

Optional Redemption Notice ” shall have the meaning set forth in Section 8(a).

Optional Redemption Notice Date ” shall have the meaning set forth in Section 8(a).

Original Issue Date ” shall mean the date of the first issuance of any shares of the Series C Preferred Stock regardless of the number of transfers of any particular shares of Series C Preferred Stock and regardless of the number of certificates which may be issued to evidence such Series C Preferred Stock.

Parity Securities ” shall have the meaning set forth in Section 3(b).

Person ” means a corporation, an association, a partnership, a limited liability company, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

Prior Registration Rights Agreement ” means that certain Registration Rights Agreement that was entered into by the Corporation and certain investors in connection with the Corporations’ issuance of its Series B Convertible Preferred Stock on October 4, 2005.

Purchase Agreement ” means the Securities Purchase Agreement, dated as of the Original Issue Date, to which the Corporation and the original Holders are parties, as amended, modified or supplemented from time to time in accordance with its terms.

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Registration Rights Agreement ” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, to which the Corporation and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

Relevant Date ” shall have the meaning set forth in Section 9(c).

Reserved Amount ” shall have the meaning set forth in Section 7(e)(iii).

Sale Transaction ” means (a) (i) the merger or consolidation of the Corporation into or with one or more Persons, (ii) the merger or consolidation of one or more Persons into or with the Corporation or (iii) a tender offer or other business combination if, in the case of (i), (ii) or (iii), the shareholders of the Corporation prior to such merger or consolidation do not retain at least a majority of the voting power of the surviving Person or (b) the voluntary sale, conveyance, exchange or transfer to another Person of (i) the voting capital stock of the Corporation if, after such sale, conveyance, exchange or transfer, the shareholders of the Corporation prior to such sale, conveyance, exchange or transfer do not retain at least a majority of the voting power of the Corporation or (ii) all or substantially all of the assets of the Corporation.

Senior Securities ” shall have the meaning set forth in Section 3(c).

Series B Preferred Stock ” shall mean the Corporation’s Series B Convertible Preferred Stock.

Series C   Preferred Stock ” shall have the meaning set forth in Section 2.
 
Series C   Preferred Stock Certificates ” shall have the meaning set forth in Section 7(a).
 
Share Delivery Period ” shall have the meaning set forth in Section 7(e)(i).

Sold Shares ” shall have the meaning set forth in Section 7(g).

Stated Value ” shall have the meaning set forth in Section 2.

Stock Price ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the volume weighted average of the last reported sales price of the Corporation’s common stock on the Trading Market for each of the five (5) Trading Days up to and including the first Trading Day preceding such date; (b) if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined in good faith by the Corporation’s Board of Directors.

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

Subsidiary ” shall have the meaning given to such term in the Purchase Agreement.

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

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

Transaction Documents ” shall have the meaning set forth in the Purchase Agreement.

Section 2 .     Designation, Amount and Par Value . The series of preferred stock of the Corporation shall be designated as its Series C Convertible Preferred Stock (the “ Series C   Preferred Stock ”) and the number of shares so designated shall be 25,000. Each share of Series C Preferred Stock shall have a no par value per share and a stated value equal to $1,000 (the “ Stated Value ”).

Section 3.     Rank . The Series C Preferred Stock shall, with respect to payment of dividends, redemption payments, rights upon liquidation, dissolution or winding up of the affairs of the Corporation, or otherwise (a) rank senior and prior to the Common Stock and Junior Securities, (b) rank on a parity with each class or series of equity securities of the Corporation hereafter issued that by its terms expressly provide that it ranks pari passu to the Series C Preferred Stock (whether with respect to payment of dividends, redemption payments, rights upon liquidation, dissolution or winding up of the affairs of the Corporation, or otherwise) (all of such equity securities are collectively referred to herein as the “ Parity Securities ”), and (c) rank junior to the Series B Preferred Stock and each other class or series of equity securities of the Corporation hereafter issued that by its terms expressly ranks senior to the Series C Preferred Stock (whether with respect to payment of dividends, redemption payments, rights upon liquidation, dissolution or winding up of the affairs of the Corporation, or otherwise) (all of such equity securities described in this subpart (c) of this Section 3 are collectively referred to herein as the “ Senior Securities ”). The respective definitions of Junior Securities, Parity Securities and Senior Securities shall also include any rights or options exercisable or exchangeable for or convertible into any of the Junior Securities, Parity Securities or Senior Securities, as the case may be. At the Original Issue Date there will be no Parity Securities and no Senior Securities other than the Series B Preferred Stock authorized or outstanding, and the shares of Common Stock (including any rights or options exercisable or exchangeable for or convertible into shares of Common Stock) are the only Junior Securities issued and outstanding.

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Section 4     Dividends .

a)     In any calendar year, Holders of outstanding shares of Series C Preferred Stock shall be entitled to receive dividends, when and as declared by the Board of Directors, out of any assets at the time legally available therefor, at the rate per share (as a percentage of the Stated Value per share) of 5%, payable in preference and priority to any declaration or payment of any dividend on Junior Securities of the Corporation in such calendar year.
 
b)     No dividends shall be made with respect to any Junior Securities until all accrued but unpaid dividends on the Series C Preferred Stock have been paid or set aside for payment to the Series C Preferred Stock holders. Payment of any dividends to the holders of the Series C Preferred Stock shall be on a pro rata, pari passu basis. The right to receive dividends on shares of Series C Preferred Stock shall not be cumulative, and no right to such dividends shall accrue to holders of Series C Preferred Stock by reason of the fact that dividends on said shares are not declared or paid in any calendar year.

Section 5 .     Voting Rights .

a)     Except as otherwise provided herein and as otherwise required by law, the Series C Preferred Stock shall have no voting rights. However, so long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or written consent of the Holders of a majority of the shares of the Series C Preferred Stock then outstanding (the “ Majority Holders ”):

 
i.
alter or change adversely (whether by merger, consolidation or otherwise) the powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Determination (whether by merger, consolidation or otherwise);

 
ii.
alter or change adversely (whether by merger, consolidation or otherwise) the powers, preferences or rights of any capital stock of the Corporation so as to affect adversely the Series C Preferred Stock;

 
iii.
authorize, create or permit to be outstanding any Parity Securities or Senior Securities (whether by merger, consolidation or otherwise);

 
iv.
issue any shares of Series C Preferred Stock other than pursuant to the Purchase Agreement;

 
v.
redeem, repurchase or otherwise acquire, or declare or pay any cash dividend or distribution on, any Junior Securities, provided that, notwithstanding the foregoing, the Corporation shall, without the prior approval of the Majority Holders, be entitled to repurchase Junior Securities from employees of the Corporation in connection with employee compensation plans or arrangement approved by the Corporation’s Board of Directors;

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vi.
increase the authorized number of shares of Series C Preferred Stock;

 
vii.
increase the par value of the Common Stock;

 
viii.
amend its articles of incorporation or other charter documents so as to affect adversely any rights of the Holders with respect to the Series C Preferred Stock (whether by merger, consolidation or otherwise);

 
ix.
cause or authorize any Subsidiary of the Corporation to engage in any of the foregoing actions; and

 
x.
enter into any commitment, agreement or understanding with respect to the foregoing.

Notwithstanding the foregoing, no change pursuant to this Section 5 shall be effective to the extent that, by its terms, it applies to less than all of the Holders of shares of Series C Preferred Stock then outstanding.

Section 6 .     Liquidation .

a)     Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “ Liquidation ”), and subject to the rights of any Senior Securities with respect to distributions upon a Liquidation, the Holders shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Junior Securities by reason of their ownership of such stock and pari passu with any distribution of the assets of the Corporation to the holders of Parity Securities by reason of their ownership of such stock, an amount per share of Series C Preferred Stock then held by them equal to (i) $1,000 (as appropriately adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to such shares) plus (ii) all accrued but unpaid dividends on such shares of Series C Preferred Stock to the actual date of such Liquidation (the sum of clauses (i) and (ii) with respect to such shares of Series C Preferred Stock, the “ Liquidation Amount ”) and such holders will not be entitled to any further payment with respect to such shares of Series C Preferred Stock. If upon a Liquidation the assets and funds legally available for distribution among the holders of the Series C Preferred Stock and any Parity Securities shall be insufficient to permit the payment to such holders of the full Liquidation Amount and pari passu amounts due with respect to such Parity Securities, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock and such Parity Securities in proportion to the Liquidation Amount and pari passu amounts due with respect to such Parity Securities that each holder of Series C Preferred Stock and such Parity Securities is otherwise entitled to receive. Upon the consummation of a Sale Transaction, the Holders shall have the right to cause, by written request, such Sale Transaction be deemed a Liquidation.

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b)     After payment in full has been made to the Holders of the full Liquidation Amount (and with respect to Parity Securities, such pari passu amounts) due pursuant to Section 6(a) above, the entire remaining assets and funds of the Corporation legally available for distribution to shareholders shall be distributed among the holders of Junior Securities in proportion to their respective rights to same.

c)     If any of the assets of the Corporation are to be distributed under this Section 6, or for any purpose, in a form other than cash, the value of such assets will be its fair market value, as determined in good faith by the Board of Directors. Any securities to be delivered to the holders of Series C Preferred Stock, Parity Securities or Junior Securities, as the case may be, shall be valued as follows:

 
i.
If traded on a Trading Market, the value shall be deemed to be the average of the Stock Prices of the securities on such exchange over the 10 Trading Day period ending three (3) days prior to the Closing Date;

 
ii.
If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 10 Trading Day period ending three (3) days prior to the closing; and

 
iii.
If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.

The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder's status as an affiliate or former affiliate) shall be valued at an appropriate discount from the value determined as provided in Section 6(c)(i) or (ii) above to reflect the approximate fair market value thereof, as reasonably determined in good faith by the Board of Directors.

d)     Prior to the occurrence of a Liquidation, the Corporation shall give each holder of record of Series C Preferred Stock written notice (the “ Liquidation Notice ”) not later than fifteen (15) days prior to the shareholders' meeting called to approve such transaction or event, or fifteen (15) days prior to the closing of such transaction or event, whichever is earlier, and shall also notify such Holders in writing of the final approval of such transaction or event. The first of such notices shall describe the material terms and conditions of the impending transaction or event and the provisions of this Section 6. The transaction or event shall not occur sooner than 15 days after the Corporation has given the first notice provided for herein.

Section 7 .     Conversion .

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a)     Conversions at Option of Holder . Each share of Series C Preferred Stock shall be convertible into that number of shares of Common Stock determined by dividing the Liquidation Amount of such share of Series C Preferred Stock by the Conversion Price, at the option of the Holder, at any time and from time to time from and after the Original Issue Date. Upon conversion of a share of Series C Preferred Stock, all accrued and unpaid dividends with respect to such share shall be deemed to have been paid in full. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “ Notice of Conversion ”). Each Notice of Conversion shall specify the number of shares of Series C Preferred Stock to be converted, the number of shares of Series C Preferred Stock owned prior to the conversion at issue, the number of shares of Series C Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to, nor more than 20 days after, the date the Holder delivers such Notice of Conversion to the Corporation by facsimile (the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions, as the case may be, of shares of Series C Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing such shares of Series C Preferred Stock (the “ Series C Preferred Stock Certificates ”) to the Corporation unless all of the shares of Series C Preferred Stock represented thereby are so converted, in which case the Holder shall deliver the Series C Preferred Stock Certificate(s) promptly following the Conversion Date at issue. However, if the Holder does not surrender the Series C Preferred Stock Certificate(s) when effecting a conversion, such Holder shall, if requested by the Corporation, promptly deliver to the Corporation an indemnification undertaking with respect to the converted Shares of Series C Preferred Stock, in form reasonably satisfactory to the Corporation. Shares of Series C Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and may not be reissued.

b)     Conversion Price . The conversion price for the Series C Preferred Stock shall equal $0.85   (the “ Conversion Price ”), subject to adjustment herein.
 
c)     Reserved .
 
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d)     Reserved .

e)     Mechanics of Conversion

i.     Delivery of Certificate Upon Conversion . Not later than the later of (A) three Trading Days after each Conversion Date and (B) two business days following the date of surrender of Series C Preferred Stock Certificates accompanied by a Notice of Conversion, if applicable (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to Section 10(b)) (the “ Share Delivery Period ”), the Corporation (itself, or through its transfer agent) shall issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the Holder (X) that number of shares of Common Stock issuable upon conversion of such shares of Series C Preferred Stock being converted and (Y) a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of shares of Series C Preferred Stock. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the fifth Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Corporation shall promptly return the certificates representing the shares of Series C Preferred Stock tendered for conversion.

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ii.     Obligation Absolute . The Corporation’s obligations to issue and deliver the Conversion Shares upon conversion of Series C Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to the Holder in connection with the issuance of such Conversion Shares.

iii.     Reservation of Shares Issuable Upon Conversion . The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance pursuant hereto, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Corporation as to reservation of such shares set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 8) in respect of all outstanding shares of Series C Preferred Stock (the “ Reserved Amount ”).

iv.     Increases to Reserved Amount . If the Reserved Amount for any five consecutive Trading Days (the last of such Trading Day being the “ Authorization Trigger Date ”) shall be less than one hundred percent (100%) of the number of shares of Common Stock issuable upon full conversion of the then outstanding shares of Series C Preferred Stock, the Corporation shall immediately notify the Holders of such occurrence and shall take immediate action (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to one hundred percent (100%) of the number of shares of Common Stock then issuable upon full conversion of all of the outstanding Series C Preferred Stock at the then current Conversion Price.

v.       Fractional Shares . Upon a conversion hereunder, the Corporation shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Stock Price at such time. If the Corporation elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

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vi.     Transfer Taxes . The issuance of certificates for shares of the Common Stock on conversion of the Series C Preferred Stock shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such shares of Series C Preferred Stock so converted and the Corporation shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

vii.     Payment of Accrued Amounts . Upon a conversion hereunder, all amounts then accrued or payable on such shares under this Certificate of Determination (including, without limitation, all dividends) through and including the Conversion Date shall be paid by the Corporation.

f)     Automatic Conversion . Provided the Equity Conditions are satisfied, (i) if the Stock Price of the Common Stock equals $2.00 per share (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Common Stock occurring after the Original Issue Date) after the Original Issue Date, for 30 out of the 40 consecutive Trading Days immediately prior to the Automatic Conversion Notice Date (as defined below), and at least 200,000 shares of Common Stock (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Common Stock occurring after the Original Issue Date) per day shall have been traded during such 40 Trading Days, the Corporation shall have the right to deliver a notice to the Holder (an “ Automatic Conversion Notice ” and the date such notice is received by the Holder, the “ Automatic Conversion Notice Date ”), to convert up to 100% of the shares of Series C Preferred Stock then held by the Holder into shares of Common Stock at the then-effective Conversion Price. Any conversion pursuant to this Section 7(f) shall be effective as of a date specified in the Automatic Conversion Notice, which date shall be before the 20th Trading Day following the date the Company delivers the Automatic Conversion Notice.   To effect an Automatic Conversion hereunder, the Holder shall not be required to physically surrender the Series C Preferred Stock certificate to the Corporation. Delivery of the certificates for the Common Stock by the Corporation to the Holder shall be as set forth in Section 7(e) herein. The Corporation shall only be permitted to deliver an Automatic Conversion Notice once per month.

g)     Buy-In Cure . Unless the Corporation has notified the applicable Holder in writing prior to the delivery by such Holder of a Notice of Conversion that the Corporation is unable to honor conversions , if (i) the Corporation fails to promptly deliver during the Share Delivery Period shares of Common Stock to a Holder upon a conversion of shares of Series C Preferred Stock and (ii) thereafter, such Holder purchases, or any third party on behalf of such Holder or for the Holder’s account, purchases (in an open market transaction or otherwise) shares of Common Stock to make delivery in satisfaction of a sale by such Holder of the unlegended shares of Common Stock (the “ Sold Shares ”) which such Holder anticipated receiving upon such conversion (a “ Buy-In ”), the Corporation shall pay such Holder, in addition to any other remedies available to the Holder, the amount by which (X) such Holder’s total purchase price (including brokerage commissions, if any) for the unlegended shares of Common Stock so purchased exceeds (Y) the net proceeds received by such Holder from the sale of the Sold Shares. For example, if a Holder purchases unlegended shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for $10,000, the Corporation will be required to pay the Holder $1,000. A Holder shall provide the Corporation written notification and supporting documentation indicating any amounts payable to such Holder pursuant to this Section 7(g).

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Section 8 .     Redemption .

a)     Optional Redemption . Subject to the provisions of this Section 8, the Corporation may at any time deliver a notice to the Holders (an “ Optional Redemption Notice ” and the date such notice is deemed delivered hereunder, the “ Optional Redemption Notice Date ”) of its irrevocable election to redeem, all or in part, the then outstanding Series C Preferred Stock, for an amount per share, in cash, equal to the Optional Redemption Amount on a date within 20 Trading Days following the Optional Redemption Notice Date (such date, the “ Optional Redemption Date ” and such redemption, the “ Optional Redemption ”). The Optional Redemption Date shall be no earlier than 30 days following the Optional Redemption Notice Date. The Optional Redemption Amount is due in full on the Optional Redemption Date. The Corporation may only effect an Optional Redemption if from the Optional Redemption Notice Date through to the Optional Redemption Date, all of the Equity Conditions are fulfilled. The Holders may not convert their shares of Series C Preferred Stock on or after the Optional Redemption Date; provided, however, that if the Corporation elects to redeem less than all outstanding shares of Series C Preferred Stock, the Holder may elect to convert such number of shares which do not include shares for which and Optional Redemption Notice shall have been delivered.

b)     Redemption Procedure . The payment of cash pursuant to an Optional Redemption shall be made on the Optional Redemption Date. If any portion of the cash payment for an Optional Redemption shall not be paid by the Corporation by the respective due date, interest shall accrue thereon at the rate of 10% per annum (or the maximum rate permitted by applicable law, whichever is less) until the payment of the Optional Redemption Amount, plus all amounts owing thereon is paid in full. In addition, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holders subject to such redemption may elect, by written notice to the Corporation given at any time thereafter, to invalidate ab initio such redemption, notwithstanding anything herein contained to the contrary. Notwithstanding anything to the contrary in this Section 8, the Corporation’s determination to redeem in cash shall be applied ratably among the Holders based upon the number of shares of Series C Preferred Stock then held by each Holder.
 
Section 9 .     Certain Adjustments .

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a)     Stock Dividends and Stock Splits . If the Corporation, at any time while the Series C Preferred Stock is outstanding: (i) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to this Preferred Sock), (ii) subdivide outstanding shares of Common Stock into a larger number of shares, (iii) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 9 shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)     Pro Rata Distributions . If the Corporation, at any time while Series C Preferred Stock is outstanding, shall divide or distribute to all holders of Common Stock (and not to Holders) evidences of its indebtedness, assets or cash or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be determined by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the Stock Price determined as of the record date mentioned above, and of which the numerator shall be such Stock Price on such record date less the then fair market value at such record date of the portion of such assets or cash or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

c)     New Issuances . If the Corporation shall at any time or from time to time, after the issuance of the Series C Preferred Stock but prior to the exercise thereof, issue or sell (such issuance or sale, a “ New Issuance ”) any shares of Common Stock or Common Stock Equivalents at a price per share of Common Stock (the “ New Issue Price ”) that is less than the Conversion Price then in effect as of the record date or Issue Date (as defined below), as the case may be (the “ Relevant Date ”) (treating the price per share of Common Stock, in the case of the issuance of any Common Stock Equivalent, as equal to (X) the sum of the price for such Common Stock Equivalent plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such Common Stock Equivalent divided by (Y) the number of shares of Common Stock initially underlying such Common Stock Equivalent), other than (i) issuances or sales for which an adjustment is made pursuant to another subsection of this Section 9 and (ii) issuances in connection with an Exempt Issuance, then , and in each such case, (A) the Conversion Price then in effect shall be adjusted by multiplying the Conversion Price in effect on the day immediately prior to the Relevant Date by a fraction (I) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the Relevant Date plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of such additional shares of Common Stock so issued would purchase at the Conversion Price on the Relevant Date (or, in the case of Common Stock Equivalents, the number of shares of Common Stock which the aggregate consideration received by the Corporation upon the issuance of such Common Stock Equivalents and receivable by the Corporation upon the conversion, exchange or exercise of such Common Stock Equivalents would purchase at the Conversion Price on the Relevant Date) and (II) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on the Relevant Date plus the number of additional shares of Common Stock issued or to be issued (or, in the case of Common Stock Equivalents, the maximum number of shares of Common Stock into which such Common Stock Equivalents initially may convert, exchange or be exercised). Notwithstanding the foregoing, the Conversion Price shall not be reduced at such time if the amount of such reduction would be less than $0.01, but any such amount shall be carried forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction which, together with such amount and any other amounts so carried forward, equal $0.01 or more in the aggregate.

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Such adjustment shall be made whenever such shares of Common Stock or Common Stock Equivalents are issued, and shall become effective retroactively (X) in the case of an issuance to the shareholders of the Corporation, as such, to a date immediately following the close of business on the record date for the determination of shareholders entitled to receive such shares of Common Stock or Common Stock Equivalents and (Y) in all other cases, on the date (the “ Issue Date ”) of such issuance; provided , however , that the determination as to whether an adjustment is required to be made pursuant to this Section 9(c) shall be made only upon the issuance of such shares of Common Stock or Common Stock Equivalents, and not upon the issuance of any security into which the Common Stock Equivalents convert, exchange or may be exercised.

d)     Calculations . All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock. For purposes of this Section 10, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 
e)
Notice to Holders .

i.     Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any of this Section 9, the Corporation shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.     Notice to Allow Conversion by Holder . If (A) the Corporation shall declare a dividend (or any other distribution) on the Common Stock; (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Corporation shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any shareholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation; then, in each case, the Corporation shall cause to be mailed to the Holders at their last addresses as they shall appear upon the stock books of the Corporation, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (X) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (Y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided , that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. Holders are entitled to convert the Conversion Amount of Series C Preferred Stock during the 10-day period commencing the date of such notice to the effective date of the event triggering such notice.

iii.     Fundamental Transaction . If, at any time while this Series C Preferred Stock is outstanding, (A) the Corporation effects any merger or consolidation of the Corporation with or into another Person or any other Change of Control Transaction shall occur, (B) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (C) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “ Fundamental Transaction ”), then, in addition to the rights set forth in Section 6(a), upon any subsequent conversion of this Series C Preferred Stock pursuant to Section 7(a), the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “ Alternate Consideration ”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Series C Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Determinations with the same terms and conditions and issue to the Holder new preferred stock consistent with the foregoing provisions and evidencing the Holder’s right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (e)(iii) and insuring that this Series C Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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iv.     Exempt Issuance . Notwithstanding the foregoing, no adjustment will be made under this Section 9 in respect of an Exempt Issuance.

Section 10 .     Miscellaneous .

a)     Notices . Any and all notices or other communications or deliveries to be provided by the Holders hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth in the Purchase Agreement, facsimile number (916) 933-7001,   Attn: Chief Executive Officer, or such other address or facsimile number as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books of the Corporation, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section 10 prior to 6:30 p.m. (New York City time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section 10 later than 6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the first Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

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b)     Lost or Mutilated Series C Preferred Stock Certificate . If a Holder’s Series C Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series C Preferred Stock so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Corporation.

c)     Allocation of Reserved Amount . The initial Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Series C Preferred Stock issued to each such Holder. Each increase to the Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Series C Preferred Stock held by each Holder at the time of the increase in the Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holder’s shares of Series C Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor’s Reserved Amount. Any portion of the Reserved Amount which remains allocated to any person or entity which does not hold any Series C Preferred Stock shall be allocated to the remaining Holders, pro rata based on the number of shares of Series C Preferred Stock held by such Holders.

d)     Payment of Cash; Defaults . Whenever the Corporation is required to make any cash payment to a Holder under this Certificate of Determination (as payment of any dividend, upon redemption or otherwise), such cash payment shall be made to the Holder within five business days after delivery by such Holder of a notice specifying that the Holder elects to receive such payment in cash and the method (e.g., by check, wire transfer) in which such payment should be made and any supporting documentation reasonably requested by the Corporation to substantiate the Holder’s claim to such cash payment or the amount thereof. If such payment is not delivered within such five business day period, such Holder shall thereafter be entitled to interest on the unpaid amount at a per annum rate equal to the lower of eighteen percent (18%) and the highest interest rate permitted by applicable law until such amount is paid in full to the Holder.

e)     Remedies Cumulative . The remedies provided in this Certificate of Determination shall be cumulative and in addition to all other remedies available under this Certificate of Determination, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit a Holder’s right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Determination. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees, in the event of any such breach or threatened breach, that the Holders shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

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f)     Waiver . Any waiver by the Corporation or the Holder of a breach of any provision of this Certificate of Determination shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Determination. The failure of the Corporation or the Holder to insist upon strict adherence to any term of this Certificate of Determination on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Determination. Any waiver must be in writing.

g)       Severability . If any provision of this Certificate of Determination is invalid, illegal or unenforceable, the balance of this Certificate of Determination shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.

h)     Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

i)     Headings . The headings contained herein are for convenience only, do not constitute a part of this Certificate of Determination and shall not be deemed to limit or affect any of the provisions hereof.

*********************

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ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES C PREFERRED STOCK)

The undersigned hereby elects to convert the number of shares of Series C Convertible Preferred Stock indicated below, into shares of common stock, no par value per share (the “ Common Stock ”), of NutraCea a California corporation (the “ Corporation ”), according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Corporation in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any.

Conversion calculations:
 
Date to Effect Conversion: _____________________________________________
 
Number of shares of Series C Preferred Stock owned prior to Conversion: _______________
 
Number of shares of Series C Preferred Stock to be Converted: ________________________
 
Stated Value of shares of Series C Preferred Stock to be Converted: ____________________
 
Number of shares of Common Stock to be Issued: ___________________________
 
Applicable Conversion Price:_____________________________________
 
Number of shares of Series C Preferred Stock subsequent to Conversion: ________________
 
 
[HOLDER]
 
By:___________________________________
Name:
Title:
 
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The undersigned declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of their own knowledge.

The undersigned have executed this certificate in El Dorado Hills, California on May 10, 2006.
 
 
/s/ Brad Edson
 
/s/ Margie Adelman
 
Name: Brad Edson
 
Name: Margie Adelman
 
Title: President
 
Title: Secretary
 
 
 
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Exhibit 4.1
 
WARRANT
 
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
 
 
 
No. W-
 
 
May 12, 2006
 

 
Warrant to Purchase up to _______ shares of Common Stock of NutraCea, a California corporation (the “ Company ”).
 
In consideration for the party whose signature appears on the signature page hereof (the “ Investor ”) agreeing to enter into that certain Securities Purchase Agreement, dated as of the date hereof, by and among the Company, the Investor and the other parties identified therein as “Purchasers” (the “ Agreement ”), the Company hereby agrees that the Investor or any other Warrant Holder (as defined below) is entitled, on the terms and conditions set forth below, to purchase from the Company at any time during the Exercise Period (as defined below) up to _________ fully paid and nonassessable shares of common stock, no par value, of the Company (the “ Common Stock ”) at a price per share equal to the Exercise Price (hereinafter defined), as the same may be adjusted from time to time pursuant to Section 5.1 hereof. The resale of the shares of Common Stock or other securities issuable upon exercise or exchange of this Warrant is subject to the provisions of this Warrant, the Agreement and the Registration Rights Agreement (as defined in the Agreement, “ Registration Rights Agreement ”).
 
Section 1.         Definitions .
 
Closing Date ” shall have the meaning ascribed to such term in the Agreement.
 
Common Stock Equivalent ” means any security or obligation which is by its terms, directly or indirectly, convertible into or exchangeable or exercisable for shares of Common Stock, including, without limitation, any option, warrant or other subscription or purchase right with respect to Common Stock or any Common Stock Equivalent.
 
1

 
Excluded Transaction ” shall mean the issuance of (a) shares of Common Stock or options or warrants to consultants, employees, officers or directors of the Company pursuant to the Company’s 2005 Equity Incentive Plan or pursuant to any equity incentive plan or agreement duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; provided that the issuance of shares of Common Stock or options or warrants to consultants other than pursuant to the Company’s 2005 Equity Incentive Plan shall not be Excluded Transactions under this part (a) to the extent that the number of shares of Common Stock granted to consultants (or underlying options and warrants to purchase Common Stock) after the Closing Date exceeds, in any calendar year, three percent (3%) of the number of outstanding shares of Common Stock, as measured on the last day of the applicable year; provided further, that Common Stock, options and warrants granted to consultants at a per share price (or a per share exercise price plus the value of other consideration received by the Company, in the case of options or warrants) that equals or exceeds the Exercise Price shall not be considered for purposes of calculating the three percent (3%) threshold, (b) securities upon the conversion of Preferred Stock (c) shares of capital stock upon the exercise of or conversion of any convertible securities, options, warrants or rights to issue securities issued and outstanding on the Closing Date, provided that such securities have not been amended after the Closing Date to increase the number of such securities or reduce the exercise or conversion price thereof, (d) shares of Common Stock issued or issuable as a dividend or distribution on Preferred Stock or pursuant to any event for which adjustment is made pursuant to Section 5.1; (e) shares of Common Stock issued by the Company as a penalty pursuant to the Registration Rights Agreement or the Prior Registration Rights Agreement, (f) warrants to purchase the Company’s securities to Halpern Capital in connection with the issuance of Preferred Stock, (g) any issuance of Warrant Shares, and (h) securities issued as consideration in connection with the acquisition of another business by the Company or in a strategic transaction, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
 
Exercise Period ” shall mean that period beginning on the date of this Warrant and continuing until the expiration of the five-year period thereafter.
 
Exercise Price ” as of the date hereof shall mean $1.35, subject to adjustment for the events specified in Section 5.1 below.
 
Investors ” shall mean the purchasers of Preferred Stock pursuant to the Agreement, including the Investor.
 
Person ” shall mean an individual, a corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
 
Preferred Stock ” shall mean the Company’s Series C Convertible Preferred Stock.
 
Principal Market ” shall mean the Nasdaq National Market, the Nasdaq Capital Market, the American Stock Exchange the New York Stock Exchange, the OTC Bulletin Board, or other exchange or market, whichever is at the time the principal trading exchange or market for the Common Stock.
 
2

 
Prior Registration Rights Agreement ” shall mean that certain Registration Rights Agreement that was entered into by the Company and certain investors in connection with the Company’s issuance of its Series B Convertible Preferred Stock on October 4, 2005.
 
SEC ” shall mean the United States Securities and Exchange Commission.
 
Trading Day ” shall mean any day other than a Saturday or a Sunday on which the Principal Market is open for trading in equity securities.
 
Trading Market ” shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock Exchange.
 
Transaction Warrants ” shall mean those warrants (including this Warrant) issued pursuant to the Agreement.
 
Transaction Warrant Shares ” shall mean those shares of Common Stock underlying the Transaction Warrants.
 
Trigger Price ” as of the date hereof shall mean $0.85 per share, subject to adjustment for the events specified in Section 5.1 below.
 
VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers and reasonably acceptable to the Company.
 
Warrant Holder ” shall mean the Investor or any permitted assignee or permitted transferee of all or any portion of this Warrant.
 
Warrant Shares ” shall mean those shares of Common Stock received upon exercise of this Warrant.
 
Section 2.         Exercise .
 
(a)      Method of Exercise . This Warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period, by the Warrant Holder by (i) surrender of this Warrant, with the form of exercise attached hereto as Exhibit A completed and duly executed by the Warrant Holder (the “ Exercise Notice ”), to the Company at the address set forth in Section 12 hereof, accompanied by payment of the Exercise Price multiplied by the number of shares of Common Stock for which this Warrant is being exercised (the “ Aggregate Exercise Price ”) or (ii) telecopying an executed and completed Exercise Notice to the Company and delivering to the Company within five (5) business days thereafter the original Exercise Notice, this Warrant and the Aggregate Exercise Price. Each date on which an Exercise Notice is received by the Company in accordance with clause (i) and each date on which the Exercise Notice is telecopied to the Company in accordance with clause (ii) above shall be deemed an “ Exercise Date .”
 
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(b)      Payment of Aggregate Exercise Price . Payment of the Aggregate Exercise Price may be made:
 
(i)      by wire transfer of immediately available funds to an account designated by the Company. If the amount of the payment received by the Company is less than the Aggregate Exercise Price, the Warrant Holder will be notified of the deficiency and shall make payment in that amount within three (3) Trading Days. In the event the payment exceeds the Aggregate Exercise Price, the Company will refund the excess to the Warrant Holder within five (5) Trading Days of receipt; or
 
(ii)        if at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
 
(A) = 
the VWAP on the Trading Day immediately preceding the date of such election;
 
(B) =
the Exercise Price of this Warrant, as adjusted; and
 
(X) =
the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.
 
(c)      Replacement Warrant . In the event that the Warrant is not exercised in full, the number of Warrant Shares shall be reduced by the number of such Warrant Shares for which this Warrant is exercised, and the Company, at its expense, shall forthwith issue and deliver to or upon the order of the Warrant Holder a new Warrant of like tenor in the name of the Warrant Holder, reflecting such adjusted number of Warrant Shares.
 
Section 3.         Delivery of Stock Certificates .
 
(a)    Subject to the terms and conditions of this Warrant, as soon as practicable after the exercise of this Warrant in full or in part, and in any event within five (5) calendar days thereafter, the Company at its expense (including, without limitation, the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Warrant Holder, or as the Warrant Holder may lawfully direct, a certificate or certificates for the number of validly issued, fully paid and non-assessable Warrant Shares to which the Warrant Holder shall be entitled on such exercise, together with any other stock or other securities or property (including cash, where applicable) to which the Warrant Holder is entitled upon such exercise in accordance with the provisions hereof. If an Investor shall make a sale or transfer of Warrant Shares that does not violate Section 7(c) of the Registration Rights Agreement either (x) pursuant to Rule 144(k) or (y) pursuant to a registration statement and in each case shall have provided written notice of such transaction to the Company and delivered to the Transfer Agent the certificate representing Warrant Shares containing a restrictive legend which are the subject of such sale or transfer, together with either (i) a customary representation by the Investor that Rule 144(k) applies to the shares of Common Stock represented thereby or (ii) a statement by the Investor that such Investor (A) has sold the shares of Common Stock represented thereby pursuant to the Registration Statement and in accordance with the Plan of Distribution contained in the Registration Statement and (B) is a named Selling Security Holder in the Registration Statement (the date of such sale or transfer and delivery being the “Share Delivery Date”) and (1) the Company shall fail to deliver or cause to be delivered to such Purchaser a certificate representing such Shares that is free from all restrictive or other legends by the fifth Trading Day following the Share Delivery Date and (2) following such fifth Trading Day after the Share Delivery Date and prior to the time such Shares are received free from restrictive legends, the Investor, or any third party on behalf of such Investor or for the Investor’s account, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Investor of such Shares (a “Buy-In”), then the Company shall pay in cash to the Investor (for costs incurred either directly by such Investor or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such Investor as a result of the sale to which such Buy-In relates. The Investor shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In.
 
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(b)    This Warrant may not be exercised as to fractional shares of Common Stock. In the event that the exercise of this Warrant, in full or in part, would result in the issuance of any fractional share of Common Stock, then in such event the Warrant Holder shall receive the number of shares rounded to the nearest whole share.
 
Section 4.         Reserved .
 
Section 5.1.    Adjustment of the Exercise Price . The Exercise Price and, accordingly, the number of Warrant Shares issuable upon exercise of the Warrant, shall be subject to adjustment from time to time upon the happening of certain events as follows:
 
(a)    Reclassification, Consolidation, Merger, Mandatory Share Exchange, Sale or Transfer .
 
(i)    Upon occurrence of any of the events specified in subsection (a)(ii) below (the “ Adjustment Events ”) while this Warrant is unexpired and not exercised in full, the Warrant Holder may in its sole discretion require the Company, or any successor or purchasing corporation, as the case may be, without payment of any additional consideration therefor, to execute and deliver to the Warrant Holder a new Warrant providing that the Warrant Holder shall have the right to exercise such new Warrant (upon terms not less favorable to the Warrant Holder than those then applicable to this Warrant) and to receive upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money or property receivable upon such Adjustment Event by the holder of one share of Common Stock   issuable upon exercise of this Warrant had this Warrant been exercised immediately prior to such Adjustment Event. Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5.1.
 
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(ii)    The Adjustment Events shall be (1) any reclassification or change of Common Stock (other than a change in par value, as a result of a subdivision or combination of Common Stock), (2) any consolidation, merger or mandatory share exchange of the Company with or into another corporation (other than a merger or mandatory share exchange with another corporation in which the Company is a continuing corporation and which does not result in any reclassification or change other than a change in par value or as a result of a subdivision or combination of Common Stock). The Company shall not effect any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrant Holder, at the last address of the Warrant Holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrant Holder may be entitled to purchase, and the other obligations under this Warrant.
 
(b)    Subdivision or Combination of Shares . The number and kind of securities purchasable upon the exercise of this Warrant, the Exercise Price and the Trigger Price, shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) subdivide its outstanding shares of Common Stock into a greater number of shares, or (ii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Warrant Holder shall be entitled to receive the kind and number of Warrant Shares which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares which are purchasable hereunder, the Warrant Holder shall thereafter be entitled to purchase the number of Warrant Shares resulting from such adjustment at an Exercise Price per Warrant Share obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares resulting from such adjustment. In addition, after each such adjustment, the Trigger Price shall equal the Trigger Price in effect immediately prior to the adjustment, multiplied by a fraction, the numerator of which shall equal the Exercise Price immediately after the adjustment and the denominator of which shall equal the Exercise Price immediately prior the adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.

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(c)    Stock Dividends . If the Company, at any time while this Warrant is unexpired and not exercised in full, shall pay a dividend or other distribution in shares of Common Stock to all holders of Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Warrant Holder shall be entitled to receive the kind and number of Warrant Shares which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares which are purchasable hereunder, the Warrant Holder shall thereafter be entitled to purchase the number of Warrant Shares resulting from such adjustment at an Exercise Price per Warrant Share obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares resulting from such adjustment. In addition, after each such adjustment, the Trigger Price shall equal the Trigger Price in effect immediately prior to the adjustment, multiplied by a fraction, the numerator of which shall equal the Exercise Price immediately after the adjustment and the denominator of which shall equal the Exercise Price immediately prior the adjustment. Any adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. The provisions of this subsection (c) shall not apply under any of the circumstances for which an adjustment is provided in subsections (a) or (b).
 
(d)    Liquidating Dividends, Etc. If the Company, at any time while this Warrant is unexpired and not exercised in full, makes a distribution of its assets or evidences of indebtedness to the holders of its Common Stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company’s assets (other than under the circumstances provided for in the foregoing subsections (a) through (c)), then the Warrant Holder shall be entitled to receive upon exercise of this Warrant in addition to the Warrant Shares receivable in connection therewith, and without payment of any consideration other than the Exercise Price, the kind and amount of such distribution per share of Common Stock multiplied by the number of Warrant Shares that, on the record date for such distribution, are issuable upon such exercise of the Warrant (with no further adjustment being made following any event which causes a subsequent adjustment in the number of Warrant Shares issuable), and an appropriate provision therefor shall be made a part of any such distribution. The value of a distribution that is paid in other than cash shall be determined in good faith by the Board of Directors of the Company.
 
(e)    Dilutive Issuances . If the Company shall at any time or from time to time, after the issuance of this Warrant but prior to the exercise hereof, issue or sell (such issuance or sale, a “ New Issuance ”) any shares of Common Stock or Common Stock Equivalents at a price per share of Common Stock (the “ New Issue Price ”) that is less than the Trigger Price then in effect as of the record date or Issue Date (as defined below), as the case may be (the “ Relevant Date ”) (treating the price per share of Common Stock, in the case of the issuance of any Common Stock Equivalent, as equal to (x) the sum of the price for such Common Stock Equivalent plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such Common Stock Equivalent divided by (y) the number of shares of Common Stock initially underlying such Common Stock Equivalent), other than (i) issuances or sales for which an adjustment is made pursuant to another subsection of this Section 5 and (ii) issuances in connection with an Excluded Transaction, then , and in each such case, (A) the Exercise Price then in effect shall be adjusted by multiplying the Exercise Price in effect on the day immediately prior to the Relevant Date by a fraction (I) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the Relevant Date plus the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such additional shares of Common Stock so issued would purchase at the Trigger Price on the Relevant Date (or, in the case of Common Stock Equivalents, the number of shares of Common Stock which the aggregate consideration received by the Company upon the issuance of such Common Stock Equivalents and receivable by the Company upon the conversion, exchange or exercise of such Common Stock Equivalents would purchase at the Trigger Price on the Relevant Date) and (II) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on the Relevant Date plus the number of additional shares of Common Stock issued or to be issued (or, in the case of Common Stock Equivalents, the maximum number of shares of Common Stock into which such Common Stock Equivalents initially may convert, exchange or be exercised) and (B) the aggregate number of Warrant Shares for which this Warrant is exercisable immediately after the New Issuance shall be increased to equal the product of (i) the aggregate number of Warrant Shares for which this Warrant is exercisable immediately prior to the New Issuance multiplied by (ii) a fraction, the numerator of which shall be the Exercise Price in effect on the day immediately prior to the Relevant Date and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. Notwithstanding the foregoing, the Exercise Price shall not be reduced at such time if the amount of such reduction would be less than $0.01, but any such amount shall be carried forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction which, together with such amount and any other amounts so carried forward, equal $0.01 or more in the aggregate.
 
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Such adjustment shall be made whenever such shares of Common Stock or Common Stock Equivalents are issued, and shall become effective retroactively (x) in the case of an issuance to the stockholders of the Company, as such, to a date immediately following the close of business on the record date for the determination of shareholders entitled to receive such shares of Common Stock or Common Stock Equivalents and (y) in all other cases, on the date (the “ Issue Date ”) of such issuance; provided , however , that the determination as to whether an adjustment is required to be made pursuant to this Section 5.1(e) shall be made only upon the issuance of such shares of Common Stock or Common Stock Equivalents, and not upon the issuance of any security into which the Common Stock Equivalents convert, exchange or may be exercised.
 
Section 5.2       Notice of Adjustments . Whenever the Exercise Price or number of Warrant Shares shall be adjusted pursuant to Section 5.1 hereof, the Company shall promptly prepare a certificate signed by its President or Chief Financial Officer setting forth in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Company’s Board of Directors made any determination hereunder), and the Exercise Price and number of Warrant Shares purchasable at that Exercise Price after giving effect to such adjustment, and shall promptly cause copies of such certificate to be sent to the Warrant Holder. In the event the Company shall, at a time while the Warrant is unexpired and not exercised in full, take any action that pursuant to subsections (a) through (c) of Section 5.1 may result in an adjustment of the Exercise Price, the Company shall give to the Warrant Holder at its last address known to the Company written notice of such action ten (10) days in advance of its effective date in order to afford to the Warrant Holder an opportunity to exercise the Warrant prior to such action becoming effective.
 
Section 6.         No Impairment . The Company will not, by amendment of its Amended and Restated Articles of Incorporation or By-Laws or through any reorganization, transfer of assets, consolidation, merger, dissolution or issue or sale of securities, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrant Holder against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, and (b) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant.
 
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Section 7.         Rights As Stockholder . Except as set forth in Section 5 above, prior to exercise of this Warrant, the Warrant Holder shall not be entitled to any rights as a stockholder of the Company with respect to the Warrant Shares, including (without limitation) the right to vote such shares, receive dividends or other distributions thereon or be notified of stockholder meetings.
 
Section 8.         Replacement of Warrant . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the Warrant and, in the case of any such loss, theft or destruction of the Warrant, upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
 
Section 9.         Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial . This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Warrant Holder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Warrant Holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Warrant Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANT HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
 
Section 10.       Amendment; Waiver .
 
Any term of this Warrant may be amended and the observance of any term of this Warrant waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of Transaction Warrants representing at least two-thirds of the aggregate number of Transaction Warrant Shares then issuable upon exercise of the Transaction Warrants (the “Majority Warrantholders” ) provided, that (x) any such amendment or waiver must apply to all of the Transaction Warrants; and (y) the number of shares of Common Stock subject to this Warrant, the Exercise Price and the Expiration Period may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written consent of the Warrantholder. Any amendment or waiver effected in accordance with this section shall be binding upon all “Holders” of Transaction Warrants and any future Holder of this Warrant, regardless of whether or not such person consents thereto. Holder acknowledges and agrees that the Majority Warrantholders may consent to such waivers and/or amendments to the Transaction Warrants as they may elect, acting in their sole discretion, and that such waivers and/or amendments may materially adversely affect the rights of Holder hereunder.
 
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Section 11.       Reserved .
 
Section 12.       Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, (b) one business day after transmission by facsimile (with accurate confirmation generated by the transmitting facsimile machine) at the address or number designated below, or (c) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
 
If to the Company:
 
NutraCea
1261 Hawks’ Flight Court
El Dorado Hills, CA 95762
Telephone: (916) 933-7000
Facsimile: (916) 933-7001
Attention: Chief Executive Officer

 
with a copy (which shall not constitute notice) to:
 
Weintraub Genshlea Chediak Law Corporation
400 Capitol Mall, Eleventh Floor
Sacramento, CA 95814
Telephone: (916) 558-6000
Facsimile: (916) 446-1611
Attention: Chris Chediak, Esq.

 
if to the Investor:
 
To the address and facsimile number provided in the Agreement.

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Either party hereto may from time to time change its address or facsimile number for notices under this Section 12 by giving at least ten (10) days prior written notice of such changed address or facsimile number to the other party hereto.
 
Section 13.       Limitations on Exercise .
 
(a)    4.99% Limitation . Notwithstanding anything to the contrary contained herein, the number of Warrant Shares that may be acquired by the Warrant holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Warrant Holder and its affiliates for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), does not exceed 4.99% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. The provisions of this Section 13(a) may be waived by the Warrant Holder upon, at the election of the Warrant Holder, not less than 61 days’ prior notice to the Company, and the provisions of this Section 13(a) shall continue to apply until such 61 st day (or such later date, as determined by the Warrant Holder, as may be specified in such notice of waiver.
 
(b)    9.99% Limitation . Notwithstanding anything to the contrary contained herein, the number of Warrant Shares that may be acquired by the Warrant holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Warrant Holder and its affiliates for purposes of Section 13(d) of the Exchange Act, does not exceed 9.99% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. This Section 13(b) may not be waived.
 
Section 14.       Miscellaneous . The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

 
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IN WITNESS WHEREOF, this Warrant was duly executed by the undersigned, thereunto duly authorized, as of the date first set forth above.
 

 
NUTRACEA
 

  By:    
 
  Name: Bradley Edson
 
  Title: President
 
 
Acknowledged and Accepted by

INVESTOR


  By:    
 
  Name:
 
  Title:

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EXHIBIT A TO THE WARRANT
 
EXERCISE FORM
 
NUTRACEA
 
The undersigned hereby irrevocably exercises the right to purchase __________________ shares of Common Stock of NutraCea, evidenced by the attached Warrant, and tenders herewith payment of the Aggregate Exercise Price with respect to such shares in full, in the amount of $________, in cash, by certified or official bank check or by wire transfer for the account of the Company.
 
The undersigned requests that stock certificates for such Warrant Shares be issued, and a Warrant representing any unexercised portion hereof be issued, pursuant to this Warrant, in the name of the registered Warrant Holder and delivered to the undersigned at the address set forth below. In addition, the undersigned represents that as of the date hereof, the undersigned is in compliance with Section 3.2(c) of the Agreement (as defined in the Warrant).
 
Dated: __________, 200_



_____________________________________________
Signature of Registered Holder

 
_____________________________________________
Name of Registered Holder (Print)
 

Address:

_______________________________

_______________________________

_______________________________



EXHIBIT B TO THE WARRANT
ASSIGNMENT
 
(To be executed by the registered Warrant Holder desiring to transfer the Warrant)
 
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant hereby sells, assigns and transfers unto the persons below named the right to purchase ______________ shares of Common Stock of NutraCea evidenced by the attached Warrant and does hereby irrevocably constitute and appoint the Secretary of the Company as attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.
 
Dated: ________________, 200_


______________________________
Signature
 
Fill in for new Registration of Warrant:
 
_________________________________________
Name
 
_________________________________________
Address
 
_________________________________________
Please print name and address of assignee
(including zip code number)
 
 


 
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “ Agreement ”) is dated as of May 12, 2006, by and among NutraCea, a California corporation (the “ Company ”), and the purchasers identified on the signature pages hereto (each, including its successors and assigns, a “ Purchaser ” and collectively the “ Purchasers ”).
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “ Securities Act ”) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agrees as follows:
 
ARTICLE I
DEFINITIONS
 
1.1       Definitions . In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Certificate of Determination (as defined herein), and (b) the following terms have the meanings indicated in this Section 1.1:
 
Action ” shall have the meaning ascribed to such term in Section 3.1(l).
 
Actual Minimum ” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Warrants and shares of Preferred Stock, ignoring any conversion or exercise limits set forth therein, and assuming that any previously unconverted shares of Preferred Stock are held until the fourth anniversary of the date of determination and all dividends are paid in shares of Common Stock until such fourth anniversary.
 
Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.
 
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Certificate of Determination ” means the Certificate of Determination to be filed prior to the Closing by the Company with the Secretary of State of California, in the form of Exhibit A attached hereto.

Closing ” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
 
Closing Date ” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.
 
Commission ” means the Securities and Exchange Commission.
 
Common Stock ” means the common stock of the Company, no par value per share, and any securities into which such common stock shall hereinafter have been reclassified into.
 
Company Counsel ” means Weintraub Genshlea Chediak Law Corporation.
 
Conversion Price ” shall have the meaning ascribed to such term in the Certificate of Determination.
 
Contingent Obligation ” means, as applied to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, guaranty, letter of credit or other obligation, contractual or otherwise (the “ primary obligation ”) of another Person other than an Affiliate of such Person (the “ primary obligor ”), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof.
 
Disclosure Schedules ” shall have the meaning ascribed to such term in Section 3.1 hereof.
 
Exchange Act ” means the Securities Exchange Act of 1934, as amended.
 
GAAP ” shall have the meaning ascribed to such term in Section 3.1(i).
 
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Indebtedness ” means, as to any Person, (a) all obligations of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured), (b) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business (provided that to the extent that such accounts payable and liabilities are overdue, the interest and penalties incurred as a result of such overdue amounts shall be considered Indebtedness), (c) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (f) all indebtedness secured by any Lien (other than Liens in favor of lessors under leases other than leases included in clause (e)) on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person, and (g) any Contingent Obligation of such Person.
 
Liens ” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
 
Material Adverse Effect ” means any of (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or condition (financial or other) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document. Changes in the market price of the Company’s common stock shall not, in and of itself, constitute a Material Adverse Effect.
 
Material Permits ” shall have the meaning ascribed to such term in Section 3.1(o).
 
Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
 
Preferred Stock ” means the up to 25,000 shares of the Company’s Series C Convertible Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Determination.

Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened in writing.
 
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Registration Rights Agreement ” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit B attached hereto.
 
Registration Statement ” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.
 
Required Approvals ” shall have the meaning ascribed to such term in Section 3.1(e).
 
Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
 
SEC Reports ” shall have the meaning ascribed to such term in Section 3.1(i).
 
Securities ” means the Preferred Stock, the Warrants and the Underlying Shares.
 
Securities Act ” means the Securities Act of 1933, as amended.
 
Stated Value ” means $1,000 per share of Preferred Stock.
 
Subscription Amount ” shall mean, as to each Purchaser, the amount to be paid for the Preferred Stock purchased hereunder as specified below such Purchaser's name on the signature page of this Agreement and next to the heading “Subscription Amount”, in United States Dollars and in immediately available funds.
 
Subsidiary ” means any subsidiary of the Company as set forth on Schedule 3.1(a) .
 
Trading Day ” means a day on which the Common Stock is traded on a Trading Market.
 
Trading Market ” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Over-The-Counter Bulletin Board, the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market.
 
Transaction Documents ” means this Agreement, the Certificate of Determination, the Warrants, the Registration Rights Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.
 
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Underlying Shares ” means the shares of Common Stock issuable upon conversion of the Preferred Stock, upon exercise of the Warrants and issued and issuable in lieu of the cash payment of dividends on the Preferred Stock.
 
Warrants ” means collectively the Common Stock purchase warrants, in the form of Exhibit C delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to five years.
 
Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.
 
ARTICLE II
PURCHASE AND SALE
 
2.1       Closing . On the Closing Date, upon the terms and subject to the conditions set forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and each Purchaser agrees to purchase in the aggregate, severally and not jointly, up to $25,000,000 of shares of Preferred Stock with an aggregated Stated Value equal to such Purchaser’s Subscription Amount and Warrants as determined pursuant to Section 2.2(a)(viii). The aggregate number of shares of Preferred Stock sold hereunder shall be up to 25,000.   Each Purchaser shall deliver to the Company via wire transfer or a certified check immediately available funds equal to their Subscription Amount and the Company shall deliver to each Purchaser their respective shares of Preferred Stock and Warrants as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable at the Closing. Upon satisfaction of the conditions set forth in Section 2.2, the Closing shall occur at the offices of Company Counsel, or such other location as the parties shall mutually agree.
 
2.2   
Deliveries.
 
a)  
On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
 
(i)    
a certificate evidencing a number of shares of Preferred Stock equal to such Purchaser’s Subscription Amount divided by the Stated Value, registered in the name of such Purchaser;
 
(ii)   
the Registration Rights Agreement duly executed by the Company;
 
(iii)  
a legal opinion of Company Counsel, in the form of Exhibit D attached hereto;
 
 
(iv)
a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such entity’s state or other jurisdiction of incorporation or organization issued by the Secretary of State (or other applicable authority) of such state or jurisdiction of incorporation or organization as of a date within ten (10) days of the Closing Date;
 
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(v)
a secretary’s certificate, dated as of the Closing Date, certifying as to (A) the Resolutions, (B) the Articles of Incorporation of the Corporation, certified as of a date within ten (10) days of the Closing Date, and (C) the Bylaws, each as in effect as of the Closing Date, (D) the organizational documents of each subsidiary, certified as of a date within ten (10) days of the Closing Date by the applicable governmental authority of the applicable jurisdiction, and (E) the by laws, limited partnership agreement or limited liability company agreement of each Subsidiary, as the case may be; such other documents relating to the transactions contemplated by this Agreement as such Purchaser or its counsel may reasonably request; and
 
 
(vi)
a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by $0.85, with a per share exercise price equal to $1.35.
 
 
(vii)
such other documents relating to the transactions contemplated by this Agreement as such Purchaser or its counsel may reasonably request.
 

b)  
On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company (or Company Counsel acting on behalf of the Company) the following:
 
(i)    
such Purchaser’s Subscription Amount by wire transfer to the account as specified in writing by the Company; and
 
(ii)   
the Registration Rights Agreement duly executed by such Purchaser.
 
2.3   
Closing Conditions .
 
a)  
The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
 
(i)    
the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchasers contained herein;
 
(ii)   
the aggregate value of Preferred Shares to be sold hereunder shall be no less than $10,000,000;
 
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(iii)  
the Purchasers shall have performed in all material respects with all obligations, covenants and agreements of the Purchasers required to be performed by them at or prior to the Closing Date; and
 
(iv)  
the delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement.
 
b)  
The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:
 
(i)    
the accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained herein;
 
(ii)   
the Company shall have performed in all material respects with all obligations, covenants and agreements of the Company required to be performed by it at or prior to the Closing Date;
 
(iii)  
the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
 
(iv)  
from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing); and
 
 
(v)
the aggregate value of Preferred Shares to be sold hereunder shall be no less than $10,000,000.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
3.1     Representations and Warranties of the Company . Except as set forth in the disclosure schedules separately delivered to the Purchasers concurrently herewith (the “ Disclosure Schedules ”), the Company hereby makes the representations and warranties set forth below to each Purchaser.
 
(a)    Subsidiaries . All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a) . Except as set forth on Schedule 3.1(a) , the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded.
 
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(b)    Organization and Qualification . Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect, and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
 
(c)    Authorization; Enforcement . The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
 
(d)    No Conflicts . The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the other transactions contemplated thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any material Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to receipt of the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as have not had and could not reasonably be expected to result in a Material Adverse Effect, individually or in the aggregate.
 
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(e)    Filings, Consents and Approvals . The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.6, (ii) filing with the Commission of a Current Report on Form 8-K disclosing the transaction contemplated hereby as required by the Exchange Act, (iii) the filing with the Commission of the Registration Statement, (iv) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Preferred Stock and Warrants and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (v) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws and (vi) the approvals set forth on Schedule 3.1(e) (collectively, the “ Required Approvals ”).
 
(f)    Issuance of the Securities . The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than those created by the Purchasers and restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens other than those created by the Purchasers and restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Actual Minimum on the date hereof. The Company has not, and to the knowledge of the Company, no Affiliate of the Company has sold, offered for sale or solicited offers to buy or otherwise negotiated in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.
 
(g)    Capitalization . The capitalization of the Company is as described in the SEC Reports. Except as specified in the SEC Reports, no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents which shall not have been waived prior to Closing. Except as disclosed in the Company’s filings with the Commission, issued pursuant to the Company’s stock incentive plan or as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities, except as set forth on Schedule 3.1(g) . No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of (i) the shares of Preferred Stock pursuant to this Agreement or (ii) the Underlying Shares upon exercise or conversion of the Preferred Stock or Warrants. Except as described in the reports publicly filed with the Commission, the Company does not have outstanding stockholder purchase rights or “poison pill” or any similar arrangement in effect giving any Person the right to purchase any equity interest in the Company upon the occurrence of certain events.
 
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(h)    Indebtedness . Except as set forth in the SEC Reports or on Schedule 3.1(h) , the Company has not incurred or guaranteed, suffered to exist or is otherwise liable for any Indebtedness.
 
(i)    SEC Reports; Financial Statements . The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the “ SEC Reports ”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“ GAAP ”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
 
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(j)    No Undisclosed Events, Liabilities or Developments . Except for the issuance of the Preferred Stock and Underlying Shares contemplated by this Agreement or as set forth on Schedule 3(j) , no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made that has not been publicly disclosed one (1) Trading Day prior to the date that this representation is made.
 
(k)    Material Changes . Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plan or restricted stock plan or as otherwise described on Schedule 3(k) . The Company does not have pending before the Commission any request for confidential treatment of information.
 
(l)    Litigation . Except as set forth in SEC Reports, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “ Action ”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor, to the Company’s knowledge, any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending, any investigation by the Commission involving the Company or any current or former director or officer of the Company (in his or her capacity as such). The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
 
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(m)    Labor Relations . No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
 
(n)    Compliance . Except as set forth in the SEC Reports, neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any material indenture, loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its material properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except as has not had and could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.
 
(o)    Regulatory Permits . The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits has not had and could not reasonably be expected to result in a Material Adverse Effect, individually or in the aggregate (“ Material Permits ”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation, modification or material violation of any Material Permit.
 
(p)    Title to Assets . Except as set forth on Schedule 3.1(p) , the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance.
 
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(q)    Intellectual Property Rights . Other than as set forth in the SEC Reports, the Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventory, copyrights, licenses and other similar intellectual property rights that are necessary for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “ Intellectual Property Rights ”). Except as set forth in the SEC Reports, neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. Except as set forth in the SEC Reports, to the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing material infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.
 
(r)    Insurance . The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. To the best of Company’s knowledge, such insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
 
(s)    Transactions With Affiliates and Employees . Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company and restricted stock agreements under any restricted stock plan of the Company.
 
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(t)    Sarbanes-Oxley; Internal Accounting Controls . Except as set forth in the SEC Reports, the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient in the judgment of the Company’s management to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
 
(u)    Certain Fees . No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement, except as set forth on Schedule 3.1(s) . The Purchasers shall have no personal obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by a Purchaser pursuant to agreements entered into by such Purchaser, which fees or commissions shall be the sole responsibility of such Purchaser) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement due to an arrangement or agreement made by the Company.
 
(v)    Private Placement . Assuming the accuracy of the Purchasers representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
 
(w)    Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the shares of Preferred Stock, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.
 
(x)    Listing and Maintenance Requirements . The Company’s Common Stock is registered pursuant to Section 15(d) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
 
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(y)    Application of Takeover Protections . The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's Articles of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of the Securities and the Purchasers’ ownership of the Securities.
 
(z)    Disclosure . The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that the Company believes constitutes material, nonpublic information except insofar as the existence and terms of the proposed transactions hereunder may constitute such information. The Company understands and confirms that the Purchasers will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All written materials provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, furnished by or on behalf of the Company with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
 
(aa)    Tax Status . Except for matters that have not and could not reasonably be expected to result in a Material Adverse Effect, individually or in the aggregate, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened in writing against the Company or any Subsidiary.
 
(bb)    Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended
 
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(cc)    No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers.
 
(dd)    Acknowledgment Regarding Purchasers’ Purchase of Securities . The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
 
(ee)    Treatment of Proceeds . The Company intends to account for the gross proceeds raised from the transactions which is a subject of this Agreement as equity in its financial statements filed with the Commission so long as such treatment complies with with GAAP.
 
3.2   
Representations and Warranties of the Purchasers .
 
Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
 
(a)    Organization; Authority . Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into each Transaction Document to which it is a party and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery and performance by Purchaser of each of the Transaction Documents to which Purchaser is a party and the consummation of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser and no further action is required by the Purchaser in connection therewith. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
 
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(b)    Purchaser Representation . Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof, has no present intention of distributing any of such Securities and has no arrangement or understanding with any other persons regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.
 
(c)    Purchaser Status . At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
 
(d)    Experience of Such Purchaser . Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
 
(e)    General Solicitation . Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
 
(f)    Short Sales . Each Purchaser represents that from April 1, 2006 through 9:00 a.m. ET on the Trading Day immediately following the date of execution of this Agreement, neither it nor any Person over which the Purchaser has direct control, have made any purchases or sales of, or granted any option for the purchase of or entered into any hedging or similar transaction with the same economic effect as a net short sale, of the Common Stock.
 
The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.
 
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ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
 
4.1     Transfer Restrictions .
 
(a)      The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or pursuant to Rule 144(k) under the Securities Act, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer other than a transfer (i) made pursuant to an effective registration statement, (ii) made in accordance with Rule 144 or (iii) in which the Company receives an opinion of counsel, reasonably satisfactory to the Company, that following such disposition, such transferred shares are freely tradable and not subject to transfer restrictions under federal and applicable state securities laws, any transferee shall in writing, (A) agree to be bound by the terms of Sections 4.1(a) and (b) hereof, (B) make the representations set forth in Section 3.2 hereof, and, (C) if any rights under the Registration Rights Agreement are assigned to the transferee of the shares, (i) furnish the Company with a fully executed Selling Holder Questionnaire (as defined in the Registration Rights Agreement), and (ii) agree to be bound by Section 7 of the Registration Rights Agreement.
 
(b)      The Purchasers agree to the imprinting, so long as is required by this Section, of a legend on any of the Securities in the following form:
 
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE OR CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, PURSUANT TO RULE 144(K) UNDER THE SECURITIES ACT OR PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
 
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(c)       Upon the earlier of (i) registration for resale pursuant to the Registration Rights Agreement or (ii) Rule 144(k) becoming available the Company shall (A) deliver to the transfer agent for the Common Stock (the “Transfer Agent”) irrevocable instructions that the Transfer Agent shall reissue a certificate representing shares of Common Stock without legends upon receipt by such Transfer Agent of the legended certificates for such shares, together with either (1) a customary representation by the Purchaser that Rule 144(k) applies to the shares of Common Stock represented thereby or (2) a statement by the Purchaser that such Purchaser (i) has sold the shares of Common Stock represented thereby pursuant to the Registration Statement and in accordance with the Plan of Distribution contained in the Registration Statement and (ii) is a named Selling Security Holder in the Registration Statement, and (B) cause its counsel to deliver to the Transfer Agent one or more blanket opinions to the effect that the removal of such legends in such circumstances may be effected under the Securities Act. From and after the earlier of such dates, upon a Purchaser’s written request, the Company shall promptly cause certificates evidencing the Purchaser’s Securities to be replaced with certificates which do not bear such restrictive legends, and Underlying Shares subsequently issued upon due conversion of the Preferred Stock or upon the exercise of the Warrants shall not bear such restrictive legends provided the provisions of either clause (i) or clause (ii) above, as applicable, are satisfied with respect to such Underlying Shares. If Purchaser shall make a sale or transfer of Securities that does not violate Section 7(c) of the Registration Rights Agreement either (x) pursuant to Rule 144(k) or (y) pursuant to a registration statement and in each case shall have provided written notice of such transaction to the Company and delivered to the Transfer Agent (or, in the case of the Preferred Stock or the Warrants, the Company) the certificate representing the Security which is the subject of such sale or transfer, together with the other documents referred to in this Section 4.1(c), (the date of such sale or transfer and delivery being the “Security Delivery Date”) and (1) the Company shall fail to deliver or cause to be delivered to such Purchaser a certificate representing such Security that is free from all restrictive or other legends by the fifth Trading Day following the Security Delivery Date (other than to comply with Sections 4.13(a) and (b) below) and (2) following such fifth Trading Day after the Security Delivery Date and prior to the time such Security is received free from restrictive legends, the Purchaser, or any third party on behalf of such Purchaser or for the Purchaser’s account, purchases (in an open market transaction or otherwise) securities to deliver in satisfaction of a sale by the Purchaser of such Security (a “Buy-In”), then the Company shall pay in cash to the Purchaser (for costs incurred either directly by such Purchaser or on behalf of a third party) the amount by which the total purchase price paid for the security as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such Purchaser as a result of the sale to which such Buy-In relates. The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In.

4.2     Acknowledgment of Dilution . The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
 
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4.3     Furnishing of Information . For a period ending upon the earlier to occur of (i) the date in which no Purchaser owns the Securities and (ii) two (2) years following the Closing Date, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.
 
4.4     Integration . The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.
 
4.5     Conversion and Exercise Procedures . Subject to Sections 7(c) and (d) of the Certificate of Determination, the form of Notice of Exercise included in the Warrants and the Notice of Conversion included in the Certificate of Determination set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Preferred Stock. No additional legal opinion or other information or instructions shall be required of the Purchasers to convert their Preferred Stock or exercise their Warrants. The Company shall honor exercises of the Warrants and conversions of the Preferred Stock and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
 
4.6     Securities Laws Disclosure ; Publicity . The Company shall, by 9:00 a.m. Eastern time on the fourth Trading Day following the date hereof, file a Current Report on Form 8-K, reasonably acceptable to counsel to the Purchasers disclosing the material terms of the transactions contemplated hereby, and shall attach this Agreement, the Registration Rights Agreement and the Certificate of Determination thereto. The Company shall not publicly disclose the name of any Purchaser other than the Placement Agent, if applicable, when issuing any press releases, without the prior written consent of such Purchaser, except to the extent such disclosure is required by law or Trading Market regulations. If the Company fails to file the Form 8-K as required in this Section, in addition to any other remedy provided herein or in the Transaction Documents, a Purchaser shall have the right to make, public disclosure in the form of a press release, public advertisement or otherwise, of such material nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents, provided that such Purchaser gives the Company at least two (2) Business Days’ notice of its intention to make such public disclosure and provides such intended disclosure to the Company. No Purchaser shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure so long as the nonpublic information disclosed by such Purchaser is accurate and not misleading.
 
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4.7     Form D; Blue Sky Filings . The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing and issuance to the Purchasers on the Delivery Date pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of any such action to a Purchaser upon request on or prior to the Closing Dates. The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Dates.
 
4.8     Non-Public Information . The Company covenants and agrees that it and its employees, officers and directors will not, and it will not authorize any other Person acting on its behalf to provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company.
 
4.9     Use of Proceeds . Except for payment of (i) attorney’s fees, (ii) fees incurred in connection with the transactions contemplated by this Agreement and (iii) amounts for the construction of new facilities, capital improvements and acquisitions, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.
 
4.10         Indemnification of Purchasers . Subject to the provisions of this Section 4.10, the Company will indemnify and hold the Purchasers and their directors, officers, shareholders, partners, employees and agents and any controlling person of any of such persons (each, a “ Purchaser Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to any breach of any of the representations and warranties, or material breach of any of the covenants or agreements, made by the Company in this Agreement or in the other Transaction Documents. If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Purchaser Party and the Company, and such Purchaser Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Purchaser Party and the Company (in which case, if such Purchaser Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the reasonable fees and expenses of one separate counsel shall be at the expense of the Company). The Company shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is primarily attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by the Purchasers in this Agreement or in the other Transaction Documents. The Company shall not, without the prior written consent of the Purchaser Party (which consent shall not be unreasonably withheld or delayed), effect any settlement of any pending proceeding in respect of which any Purchaser Party is a party, unless such settlement provides for only the payment of money or the issuance of securities by the Company and includes an unconditional release of such Purchaser Party from all liability on claims that are the subject matter of such proceeding.
 
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4.11     Reservation and Listing of Securities .
 
(a)      The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.
 
(b)      The Company shall, if applicable: (i) in the time and manner required by the Trading Market, prepare and file with such Trading Market an additional shares listing application (if required by such Trading Market) covering a number of shares of Common Stock at least equal to the Actual Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on the Trading Market as soon as possible thereafter, and (iii) maintain the listing of such Common Stock on any date at least equal to the Actual Minimum on such date on such Trading Market or another Trading Market.
 
4.12     Equal Treatment of Purchasers . No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended to treat for the Company the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
 
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4.13     Beneficial Ownership Limitation .
 
(a)      4.99% Limitation . The Company shall not effect any conversion of the Preferred Stock, and the Purchaser shall not have the right to convert any portion of the Preferred Stock to the extent that after giving effect to such conversion, the Purchaser (together with the Purchaser’s affiliates), as set forth on the applicable Notice of Conversion (as defined in the Certificate of Determination), would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Purchaser and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted Stated Value of Preferred Stock beneficially owned by the Purchaser or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Purchaser or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4.13(a), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this Section 4.13(a) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by the Purchaser together with any affiliates) and of which shares of Preferred Stock is convertible shall be in the sole discretion of such Purchaser, and the submission of a Notice of Conversion shall be deemed to be such Purchaser’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Purchaser) and which shares of the Preferred Stock is convertible, in each case subject to such aggregate percentage limitations. To ensure compliance with this restriction, the Purchaser will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 4.13(a), in determining the number of outstanding shares of Common Stock, the Purchaser may rely on the number of outstanding shares of Common Stock as reflected in the most recent of the following: (X) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (Y) a more recent public announcement by the Company or (Z) any other notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of the Purchaser, the Company shall within two Trading Days confirm orally and in writing to the Purchaser the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Preferred Stock, by the Purchaser or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The provisions of this Section 4.13(a) may be waived by the Purchaser upon, at the election of the Purchaser, not less than 61 days’ prior notice to the Company, and the provisions of this Section 4.13(a) shall continue to apply until such 61 st day (or such later date, as determined by the Purchaser, as may be specified in such notice of waiver).
 
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(b)      9.99% Limitation . The Company shall not effect any conversion of the Preferred Stock, and the Purchaser shall not have the right to convert any portion of the Preferred Stock to the extent that after giving effect to such conversion, the Purchaser (together with the Purchaser’s affiliates), as set forth on the applicable Notice of Conversion (as defined in the Certificate of Determination), would beneficially own in excess of 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Purchaser and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted Stated Value of Preferred Stock beneficially owned by the Purchaser or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Purchaser or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4.13(b), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this Section 4.13(b) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by the Purchaser together with any affiliates) and of which shares of Preferred Stock is convertible shall be in the sole discretion of such Purchaser, and the submission of a Notice of Conversion shall be deemed to be such Purchaser’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Purchaser) and which shares of the Preferred Stock is convertible, in each case subject to such aggregate percentage limitations. To ensure compliance with this restriction, the Purchaser will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 4.13(b), in determining the number of outstanding shares of Common Stock, the Purchaser may rely on the number of outstanding shares of Common Stock as reflected in the most recent of the following: (X) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (Y) a more recent public announcement by the Company or (Z) any other notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of the Purchaser, the Company shall within two Trading Days confirm orally and in writing to the Purchaser the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Preferred Stock, by the Purchaser or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The provisions of this Section 4.13(b) may not be waived.
 
(c)      Application to Other Documents .
 
(i)       Automatic Conversion . The Company and each Purchaser agree that, if and to the extent Section 4.13(b) would restrict the right of the Company to issue or the right of the Purchaser to receive any of the Common Stock otherwise issuable upon the conversion in respect of a Automatic Conversion Notice (as defined in the Certificate of Determination), then notwithstanding anything to the contrary set forth in the Automatic Conversion Notice, the Automatic Conversion Notice shall be deemed automatically amended to apply only to such portion of the Preferred Stock as would permit conversion in full in compliance with Section 4.13(b). The Purchaser will promptly (and, in any event, prior to the Share Delivery Date (as defined in the Certificate of Determination)) notify the Company in writing following receipt of an Automatic Conversion Notice if Section 4.13(b) would restrict its right to receive the full number of otherwise issuable shares of Common Stock following such Automatic Conversion Notice.  
 
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(ii)       Buy-In Cure . Each Purchaser agrees that to the extent the application of Sections 4.13(a) and (b) prevent the Company from delivering shares of Common Stock to Purchaser or a transferee of Purchaser, the penalty provisions of Section 7(g) of the Certificate of Determination and Section 4.1(c) hereof shall be unenforceable.
 
ARTICLE V
MISCELLANEOUS
 
5.1     Termination . This Agreement may be terminated by any Purchaser prior to the Closing, by written notice to the other parties, if (a) the Closing has not been consummated on or before May 19, 2006 or (b) at the election of any Purchaser, with respect to such Purchaser, if there has been a material breach of any representation, warranty, covenant or agreement on the part of the Company contained in this Agreement, which breach has not been cured within ten (10) business days notice to the Company of such breach; provided that no such termination will affect the right of any party to sue for any breach by the other party (or parties).
 
5.2     Fees and Expenses . Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the issuance of any Securities other than income taxes of the Purchasers that may be incurred in connection with the transactions contemplated hereby. In the event that legal proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Transaction Documents, the party or parties which do not prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.
 
5.3     Entire Agreement . The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
 
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5.4     Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, (d) upon actual receipt by the party to whom such notice is required to be given or (e) four (4) days after being placed in the mail, if mailed. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
 
5.5     Amendments; Waivers . No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and the Purchasers holding at least two-thirds of the shares of Preferred Stock issued hereby. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.
 
5.6     Construction . The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
 
5.7     Successors and Assigns
 
. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser; provided, however, that the Company may assign its rights and delegate its duties hereunder to any surviving, acquiring or successor corporation in connection with a merger or consolidation of the Company with another corporation, or a sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation, or other similar transaction, without the prior written consent of the Purchasers, after notice duly given by the Company to the Purchasers. Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Purchasers”.
 
5.8     No Third-Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.9.
 
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5.9     Governing Law . All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
 
5.10     Survival . The representations, warranties, covenants and other agreements contained herein shall survive the Closing and the delivery, exercise and/or conversion of the Securities; provided that the survival period for the representations and warranties shall be eighteen (18) months following the Closing Date.
 
5.11     Execution . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.
 
5.12      Severability . If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
 
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5.13     Replacement of Securities . If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.
 
5.14     Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
 
5.15     Independent Nature of Purchasers’ Obligations and Rights . The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.
 
 
[SIGNATURE PAGE FOLLOWS]
 

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

NUTRACEA
 
Address for Notice:
By:
/s/ Bradley Edson
 
1261 Hawks’ Flight Court
Name: Bradley Edson
Title: President
 
El Dorado Hills, CA 95762
Facsimile: (916) 933-7001
Attention: Chief Executive Officer
With a copy to (which shall not constitute notice):
 
Weintraub Genshlea Chediak law corporation
400 Capitol Mall
Sacramento, CA 95814
Facsimile: (916) 446-1611
Attn.: Christopher Chediak, Esq.
   

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASERS FOLLOWS]
 

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[PURCHASER SIGNATURE PAGES TO NUTRACEA SECURITIES PURCHASE AGREEMENT]
[ENTITY INVESTOR]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
 
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing Entity : __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Authorized Signatory:________________________________
Tax ID number of Investing Entity:__________________________________

Physical Address for Notice of Investing Entity:

 

Facsimile Address for Notice of Investing Entity: _____________________________          


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

 

Subscription Amount:
Shares of Preferred Stock:



[SIGNATURE PAGES CONTINUE]
 

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[PURCHASER SIGNATURE PAGES TO NUTRACEA SECURITIES PURCHASE AGREEMENT]
[INDIVIDUAL INVESTOR]

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

Signature of Investing Individual : __________________________
Email Address of Investing Individual:________________________________
Tax ID number of Investing Individual:__________________________________

Physical Address for Notice to Investing Individual:

 

Facsimile Address for Notice to Investing Individual: ___________________________          


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

 

Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:


[SIGNATURE PAGES CONTINUE]


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EXHIBIT A

CERTIFICATE OF DETERMINATION
 

 
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EXHIBIT B

FORM OF REGISTRATION RIGHTS AGREEMENT
 

 
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EXHIBIT C

FORM OF WARRANT
 

 
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EXHIBIT D

FORM OF OPINION OF COUNSEL

 
 
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Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of May 12, 2006, among NutraCea, a California corporation (the “ Company ”), and the purchasers signatory hereto (each such purchaser is a “ Purchaser ” and all such purchasers are, collectively, the “ Purchasers ”).

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

The Company and the Purchasers hereby agree as follows:

1. Definitions

Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

Advice ” shall have the meaning set forth in Section 7(c).

Effectiveness Date ” means, with respect to the initial Registration Statement required to be filed hereunder, the date which is the 90 th calendar day following the Closing Date and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 90th calendar day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required hereunder; provided , however , in the event the Company is notified by the Commission that one of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates required above. Notwithstanding the foregoing, the Effectiveness Date shall be extended an additional thirty (30) calendar days if the Company receives comments from the Commission with respect to a Registration Statement or the financial statements contained therein.

Effectiveness Period ” shall have the meaning set forth in Section 2(a).

Event ” shall have the meaning set forth in Section 2(b).

Event Date ” shall have the meaning set forth in Section 2(b).

Filing Date ” means, with respect to the initial Registration Statement required hereunder, the 30 th calendar day following the Closing Date, and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 30 th day following the date on which the Company first knows, or reasonably should have known that such additional Registration Statement is required hereunder.
 
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Holder ” or “ Holders ” means the holder or holders, as the case may be, from time to time of Registrable Securities.

Indemnified Party ” shall have the meaning set forth in Section 6(c) hereof.

Indemnifying Party ” shall have the meaning set forth in Section 6(c) hereof.

Legal Counsel ” shall have the meaning set forth in Section 4.

Losses ” shall have the meaning set forth in Section 6(a).
 
Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened in writing.
 
Prospectus ” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, any “free writing prospectus” as defined in Rule 405 under the Securities Act and all material incorporated by reference or deemed to be incorporated by reference in any such Prospectus.

Registrable Securities ” means, as of the date in question, (i) all of the shares of Common Stock issuable upon conversion in full of the shares of Preferred Stock, (ii) all Warrant Shares and (iii) any securities issued or issuable upon any stock split, dividend or other distribution recapitalization or similar event with respect to the foregoing. The foregoing Company securities, or any of them, shall cease to be Registrable Securities upon the earlier to occur of (i) the date on which such securities have been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement, (ii) the date on which such securities have been sold pursuant to Rule 144, or (iii) the date on which such securities (together with all other such securities held by the Investor) may be sold or transferred pursuant to Rule 144(k) under the Securities Act (or any other similar provision then in force).
 
Registration Statement ” means the registration statements required to be filed hereunder and any additional registration statements contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
 
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Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.


2. Shelf Registration
 
(a)      On or prior to each Filing Date, the Company shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of the Registrable Securities on such Filing Date for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (or on such other form appropriate for such purpose) and shall contain (subject to the comments of the Commission) the “ Plan of Distribution ” attached hereto as Annex A . Subject to the terms of this Agreement, the Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof at 4:00 p.m. Eastern Time, but in any event prior to the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date which is the earlier of (i) three years after the Closing Date, (ii) such time as all of the Registrable Securities covered by such Registration Statement have been publicly sold, or (iii) such time as all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the “ Effectiveness Period ”). The Company shall notify the Holders via facsimile or e-mail of the effectiveness of the Registration Statement within one trading day of the effectiveness of the Registration Statement.
 
(b)      If: (i) a Registration Statement is not filed on or prior to its Filing Date, or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be “reviewed,” or not subject to further review, or (iii) prior to its Effectiveness Date, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within 10 calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for a Registration Statement to be declared effective, unless such delay is caused by the unavailability of required financial statements, or (iv) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commission by its Effectiveness Date, or (v) after the Effectiveness Date and other than with respect to suspensions allowed pursuant to Section 3(j) below, a Registration Statement ceases to remain continuously effective as to all Registrable Securities for which it is required to be effective , or the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities for 10 consecutive Trading Days but no more than an aggregate of 20 Trading Days during any 12-month period (which need not be consecutive Trading Days) (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for purposes of clause (iii) the date which such 10 calendar day period is exceeded, or for purposes of clause (v) the date on which such 10 or 20 Trading Day period, as applicable, is exceeded being referred to as “ Event Date ”), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date until the applicable Event is cured, the Company shall pay to each Holder an amount, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then held by such Holder; provided , however , that in no event will the aggregate amount of partial liquidated damages paid under this Section to any Holder exceed 10% of the aggregate purchase price paid by such Holder. The foregoing liquidated damages may be paid, at the option of the Holders, in cash or in shares of the Company’s common stock. For purposes of this Section 2, the per share value of the Company’s common stock shall equal the average of the last reported sales price of the Company’s common stock on the Trading Market for each of the ten (10) trading days up to and including the first trading day preceding the date that the payment is due. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven calendar days after the date payable, the Company will pay interest thereon at the rate per annum equal to the Prime Rate plus ten percent (10%) (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event.

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(c)      Promptly following the date (the “Qualification Date”) upon which the Company becomes eligible to use a registration statement on Form S-3 to register the Registrable Securities for resale, but in no event more than thirty (30) days after the Qualification Date (the “Qualification Deadline”), the Company shall file a registration statement on Form S-3 covering the Registrable Securities or Additional Shares, as applicable (or a post-effective amendment on Form S-3 to the registration statement on Form SB-2) (a “Shelf Registration Statement”), and shall use commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as promptly as practicable thereafter.

3. Registration Procedures

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

(a)    Not less than five Trading Days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall furnish to each Holder copies of the “Selling Stockholders” and “Plan of Distribution” sections of such document, as proposed to be filed, which documents will be subject to the review of such Holders. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which any Holder shall reasonably object in good faith, provided that the Company is notified of such objection, including the substance of such objection, in writing no later than three Trading Days after the Holders have been so furnished copies of such documents. Any objection based upon information supplied by a Holder to the Company shall be deemed unreasonable. Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a Selling Holder Questionnaire ) on or prior to the Closing Date.
 
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(b)    (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and to the extent any Registrable Securities are not included in such Registration Statement for reasons other than the failure of the Holder to comply with Section 7(o) hereof, and prepare and file with the Commission such additional Registration Statements or post-effective amendments in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424 and otherwise satisfy the conditions of Rule 172 under the Securities Act; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.
 
(c)    If during the Effectiveness Period, the number of Registrable Securities at any time exceeds the number of shares of Common Stock then registered in a Registration Statement other than for failure by the Holders to comply with Sections 3(a) and 7(o), then the Company shall file as soon as reasonably practicable but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of such additional Registrable Securities.

(d)    Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made, which notice shall be referred to herein as a “ Suspension Notice ”) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than five Trading Days prior to such filing) and (if requested by any such Person in writing) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to the each Holder that pertain to such Holder as a Selling Stockholder or to the Plan of Distribution, but not information which the Company believes would constitute material and non public information); and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of the Registration Statement or Prospectus; provided that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided , further , notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information.
 
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(e)    Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

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

(g)    At any time when the Company does not satisfy the requirements of Rule 172, promptly notify each Holder that such Holder must deliver a current Prospectus in connection with any sale of Registrable Securities and deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(d).

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(h)    Prior to any public offering of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify  (unless an exemption from the registration or qualification exists) such Registrable Securities for offer and sale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or subject the Company to any material tax in any such jurisdiction where it is not then so subject .

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

(j)    Upon the occurrence of any event contemplated by Section 3(d)(v), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (ii) through (vi) of Section 3(d) above to suspend the sale of Registrable Securities until the requisite changes to such Prospectus have been made, then the Holders shall suspend such sales. The Company will use its best efforts to ensure that such sales may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus for a period not to exceed 60 days (which need not be consecutive days) in any 12 month period; provided, however, if such suspension is not in connection with the review by the Commission of a Registration Statement or the financial statements contained therein, such suspension shall not be for a period exceeding 20 consecutive days .
 
(k)    Comply with all applicable rules and regulations of the Commission.

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(l)    The Company may require each selling Holder to furnish to the Company a separate certified statement as to the number of shares of Common Stock beneficially owned by such Holder and the person thereof that has voting and dispositive control over the Shares, and the status of Holder as, or the affiliation of Holder with, a broker-dealer. In addition, the Company will require that each of the Holders provide complete and accurate information as requested in the Selling Holder Questionnaire. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within two Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

4. Legal Counsel . The Buyers holding securities representing at least two-thirds (2/3) of the Registrable Securities shall have the right to select one legal counsel to review, on behalf of the Buyers, any registration pursuant to Section 2 (“ Legal Counsel ”), which shall be Lowenstein Sandler PC, or such other counsel as thereafter designated in writing to the Company by the holders of at least two-thirds (2/3) of the Registrable Securities. The Company shall reasonably cooperate with Legal Counsel in performing the Company’s obligations under this Agreement.

5. Registration Expenses . All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in a Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement and fees and expenses of Legal Counsel to the Holders in an amount not to exceed $5,000. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

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6. Indemnification
 
(a)      Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys' fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to: (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, (2) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, or any other law, including any state, provincial or foreign securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (3) any material violation of this Agreement by the Company, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the sale of Registrable Securities after the Company has delivered a Suspension Notice to Holder and prior to the receipt by such Holder of the Advice contemplated in Section 7(c); provided, however, that in connection with any Proceeding in the same jurisdiction, the Company will not be liable for the reasonable legal fees and expenses of more than one separate firm of attorneys at any time for all Holder Indemnified Parties. The Company shall notify the Holders promptly of the institution or written threat or assertion of any Proceeding of which the Company is aware pursuant to which indemnification could be required under this Section 6(a).
 
(b)      Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act after being advised in writing by the Company that the Company does not satisfy the conditions of Rule 172 and that, therefore such Holder must deliver a current Prospectus in connection with any sale of Registrable Securities and after having been provided with a current Prospectus by the Company, (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or (ii) such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (z) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the sale of Registrable Securities after the Company has delivered a Suspension Notice to Holder and prior to the receipt by such Holder of the Advice contemplated in Section 7(c). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.
 
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(c)      Conduct of Indemnification Proceedings . If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “ Indemnified Party ”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “ Indemnifying Party ”) in writing, and the Indemnifying Party shall be entitled to participate in such Proceeding and have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

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

10

 
Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party, which notice shall be delivered no more frequently than on a monthly basis; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.
 
(d)      Contribution . If a claim for indemnification under Section 6(a) or 6(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

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

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7. Miscellaneous
 
(a)    Remedies . In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.
 
(b)    Compliance . Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.
 
(c)    Discontinued Disposition . Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement, or until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable.
 
(d)    No Piggyback on Registrations . Except as set forth on Schedule 7(d) attached hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the initial Registration Statement other than the Registrable Securities. The Company shall not file any other registration statements other than on Form S-8 until the initial Registration Statement required hereunder is declared effective by the Commission, provided that this Section 7(d) shall not prohibit the Company from filing amendments to registration statements already filed.
 
(e)    Piggy-Back Registrations . If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within five days after the date of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights if such registration statement relates to an underwritten offering; provided, that, the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act or that are the subject of a then effective Registration Statement.
 
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(f)    Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the holders of a majority of the Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided , however , that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.
 
(g)    Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.
 
(h)    Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of at least a majority of the Registrable Securities; provided, however, that the Company may assign its rights and delegate its duties hereunder to any surviving, acquiring or successor corporation in connection with a merger or consolidation of the Company with another corporation, or a sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation, or similar transaction, without the prior written consent of the Holders, after notice duly given by the Company to the Holders.. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.
 
(i)    Execution and Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
 
(j)    Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined with the provisions of the Purchase Agreement.
 
(k)    Cumulative Remedies . The remedies provided herein are cumulative and not exclusive of any remedies provided by law.
 
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(l)    Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
 
(m)    Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
 
(n)    Independent Nature of Holders’ Obligations and Rights . The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose.
 
(o)    Holder Cooperation . The Holders shall cooperate with the Company, as reasonably requested by the Company, in connection with the preparation and filing of any Registration Statement hereunder. The Company may require a Holder to promptly furnish in writing to the Company such information as may be required in connection with such registration including, without limitation, all such information as may be requested by the Commission or the NASD or any state securities commission and all such information regarding the Holder, the Registrable Securities held by the Holder and the intended method of disposition of the Registrable Securities. Each Holder agrees to provide such information requested in connection with such registration within a reasonable time after receiving such written request.

Each Holder shall be responsible for the delivery of the Prospectus to the Persons to whom the Holder sells the Registrable Securities after the Company notifies such Purchaser that the Company does not satisfy the requirements of Rule 172, and each Holder agrees to dispose of Registrable Securities in compliance with the plan of distribution described in the Registration Statement and otherwise in compliance with applicable federal and state securities laws.

********************

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
 
 
NUTRACEA
     
 
By:
/s/ Bradley Edson
   
Name: Bradley Edson
   
Title: President

 
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
 
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[PURCHASER’S SIGNATURE PAGE TO NUTRACEA REGISTRATION RIGHTS AGREEMENT]

Entity Investors

Name of Investing Entity: __________________________

Signature of Authorized Signatory of Investing Entity : __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
 

Individual Investors

Name of Investing Individual: __________________________

Signature of Investing Individual : __________________________


[SIGNATURE PAGES CONTINUE]

 


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ANNEX A

Plan of Distribution
 
Each Selling Stockholder (the “ Selling Stockholders ”) of the common stock (“ Common Stock ”) of NutraCea, a California corporation (the “ Company ”) and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on the Trading Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:
 
·  
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
·  
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
·  
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
·  
an exchange distribution in accordance with the rules of the applicable exchange;
 
·  
privately negotiated transactions;
 
·  
settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
 
·  
broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
 
·  
a combination of any such methods of sale;
 
·  
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or
 
·  
any other method permitted pursuant to applicable law.
 
The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.
 
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each Selling Stockholder does not expect these commissions and discounts relating to its sales of shares to exceed what is customary in the types of transactions involved.
 
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In connection with the sale of our common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
 
The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the Selling Stockholders and/or the purchasers. Each Selling Stockholder has informed the Company that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the Common Stock.
 
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
 
Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. Each Selling Stockholder has advised us that they have not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.
 
We agreed to keep this prospectus effective until the earlier of (i) three years after the initial sale of the resale shares, (ii) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect or (iii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
 
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Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.
 
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Annex B
 
NUTRACEA
 
Selling Securityholder Notice and Questionnaire
 
The undersigned beneficial owner of common stock, no par value per share (the “ Common Stock ”), of NutraCea, a California corporation (the “ Company ”), (the “ Registrable Securities ”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement on Form SB-2 (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “ Securities Act ”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of ______________, 2006 (the “ Registration Rights Agreement ”), among the Company and the Purchasers named therein. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.
 
Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus.
 
NOTICE
 
The undersigned beneficial owner (the “ Selling Securityholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement. After the Company provides the undersigned with a notice described in Section 3(g) of the Registration Rights Agreement and until the Company thereafter notifies the undersigned that the Company satisfies the requirements of Rule 172, the undersigned will be required to deliver to the Company the Notice of Transfer (completed and signed) set forth in Exhibit 1 attached hereto upon any sale of Registrable Securities pursuant to the Registration Statement and hereby undertakes to do so.
 
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The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:
 
QUESTIONNAIRE
 
1.       Name.
 
 
(a)
Full Legal Name of Selling Securityholder
 
 
 

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

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

 
2.  Address for Notices to Selling Securityholder:
 
 
 
 
Telephone:  
Fax:  
Contact Person:  
 
3.  Beneficial Ownership of Registrable Securities:
 
 
(a)
Type and Number of Registrable Securities beneficially owned:
 
 
 
 
 
 
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4. Broker-Dealer Status:
 
 
(a)
Are you a broker-dealer?
 
Yes  o         No o  
 
 
Note:
If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
 
 
(b)
Are you an affiliate of a broker-dealer?
 
Yes  o         No o
 
 
(c)
If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?
 
Yes  o         No o
 
 
Note:
If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
 
5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.
 
Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.
 
 
(a)
Type and Amount of Other Securities beneficially owned by the Selling Securityholder:
 
 
 
 
 
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6. Relationships with the Company:
 
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
 
State any exceptions here:
 
 
 
 

 
By signing below, the undersigned acknowledges that it understands its obligation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and the Rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor Rules or regulations), in connection with any offering of Registrable Securities pursuant to a Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein (i) that may occur subsequent to the date hereof until the effective date of the Registration Statement and (ii) at any time while the Registration Statement remains effective if requested by the Company in connection with the filing of a prospectus supplement or a post-effective amendment. All notices hereunder shall be made in writing at the address set forth below.
 
By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.
 
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IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.
 
Dated:    
Beneficial Owner:
 
 
 
By:
 
   
Name:
    Title:
 
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

NutraCea, Inc.
1261 Hawk’s Flight Court
El Dorado Hills, CA 95762
Attention: CFO
Fax No. (916) 933-7001
 
 
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EXHIBIT 1
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT

Weintraub Genshlea Chediak law corporation
400 Capitol Mall, Suite 1100
Sacramento, CA 95814
Telephone No.: (916) 558-6110
Facsimile No.: (916) 446-1611
Attention: Christopher Chediak, Esq.


RE: NUTRACEA (THE "COMPANY") COMMON STOCK TRANSFER

Dear Sirs:
 
Please be advised that __________ has transferred ___________ shares of the Company's Common Stock pursuant to the Registration Statement on Form SB-2 (File No.___-______) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied with respect to the transfer described above and that the above-named beneficial owner of the Common Stock is named as a selling securityholder in the Prospectus dated __________, 200_ or in amendments or supplements thereto, and that the number of shares of Common Stock transferred are all/a portion (please circle as appropriate) of the Common Stock listed for resale in such Prospectus as amended or supplemented opposite such owner's name.

 
Very truly yours,
   
 
_________________________________
 
(Name)
   
 
By: ______________________________
 
(Authorized Signature)


 
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