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):  October 16, 2008
 
_________________
 
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.)
 
     
5090 N. 40th Street, Suite 400
Phoenix, AZ
 
85018
(Address of Principal Executive Offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (602) 522-3000

(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

On October 16, 2008, NutraCea entered into a Placement Agency Agreement (the “Placement Agency Agreement”), with Rodman & Renshaw, LLC, as placement agent, relating to the issuance and sale by NutraCea of up to 5,000 shares of its Series D Convertible Preferred Stock (“Preferred Stock”), warrants to purchase up to 9,090,010 shares of its common stock, and warrants to purchase up to 5,000 shares of its Preferred Stock.

We are offering the Preferred Stock and warrants in units consisting of one share of Preferred Stock together with a warrant to purchase 909.09 shares of common stock at an exercise price of $0.55 per share of common stock (“Series A Warrant”), a warrant to purchase one share of Preferred Stock at an exercise price of $1,000 per share of Preferred Stock (“Series B Warrant”), and a warrant to purchase 909.09 shares of common stock at an exercise price of $0.55 per share of common stock (“Series C Warrant”, and, together with the Series A Warrant and Series B Warrant, the “Warrants”)  to the signatories to the Securities Purchase Agreement (as defined below) at a price of $1,000 per unit.  The Series A Warrant may be exercised immediately and through and including October 20, 2013.  The Series B Warrant may be exercised immediately and through and including December 19, 2008.  The Series C Warrant may be exercised immediately and through and including December 20, 2013.  A copy of the form of Placement Agency Agreement is attached as Exhibit 1.1 to this report and is incorporated herein by reference. A copy of the form of the Series A Warrant, the Series B Warrant and the Series C Warrant are attached as Exhibit 4.1, Exhibit 4.2 and Exhibit 4.3, respectively, to this report and are incorporated herein by reference. The descriptions of the Warrants are a summary only, do not purport to be complete and are qualified in their entirety by reference to the Exhibits.

In connection with the offering, NutraCea entered into a Securities Purchase Agreement, dated October 16, 2008 (the “Securities Purchase Agreement”), with each investor signatory thereto. The form of Securities Purchase Agreement is attached as Exhibit 10.1 to this report and is incorporated herein by reference.  NutraCea expects the closing of the offering to occur on October 20, 2008.

Rodman & Renshaw, LLC acted as placement agent, on a best efforts basis, for the offering and will receive a placement fee equal to 6% of the gross purchase price of the units (excluding any consideration that may be paid in the future upon exercise of the Warrants) as well as warrants to purchase 545,454 shares of Common Stock at an exercise price of $0.6875 per share and up to an additional 545,454 shares of Common Stock upon conversion of Preferred Stock issued upon exercise of the Series B Warrants. These placement agent warrants may be exercised immediately through and including October 20, 2013.

NutraCea is making the offering and sale of the units pursuant to a shelf registration statement on Form S-3 (Registration No. 333-148929) (“Registration Statement”) declared effective by the Securities and Exchange Commission on April 8, 2008, and a base prospectus dated April 24, 2008, as supplemented by a prospectus supplement dated October 16, 2008 which was filed with the Securities and Exchange Commission on October 20, 2008 pursuant to Rule 424(b) of the Securities Act of 1933, as amended.

Item 2.03   Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

Item 1.01 and Item 3.03 are incorporated herein by reference.

 
 

 

Item 3.03   Material Modification to Rights of Security Holders

On October 17, 2008, NutraCea filed a Certificate of Determination, Preferences and Rights of the Series D Convertible Preferred Stock of NutraCea (“Certificate of Determination”) with the Secretary of State of the State of California establishing the Preferred Stock in connection with the offering of the Preferred Stock pursuant to the Registration Statement.  The Preferred Stock accrues an 8% per annum preferred dividend.  All shares of capital stock of NutraCea are junior in rank to the Preferred Stock with respect to preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of NutraCea.  In the event of liquidation, dissolution or winding up of NutraCea, the holders of Preferred Stock are entitled to receive in cash out of the assets of NutraCea before any amount is paid to holders of the capital stock of NutraCea of any class junior in rank to the Preferred Stock an amount per share equal to 135% of the purchase price paid for such Preferred Stock, subject to adjustment as provided in the Certificate of Determination.  The Preferred Stock is subject to redemption by NutraCea at any time, subject to certain limitations as set forth in the Certificate of Determination, at a price equal to 110% of the aggregate stated value of the Preferred Stock being redeemed plus accrued and unpaid dividends thereon.  If not earlier redeemed, commencing on February 1, 2009, the Preferred Stock shall be automatically converted into common stock or redeemed for cash over 9 months in 9 equal monthly installments in accordance with the terms and conditions of the Certificate of Determination.  The terms and conditions of the Preferred Stock are described under the heading “Description of Preferred Stock” in the prospectus supplement to the prospectus included in the Registration Statement. The foregoing description of the rights, preferences and privileges of the Preferred Stock is a summary, does not purport to be complete and is qualified in its entirety by the full text of the Certificate of Determination, which is attached hereto as Exhibit 3.1 and incorporated by reference herein.

Item 5.03.   Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

Item 3.03 is incorporated herein by reference.

Item 9.01   Financial Statements and Exhibits

(d) Exhibits.

     
Exhibit  
 
 
No.
 
Description
 
Form of Placement Agency Agreement, dated October 16, 2008, by and between NutraCea and Rodman & Renshaw, LLC.
     
 
Certificate of Determination, Preferences and Rights of the Series D Convertible Preferred Stock of NutraCea
     
 
Form of Series A Warrant.
     
 
Form of Series B Warrant.
     
 
Form of Series C Warrant.
     
 
Opinion of Weintraub Genshlea Chediak.
     
 
Form of Securities Purchase Agreement, dated as of October 16, 2008, by and between NutraCea and each investor signatory thereto.
     
23.1
 
Consent of Weintraub Genshlea Chediak (included in Exhibit 5.1).

 
 

 
 
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: October 17, 2008
 
By:
 
/s/ Brad Edson
       
Brad Edson
       
Chief Executive Officer
       
(Duly Authorized Officer)

 


Exhibit 1.1
 
 
 
October 16, 2008
CONFIDENTIAL

Bradley D. Edson
President & Chief Executive Officer
NutraCea
5090 North  40 th Street, Suite 400
Phoenix, AZ 85018
Dear Brad:

This letter (the “ Agreement ”) constitutes the agreement between Rodman & Renshaw, LLC (“ Rodman ” or the “ Placement Agent ”) and Nutracea (the “ Company ”), that Rodman shall serve as the exclusive placement agent for the Company, on a “reasonable best efforts” basis, in connection with the proposed placement (the “ Placement ”) of registered securities (the “ Securities ”) of the Company, consisting of shares (“ Shares ”) of the Company’s Series D Convertible Preferred Stock (“ Preferred Stock ”), Series A Warrants  to purchase shares of the Company’s common stock, par value $0.001 per share (the “ Common Stock ”), Series B Warrants to purchase Preferred Stock (“ Series B Warrants ”) and Series C Warrants to purchase Common Stock.  The terms of such Placement and the Securities shall be mutually agreed upon by the Company and the purchasers in the Placement (each, a “ Purchaser ” and collectively, the “ Purchasers ”) and nothing herein constitutes that Rodman would have the power or authority to bind the Company or any Purchaser or an obligation for the Company to issue any Securities or complete the Placement.  The date of the closing of the Placement shall be referred to herein as the “ Closing Date .” This Agreement and the documents executed and delivered by the Company and the Purchasers in connection with the Placement shall be collectively referred to herein as the “ Transaction Documents .”  The date of the closing of the Placement shall be referred to herein as the “ Closing Date .”  The Company expressly acknowledges and agrees that Rodman’s obligations hereunder are on a reasonable best efforts basis only and that the execution of this Agreement does not constitute a commitment by Rodman to purchase the Securities and does not ensure the successful placement of the Securities or any portion thereof or the success of Rodman with respect to securing any other financing on behalf of the Company.

SECTION 1 .   COMPENSATION AND OTHER FEES.

As compensation for the services provided by Rodman hereunder, the Company agrees to pay to Rodman:
 
(A)   The fees set forth below with respect to the Placement:
 
1.  A cash fee payable immediately upon the closing of the Placement and equal to 6% of theaggregate cash gross proceeds raised in the Placement on the Closing Date, plus a cash fee payable within five days after each exercise of any Class B Warrants equal to 6% of the aggregate cash gross proceeds paid by the holder in making such exercise of a Class B Warrant.
 
12 51 Avenue of the Americas , 20 th Floor, New York , NY   10020    Tel: 212 356 0500 Fax: 212 581 5690
www.rodm.com    Member: FINRA , SIPC

 
 

 
 
2. Warrants to purchase that number of shares of Common Stock equal to 6% of number of shares of Common Stock underlying the Preferred Stock that are issuable upon conversion of the Preferred Stock (including Preferred Stock issued after exercise of the Series B Warrants) on the date the Preferred Stock is issued (or, with respect to Preferred Stock that is issued upon exercise of the Series B Warrants, within five days after the time all the Series B Warrants may no longer be exercised).  Such warrants shall be in the form attached hereto as Addendum B and will have a per share exercise price equal to 125% of the lowest offering price (which shall be the exercise price of the Series A Warrants issued to the Purchasers) shall not have antidilution protections and shall not be transferable for six months from the date of the Placement except as permitted by NASD Rule 2710.  Further, the number of Shares underlying the warrants shall be reduced if necessary to comply with Financial Industry Regulatory Authority (“FINRA”) rules or regulations.

(B)   The Company also agrees to reimburse Rodman’s expenses (with supporting invoices/receipts) in an amount equal to 0.8% of gross offering proceeds, up to a maximum of $20,000. Such reimbursement shall be payable immediately upon (but only in the event of) the closing of the Placement.

SECTION 2 .   REGISTRATION STATEMENT.

The Company represents and warrants to, and agrees with, the Placement Agent that:
 
(A)   The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-3 (Registration File No.   333-148929 ) under the Securities Act of 1933, as amended (the “Securities Act”), which became effective on April 8, 2008.  At the time of such filing, the Company met the requirements of Form S-3 under the Securities Act.  Such registration statement meets the requirements set forth in Rule 415(a)(1)(x) under the Securities Act and complies with said Rule. The Company will file with the Commission pursuant to Rule 424(b) under the Securities Act, and the rules and regulations (the “Rules and Regulations”) of the Commission promulgated thereunder, a supplement to the form of prospectus included in such registration statement relating to the placement of the Shares and the plan of distribution thereof and has advised the Placement Agent of all further information (financial and other) with respect to the Company required to be set forth therein. Such registration statement, including the exhibits thereto, as amended at the date of this Agreement, is hereinafter called the “Registration Statement”; such prospectus in the form in which it appears in the Registration Statement is hereinafter called the “Base Prospectus”; and the supplemented form of prospectus, in the form in which it will be filed with the Commission pursuant to Rule 424(b) (including the Base Prospectus as so supplemented) is hereinafter called the “Prospectus Supplement.” Any reference in this Agreement to the Registration Statement, the Base Prospectus or the Prospectus Supplement shall be deemed to refer to and include the documents incorporated by reference therein (the “Incorporated Documents”) pursuant to Item 12 of Form S-3 which were filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on or before the date of this Agreement, or the issue date of the Base Prospectus or the Prospectus Supplement, as the case may be; and any reference in this Agreement to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement, the Base Prospectus or the Prospectus Supplement shall be deemed to refer to and include the filing of any document under the Exchange Act after the date of this Agreement, or the issue date of the Base Prospectus or the Prospectus Supplement, as the case may be, deemed to be incorporated therein by reference. All references in this Agreement to financial statements and schedules and other information which is “contained,” “included,” “described,” “referenced,” “set forth” or “stated” in the Registration Statement, the Base Prospectus or the Prospectus Supplement (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement, the Base Prospectus or the Prospectus Supplement, as the case may be.  No stop order suspending the effectiveness of the Registration Statement or the use of the Base Prospectus or the Prospectus Supplement has been issued, and no proceeding for any such purpose is pending or has been initiated or, to the Company's knowledge, is threatened by the Commission. For purposes of this Agreement, “free writing prospectus” has the meaning set forth in Rule 405 under the Securities Act and the “Time of Sale Prospectus” means the preliminary prospectus, if any, together with the free writing prospectuses, if any, used in connection with the Placement, including any documents incorporated by reference therein.
 

 
 

 

(B)   The Registration Statement (and any further documents to be filed with the Commission) contains all exhibits and schedules as required by the Securities Act. Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the Securities Act and the Exchange Act and the applicable Rules and Regulations and did not and, as amended or supplemented, if applicable, will not, contain any 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 not misleading. The Base Prospectus, the Time of Sale Prospectus, if any, and the Prospectus Supplement, each as of its respective date, comply in all material respects with the Securities Act and the Exchange Act and the applicable Rules and Regulations. Each of the Base Prospectus, the Time of Sale Prospectus, if any, and the Prospectus Supplement, as amended or supplemented, did not and will not contain as of the date thereof any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Incorporated Documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the applicable Rules and Regulations, and none of such documents, when they were filed with the Commission, contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein (with respect to Incorporated Documents incorporated by reference in the Base Prospectus or Prospectus Supplement), in light of the circumstances under which they were made not misleading; and any further documents so filed and incorporated by reference in the Base Prospectus, the Time of Sale Prospectus, if any, or Prospectus Supplement, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act and the applicable Rules and Regulations, as applicable, and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. No post-effective amendment to the Registration Statement reflecting any facts or events arising after the date thereof which represent, individually or in the aggregate, a fundamental change in the information set forth therein is required to be filed with the Commission.  There are no documents required to be filed with the Commission in connection with the transaction contemplated hereby that (a) have not been filed as required pursuant to the Securities Act or (b) will not be filed within the requisite time period. There are no contracts or other documents required to be described in the Base Prospectus, the Time of Sale Prospectus, if any, or Prospectus Supplement, or to be filed as exhibits or schedules to the Registration Statement, which have not been described or filed as required.
 
(C)   The Company has delivered, or will as promptly as practicable deliver, to the Placement Agent complete conformed copies of the Registration Statement and of each consent and certificate of experts, as applicable, filed as a part thereof, and conformed copies of the Registration Statement (without exhibits), the Base Prospectus, the Time of Sale Prospectus, if any, and the Prospectus Supplement, as amended or supplemented, in such quantities and at such places as the Placement Agent reasonably requests.  Neither the Company nor any of its directors and officers has distributed and none of them will distribute, prior to the Closing Date, any offering material in connection with the offering and sale of the Shares other than the Base Prospectus, the Time of Sale Prospectus, if any, the Prospectus Supplement, the Registration Statement, copies of the documents incorporated by reference therein and any other materials permitted by the Securities Act.
 
SECTION 3 .   REPRESENTATIONS AND WARRANTIES. Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representations and warranties set forth below to the Placement Agent.
 

 
 

 

(A)   Organization and Qualification .  All of the direct and indirect subsidiaries (individually, a “ Subsidiary ”) of the Company are set forth on Schedule 3(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 ” (which for purposes of this Agreement shall mean a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction), 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.  The Company and each of 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 (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, prospects or condition (financial or otherwise) 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 (any of (i), (ii) or (iii), a “ Material Adverse Effect ”) and no “ Proceeding ” (which for purposes of this Agreement shall mean any action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened) has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

(B)   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 hereunder and 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, its board of directors or its stockholders in connection therewith other than in connection with the “ Required Approvals ” (as defined in subsection 3(D) below).  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 and thereof, 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.

(C)   No Conflicts .  The execution, delivery and performance of the Transaction Documents by the Company, the issuance and sale of the Securities and the consummation by the Company of the other transactions contemplated hereby and 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 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 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 could not have or reasonably be expected to result in a Material Adverse Effect.

 
 

 

(D)   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 ” (defined as 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, including, without limitation, any Trading Market) in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than such filings as are required to be made under applicable Federal and state securities laws (collectively, the “ Required Approvals ”), which will have been made prior to closing, including, without limitation, Blue Sky approvals from New York, California and Illinois.

(E)   Issuance of the Securities; Registration .  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 imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.  The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to the Transaction Documents.  The issuance by the Company of the Securities has been registered under the Securities Act and all of the Securities are freely transferable and tradable by the Purchasers without restriction (other than any restrictions arising solely from an act or omission of a Purchaser).  The Securities are being issued pursuant to the Registration Statement and the issuance of the Securities has been registered by the Company under the Securities Act.  The Registration Statement is effective and available for the issuance of the Securities thereunder and the Company has not received any notice that the Commission has issued or intends to issue a stop-order with respect to the Registration Statement or that the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened in writing to do so.  The "Plan of Distribution" section under the Registration Statement permits the issuance and sale of the Securities hereunder.  Upon receipt of the Securities, the Purchasers will have good and marketable title to such Securities and the Securities will be freely tradable on the “ Trading Market ” (which, for purposes of this Agreement shall mean means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board).

(F)   Capitalization .  The capitalization of the Company is as set forth on Schedule 3(F).  The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plan and pursuant to the conversion or exercise of securities exercisable, exchangeable or convertible into Common Stock (“ Common Stock Equivalents ”).  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.  Except 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 exercisable 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 Common Stock Equivalents.  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.  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 the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 
 

 

(G)   SEC Reports; Financial Statements .  The Company has complied in all material respects with requirements to file all reports, schedules, forms, statements and other documents 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 two years 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 and documents incorporated by reference therein, 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 the 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.

(H)   Material Changes; Undisclosed Events, Liabilities or Developments .  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, (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 ” (defined as 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), except pursuant to existing Company stock option plans.  The Company does not have pending before the Commission any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3(H), 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 1 Trading Day prior to the date that this representation is made.

 
 

 

(I)   Litigation .  There is no action, suit, inquiry, notice of violation, Proceeding or investigation pending or, to the knowledge of the Company, threatened 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 any director or officer thereof, 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 or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.  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.  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 or 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.

(J)   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.

(K)   Compliance .  Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have a Material Adverse Effect.

(L)   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 could not have or reasonably be expected to result in a Material Adverse Effect (“ Material Permits ”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(M)   Title to Assets .  The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to 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.

 
 

 

(N)   Patents and Trademarks .  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other similar intellectual property rights necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “ Intellectual Property Rights ”).  Neither the Company nor any Subsidiary has received a notice (written or otherwise) that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person.  To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights of others.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(O)   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, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate subscription amount under the Transaction Documents.  To the best knowledge of the Company, 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.

(P)   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, 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.

(Q)   Sarbanes-Oxley .  The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the date hereof and of the closing date of the Placement.

(R)   Certain Fees .  Except as otherwise provided in this Agreement, 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 the Transaction Documents.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims 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 the Transaction Documents.

(S)   Trading Market Rules .  The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(T)   Investment Company . The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, 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.

(U)   Registration Rights .  No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

 
 

 
 
(V)   Listing and Maintenance Requirements .  The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) 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.

(W)   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 Certificate 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 as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

(X)   Solvency .  Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.  The SEC Reports set forth as of the dates thereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments.  For the purposes of this Agreement, “ Indebtedness ” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 (Y)   Tax Status .  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, 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 against the Company or any Subsidiary.

(Z)   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.

 
 

 

(AA)   Accountants .  The Company’s accountants are set forth on Schedule 3(AA) of the Disclosure Schedule.  To the knowledge of the Company, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company’s next Annual Report on Form 10-K, are a registered public accounting firm as required by the Securities Act.

(BB)   Regulation M Compliance .  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities (other than for the placement agent’s placement of the Securities), or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.

(CC)   Approvals .  The issuance and listing on the OTCBB of the Shares requires no further approvals, including but not limited to, the approval of shareholders.

(DD)   FINRA Affiliations .  There are no affiliations with any FINRA member firm among the Company’s officers, directors or, to the knowledge of the Company, any five percent (5%) or greater stockholder of the Company, except as set forth in the Base Prospectus.
 
SECTION 4 .   INDEMNIFICATION.   The Company agrees to the indemnification and other agreements set forth in the Indemnification Provisions (the “ Indemnification ”) attached hereto as Addendum A, the provisions of which are incorporated herein by reference and shall survive the termination or expiration of this Agreement.

SECTION 5 .    ENGAGEMENT TERM .  Rodman’s engagement hereunder will be for the period of 180 days. The engagement may be terminated by either the Company or Rodman at any time upon 10 days’ written notice. Notwithstanding anything to the contrary contained herein, the provisions concerning confidentiality, indemnification, contribution and the Company’s obligations to pay fees and reimburse expenses contained herein and the Company’s obligations contained in the Indemnification Provisions will survive any expiration or termination of this Agreement.  Rodman agrees not to use any confidential information concerning the Company provided to them by the Company for any purposes other than those contemplated under this Agreement.

SECTION 6 .    RODMAN INFORMATION .  The Company agrees that any information or advice rendered by Rodman in connection with this engagement is for the confidential use of the Company only in their evaluation of the Placement and, except as otherwise required by law, the Company will not disclose or otherwise refer to the advice or information in any manner without Rodman’s prior written consent.

SECTION 7 .     NO FIDUCIARY RELATIONSHIP .  This Agreement does not create, and shall not be construed as creating rights enforceable by any person or entity not a party hereto, except those entitled hereto by virtue of the Indemnification Provisions hereof.  The Company acknowledges and agrees that Rodman is not and shall not be construed as a fiduciary of the Company and shall have no duties or liabilities to the equity holders or the creditors of the Company or any other person by virtue of this Agreement or the retention of Rodman hereunder, all of which are hereby expressly waived.

 
 

 
 
SECTION 8 .    CLOSING.    The obligations of the Placement Agent and the Purchasers, and the closing of the sale of the Securities hereunder are subject to the accuracy, when made and on the Closing Date, of the representations and warranties on the part of the Company and its Subsidiaries contained herein, to the accuracy of the statements of the Company and its Subsidiaries made in any certificates pursuant to the provisions hereof, to the performance by the Company and its Subsidiaries of their obligations hereunder, and to each of the following additional terms and conditions:
 
(A)   No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the Commission, and any request for additional information on the part of the Commission (to be included in the Registration Statement, the Base Prospectus or the Prospectus Supplement or otherwise) shall have been complied with to the reasonable satisfaction of the Placement Agent.  Any filings required to be made by the Company in shall have been timely filed with the Commission.

(B)   The Placement Agent shall not have discovered and disclosed to the Company on or prior to the Closing Date that the Registration Statement, the Base Prospectus or the Prospectus Supplement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel for the Placement Agent, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading.
 
(C)   All corporate proceedings and other legal matters incident to the authorization, form, execution, delivery and validity of each of this Agreement, the Securities, the Registration Statement, the Base Prospectus and the Prospectus Supplement and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Placement Agent, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
 
(D)   The Placement Agent shall have received from outside counsel to the Company such counsel’s written opinion, addressed to the Placement Agent and the Purchasers dated as of the Closing Date, in form and substance reasonably satisfactory to the Placement Agent.
 
(E)   Neither the Company nor any of its Subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Base Prospectus, any loss or interference with its business from fire, explosion, flood, terrorist act or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in or contemplated by the Base Prospectus and (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any of its Subsidiaries or any change, or any development involving a prospective change, in or affecting the business, general affairs, management, financial position, stockholders’ equity, results of operations or prospects of the Company and its Subsidiaries, otherwise than as set forth in or contemplated by the Base Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Placement Agent, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated by the Base Prospectus, the Time of Sale Prospectus, if any, and the Prospectus Supplement.
 
(F)   The Common Stock is registered under the Exchange Act and, as of the Closing Date, the Shares shall be listed and admitted and authorized for trading on the (OTCBB), and satisfactory evidence of such actions shall have been provided to the Placement Agent.  The Company shall have taken no action designed to, or likely to have the effect of terminating the registration of the Common Stock under the Exchange Act or delisting or suspending from trading the Common Stock from the OTCBB), nor has the Company received any information suggesting that the Commission or the (OTCBB) is contemplating terminating such registration or listing.
 
 
 

 

(G)   Subsequent to the execution and delivery of this Agreement, there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the Nasdaq National Market or the American Stock Exchange or in the OTCBB, or trading in any securities of the Company on any exchange or on the OTCBB, shall have been suspended or minimum or maximum prices or maximum ranges for prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by federal or state authorities or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, (iii) the United States shall have become engaged in hostilities in which it is not currently engaged, the subject of an act of terrorism, there shall have been an escalation in hostilities involving the United States, or there shall have been a declaration of a national emergency or war by the United States, or (iv) there shall have occurred any other calamity or crisis or any change in general economic, political or financial conditions in the United States or elsewhere, if the effect of any such event in clause (iii) or (iv) makes it, in the sole judgment of the Placement Agent, impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated by the Base Prospectus and the Prospectus Supplement.
 
(H)   No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Securities or materially and adversely affect or potentially and adversely affect the business or operations of the Company; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Securities or materially and adversely affect or potentially and adversely affect the business or operations of the Company.
 
(I)   The Company shall have prepared and filed with the Commission a Current Report on Form 8-K with respect to the Placement, including as an exhibit thereto this Agreement.
 
(J)   The Company shall have entered into subscription agreements with each of the Purchasers and such agreements shall be in full force and effect and shall contain representations and warranties of the Company as agreed between the Company and the Purchasers.
 
(K)   FINRA shall have raised no objection to the fairness and reasonableness of the terms and arrangements of this Agreement.  In addition, the Company shall, if requested by the Placement Agent, make or authorize Placement Agent’s counsel to make on the Company’s behalf, an Issuer Filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 2710 with respect to the Registration Statement and pay all filing fees required in connection therewith.

(L)   Prior to the Closing Date, the Company shall have furnished to the Placement Agent such further information, certificates and documents as the Placement Agent may reasonably request.
 
All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Placement Agent.
 
SECTION 9 .   GOVERNING LAW.   This Agreement will be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made and to be performed entirely in such State.  This Agreement may not be assigned by either party without the prior written consent of the other party.  This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Any right to trial by jury with respect to any dispute arising under this Agreement or any transaction or conduct in connection herewith is waived.  Any dispute arising under this Agreement may be brought into the courts of the State of New York or into the Federal Court located in New York, New York and, by execution and delivery of this Agreement, the Company hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of aforesaid courts.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by delivering a copy thereof via 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. If either party shall commence an action or proceeding to enforce any provisions of a Transaction Document, 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.
 
 
 

 

SECTION 10 .   ENTIRE AGREEMENT/MISC.   This Agreement (including the attached Indemnification Provisions) embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof.  If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect.  This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by both Rodman and the Company.  The representations, warranties, agreements and covenants contained herein shall survive the closing of the Placement and delivery and/or exercise of the Securities, as applicable.  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 or a .pdf format file, 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.

SECTION 11 .     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 specified on the signature pages attached hereto prior to 6:30 p.m. (New York City time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number on the signature pages attached hereto on a day that is not a business day or later than 6:30 p.m. (New York City time) on any business day, (c) the business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages hereto.

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Rodman the enclosed copy of this Agreement.
 
 
Very truly yours,
     
 
RODMAN & RENSHAW, LLC
     
     
 
By:
     
   
Name:
   
Title:
     
 
Address for notice:
 
1251 Avenue of the Americas, 20th Floor
 
New York, NY, 10020
 
Fax (646) 841-1640

 
Accepted and Agreed to as of the date first written above:

Nutracea.

By: ______________________________
       Name:
       Title:


Address for notice:
5090 North 40 th St., Suite 400
Phoenix, AZ 85018
Attention: Chief Executive Officer
Attention:  General Counsel

 
 

 



 
 

 

 
ADDENDUM A

INDEMNIFICATION PROVISIONS

In connection with the engagement of Rodman & Renshaw, LLC (“ Rodman ”) by Nutracea  (the “Company ”) pursuant to a letter agreement dated September 25, 2008 between the Company and Rodman, as it may be amended from time to time in writing (the “ Agreement ”), the Company hereby agrees as follows:

1.  
To the extent permitted by law, the Company will indemnify Rodman and its affiliates, stockholders, directors, officers, employees and controlling persons (within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934) against all losses, claims, damages, expenses and liabilities, as the same are incurred (including the reasonable fees and expenses of counsel), relating to or arising out of its activities hereunder or pursuant to the Agreement, except to the extent that any losses, claims, damages, expenses or liabilities (or actions in respect thereof) are found in a final judgment (not subject to appeal) by a court of law to have resulted primarily and directly from Rodman’s willful misconduct or gross negligence in performing the services described herein.

2.  
Promptly after receipt by Rodman of notice of any claim or the commencement of any action or proceeding with respect to which Rodman is entitled to indemnity hereunder, Rodman will notify the Company in writing of such claim or of the commencement of such action or proceeding, and the Company will assume the defense of such action or proceeding and will employ counsel reasonably satisfactory to Rodman and will pay the fees and expenses of such counsel.  Notwithstanding the preceding sentence, Rodman will be entitled to employ counsel separate from counsel for the Company and from any other party in such action if counsel for Rodman  reasonably determines that it would be inappropriate under the applicable rules of professional responsibility for the same counsel to represent both the Company and Rodman.  In such event, the reasonable fees and disbursements of no more than one such separate counsel will be paid by the Company.  The Company will have the exclusive right to settle the claim or proceeding provided that the Company will not settle any such claim, action or proceeding without the prior written consent of Rodman, which will not be unreasonably withheld.

3.  
The Company agrees to notify Rodman promptly of the assertion against it or any other person of any claim or the commencement of any action or proceeding relating to a transaction contemplated by the Agreement.

If for any reason the foregoing indemnity is unavailable to Rodman or insufficient to hold Rodman harmless, then the Company shall contribute to the amount paid or payable by Rodman as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and Rodman on the other, but also the relative fault of the Company on the one hand and Rodman on the other that resulted in such losses, claims, damages or liabilities, as well as any relevant equitable considerations.  The amounts paid or payable by a party in respect of losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees and expenses incurred in defending any litigation, proceeding or other action or claim.  Notwithstanding the provisions hereof, Rodman’s share of the liability hereunder shall not be in excess of the amount of fees actually received, or to be received, by Rodman under the Agreement (excluding any amounts received as reimbursement of expenses incurred by Rodman).

 
 

 


5. These Indemnification Provisions shall remain in full force and effect whether or not the transaction contemplated by the Agreement is completed and shall survive the termination of the Agreement, and shall be in addition to any liability that the Company might otherwise have to any indemnified party under the Agreement or otherwise.




RODMAN & RENSHAW, LLC


By: ______________________
      Name:
                 Title:




Accepted and Agreed to as of
the date first written above:

NUTRACEA

By: ______________________
      Name:
      Title:

 
 

 


Exhibit 3.1
 
CERTIFICATE OF DETERMINATION, PREFERENCES AND RIGHTS OF THE
SERIES D CONVERTIBLE PREFERRED STOCK OF
NUTRACEA

I, Bradley Edson, hereby certify that I am the President and Secretary of NutraCea (the “ Company ”), a corporation organized and existing under the Corporations Code of the State of California (the “ Corporations Code ”), and further do hereby certify:

That pursuant to the authority conferred upon the Board of Directors of the Company (the “ Board ”) by the Company’s Articles of Incorporation, as amended (the “ Articles of Incorporation ”), the Board on October 14, 2008 adopted the following resolutions creating a series of 10,000 shares of Preferred Stock designated as Series D Convertible Preferred Stock, none of which shares have been issued:

RESOLVED, that the Board of Directors of the Company designates the Series D 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 D CONVERTIBLE PREFERRED STOCK

1.       Designation and Number of Shares . There shall hereby be created and established a series of preferred stock of the Company designated as “Series D Convertible Preferred Stock” (the “ Series D Preferred Stock ”). The authorized number of shares of Series D Preferred stock shall be 10,000 shares.

 

 
 
2.       Dividends . Each holder of a share of Series D Preferred Stock (each, a “ Holder ” and collectively, the “ Holders ”) shall be entitled to receive dividends (“ Dividends ”) payable on the Stated Value (as defined below) of each share of Series D Preferred Stock held by such Holder at the Dividend Rate (as defined below) in the manner provided below in this Section 2. Dividends on each share of Series D Preferred Stock shall accrue daily at the Dividend Rate, commence accruing on the Initial Issuance Date (as defined below) (including for shares of Series D Preferred Stock issued on or after the Initial Issuance Date pursuant to the Series B Warrants (as defined below)), be computed on the basis of a 360-day year consisting of twelve 30-day months and be payable (in the manner provided below in this Section 2) in arrears for each Calendar Quarter (as defined below) on the first day following the end of each Calendar Quarter during the period beginning on the Initial Issuance Date and ending on, and including, the Final Redemption Date (each, a “ Dividend Date ”), with the first Dividend Date being January 1, 2009. If a Dividend Date is not a Business Day (as defined below), then the applicable Dividends shall be due and payable on the first (1 st ) Business Day immediately following such Dividend Date. Dividends shall be payable in shares of Common Stock (as defined below) (“ Dividend Shares ”) or, at the option of the Company, in cash; provided, however, that unless the Equity Conditions (as defined below) are and remain satisfied (or are waived by the applicable Holder) during the entire period commencing ten (10) Trading Days prior to the applicable Dividend Date through the later of such Dividend Date or the date on which the applicable Dividends are paid, the applicable Dividends shall be payable only in cash; and provided further that, except to the extent Dividends are required to be paid in cash pursuant to the foregoing proviso, Dividends shall be paid in cash only if the Company has elected to pay in cash in the applicable Dividend Notice (as defined below). The Company shall provide a written notice (the “ Dividend Notice ”) to each Holder of shares of Series D Preferred Stock at least ten (10) Trading Days prior to each applicable Dividend Date (the “ Dividend Notice Date ”) indicating either that the entire Dividends are to be paid in cash or confirming that the entire Dividends shall be paid in Dividend Shares (any election by the Company to pay in cash shall apply to all Holders of the then outstanding shares of Series D Preferred Stock); provided, that if the applicable Dividend Notice indicates payment in Dividend Shares, such Dividend Notice shall contain a certification that the Equity Conditions are satisfied as of the applicable Dividend Notice Date (unless waived by the applicable Holder). If the Equity Conditions were satisfied as of the applicable Dividend Notice Date but the Equity Conditions are no longer satisfied at any time prior to or on the Dividend Date, the Company shall provide each Holder a subsequent notice to that effect indicating that unless such Holder waives the Equity Conditions, the applicable Dividends shall be paid in cash to such Holder, and if such waiver is not received from such Holder by the applicable Dividend Date then the applicable Dividends shall be paid in cash to such Holder. The Company shall be required to provide a Dividend Notice electing to pay Dividends in cash if any of the Equity Conditions are not satisfied as of the applicable Dividend Notice Date, and the applicable Dividends shall be paid in cash to a Holder if a waiver of the Equity Conditions is not received from such Holder by the applicable Dividend Date. The amount payable on a Dividend Date in respect of Dividends on each share of Series D Preferred Stock shall equal the Additional Amount (as defined below) thereon. Dividends paid in Dividend Shares shall be paid in a number of freely tradable, fully paid and non-assessable shares of Common Stock equal to the quotient of (i) the Additional Amount divided by (ii) the Stock Dividend Rate (as defined below), provided that no fractional shares of Common Stock shall be issued pursuant to the foregoing quotient and the portion of such Additional Amount that would result in the issuance of fractional shares of Common Stock shall instead be payable by the Company in cash on the applicable Dividend Date. If any Dividend Shares are to be issued on a Dividend Date, then the Company shall (X) provided the Company’s designated transfer agent (the “ Transfer Agent ”) is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of a Holder made before the applicable Dividend Date, credit such aggregate number of shares of Common Stock to which such Holder shall be entitled to such Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, within three (3) Trading Days of the applicable Dividend Date, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to such Holder, a certificate, registered in the name of such Holder or its designee, for the number of shares of Common Stock to which such Holder shall be entitled within two (2) Trading Days of the applicable Dividend Date. Notwithstanding anything contained in this Certificate of Determination to the contrary, no certificate representing Dividend Shares or shares of Common Stock issued upon conversion of a share of Series D Preferred Stock shall bear any restrictive or other legend (other than the legend expressly required by Section 3(d)(vii)).
 
3.       Conversion . Each share of Series D Preferred Stock shall be convertible into shares of Common Stock (as defined below) on the terms and conditions set forth in this Section 3.

(a)            Certain Defined Terms . For purposes of this Certificate of Determination, the following terms shall have the following meanings:

 
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(i)           “ 1934 Act   means   the Securities Exchange Act of 1934, as amended.

(ii)          “ Additional Amount ” means, as of a particular date of determination, with respect to each share of Series D Preferred Stock, the product of (x) the result of the following formula: (1) the Dividend Rate multiplied by (2) the quotient of N divided by 360; multiplied by (y) the Stated Value.

(iii)        “ Aggregate Redemption Amount ” means (i) with respect to each Redemption Date (other than the Final Redemption Date), the greater of (A) $556,000 or (B) the sum of (I) $556,000 plus (II) the quotient of (X) the aggregate Stated Value of all shares of Series D Preferred Stock issued on or after the Initial Issuance Date pursuant to the Series B Warrants divided by (Y) nine (9) (with such quotient being rounded up to the nearest thousand) and (ii) with respect to the Redemption Date that is the Final Redemption Date, the aggregate Stated Value of all shares of Series D Preferred Stock issued and outstanding as of the Final Redemption Date.

(iv)        “ Automatic Conversion Price ” means, as of a particular date of determination, the lower of (i) the then applicable Conversion Price and (ii) the price which shall be computed as 90% of the arithmetic average of the VWAP of the Common Stock on each of the ten (10) consecutive Trading Days immediately preceding the applicable Redemption Date (each such period, an “ Automatic Conversion Measuring Period ”). All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during such Automatic Conversion Measuring Period.

(v)         “ Bloomberg ” means Bloomberg Financial Markets.

(vi)        “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

(vii)       “ Calendar Quarter ” means each of the following periods:  (1) the period beginning on and including January 1 and ending on and including March 31; (2) the period beginning on and including April 1 and ending on and including June 30; (3) the period beginning on and including July 1 and ending on and including September 30; and (4) the period beginning on and including October 1 and ending on and including December 31.
 
 
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(viii)      “ Closing Bid Price ” and “ Closing Sale Price ” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Required Holders. If the Company and the Required Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 3(d)(iii). The resolution of such dispute shall be binding on all Holders. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
 
(ix)         “ Common Stock ” means (i) the Company’s shares of common stock, no par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

(x)          “ Conversion Amount ” means, with respect to each share of Series D Preferred Stock, as of a particular date of determination, the sum of (1) the Stated Value thereof plus (2) the Additional Amount thereon.

(xi)         “ Conversion Price ” means, with respect to each share of Series D Preferred Stock, as of any Conversion Date or other particular date of determination, $0.55, subject to adjustment as provided herein.

(xii)         “Conversion Share Ratio ” means, as to any applicable Redemption Date, the quotient of (i) the number of Pre-Redemption Conversion Shares delivered in connection with such Redemption Date divided by (ii) the number of Post-Redemption Conversion Shares applicable to such Redemption Date.

 
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(xiii)       “ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

(xiv)      “ Dividend Rate ” means (i) eight percent (8%) per annum and (ii) for the period from and after the occurrence of a Triggering Event through such time that such Triggering Event is cured, sixteen percent (16%) per annum.

(xv)       “ Dollar Failure ” means, with respect to a particular date of determination, that the aggregate dollar trading volume (as reported on Bloomberg) of the Common Stock on the Eligible Market on which the Common Stock is listed as of such date of determination over the ten (10) consecutive Trading Day period ending on the Trading Day immediately preceding such date of determination is less than $250,000.

(xvi)      “ Eligible Market ” means The New York Stock Exchange, Inc., the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the American Stock Exchange or the Principal Market.

(xvii)     “ Equity Conditions ” means: (i) on each day during the period beginning one month prior to the applicable date of determination and ending on and including the applicable date of determination, the Registration Statement shall be effective and the prospectus contained therein shall be available for use for the sale all of the Securities unless all the Securities are otherwise freely tradable without restriction by the Holders; (ii) on each day during the period beginning one month prior to the applicable date of determination and ending on and including the applicable date of determination (the “ Equity Conditions Measuring Period ”), the shares of Common Stock are listed or designated for quotation on an Eligible Market and shall not have been suspended from trading on an Eligible Market (other than suspensions of not more than two (2) days and occurring prior to the applicable date of determination due to business announcements by the Company) nor shall delisting or suspension by an Eligible Market have been threatened (with a reasonable prospect of delisting occurring) or pending either (A) in writing by such Eligible Market or (B) by falling below the minimum listing maintenance requirements of the Eligible Market on which the shares of Common Stock are then listed; (iii) on each day during the Equity Conditions Measuring Period, the Company shall have delivered all shares of Common Stock issuable upon conversion of the shares of Series D Preferred Stock on a timely basis as set forth in Section 3(d)(v) hereof and all other shares of capital stock required to be delivered by the Company on a timely basis as set forth in the other Transaction Documents (including, without limitation, under the Warrants); (iv) any shares of Common Stock to be issued in connection with the event requiring determination may be issued in full without violating Section 7 hereof; (v) any shares of Common Stock to be issued in connection with the event requiring determination may be issued in full without violating the rules or regulations of the Eligible Market on which the shares of Common Stock are then listed; (vi) on each day during the Equity Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Transaction shall have occurred which has not been abandoned, terminated or consummated; (vii) the Company shall have no knowledge of any fact that would reasonably be expected to cause the Registration Statement to not be effective or the prospectus contained therein to not be available for use for the sale of all of the Securities (disregarding any limitation on conversion or exercise contained therein) unless all the Securities are otherwise freely tradable without restriction by the Holders; (viii) no Holder shall be in possession of any material, non-public information provided to any of them by the Company or any of its affiliates or representatives; (ix) on each day during the Equity Conditions Measuring Period, the Company otherwise shall have been in compliance with and shall not have breached in any material respect any provision, covenant, representation or warranty of any Transaction Document; and (x) on each day during the Equity Conditions Measuring Period, there shall not have occurred a Triggering Event or an event that with the passage of time or giving of notice would constitute a Triggering Event.

 
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(xviii)    “ Equity Conditions Failure ” means that on any day during the period commencing ten (10) Trading Days prior to the applicable Company Redemption Notice Date through the later of the applicable Redemption Date and the date on which the applicable shares of Common Stock are actually delivered to the applicable Holder, any of the Equity Conditions have not been satisfied (or waived in writing by such Holder).

(xix)       “ Equity Value Redemption Premium ” means 135%.

(xx)        “ Excluded Securities ” means, collectively, (A) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers, employees or consultants of the Company in connection with their service as directors or officers of the Company, their employment by the Company or their retention as consultants by the Company pursuant to an equity compensation program or other contract or arrangement approved by the Board (or the compensation committee of the Board) for consideration per share or having an exercise price (as the case may be) (as determined pursuant to the provisions of Section 3(f)(i) hereof) less than the Conversion Price in effect on the date of issuance, provided that all such issuances of shares of Common Stock (including, shares issuable upon exercise of such standard options) after the Subscription Date pursuant to this clause (A) that are not described in clause (B) below do not, in the aggregate, exceed more than 2.5% of the Common Stock issued and outstanding immediately prior to the Subscription Date (as adjusted for any stock dividend, stock split, stock combination or other similar transaction) (excluding, for purposes of the foregoing 2.5% calculation, shares of Common Stock issuable upon exercise of such standard options issued after the Subscription Date that have been terminated or forfeited), provided further that all such issuances must be for consideration per share or have an exercise price (as the case may be) (as determined pursuant to the provisions of Section 3(f)(i) hereof) greater than or equal to the Closing Sale Price of the Common Stock on the date of such issuance; (B) shares of Common Stock issued upon the conversion or exercise of Convertible Securities or Options issued prior to the Subscription Date, provided that such Convertible Securities or Options have not been amended since the Subscription Date to increase the number of shares issuable thereunder or to lower the exercise or conversion price thereof or otherwise materially change the terms or conditions thereof in any manner that adversely affects any of the Holders; (C) shares of Common Stock issuable upon conversion of the shares of Series D Preferred Stock; (D) the Warrant Shares; (E) the Dividend Shares; (F) up to 1,090,910 shares of Common Stock issuable pursuant to warrants issued to the Placement Agent in connection with the transactions contemplated by the Securities Purchase Agreement; (G) shares of Common Stock issued by the Company solely as a penalty pursuant to the Prior Registration Rights Agreements; and (H) shares of Common Stock issued in connection with strategic transactions or acquisitions (the primary purpose of which is not to raise capital, and which are approved in good faith by the Board) having a price per share (as determined pursuant to the provisions of Section 3(f)(i) hereof) less than the Conversion Price in effect on the date of issuance, provided that (i) any such issuance pursuant to this clause (H) shall only be to a Person that is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company; (ii) all such issuances after the Subscription Date pursuant to this clause (H) do not, in the aggregate, exceed more than 10% of the shares of Common Stock issued and outstanding immediately prior to the Subscription Date (as adjusted for any stock dividend, stock split, stock combination or other similar transaction) and (iii) all such issuances pursuant to this clause (H) must have a price per share (as determined pursuant to the provisions of Section 3(f)(i) hereof) greater than or equal to the Closing Sale Price of the Common Stock on the date of such issuance.


 
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(xxi)       “ Final Redemption Date ” means, with respect to each share of Series D Preferred Stock, the first anniversary of the Initial Issuance Date.

(xxii)      “ Fundamental Transaction ” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any material Subsidiary to another Person, or (3) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify its Common Stock (for clarification purposes, excluding customary stock splits and stock dividends), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

 
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(xxiii)     “ Fundamental Transaction Redemption Premium ” means 135%.

(xxiv)     “ Initial Issuance Date ” means October 17, 2008.

(xxv)      “ Liquidation Event ” means, in a single transaction or series of transactions, the voluntary or involuntary liquidation, dissolution or winding up of the Company or such Subsidiaries, the assets of which constitute all or substantially all of the assets or business of the Company and its Subsidiaries taken as a whole.

(xxvi)     “ N ” means the number of days from and including the last Dividend Date with respect to which Dividends have been paid by the Company on shares of Series D Preferred Stock, or the Initial Issuance Date if no Dividend Date has occurred, through and including the day immediately before the Conversion Date or other date of determination for each share of Series D Preferred Stock (as the case may be) for which such determination is being made.

(xxvii)    “ Options ” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.


 
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(xxviii)   “ Parent Entity ” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

(xxix)      “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

(xxx)      “ Placement Agent ” means Rodman & Renshaw LLC.

(xxxi)      “ Pro Rata Amount ” means, as of the applicable date of determination, with respect to a particular Holder, a fraction (i) the numerator of which is the aggregate number of shares of Series D Preferred Stock held by such Holder as of such date and (ii) the denominator of which is the aggregate number of shares of Series D Preferred Stock outstanding as of such date.

(xxxii)     “ Post-Redemption Conversion Shares ” means that number of shares of Common Stock that would be required to be delivered pursuant to Section 5 on the applicable Redemption Date without taking into account the delivery of any Pre-Redemption Conversion Shares.

(xxxiii)   “ Pre-Redemption Conversion Price ” means the lower of (i) the then applicable Conversion Price and (ii) the price which shall be computed as 90% of the arithmetic average of the VWAP of the Common Stock on each of the ten (10) consecutive Trading Days immediately preceding the delivery or deemed delivery of the applicable Company Redemption Notice. All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during such ten (10) Trading Day period.

(xxxiv)    “ Principal Market ” means the OTC Bulletin Board.

(xxxv)    “ Prior Registration Rights Agreements ” means, collectively, (i) 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, (ii) 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 C Convertible Preferred Stock on May 12, 2006 and (iii) that certain Registration Rights Agreement that was entered into by the Company and certain investors in connection with the Company’s issuance of Common Stock on February 15, 2007.

 
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(xxxvi)   “ Redemption Amount ” means, as of the applicable date of determination, with respect to a particular Holder, an amount equal to (i) the product of (1) the Aggregate Redemption Amount multiplied by (2) such Holder’s Pro Rata Amount or (ii) the aggregate Stated Value of all shares of Series D Preferred Stock then held by such Holder only if such aggregate Stated Value is less than the amount determined under the immediately preceding clause (i).

(xxxvii)  “ Redemption Date ” means each of the following dates: (i) February 1, 2009, (ii) March 1, 2009, (iii) April 1, 2009, (iv) May 1, 2009, (v) June 1, 2009, (vi) July 1, 2009, (vii) August 1, 2009, (viii) September 1, 2009, and (ix) the Final Redemption Date.

(xxxviii) “ Registration Statement ” means the registration statement on Form S-3, as amended (Registration Number 333-148929), filed by the Company with the SEC and declared effective by the SEC on April 8, 2008.

(xxxix)    “ Required Holders ” means, as of a particular date of determination, the Holders of all of the shares of Series D Preferred Stock outstanding as of such date.

(xl)         “ SEC ” means the Securities and Exchange Commission.

(xli)        “ Securities ” means, collectively, the shares of Series D Preferred Stock, the shares of Common Stock issuable upon conversion of the shares of Series D Preferred Stock, the Warrants, the Warrant Shares and the Dividend Shares.

(xlii)       “ Securities Purchase Agreement ” means that certain securities purchase agreement by and among the Company and the initial Holders, dated as of the Subscription Date, as such agreement may be amended from time to time as provided in such agreement.

(xliii)      “ Series A Warrants ” means, collectively, all of the Series A Warrants to purchase Common Stock issued by the Company pursuant to the terms of the Securities Purchase Agreement, including all warrants issued in exchange therefor or replacement thereof.

(xliv)      “ Series B Warrants ” means, collectively, all of the Series B Warrants to purchase shares of Series D Preferred Stock issued by the Company pursuant to the terms of the Securities Purchase Agreement, including all warrants issued in exchange therefor or replacement thereof.

(xlv)       “ Series C Warrants ” means, collectively, all of the Series C Warrants to purchase Common Stock issued by the Company pursuant to the terms of the Securities Purchase Agreement, including all warrants issued in exchange therefor or replacement thereof.

 
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(xlvi)     “ Stated Value ” means $1,000 (adjusted for any stock dividend, stock split or other similar transaction with respect to the shares of Series D Preferred Stock).

(xlvii)     “ Stock Dividend Rate ” means, with respect to each applicable Dividend Date, the price which shall be computed as 90% of the arithmetic average of the VWAP of the Common Stock on each of the ten (10) consecutive Trading Days immediately preceding (but not including) such Dividend Date. All such determinations shall be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period.

(xlviii)   “ Subscription Date ” means October 16, 2008.

(xlix)      “ Subsidiaries ” means, collectively, Persons in which the Company, directly or indirectly, owns any capital stock or holds any equity or similar interest (and individually, each a “ Subsidiary ”).

(l)           “ Successor Entity ” means the Person (or, if so elected by the Required Holders, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

(li)         “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

(lii)        “ Transaction Documents ” means the Securities Purchase Agreement, this Certificate of Determination and the Warrants.

(liii)        “ Triggering Event Redemption Premium ” means 135%.

(liv)       “ Warrants ” means, collectively, the Series A Warrants, the Series B Warrants and the Series C Warrants.

(lv)        “ Warrant Shares ” means, collectively, (A) the shares of Common Stock issuable upon exercise of the Series A Warrants and the Series C Warrants and (B) the shares of Series D Preferred Stock issuable upon exercise of the Series B Warrants.

 
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(lvi)       “ Volume Failure ” means, with respect to a particular date of determination, the average daily volume of the Common Stock on the Eligible Market on which the Common Stock is listed (as reported on Bloomberg) as of such date of determination over the ten (10) consecutive Trading Day period ending on the Trading Day immediately preceding such date of determination is less than 350,000 shares (adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period)

(lvii)      “ VWAP ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the applicable Holder. If the Company and such Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 3(d)(iii). All such determinations shall be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period.

(b)            Holder’s Conversion Right . Subject to the provisions of Section 7 and, if applicable, the proviso in the last sentence of Section 5(c), at any time or times on or after the Initial Issuance Date, each Holder shall be entitled to convert any whole number of shares of Series D Preferred Stock into fully paid and nonassessable shares of Common Stock in accordance with Section 3(d) at the Conversion Rate (as defined below).

(c)            Conversion Rate . The number of shares of Common Stock issuable upon conversion of each share of Series D Preferred Stock pursuant to Section 3(b) shall be determined according to the following formula (the “ Conversion Rate ”):


 
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Conversion Amount
Conversion Price

No fractional shares of Common Stock are to be issued upon the conversion of any share Series D Preferred Stock, and in lieu thereof, the Company shall pay cash to the Holder on the applicable Share Delivery Date (as defined below) equal to the product of such fractional share multiplied by the Closing Sale Price of the Common Stock for the Trading Day immediately preceding the applicable Conversion Date (as defined below).

(d)            Mechanics of Conversion . The conversion of each share of Series D Preferred Stock shall be conducted in the following manner:

(i)            Holder’s Delivery Requirements . To convert a share of Series D Preferred Stock into shares of Common Stock on any date (a “ Conversion Date ”), a Holder shall (A) transmit or otherwise deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of a fully completed notice of conversion executed by the registered Holder of the share(s) of Series D Preferred Stock subject to such conversion in the form attached hereto as Exhibit I (the “ Conversion Notice ”) to the Company and (B) if required by Section 3(d)(vii), surrender to a common carrier for delivery to the Company as soon as practicable following such date the original certificates representing the share(s) of Series D Preferred Stock being converted (or comply with the procedures set forth in Section 16) (the “ Preferred Share Certificates ”).

(ii)           Company’s Response . Upon receipt by the Company of a copy of a fully completed Conversion Notice, the Company shall as soon as practicable, but in any event within two (2) Trading Days, send, via facsimile, a confirmation of receipt of such Conversion Notice to such Holder and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein.  On or before the third (3 rd ) Trading Day following the date of receipt by the Company of such fully completed Conversion Notice (the “ Share Delivery Date ”), the Company shall (1) provided the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which such Holder shall be entitled to such Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (2) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of such Holder or its designee, for the number of shares of Common Stock to which such Holder shall be entitled. If the number of shares of Series D Preferred Stock represented by the Preferred Share Certificate(s) submitted for conversion, as may be required pursuant to Section 3(d)(vii), is greater than the number of shares of Series D Preferred Stock being converted, then the Company shall, as soon as practicable and in no event later than three (3) Trading Days after receipt of the Preferred Share Certificate(s) (the “ Preferred Share Delivery Date ”) and at its own expense, issue and deliver to such Holder a new Preferred Share Certificate representing the number of shares of Series D Preferred Stock not converted.

 
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(iii)         Dispute Resolution . In the case of a dispute as to the determination of the Closing Sale Price, the Closing Bid Price or fair market value or the arithmetic calculation of the Conversion Rate (as the case may be), the Company shall instruct the Transfer Agent to issue to such Holder the number of shares of Common Stock that is not disputed and shall transmit an explanation of the disputed determinations or arithmetic calculations (as the case may be) to such Holder via facsimile within two (2) Business Days of receipt of such Holder’s Conversion Notice or other date of determination.  If such Holder and the Company are unable to agree upon the determination of the Closing Sale Price, the Closing Bid Price or fair market value (as the case may be) or arithmetic calculation of the Conversion Rate (as the case may be) within two (2) Business Days of such disputed determination or arithmetic calculation (as the case may be) being transmitted to such Holder, then the Company shall within one (1) Business Day submit via facsimile (A) the disputed determination of the Closing Sale Price, Closing Bid Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the such Holder or (B) the disputed arithmetic calculation of the Conversion Rate to the Company’s independent, outside accountant. The Company shall cause, at the Company’s expense, the investment bank or the accountant (as the case may be) to perform the determinations or calculations and notify the Company and such Holder of the results no later than four (4) Business Days from the time it receives the disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent manifest error (provided such determination is approved by the Required Holders).

(iv)         Record Holder . The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of shares of Series D Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

(v)          Company’s Failure to Timely Convert .


 
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(A)        Damages .  If (I) within three (3) Trading Days after the Company’s receipt of a fully completed Conversion Notice (whether via facsimile or otherwise) the Company shall fail to credit the applicable Holder’s balance account with DTC or issue and deliver a certificate to such Holder for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion of shares of Series D Preferred Stock (as the case may be) (a “ Conversion Failure ”) or (II) within three (3) Trading Days of the Company’s receipt of a Preferred Share Certificate the Company shall fail to issue and deliver a new Preferred Share Certificate representing the number of shares of Series D Preferred Stock to which such Holder is entitled pursuant to Section 3(d)(ii), then in addition to all other available remedies which such holder may pursue hereunder and under the Securities Purchase Agreement (including indemnification pursuant to Section 9(k) thereof), the Company shall pay additional damages to such Holder for each day after the Share Delivery Date that such conversion is not timely effected and/or each day after the Preferred Share Delivery Date that each Preferred Share Certificate is not delivered (as the case may be) in an amount equal to 2% of the product of (I) the sum of the number of shares of Common Stock not issued to such Holder on or prior to the Share Delivery Date and to which such Holder is entitled as set forth in the applicable Conversion Notice and, in the event the Company has failed to deliver a Preferred Share Certificate to such Holder on or prior to the Preferred Share Delivery Date, the number of shares of Common Stock issuable upon conversion of the shares of Series D Preferred Stock represented by the Preferred Share Certificate as of the Preferred Share Delivery Date and (II) the Closing Sale Price of the Common Stock on the Share Delivery Date, in the case of the failure to deliver shares of Common Stock, or the Preferred Share Delivery Date, in the case of failure to deliver a Preferred Share Certificate (as the case may be). In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of a fully completed Conversion Notice (whether via facsimile or otherwise) the Company shall fail to issue and deliver a certificate to a Holder or credit such Holder’s balance account with DTC (as the case may be) for the number of shares of Common Stock to which such Holder is entitled upon such Holder’s conversion of shares of Series D Preferred Stock, and if on or after such Business Day such Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of the shares of Common Stock issuable upon such conversion that such Holder anticipated receiving from the Company (a “ Buy-In ”), then the Company shall, in addition to all other rights and remedies available to such Holder, within three (3) Business Days after such Holder’s request and in such Holder’s discretion, either (i) pay cash to such Holder in an amount equal to such Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate or credit such Holder’s balance account with DTC (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to such Holder a certificate or certificates representing such shares of Common Stock or credit such Holder’s balance account with DTC (as the case may be) and pay cash to such Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Sale Price of the Common Stock on the Conversion Date.
 
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(B)          Void Conversion Notice; Adjustment of Conversion Price .  If for any reason a Holder has not received all of the shares of Common Stock to which such Holder is entitled prior to the fifth (5 th ) Trading Day after the Share Delivery Date with respect to a conversion of shares of Series D Preferred Stock, then such Holder, upon written notice to the Company, with a copy to the Transfer Agent, may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any shares of Series D Preferred Stock that have not been converted pursuant to such Holder’s Conversion Notice; provided that the voiding of a Holder’s Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice pursuant to Section 3(d)(v)(A) or otherwise. Thereafter, the Conversion Price of any shares of Series D Preferred Stock returned or retained by such Holder for failure to timely convert shall be adjusted to the lesser of (I) the Conversion Price relating to the voided Conversion Notice and (II) the lowest Closing Bid Price of the Common Stock during the period beginning on the Conversion Date and ending on the date such Holder voided the Conversion Notice, subject to further adjustment as provided in this Certificate of Determination.

(vi)         Pro Rata Conversion; Disputes .  In the event the Company receives a Conversion Notice from more than one Holder for the same Conversion Date and the Company can convert some, but not all, of such shares of Series D Preferred Stock, the Company shall convert from each Holder electing to have shares of Series D Preferred Stock converted at such time a pro rata amount of such Holder’s shares of Series D Preferred Stock submitted for conversion based on the number of shares of Series D Preferred Stock submitted for conversion on such date by such Holder relative to the number of shares of Series D Preferred Stock submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to a Holder in connection with a conversion of shares of Series D Preferred Stock, the Company shall issue to such Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 3(d)(iii).

 
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(vii)        Book-Entry .  Notwithstanding anything to the contrary set forth herein, upon conversion of shares of Series D Preferred Stock in accordance with the terms hereof, any Holder thereof shall not be required to physically surrender the certificate representing the shares of Series D Preferred Stock to the Company unless (A) the full or remaining number of shares of Series D Preferred Stock represented by the certificate are being converted or redeemed or (B) such Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of shares of Series D Preferred Stock upon physical surrender of any shares of Series D Preferred Stock.  Each Holder and the Company shall maintain records showing the number of shares of Series D Preferred Stock so converted by such Holder and the dates of such conversions or shall use such other method, reasonably satisfactory to such Holder and the Company, so as not to require physical surrender of the certificate representing the shares of Series D Preferred Stock upon each such conversion. In the event of any dispute or discrepancy, such records of the Company establishing the number of shares of Series D Preferred Stock to which the record holder is entitled shall be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if shares of Series D Preferred Stock represented by a certificate are converted as aforesaid, a Holder may not transfer the certificate representing the shares of Series D Preferred Stock unless such Holder first physically surrenders the certificate representing the shares of Series D Preferred Stock to the Company, whereupon the Company will forthwith issue and deliver upon the order of such Holder a new certificate of like tenor, registered as such Holder may request, representing in the aggregate the remaining number of shares of Series D Preferred Stock represented by such certificate. A Holder and any assignee, by acceptance of a certificate, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of any shares of Series D Preferred Stock, the number of shares of Series D Preferred Stock represented by such certificate may be less than the number of shares of Series D Preferred Stock stated on the face thereof.  Each certificate for shares of Series D Preferred Stock shall bear the following legend:

ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE COMPANY’S CERTIFICATE OF DETERMINATION RELATING TO THE SHARES OF SERIES D PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 3(d)(vii) THEREOF. THE NUMBER OF SHARES OF SERIES D PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF SERIES D PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 3(d)(vii) OF THE CERTIFICATE OF DETERMINATION RELATING TO THE SHARES OF SERIES D PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE.

 
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(e)            Taxes . The Company shall pay any and all documentary, stamp, transfer (but only in respect of the registered holder thereof) and other similar taxes that may be payable with respect to the issuance and delivery of shares of Common Stock upon the conversion of shares of Series D Preferred Stock.

(f)            Adjustments to Conversion Price .  The Conversion Price will be subject to adjustment from time to time as provided in this Section 3(f).

(i) Adjustment of Conversion Price upon Issuance of shares of Common Stock . If and whenever on or after the Subscription Date the Company issues or sells, or in accordance with this Section 3(f) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “ New Issuance Price ”) less than a price equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Conversion Price then in effect is referred to as the “ Applicable Price ”) (the foregoing a “ Dilutive Issuance ”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price. For purposes of determining the adjusted Conversion Price under this Section 3(f), the following shall be applicable:

(A)    Issuance of Options . If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 3(f)(i)(A), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities.


 
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(B)    Issuance of Convertible Securities .  If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 3(f)(i)(B), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security. Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 3(f)(i), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

(C)    Change in Option Price or Rate of Conversion .  If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 3(f)(i)(C), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 3(f)(i) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 
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(D)    Calculation of Consideration Received . In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01.  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAP of such security for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “ Valuation Event ”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10 th ) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders. The determination of such appraiser shall be final and binding upon all parties absent manifest error (provided such determination is approved by the Required Holders) and the fees and expenses of such appraiser shall be borne by the Company.

 
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(E)     Record Date .  If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

(ii) Adjustment of Conversion Price upon Subdivision or Combination of shares of Common Stock .  If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 3(f)(ii) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 3(f)(ii) occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.

(iii) Other Events .  In the event that the Company (or any direct or indirect Subsidiary thereof) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holders from dilution or if any event occurs of the type contemplated by the provisions of this Section 3(f) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Board shall in good faith determine and implement an appropriate adjustment in the Conversion Price (subject to the approval of the Required Holders) so as to protect the rights of the Holders; provided that no such adjustment pursuant to this Section 3(f)(iii) will increase the Conversion Price as otherwise determined pursuant to this Section 3(f), provided further that if a Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Board and such Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding absent manifest error (provided such determination is approved by the Required Holders) and whose fees and expenses shall be borne by the Company.

 
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4.              Redemption at Option of Holders .

(a)            Triggering Event . A “ Triggering Event ” shall be deemed to have occurred at such time as any of the following events:

(i)          the effectiveness of the Registration Statement (or the prospectus contained therein) lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable for the sale of all of the Securities, and such lapse or unavailability continues for a period of five (5) consecutive days or for more than an aggregate of ten (10) days in any 365-day period, unless all the Securities are otherwise freely tradable without restriction by the Holders;

(ii)          the suspension  (or threatened suspension) from trading or failure  (or threatened failure) of the Common Stock to be listed on an Eligible Market for a period of five (5) consecutive days or for more than an aggregate of ten (10) days in any 365-day period;

(iii)        the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5) Trading Days after the applicable Conversion Date or (B) notice, written or oral, to any Holder of shares of Series D Preferred Stock, including, without limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required, with a request for conversion of any shares of Series D Preferred Stock into shares of Common Stock that is requested in accordance with the provisions of this Certificate of Determination;

(iv)        at any time following the tenth (10 th ) consecutive day that any Holder’s Authorized Share Allocation is less than the number of shares of Common Stock that such Holder would be entitled to receive upon a conversion of the Conversion Amount of all shares of Series D Preferred Stock held by such Holder (without regard to any limitations on conversion set forth in Section 7 or otherwise);

(v)         the Company’s failure to pay to any Holder any amount when and as due under this Certificate of Determination (including, without limitation, the Company’s failure to pay any Dividends, redemption payments or amounts hereunder) or any other Transaction Document, and any such failure continues uncured for at least two (2) days after notice from any Holder;

 
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(vi)        any restrictive or other legend (other than the legend expressly required by Section 3(d)(vii)) is placed on any certificate representing any of the Securities;

(vii)       bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any material Subsidiary and, if instituted against the Company or any material Subsidiary by a third party, shall not be dismissed within forty-five (45) days of their initiation;

(viii)      the commencement by the Company or any material Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or any material Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any material Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Company or any material Subsidiary in furtherance of any such action or the taking of any action by any Person to commence a UCC foreclosure sale or any other similar action under federal, state or foreign law;

(ix)         the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any material Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any material Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Company or any material Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any material Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of forty-five (45) consecutive days;

 
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(x)          a final judgment or judgments for the payment of money aggregating in excess of $250,000 are rendered against the Company and/or any of its material Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $250,000 amount set forth above so long as the Company provides each Holder of shares of Series D Preferred Stock a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to each such Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within forty-five (45) days of the issuance of such judgment.

(xi)         the Company and/or any Subsidiary, individually or in the aggregate, fails to pay, when due, or within any applicable grace period, any payment with respect to any indebtedness in excess of $250,000 due to any third party, other than, with respect to unsecured indebtedness only, payments contested by the Company and/or such Subsidiary (as the case may be) in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with United States generally accepted accounting principles, or otherwise be in breach or violation of any agreement for monies owed or owing in an amount in excess of $250,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder that are in excess of $500,000;

(xii)        a false certification by the Company that the Equity Conditions are satisfied, that there has been no Equity Conditions Failure or as to whether or not a Triggering Event has occurred; or

(xiii)       the Company breaches in any material respect representation, warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of three (3) days following notice from any Holder.


 
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(b)            Redemption Option Upon Triggering Event . Within one (1) Business Day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof via facsimile and overnight courier (with next day delivery specified) (“ Notice of Triggering Event ”) to each Holder. At any time after the earlier of a Holder’s receipt of a Notice of Triggering Event and such Holder becoming aware of a Triggering Event, such Holder shall have the right, at such Holder’s option, to require the Company to redeem up to all of such Holder’s shares of Series D Preferred Stock by delivering written notice thereof via facsimile and overnight courier (with next day delivery specified) (“ Notice of Redemption at Option of Holder ”) to the Company, which Notice of Redemption at Option of Holder shall indicate the number of shares of Series D Preferred Stock that such Holder is electing to redeem. In addition to all other rights of such Holder contained herein, each share of Series D Preferred Stock subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price per share of Series D Preferred Stock equal to the greater of (i) the product of (A) the Conversion Amount and (B) the Triggering Event Redemption Premium and (ii) the product of (X) the Conversion Rate with respect to the Conversion Amount in effect at such time as such Holder delivers a Notice of Redemption at Option of Holder and (Y) the product of (1) the Equity Value Redemption Premium and (2) the greatest of (I) the Closing Sale Price of the Common Stock on the date immediately preceding such Triggering Event, (II) the Closing Sale Price of the Common Stock on the date immediately after such Triggering Event and (III) the Closing Sale Price of the Common Stock on the date such Holder delivers the Notice of Redemption at Option of Holder (the “ Triggering Event Redemption Price ”).

(c)            Payment of Redemption Price . Upon the Company’s receipt of the first Notice of Redemption at Option of Holder from any Holder, the Company shall immediately notify each other Holder by facsimile of the Company’s receipt of such notice. The Company shall deliver on the fifth (5 th ) Business Day after the Company’s receipt of the first Notice of Redemption at Option of Holder the applicable Triggering Event Redemption Price to all Holders that deliver a Notice of Redemption at Option of Holder prior to the fifth (5 th ) Business Day after the Company’s receipt of the first Notice of Redemption at Option of Holder. The Company shall deliver on the second (2 nd ) Business Day after the Company’s receipt of a Notice of Redemption at Option of Holder the applicable Triggering Event Redemption Price to a Holder who delivers a Notice of Redemption at Option of Holder at any time on or following the fifth (5 th ) Business Day after the Company’s receipt of such the first Notice of Redemption at Option of Holder. To the extent redemptions required by this Section 4 are deemed or determined by a court of competent jurisdiction to be prepayments of the shares of Series D Preferred Stock by the Company, such redemptions shall be deemed to be voluntary prepayments. If the Company is unable to redeem all of the shares of Series D Preferred Stock submitted for redemption, the Company shall (i) redeem a pro rata amount from each Holder based on the number of shares of Series D Preferred Stock submitted for redemption by such Holder relative to the total number of shares of Series D Preferred Stock submitted for redemption by all Holders and (ii) in addition to any remedy such Holder may have under this Certificate of Determination and the Securities Purchase Agreement, pay to each Holder interest at the rate of 2% per month (prorated for partial months) in respect of each unredeemed share of Series D Preferred Stock until paid in full. In the event of the Company’s redemption of any shares of Series D Preferred Stock under this Section 4, a Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 4 is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty.

 
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(d)            Void Redemption . In the event that the Company does not pay the Redemption Price within the time period set forth in Section 4(c), at any time thereafter and until the Company pays such unpaid applicable Triggering Event Redemption Price in full, a Holder shall have the option to, in lieu of redemption, require the Company to promptly return to such Holder any or all of the shares of Series D Preferred Stock that were submitted for redemption by such Holder under this Section 4 and for which the applicable Triggering Event Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company (whether via facsimile or otherwise) (the “ Void Optional Redemption Notice ”). Upon the Company’s receipt of such Holder’s Void Optional Redemption Notice, (i) such Holder’s Notice of Redemption at Option of Holder shall be null and void with respect to those shares of Series D Preferred Stock subject to such Void Optional Redemption Notice, (ii) the Company shall immediately return to such Holder any shares of Series D Preferred Stock subject to such Void Optional Redemption Notice, and (iii) the Conversion Price of such returned shares of Series D Preferred Stock shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which such Void Optional Redemption Notice is delivered to the Company and (B) the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which such Holder’s Notice of Redemption at Option of Holder is delivered to the Company and ending on and including the date on which such Void Optional Redemption Notice is delivered to the Company.

(e)            Disputes; Miscellaneous . In the event of a dispute as to the determination of the arithmetic calculation of the Triggering Event Redemption Price, such dispute shall be resolved pursuant to Section 3(d)(iii) above with the term “Triggering Event Redemption Price” being substituted for the term “Conversion Rate.” A Holder’s delivery of a Void Optional Redemption Notice and exercise of its rights following such notice shall not effect the Company’s obligations to make any payments which have accrued prior to the date of such notice.  In the event of a redemption pursuant to this Section 4 of less than all of the shares of Series D Preferred Stock represented by a particular Preferred Share Certificate, the Company shall promptly cause to be issued and delivered to such Holder of such shares of Series D Preferred Stock a Preferred Share Certificate representing the remaining shares of Series D Preferred Stock which have not been redeemed, if necessary.
 
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5.              Automatic Conversion or Company Redemption .

(a)            General . On each applicable Redemption Date, each Holder’s Redemption Amount applicable to such Redemption Date shall be automatically converted, provided that there is not then an Equity Conditions Failure, in accordance with this Section 5(a) into shares of Common Stock (an “ Automatic Conversion ”), provided that the Company may, at its option as described below, in lieu of such Automatic Conversion redeem such Holder’s Redemption Amount in cash (a “ Company Redemption ”), subject to the provisions of this Section 5, provided further that an Automatic Conversion shall not occur with respect to such Holder’s Redemption Amount and the Company shall instead be required to redeem such Holder’s Redemption Amount in cash pursuant to a Company Redemption if at the time of such election there is an Equity Conditions Failure, a Volume Failure or a Dollar Failure. On or prior to the date which is the tenth (10 th ) Trading Day prior to each Redemption Date (each, a “ Redemption Notice Due Date ”), the Company shall deliver written notice (each, a “ Company Redemption Notice ” and the date all of the Holders receive such notice is referred to as to the “ Company Redemption Notice Date ”), to each Holder of shares of Series D Preferred Stock which Company Redemption Notice shall (i) either (A) confirm that such Holder’s Redemption Amount shall be automatically converted in whole pursuant to an Automatic Conversion or (B) state that the Company elects to redeem, or is required to redeem in accordance with the provisions of this Certificate of Determination, such Holder’s Redemption Amount in whole pursuant to a Company Redemption and (ii) if such Holder’s Redemption Amount is to be converted pursuant to an Automatic Conversion, certify that there is not then an Equity Conditions Failure as of the date of the Company Redemption Notice. Each Company Redemption Notice shall be irrevocable by the Company. If the Company does not timely deliver a Company Redemption Notice in accordance with this Section 5(a), then the Company shall be deemed to have delivered an irrevocable Company Redemption Notice confirming an Automatic Conversion and shall be deemed to have certified that there is not then an Equity Conditions Failure in connection with any such conversion. No later than two (2) Trading Days after delivery of a Company Redemption Notice setting forth an Automatic Conversion, the Company shall deliver to such Holder’s account with DTC such number of shares of Common Stock (the “ Pre-Redemption Conversion Shares ”) equal to the quotient of (x) such Holder’s Redemption Amount divided by (y) the Pre-Redemption Conversion Price, and as to which such Holder shall be the owner thereof as of such time of delivery. If the Company elects a Company Redemption with respect to any Holder for a Redemption Date, then the Company must elect a Company Redemption with respect to all Holders for such Redemption Date. An Automatic Conversion (whether set forth in the Company Redemption Notice or by operation of this Section 5(a)) shall be converted in accordance with Section 5(b) and a Company Redemption shall be redeemed in accordance with Section 5(c).

 
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(b)            Mechanics of Automatic Conversion . Subject to Section 5(a), if the Company delivers a Company Redemption Notice and confirms, or is deemed to have delivered a Company Redemption Notice and deemed to have confirmed, in whole, an Automatic Conversion in accordance with Section 5(a), then the remainder of this Section 5(b) shall apply. Such Holder’s Redemption Amount shall be automatically converted as of the applicable Redemption Date on such Redemption Date at the Automatic Conversion Price and the Company shall, on the applicable Redemption Date, deliver to such Holder’s account with DTC such shares of Common Stock issued upon such Automatic Conversion (subject to the reduction contemplated by the immediately following sentence and, if applicable, the last sentence of this Section 5(b)); provided that the Equity Conditions are then satisfied (or waived in writing by such Holder) on such Redemption Date and an Automatic Conversion is not otherwise prohibited under any other provision of this Certificate of Determination, and upon such conversion and delivery the number of shares of Series D Preferred Stock then held by such Holder shall be reduced, due to such conversion, by a number of shares equal to the quotient of (1) such Holder’s Redemption Amount divided by (2) the Stated Value of one share of Series D Preferred Stock (with the quotient rounded down to the nearest whole number) (such rounded quotient being the “ Converted Shares ”). The number of shares of Common Stock to be delivered upon such Automatic Conversion shall be reduced by the amount of any Pre-Redemption Conversion Shares delivered to such Holder in connection with such Redemption Date. On each applicable Redemption Date, the Company shall also deliver to such Holder’s account with DTC such number of shares of Common Stock equal to the quotient of (A) the aggregate Additional Amount on each of the applicable Converted Shares by (B) the Automatic Conversion Price with respect to the applicable Redemption Date. If a Triggering Event occurs during any applicable Automatic Conversion Measuring Period, then either (i) such Holder shall return any Pre-Redemption Conversion Shares delivered in connection with the applicable Redemption Date or (ii) the Conversion Amount used to calculate the Triggering Event Redemption Price shall be reduced by the product of (x) such Holder’s Redemption Amount applicable to such Redemption Date multiplied by (y) the Conversion Share Ratio. If any of Equity Conditions are not satisfied (or waived in writing by such Holder) on such Redemption Date or an Automatic Conversion is not otherwise permitted under any other provision of this Certificate of Determination (including, without limitation, as a result of a Volume Failure (determined as of the applicable Redemption Date) or a Dollar Failure (determined as of the applicable Redemption Date)), then, at the option of such Holder designated in writing to the Company, such Holder may require the Company to do any one or more of the following: (i) the Company shall redeem all or any part designated by such Holder of such Holder’s Redemption Amount plus the Additional Amount thereon (such designated amount is referred to as the “ Designated Redemption Amount ”) and the Company shall pay to such Holder within three (3) days of such Redemption Date, by wire transfer of immediately available funds, an amount in cash equal to 135% (or, 110% only if clause (iv) of the Equity Conditions is not satisfied, a Volume Failure occurs (determined as of the applicable Redemption Date) or a Dollar Failure occurs (determined as of the applicable Redemption Date), in each case, with respect to the applicable Redemption Date) of such Designated Redemption Amount, and/or (ii) the Automatic Conversion shall be null and void with respect to all or any part designated by such Holder of such Holder’s Redemption Amount and such Holder shall be entitled to all the rights of a holder of shares of Series D Preferred Stock with respect to such part of such Holder’s Redemption Amount; provided, however, that the Conversion Price in respect of shares of Series D Preferred Stock, as may be designated from time to time by such Holder, having a Stated Value equal to such part of such Holder’s Redemption Amount shall thereafter be adjusted to equal the lesser of (A) the Automatic Conversion Price as in effect on the date on which such Holder voided such Automatic Conversion and (B) the Automatic Conversion Price that would be in effect on the date on which such Holder delivers a Conversion Notice relating thereto as if such date was a Redemption Date (provided that this proviso shall not apply with respect to the applicable Redemption Date only if clause (iv) of the Equity Conditions is not satisfied, a Volume Failure occurs (determined as of the applicable Redemption Date) or a Dollar Failure occurs (determined as of the applicable Redemption Date), in each case, with respect to such Redemption Date). In addition, if any of the Equity Conditions are not satisfied (or waived in writing by such Holder) on such Redemption Date or an Automatic Conversion is not otherwise permitted under any other provision of this Certificate of Determination (including, without limitation, as a result of a Volume Failure (determined as of the applicable Redemption Date) or a Dollar Failure (determined as of the applicable Redemption Date)), then, at such Holder’s option, either (I) such Holder shall return any Pre-Redemption Conversion Shares delivered in connection with the applicable Redemption Date or (II) the applicable Designated Redemption Amount shall be reduced by the product of (X) such Holder’s Redemption Amount applicable to such Redemption Date multiplied by (Y) the Conversion Share Ratio. If the Company fails to redeem any Designated Redemption Amount by the third (3 rd ) day following the applicable Redemption Date by payment of such amount on the applicable Redemption Date, then such Holder shall have the rights set forth in Section 5(d) as if the Company failed to pay the applicable Company Redemption Price (as defined below) and all other rights under this Certificate of Determination (including, without limitation, such failure constituting a Triggering Event described in Section 4(a)(v)). Notwithstanding anything to the contrary in this Section 5(b), but subject to 3(b), until the Company delivers Common Stock representing all or any portion of such Holder’s Redemption Amount to such Holder pursuant to an Automatic Conversion, such Holder’s Redemption Amount may be converted by such Holder into Common Stock pursuant to Section 3. If, with respect to a Redemption Date, the number of Pre-Redemption Conversion Shares delivered to a Holder exceeds the number of Post-Redemption Conversion Shares with respect to such Redemption Date, then the number of shares of Common Stock equal to such excess shall constitute a credit against shares of Common Stock to be issued to such Holder pursuant to Sections 3 and 5(b) hereof and shall reduce the number of shares of Common Stock required to be actually issued by the Company to such Holder under such sections on a share-for-share basis until such time as the number of shares that would have been issued by the Company to such Holder (not taking account of such credit) equals the amount of such excess.

 
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(c)            Mechanics of Company Redemption . If the Company elects, or is required to elect, a Company Redemption in accordance with Section 5(a), then such Holder’s Redemption Amount shall be redeemed by the Company on the applicable Redemption Date, and the Company shall pay to such Holder on such Redemption Date, by wire transfer of immediately available funds, an amount in cash equal to 110% of such Holder’s Redemption Amount (the “ Company Redemption Price ”). Upon receipt by such Holder of the entire applicable Company Redemption Price, a number of shares of Series D Preferred Stock then held by such Holder equal to the quotient of (i) such Holder’s Redemption Amount divided by (ii) the Stated Value of one share of Series D Preferred Stock (with the quotient rounded down to the nearest whole number) shall be cancelled and no longer be outstanding (such rounded quotient being the “ Redeemed Shares ”). On each applicable Redemption Date, the Company shall also pay to such Holder an amount in cash equal to the aggregate Additional Amount with respect to each of the applicable Redeemed Shares. If the Company fails to redeem such Holder’s Redemption Amount or pay such aggregate Additional Amount on the applicable Redemption Date by payment of the Company Redemption Price or the aggregate Additional Amount on such date, then, at the option of such Holder designated in writing to the Company (any such designation shall be a “Conversion Notice” for purposes of this Certificate of Determination), such Holder may require the Company to convert all or any part of such Holder’s Redemption Amount plus the aggregate Additional Amount at the Automatic Conversion Price. Conversions required by this Section 5(c) shall be made in accordance with the provisions of Section 3(b). Notwithstanding anything to the contrary in this Section 5(c), but subject to Section 3(b), until the Company Redemption Price is paid in full, such Holder’s Redemption Amount may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 3; provided, however, such Holder may not deliver a Conversion Notice to the Company solely relating to the shares of Series D Preferred Stock subject to a Company Redemption beginning on the date that is two (2) Trading Days prior to the applicable Redemption Date through such Redemption Date.

 
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(d)            Miscellaneous . To the extent redemptions required by this Section 5 are deemed or determined by a court of competent jurisdiction to be prepayments of the shares of Series D Preferred Stock by the Company, such redemptions shall be deemed to be voluntary prepayments. In the event of the Company’s redemption of any shares of Series D Preferred Stock under this Section 5, a Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 5 is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. In the event that the Company does not effect an Automatic Conversion or Company Redemption (as the case may be) on the applicable Redemption Date, then, in addition to all other rights and remedies available to such Holder, such Holder shall have the right to void the conversion or redemption (as the case may be) pursuant to Section 4(d) with the term “Redemption Amount” being substituted for “Triggering Event Redemption Price” and “Company Redemption Notice” being substituted for “Notice of Redemption at Option of Holder,” shall have all rights of a Holder under Section 4(d) and Section 4(e) as if they were part of this Section 5 and applied to this Section 5 and the Company shall pay to such Holder interest at the rate of 2% per month (prorated for partial months) in respect of such Holder’s Redemption Amount until converted or redeemed (as the case may be) in full.

6.              Other Rights of Holders .

(a)            Assumption . The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Certificate of Determination in accordance with the provisions of this Section 6(a) pursuant to written agreements in form and substance satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction, including agreements to deliver to each holder of shares of Series D Preferred Stock in exchange for such shares of Series D Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Certificate of Determination, including, without limitation, having a stated value and dividend rate equal to the stated value and dividend rate of the shares of Series D Preferred Stock held by the Holders and having similar ranking to the shares of Series D Preferred Stock, and reasonably satisfactory to the Required Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose shares of common stock are quoted on or listed for trading on an Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Determination and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Certificate of Determination and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of a Fundamental Transaction, the Successor Entity shall deliver to each Holder confirmation that there shall be issued upon conversion or redemption of the shares of Series D Preferred Stock at any time after the consummation of such Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 6(b) and 14, which shall continue to be receivable thereafter)) issuable upon the conversion or redemption of the shares of Series D Preferred Stock prior to such Fundamental Transaction, such shares of publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity) which each Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the shares of Series D Preferred Stock held by each Holder been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of the Series D Preferred Stock contained in this Certificate of Determination), as adjusted in accordance with the provisions of this Certificate of Determination. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion or redemption of the shares of Series D Preferred Stock.

 
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(b)            Purchase Rights . In addition to any adjustments pursuant to Section 3(f) above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all the record holders of any class of Common Stock (the “ Purchase Rights ”), then each of the Holders will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the shares of Series D Preferred Stock (without taking into account any limitations or restrictions on the convertibility of the shares of Series D Preferred Stock) held by such Holder immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that to the extent that a Holder’s right to participate in any such Purchase Right would result in such Holder exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage).

 
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(c)            Other Corporate Events . In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “ Corporate Event ”), the Company shall make appropriate provision to insure that each Holder will thereafter have the right to receive upon a conversion of the shares of Series D Preferred Stock held by such Holder (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which such Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by such Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of the Series D Preferred Stock contained in this Certificate of Determination) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as such Holder would have been entitled to receive had the Series D Preferred Stock held by such Holder initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. The provisions of this Section 6 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of the shares of Series D Preferred Stock contained in this Certificate of Determination.

7.            Limitation on Beneficial Ownership . Notwithstanding anything to the contrary contained in this Certificate of Determination, the shares of Series D Preferred Stock held by a Holder shall not be convertible by such Holder, and the Company shall not effect any conversion of any shares of Series D Preferred Stock held by such Holder or otherwise issue to such Holder any shares of Common Stock pursuant to Sections 2 or 5 hereof, to the extent (but only to the extent) that, if after giving effect to such conversion, such Holder or any of its affiliates would beneficially own in excess of 9.9% (the “ Maximum Percentage ”) of the outstanding shares of Common Stock immediately after giving effect to such conversion or issuance (as the case may be). To the extent the above limitation applies, the determination of whether the shares of Series D Preferred Stock held by such Holder shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by such Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability of a Holder to convert shares of Series D Preferred Stock, or of the Company to issue shares of Common Stock to such Holder, pursuant to this Section 7 shall have any effect on the applicability of the provisions of this Section 7 with respect to any subsequent determination of convertibility or issuance (as the case may be). For purposes of this Section 7, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined by such Holder in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. The provisions of this Section 7 shall be implemented in a manner otherwise than in strict conformity with the terms of this Section 7 to correct this Section 7 (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this Section 7 shall apply to a successor Holder. The holders of Common Stock shall be third party beneficiaries of this Section 7 and the Company may not waive this Section 7 without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of a Holder, the Company shall within two (2) Business Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Certificate of Determination or securities issued pursuant to the Securities Purchase Agreement. Each delivery of a Conversion Notice by a Holder will constitute a representation by such Holder that it has evaluated the limitation set forth in this Section 7 and determined that issuance of the full number of shares of Common Stock issuable upon conversion of the shares of Series D Preferred Stock requested by such Holder in such Conversion Notice is permitted under this Section 7.

 
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8.            Authorized Shares .

(a)            Reservation . The Company shall have sufficient authorized and unissued shares of Common Stock for each of the shares of Series D Preferred Stock equal to 133% of the sum of (i) the number of shares of Common Stock necessary to effect the conversion at the Conversion Rate with respect to the Conversion Amount of each share of Series D Preferred Stock as of the Initial Issuance Date (including shares of Series D Preferred Stock issuable upon exercise of the Series B Warrants), (ii) the number of Dividend Shares issuable hereunder, determined as if issued as of the Trading Day immediately preceding the applicable date of determination and (iii) the number of shares of Common Stock necessary to effect the exercise of all of the Series A Warrants and the Series C Warrants. So long as any of the shares of Series D Preferred Stock are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series D Preferred Stock, the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the shares of Series D Preferred Stock then outstanding; provided that at no time shall the number of shares of Common Stock so available be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions contained in this Certificate of Determination) (the “ Required Amount ”); provided, further, that any Dividend Shares issued by the Company shall not be issued from any shares of Common Stock so reserved.  The initial number of shares of Common Stock reserved for conversions of the shares of Series D Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the Holders based on the number of shares of Series D Preferred Stock held by each Holder at the time of issuance of shares of Series D Preferred Stock or increase in the number of reserved shares (as the case may be) (the “ Authorized Share Allocation ”).  In the event a Holder shall sell or otherwise transfer any of such Holder’s shares of Series D Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any shares of Series D Preferred Stock shall be allocated to the remaining Holders of shares of Series D Preferred Stock, pro rata based on the number of shares of Series D Preferred Stock then held by such Holders.

 
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(b)            Insufficient Authorized Shares .  If, notwithstanding Section 8(a) and not in limitation thereof, at any time while any of the shares of Series D Preferred Stock remain outstanding the Company does not have a sufficient number of authorized and unissued shares of Common Stock to satisfy its obligation to have available for issuance upon conversion of the shares of Series D Preferred Stock at least a number of shares of Common Stock equal to the Required Amount (an “ Authorized Share Failure ”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to have available the Required Amount for the shares of Series D Preferred Stock then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its Board to recommend to the stockholders that they approve such proposal.

9.            Voting Rights .  Holders of shares of Series D Preferred Stock shall have no voting rights, except as required by law, including but not limited to the Corporations Code, and as expressly provided in this Certificate of Determination. To the extent that under the Corporations Code the vote of the holders of the Series D Preferred Stock, voting separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of all of the shares of the Series D Preferred Stock, voting together in the aggregate and not in separate series unless required under the Corporations Code, represented at a duly held meeting at which a quorum is presented or by written consent of all of the shares of Series D Preferred Stock (except as otherwise may be required under the Corporations Code), voting together in the aggregate and not in separate series unless required under the Corporations Code, shall constitute the approval of such action by both the class or the series, as applicable. Subject to Section 7, to the extent that under the Corporations Code holders of the Series D Preferred Stock are entitled to vote on a matter with holders of shares of Common Stock, voting together as one class, each share of Series D Preferred Stock shall entitle the holder thereof to cast that a number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible (subject to the ownership limitations specified in Section 7 hereof) using the recorded date for determining the stockholders of the Company eligible to vote on such matters as the date as of which the Conversion Price is calculated. Holders of the Series D Preferred Stock shall be entitled to written notice of all stockholder meetings or written consents (and copies of proxy materials and other information sent to stockholders) with respect to which they would be entitled by vote, which notice would be provided pursuant to the Company’s bylaws and the Corporations Code).

 
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10.            Fundamental Transaction Redemption Right .  No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Fundamental Transaction, but not prior to the public announcement of such Fundamental Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier to each Holder of Series D Preferred Stock (a “ Fundamental Transaction Notice ”). At any time during the period beginning after a Holder’s receipt of a Fundamental Transaction Notice and ending on the date that is the later of twenty (20) Trading Days after (A) consummation of such Fundamental Transaction or (B) the date of receipt of such Fundamental Transaction Notice, such Holder may require the Company to redeem all or any portion of such Holder’s shares of Series D Preferred Stock by delivering written notice thereof (“ Fundamental Transaction Redemption Notice ”) to the Company, which Fundamental Transaction Redemption Notice shall indicate the aggregate Conversion Amount such Holder is electing to redeem. Any shares of Series D Preferred Stock subject to redemption pursuant to this Section 10 shall be redeemed by the Company in cash at a price equal to the greater of (i) the product of the Fundamental Transaction Redemption Premium and the Conversion Amount being redeemed and (ii) the product of (x) the Equity Value Redemption Premium and (y) the product of (A) the Conversion Amount being redeemed multiplied by (B) the quotient determined by dividing (I) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of Common Stock to be paid to the holders of the shares of Common Stock upon consummation of such Fundamental Transaction (any such non-cash consideration to be valued at the higher of the Closing Sale Price of such securities as of the Trading Day immediately prior to the consummation of such Fundamental Transaction, the Closing Sale Price of the Common Stock on the Trading Day immediately following the public announcement of such proposed Fundamental Transaction and the Closing Sale Price of the Common Stock on the Trading Day immediately prior to the public announcement of such proposed Fundamental Transaction) by (II) the Conversion Price (the “ Fundamental Transaction Redemption Price ”). Redemptions required by this Section 10 shall have priority to payments to all other stockholders of the Company in connection with such Fundamental Transaction. To the extent redemptions required by this Section 10 are deemed or determined by a court of competent jurisdiction to be prepayments of the shares of Series D Preferred Stock by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 10, but subject to Section 7, until the Fundamental Transaction Redemption Price is paid in full, the Conversion Amount submitted by a Holder for redemption under this Section 10 may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 3 or in the event the Conversion Date is after the consummation of such Fundamental Transaction, stock or equity interests of the Successor Entity substantially equivalent to the Company’s shares of Common Stock pursuant to Section 3. In the event of the Company’s redemption of any portion of the shares of Series D Preferred Stock under this Section 10, such Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for a Holder. Accordingly, any redemption premium due under this Section 10 is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. The Company shall make payment of the Fundamental Transaction Redemption Price concurrently with the consummation of such Fundamental Transaction if such a Fundamental Transaction Redemption Notice is received prior to the consummation of such Fundamental Transaction and within two (2) Trading Days after the Company’s receipt of such notice otherwise (the “ Fundamental Transaction Redemption Date ”). In the event that the Company does not pay the Fundamental Transaction Redemption Price on the Fundamental Transaction Redemption Date, then, in addition to all other rights and remedies available to such Holder, such Holder shall have the right to void the redemption pursuant to Section 4(d) with the term “Fundamental Transaction Redemption Price” being substituted for “Triggering Event Redemption Price” and “Fundamental Transaction Redemption Notice” being substituted for “Notice of Redemption at Option of Holder,” shall have all rights of a Holder under Section 4(d) and Section 4(e) as if they were part of this Section 10 and applied to this Section 10 and the Company shall pay to such Holder interest at the rate of 2% per month (prorated for partial months) in respect of such Holder’s Fundamental Transaction Redemption Price until paid in full.

 
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11.            Redemption at Option of the Company .

(a)            Right to Cause Redemption . At any time after the Initial Issuance Date so long as no Holder has a right to require the Company to redeem any shares of Series D Preferred Stock pursuant to the terms of Section 10 of this Certificate of Determination, the Company shall have the right to redeem all, but not less than all, of the shares of Series D Preferred Stock then outstanding (the “ Company Optional Redemption Right ”).

(b)            Mechanics of Redemption at Option of the Company .  The Company shall give written notice to each Holder that it has elected to redeem all of the then outstanding shares of Series D Preferred Stock pursuant to the exercise of the Company Optional Redemption Right (the “ Notice of Company Optional Redemption ”). The Notice of Company Optional Redemption shall state the date on which the redemption shall occur (which date shall be a Business Day that is no less than ten (10) Business Days after the date of such notice (the “ Optional Redemption Date ”)), certify whether or not a Triggering Event has occurred, and direct each Holder to deliver its Preferred Share Certificate(s) to the Transfer Agent.

(c)            Payment of Optional Redemption Price . The redemption price of each share of Series D Preferred Stock to be redeemed pursuant to this Section 11 (the “ Optional Redemption Price ”) shall be determined as of the Optional Redemption Date and shall be an amount equal to (i) 110% of the Conversion Amount thereof as of the Optional Redemption Date if no Triggering Event has occurred on or prior to the Optional Redemption Date, or (ii) the Triggering Event Redemption Price thereof as of the Optional Redemption Date (determined pursuant to Section 4(b) and assuming for purposes thereof that a Notice of Redemption at Option of Holder was delivered on the date on which the Closing Sale Price of the Common Stock was the highest during the period beginning on the date the Triggering Event occurred and ending on the Optional Redemption Date) if a Triggering Event occurred on or prior to the Optional Redemption Date. The Optional Redemption Price shall be payable in cash to each Holder on the later of the Optional Redemption Date or the date on which such Holder delivers its Preferred Share Certificate(s) to the Transfer Agent (such later date being the “ Optional Redemption Payment Date ”). To the extent redemptions required by this Section 11 are deemed or determined by a court of competent jurisdiction to be prepayments of the shares of Series D Preferred Stock by the Company, such redemptions shall be deemed to be voluntary prepayments. In the event of the Company’s redemption of any portion of the shares of Series D Preferred Stock under this Section 11, a Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 11 is intended by the parties to be, and shall be deemed, a reasonable estimate of such Holder’s actual loss of its investment opportunity and not as a penalty. Notwithstanding anything to the contrary in this Section 11, but subject to Section 7, until the Optional Redemption Price is paid in full to a Holder for all such Holder’s shares of Series D Preferred Stock, the Conversion Amount subject to redemption under this Section 11 may be converted, in whole or in part, by such Holder into Common Stock pursuant to Section 3. In the event that the Company does not pay to a Holder the Optional Redemption Price on the Optional Redemption Payment Date, then, in addition to all other rights and remedies available to such Holder, such Holder shall have the right to void the redemption pursuant to Section 4(d) with the term “Optional Redemption Price” being substituted for “Triggering Event Redemption Price” and “Notice of Company Optional Redemption” being substituted for “Notice of Redemption at Option of Holder,” shall have all rights of a Holder under Section 4(d) and Section 4(e) as if they were part of this Section 11 and applied to this Section 11 and the Company shall pay to such Holder interest at the rate of 2% per month (prorated for partial months) in respect of such Holder’s Optional Redemption Price until paid in full. Notwithstanding anything contained in this Section 11 to the contrary, if a Holder delivers a Notice of Redemption at Option of Holder at any time on or prior to the Optional Redemption Date, then the provisions of Section 4 shall  apply instead of the provisions of this Section 11 with respect to the shares of Series D Preferred Stock specified in, and subject to, such Notice of Redemption at Option of Holder and any shares of Series D Preferred Stock held by such Holder that are not subject to such Notice of Redemption at Option of Holder shall continue to be subject to redemption by the Company on the Optional Redemption Date pursuant to this Section 11.

 
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12.            Liquidation, Dissolution, Winding-Up . In the event of a Liquidation Event, the Holders shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the “ Liquidation Funds ”), before any amount shall be paid to the holders of any of shares of the capital stock of the Company of any class junior in rank to the shares of Series D Preferred Stock in respect of the preferences as to distributions and payments on the liquidation, dissolution and winding up of the Company, an amount per share of Series D Preferred Stock equal to 135% of the Conversion Amount thereof on the date of such payment; provided that, if the Liquidation Funds are insufficient to pay the full amount due to the Holders and holders of shares of other classes or series of shares of preferred stock of the Company that are of equal rank with the shares of Series D Preferred Stock as to payments of Liquidation Funds (the “ Pari Passu Shares ”), then each Holder and Pari Passu Shares shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder as a liquidation preference, in accordance with their respective certificate of designations (or equivalent), as a percentage of the full amount of Liquidation Funds payable to all holders of shares of Series D Preferred Stock and Pari Passu Shares.  To the extent necessary, the Company shall cause such actions to be taken by any of its Subsidiaries so as to enable, to the maximum extent permitted by law, the proceeds of a Liquidation Event to be distributed to the Holders in accordance with this Section. All the preferential amounts to be paid to the Holders under this Section shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any Liquidation Funds of the Company to the holders of shares capital stock of the Company (including, without limitation, other classes or series of shares of preferred stock of the Company) junior in rank to the shares of Series D Preferred Stock in connection with a Liquidation Event as to which this Section applies.

 
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13.            Preferred Rank .  All shares of capital stock of the Company shall be junior in rank to all shares of Series D Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.  The rights of all such shares of capital stock of the Company shall be subject to the preferences and relative rights of the shares of Series D Preferred Stock. Without the prior express written consent of the Required Holders, the Company shall not hereafter authorize or issue additional or other capital shares that is of senior or pari passu rank to the shares of Series D Preferred Stock in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company (collectively, the “ Senior Preferred ”).  The Company shall be permitted to issue shares of preferred stock that are junior in rank to the shares of Series D Preferred Stock in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company, provided that the maturity date (or any other date requiring redemption or repayment of such shares of preferred stock) of any such junior shares of preferred stock are not on or before the Final Redemption Date. In the event of the merger or consolidation of the Company with or into another corporation, the shares of Series D Preferred Stock shall maintain their relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

14.            Participation . The Holders shall, as holders of shares of Series D Preferred Stock, be entitled to receive such dividends paid and distributions made to the holders of shares of Common Stock to the same extent as if such Holders had converted each share of Series D Preferred Stock held by each of them into shares of Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of shares of Common Stock (provided, however, that to the extent that a Holder’s right to participate in any such dividend or distribution would result in such Holder exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such dividend or distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such dividend or distribution to such extent) and such dividend or distribution to such extent shall be held in abeyance for the benefit of such Holder until such time, if ever, as its right thereto would not result in such Holder exceeding the Maximum Percentage).

15.            Vote to Change the Terms of or Issue Series D Preferred Stock .  In addition to any other rights provided by law, except where the vote or written consent of the holders of a greater number of shares is required by law or by another provision of the Articles of Incorporation, without first obtaining the affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the Required Holders, voting together as a single class, the Company shall not: (a) amend or repeal any provision of, or add any provision to, its Articles of Incorporation or bylaws, or file any certificate of designations or articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series D Preferred Stock, regardless of whether any such action shall be by means of amendment to the Articles of Incorporation or by merger, consolidation or otherwise; (b) increase or decrease (other than by conversion) the authorized number of shares of Series D Preferred Stock; (c) create or authorize (by reclassification or otherwise) any new class or series of shares that has a preference over or is on a parity with the Series D Preferred Stock with respect to dividends or the distribution of assets on the liquidation, dissolution or winding up of the Company; (d) purchase, repurchase or redeem any shares of capital stock of the Company junior in rank to the Series D Preferred Stock (other than pursuant to equity incentive agreements (that have in good faith been approved by the Board) with employees giving the Company the right to repurchase shares upon the termination of services); (e) pay dividends or make any other distribution on any shares of any capital stock of the Company junior in rank to the Series D Preferred Stock; (f) issue any shares of Series D Preferred Stock other than pursuant to the Securities Purchase Agreement and the Series B Warrants or (g) whether or not prohibited by the terms of the Series D Preferred Stock, circumvent a right of the Series D Preferred Stock.

 
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16.            Lost or Stolen Certificates.   Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Share Certificates representing shares of Series D Preferred Stock (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of an indemnification undertaking by a Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of the Preferred Share Certificate(s), the Company shall execute and deliver new Preferred Share Certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue Preferred Share Certificates if such Holder contemporaneously requests the Company to convert such shares of Series D Preferred Stock into shares of Common Stock.

17.            Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.   The remedies provided in this Certificate of Determination shall be cumulative and in addition to all other remedies available under this Certificate of Determination, the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy.  Nothing herein shall limit a Holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Determination. The Company covenants to each Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by a Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company 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 Company therefore agrees that, in the event of any such breach or threatened breach, 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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18.            Noncircumvention . The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Determination, and will at all times in good faith carry out all the provisions of this Certificate of Determination and take all action as may be required to protect the rights of the Holders. Without limiting the generality of the foregoing or any other provision of this Certificate of Determination, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any shares of Series D Preferred Stock above the Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the conversion of shares of Series D Preferred Stock, and (iii) shall, so long as any shares of Series D Preferred Stock are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series D Preferred Stock, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the conversion of the shares of Series D Preferred Stock (without regard to any limitations on conversion contained herein).

19.            Failure or Indulgence Not Waiver .  No failure or delay on the part of a Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. This Certificate of Determination shall be deemed to be jointly drafted by the Company and all Holders and shall not be construed against any Person as the drafter hereof.
 
20.            Notice . Whenever notice is required to be given under this Certificate of Determination, unless otherwise provided herein, such notice must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight courier service (with next day delivery specified), in each case, properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company:

NutraCea
5090 N. 40th Street , Suite 400
Phoenix, AZ 85018
Telephone: (602) 522-3000
Facsimile: (602) 522-3001
Attention:  Chief Executive Officer
General Counsel

 
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With a copy (for informational purposes only) to:
Weintraub Genshlea Chediak Law Corporation
400 Capitol Mall
Sacramento, CA 95814
Telephone: (916) 558-6164
Facsimile: (916) 446-1611
Attention:  Christopher Chediak, Esq.
Michael DeAngelis, Esq.

If to the Transfer Agent:
American Stock Transfer & Trust
59 Maiden Lane, Plaza Level – Lobby
New York, NY  10038 
Telephone:  (718) 921-8143
Facsimile: (718) 921-8116
Attention:  Joe Wolf, Vice President

If to a Holder, to its address and facsimile number set forth in the records of the Company,

with a copy (for informational purposes only) to:

Greenberg Traurig, LLP
77 W. Wacker Drive, Suite 2500
Chicago, Illinois 60601
Telephone:  (312) 456-8400
Facsimile:  (312) 456-8435
Attention:  Peter H. Lieberman, Esq.
Todd A. Mazur, Esq.

or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

21.            Transfer of Series D Preferred Stock . A Holder may transfer some or all of its shares of Series D Preferred Stock without the consent of the Company; provided that such Holder provides the Company with written notice thereof within a reasonable period of time thereafter of the transferee and the number of shares of Series D Preferred Stock so transferred.


 
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22.            Series D Preferred Stock Register .  The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holders), a register for the Series D Preferred Stock, in which the Company shall record the name, address and facsimile number of the Persons in whose name the shares of Series D Preferred Stock have been issued, as well as the name and address of each transferee. The Company may treat the Person in whose name any Series D Preferred Stock is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any properly made transfers.

23.            Stockholder Matters . Any stockholder action, approval or consent required, desired or otherwise sought by the Company pursuant to the rules and regulations of the Eligible Market on which the Common Stock is then listed, the Corporations Code, this Certificate of Determination or otherwise with respect to the issuance of Series D Preferred Stock or the shares of Common Stock issuable upon conversion thereof or the issuance of any Warrants and the Warrant Shares may be effected by written consent of the Company’s stockholders or at a duly called meeting of the Company’s stockholders, all in accordance with the applicable rules and regulations of such Eligible Market and the Corporations Code. This provision is intended to comply with the applicable sections of the Corporations Code permitting stockholder action, approval and consent affected by written consent in lieu of a meeting.

24.            Notices . The Company shall provide each Holder of Series D Preferred Stock with prompt written notice of all actions taken pursuant to the terms of this Certificate of Determination, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company shall give written notice to each such Holder (i) promptly following any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock as a class or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder.

25.            Disclosure . Upon receipt or delivery by the Company of any notice in accordance with the terms of this Certificate of Determination, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or any of its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise.  In the event that the Company believes that a notice contains material, nonpublic information relating to the Company or any of its Subsidiaries, the Company so shall indicate to the Holders contemporaneously with delivery of such notice, and in the absence of any such indication, the Holders shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries. Nothing contained in this Section 25 shall limit any obligations of the Company, or any rights of a Holder, under Section 4(i) of the Securities Purchase Agreement.

*  *  *  *  *
 
 
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EXHIBIT I
NUTRACEA CONVERSION NOTICE

Reference is made to the Certificate of Determination, Preferences and Rights of the Series D Convertible Preferred Stock of NutraCea (the “ Certificate of Determination ”). In accordance with and pursuant to the Certificate of Determination, the undersigned hereby elects to convert the number of shares of Series D Convertible Preferred Stock, no par value per share (the “ Series D Preferred Stock ”), of NutraCea, a California corporation (the “ Company ”), indicated below into shares of common stock, no par value per share (the “ Common Stock ”), of the Company, as of the date specified below.
 
Date of Conversion: 
 
 
Number of shares of Series D Preferred Stock to be converted: 
 
 
Share certificate no(s). of Series D Preferred Stock to be converted: 
 

Tax ID Number (If applicable): 
 

Please confirm the following information: 
 

Conversion Price: 
 

Number of shares of Common Stock to be credited: 
1

Number of shares of Common Stock to be issued: 
 
 
Please issue the shares of Common Stock into which the shares of Series D Preferred Stock are being converted in the following name and to the following address:
 
Issue to: 
 
   
 
Address: 
 

Telephone Number: 
 

Facsimile Number: 
 

Authorization: 
 
 
By: 
 
Title: 
 
 
Dated:
 
Account Number (if electronic book entry transfer): 
 

Transaction Code Number (if electronic book entry transfer): 
 
 
 __________________________________
1 Only applicable if a credit exists under Section 5(b).

 
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ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs [                                ] to issue the above indicated number of shares of Common Stock in accordance with the Irrevocable Transfer Agent Instructions dated __________, 2008 from the Company and acknowledged and agreed to by [                              ].
 
NUTRACEA
 
       
       
 
By:
   
       
 
Name:
   
 
Title:
   
 

 
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The undersigned declares 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 his own knowledge.

The undersigned has executed this certificate in Phoenix, Arizona on October 16, 2008.

/s/ Bradley Edson
 
Bradley Edson,
President, Chief Executive Officer and Secretary
 
 
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Exhibit 4.1

[FORM OF SERIES A WARRANT]

NUTRACEA

Warrant To Purchase Common Stock

Warrant No.: A-                                                      
Date of Issuance: October ___, 2008 (“ Issuance Date ”)

NutraCea, a California corporation (the “ Company ”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, _________________, the registered holder hereof or its permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “ Warrant ”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), ______________ (subject to adjustment as provided herein) fully paid and nonassessable shares of Common Stock (as defined below)   (the “ Warrant Shares ”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the warrants to purchase Common Stock (the “ SPA Warrants ”) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of October 16, 2008, by and among the Company and the investors referred to therein (the “ Securities Purchase Agreement ”).
 
1.
EXERCISE OF WARRANT .

(a)            Mechanics of Exercise . Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Issuance Date, in whole or in part, by (i) delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the then-applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “ Aggregate Exercise Price ”) in cash or wire transfer of immediately available funds or, (B) if permitted pursuant to Section 1(d) of this Warrant, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder until the Holder has purchased all the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation as soon as practicable following the delivery of the applicable Exercise Delivery Documents (as defined below). Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of the Exercise Notice for all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof. On or before the second (2 nd ) Trading Day following the date on which the Company has received each of the fully completed Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise, if applicable) (the “ Exercise Delivery Documents ”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent (the “ Transfer Agent ”). On or before the third (3 rd ) Trading Day following the date on which the Company has received all of the Exercise Delivery Documents (the “ Share Delivery Date ”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at Holder’s instruction pursuant to the Exercise Notice, Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be).  If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.  No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all transfer taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, the applicable Exercise Notice shall be accompanied by the Assignment Form attached hereto as Exhibit B duly executed by the Holder, and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

 
 

 

(b)            Exercise Price . For purposes of this Warrant, “ Exercise Price ” means $0.55, subject to adjustment as provided herein.

(c)            Company’s Failure to Timely Deliver Securities . If within three (3) Trading Days after the Company’s receipt of the applicable Exercise Delivery Documents, the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s exercise hereunder (as the case may be), and if on or after such third (3 rd ) Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “ Buy-In ”), then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock times (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice.

 
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(d)            Cashless Exercise . Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), if at the time of exercise hereof the Registration Statement (as defined in the Securities Purchase Agreement) is not effective (or the prospectus contained therein is not available for use) and all of the Warrant Shares are not then registered for resale into the market at market prices from time to time on an effective registration statement for use on a continuous basis (or the prospectus contained therein is not available for use), the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “ Cashless Exercise ”):

Net Number = (A x B) - (A x C)

B

For purposes of the foregoing formula:

A= the total number of shares with respect to which this Warrant is then being exercised.

B= the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the Exercise Notice.

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

(e)            Disputes .  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.

 
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(f)            Limitations on Exercises . Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the extent) that, if exercisable by the Holder, the Holder or any of its affiliates would beneficially own in excess of  [4.9%][9.9%] (the “ Maximum Percentage ”) of the outstanding shares of Common Stock. To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder) and of which such securities shall be exercisable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined by the Holder in accordance with Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement. [By written notice to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.9% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61 st ) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other holder of SPA Warrants.][HOLDER MAY ELECT WHICH BRACKETED PROVISIONS APPLY PRIOR TO ISSUANCE] Each delivery of an Exercise Notice by the Holder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested by the Holder in such Exercise Notice is permitted under this paragraph.

(g)            Insufficient Authorized Shares . The Company shall at all times keep reserved for issuance under this Warrant a number of shares of Common Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock hereunder (without regard to any limitation otherwise contained herein with respect to the number of shares of Common Stock that may be acquirable upon exercise of this Warrant). If, notwithstanding the foregoing, and not in limitation thereof, at any time while any of the SPA Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of the SPA Warrants at least a number of shares of Common Stock equal to the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the SPA Warrants then outstanding (the “ Required Reserve Amount ”) (an “ Authorized Share Failure ”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the SPA Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 
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2.              ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.

(a)            Stock Dividends and Splits .  If the Company, at any time on or after the date of the Securities Purchase Agreement, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

(b)            Adjustment Upon Issuance of Shares of Common Stock . If and whenever on or after the date of the Securities Purchase Agreement the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities (as defined in the Certificate of Determination) issued or sold or deemed to have been issued or sold) for a consideration per share (the “ New Issuance Price ”) less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Exercise Price then in effect is referred to as the “ Applicable Price ”) (the foregoing a “ Dilutive Issuance ”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price. For purposes of determining the adjusted Exercise Price under this Section 2(b), the following shall be applicable:

 
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(i)            Issuance of Options .  If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock (a) upon the granting or sale of the Option, (b) upon exercise of the Option and (c) upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
 
(ii)           Issuance of Convertible Securities .  If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 2(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock (a) upon the issuance or sale of the Convertible Security and (b) upon conversion, exercise or exchange of such Convertible Security. Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issue or sale.

(iii)         Change in Option Price or Rate of Conversion . If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.

 
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(iv)         Calculation of Consideration Received . In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01.  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the amount of consideration received by the Company. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the average VWAP of such security for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “ Valuation Event ”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10 th ) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

(v)          Record Date . If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

(c)             Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section 2, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).

 
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(d)            Other Events . In the event that the Company (or any direct or indirect subsidiary thereof) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors shall in good faith determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(d) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s Board of Directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.

(e)            Calculations . All calculations under this Section 2 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. 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 Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

3.              RIGHTS UPON DISTRIBUTION OF ASSETS . If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all the holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 
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4.              PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS .

(a)            Purchase Rights .  In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

(b)            Fundamental Transactions . The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is satisfactory in form and substance to the Holder. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of Common Stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been exercised immediately prior to such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant), as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “ Corporate Event ”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the Warrant been exercised immediately prior to such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant). Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such other warrant)).

 
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(c)            Black Scholes Value . Notwithstanding the foregoing and the provisions of Section 4(b) above, in the event of a Fundamental Transaction (other than a Fundamental Transaction resulting solely from a merger or consolidation in which the Company is the surviving entity, the Common Stock continues to be publicly traded on an Eligible Market following such merger or consolidation and an amount of shares of Common Stock which is less than 20% of the Company’s issued and outstanding shares of Common Stock outstanding immediately prior to such merger or consolidation are issued in connection with such merger or consolidation), at the request of the Holder delivered before the ninetieth (90 th ) day after the consummation of such Fundamental Transaction, the Company or the Successor Entity (as the case may be) shall purchase this Warrant from the Holder by paying to the Holder cash in an amount equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction.

5.              NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on exercise).

 
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6.              WARRANT HOLDER NOT DEEMED A STOCKHOLDER . Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

7.              REISSUANCE OF WARRANTS .

(a)            Transfer of Warrant . If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

(b)            Lost, Stolen or Mutilated Warrant . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 
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(c)             Exchangeable for Multiple Warrants . This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no warrants for fractional shares of Common Stock shall be given.

(d)            Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

8.             NOTICES .  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder (at its last address as it shall appear upon the Warrant register of the Company) with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (at its last address as it shall appear upon the Warrant register of the Company) (i) promptly following each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to all the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of its subsidiaries, the Company shall simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K.

9.             AMENDMENT AND WAIVER .  Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. The Holder shall be entitled, at its option, to the benefit of any amendment of any other similar warrant issued under the Securities Purchase Agreement. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 
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10.            SEVERABILITY .  If any provision of this Warrant or the application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of the terms of this Warrant will continue in full force and effect.

11.            GOVERNING LAW . This Warrant shall be governed by and construed and enforced in accor­dance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.

12.            CONSTRUCTION; HEADINGS . This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.

13.            DISPUTE RESOLUTION . In the case of a dispute as to the determination of the Exercise Price or fair market value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile within five (5) Business Days of receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be). If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within ten (10) days submit via facsimile (a) the disputed determination of the Exercise Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than twenty (20) days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.

14.            REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF .  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant 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. The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.

 
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15.            TRANSFER . This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company so long as the Company receives written notice of such sale, transfer or assignment within a reasonable amount of time thereafter that contains the name(s) of the transferees or assignees and the rights so sold, transferred or assigned.

16.            CERTAIN DEFINITIONS .  For purposes of this Warrant, the following terms shall have the following meanings:

(a)           “ Black Scholes Value ” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of closing of the applicable Fundamental Transaction for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of request, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (iii) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non cash consideration, if any, being offered in such Fundamental Transaction.

(b)           “ Bloomberg ” means Bloomberg Financial Markets.

(c)           “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

(d)           “ Certificate of Determination ” has the meaning set forth in the Securities Purchase Agreement.

 
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(e)           “ Closing Sale Price ” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing does not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

(f)           “ Common Stock ” means (i) the Company’s shares of common stock, no par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

(g)           “ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

(h)           “ Eligible Market ” means The New York Stock Exchange, Inc., the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the Principal Market.

(i)           “ Expiration Date ” means the date that is the fifth (5 th ) anniversary of the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “ Holiday ”), the next date that is not a Holiday.

(j)           “ Fundamental Transaction ” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (3) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify its Common Stock (for clarification purposes, excluding customary stock splits and stock dividends), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

 
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(k)           “ Options ” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

(l)           “ Parent Entity ” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

(m)           “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

(n)           “ Principal Market ” means The OTC Bulletin Board.

(o)           “ Successor Entity ” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

(p)           “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

(q)           “ VWAP ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any share dividend, share split or other similar transaction during such period.

[ signature page follows ]

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.


 
NUTRACEA
 
       
       
 
By:
   
 
Name:
   
 
Title:
   

 

 

EXHIBIT A

EXERCISE NOTICE
 
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
 
NUTRACEA
 
The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“ Warrant Shares ”) of NutraCea, a California corporation (the “ Company ”), evidenced by Warrant to Purchase Common Stock No. _______ (the “ Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.             Form of Exercise Price .  The Holder intends that payment of the Exercise Price shall be made as:

____________
 
a “ Cash Exercise ” with respect to _________________ Warrant Shares; and/or
     
____________
 
[if permitted] a “ Cashless Exercise ” with respect to _______________ Warrant Shares.

2.             Payment of Exercise Price .  In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.             Qualified Institutional/Accredited Investor .  If the Holder is a resident of (or, in the case of an entity, such entity’s principal place of business is located in) any State other than New York or California and is making a Cash Exercise, the Holder hereby represents that the Holder is a “qualified institutional investor” as defined in Section 2(g) of the Securities Purchase Agreement, except that if the Holder is a resident of (or, in the case of an entity, such entity’s principal place of business is located in) the State of Illinois and is making a Cash Exercise, the Holder hereby represents that the Holder is an “accredited investor” as that term is defined in Rule 501 of the rules and regulations promulgated under the Securities Act of 1933, as amended.

4.             Delivery of Warrant Shares .  The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, to the following address:
 
 
 
 
 
 
 
 
 
 
 
 
 

Date:   _______________ __ , ______


   
Name of Registered Holder
 
     
By:
   
 
Name:
 
 
Title:
 
 
 

 

ACKNOWLEDGMENT


The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _____________, 2008 from the Company and acknowledged and agreed to by _______________.
 

  NUTRACEA  
 
By:
   
 
Name:
   
 
Title:
   

 

 

EXHIBIT B

ASSIGNMENT FORM

(To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.)


FOR VALUE RECEIVED, [all of the] [_______] shares of the foregoing Warrant and all rights evidenced thereby [with respect to such shares] are hereby assigned to
 
 
 whose address is
 
     
 
 
  .
     
 
 
 

 

 
   
Dated:   ______________ , _______
 
    
      
 
Holder’s Signature:
 
 
       
 
Holder’s Address:
 
 
       
   
 
   



NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or any change whatsoever.
 
 


Exhibit 4.2

 
[FORM OF SERIES B WARRANT]
 
NUTRACEA
 
Warrant To Purchase Series D Convertible Preferred Stock
 
Warrant No.: B-_______                                                      
Date of Issuance: October ___, 2008 (“ Issuance Date ”)
 
NutraCea, a California corporation (the “ Company ”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, _________________, the registered holder hereof or its permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Series D Preferred Stock (as defined below) (including any Warrants to Purchase Series D Preferred Stock issued in exchange, transfer or replacement hereof, the “ Warrant ”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), ______________ (subject to adjustment as provided herein) fully paid and nonassessable shares of Series D Preferred Stock (as defined below)   (the “ Warrant Shares ”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the warrants to purchase Series D Preferred Stock (the “ Series B Warrants ”) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of October 16, 2008, by and among the Company and the investors referred to therein (the “ Securities Purchase Agreement ”).
 
1.
EXERCISE OF WARRANT .
 
(a)            Mechanics of Exercise . Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the Issuance Date, in whole or in part, by (i) delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant and (ii) payment to the Company of an amount equal to the then-applicable Exercise Price multiplied by the number of whole Warrant Shares as to which this Warrant is being exercised (the “ Aggregate Exercise Price ”) in cash or wire transfer of immediately available funds. The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder until the Holder has purchased all the Warrant Shares available hereunder and this Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation as soon as practicable following the delivery of the applicable Exercise Delivery Documents (as defined below). Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of the Exercise Notice for all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof. On or before the second (2 nd ) Trading Day following the date on which the Company has received each of the fully completed Exercise Notice and the Aggregate Exercise Price (the “ Exercise Delivery Documents ”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder. On or before the third (3 rd ) Trading Day following the date on which the Company has received all of the Exercise Delivery Documents (the “ Share Delivery Date ”), the Company shall issue and deliver to the Holder or, at Holder’s instruction pursuant to the Exercise Notice, Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the Exercise Notice), for the number of shares of Series D Preferred Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares.  If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.  No fractional shares of Series D Preferred Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Series D Preferred Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all transfer taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, the applicable Exercise Notice shall be accompanied by the Assignment Form attached hereto as Exhibit B duly executed by the Holder, and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

 

 

(b)            Exercise Price. For purposes of this Warrant, “ Exercise Price ” means $1,000, subject to adjustment as provided herein.
 
(c)            Disputes .  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.
 
(d)            Insufficient Authorized Shares . The Company shall at all times keep reserved for issuance under this Warrant a number of shares of Series D Preferred Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Series D Preferred Stock hereunder. If, notwithstanding the foregoing, and not in limitation thereof, at any time while any of the Series B Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Series D Preferred Stock to satisfy its obligation to reserve for issuance upon exercise of the Series B Warrants at least a number of shares of Series D Preferred Stock equal to the number of shares of Series D Preferred Stock as shall from time to time be necessary to effect the exercise of all of the Series B Warrants then outstanding (the “ Required Reserve Amount ”) (an “ Authorized Share Failure ”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Series D Preferred Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the Series B Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Series D Preferred Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Series D Preferred Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 
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2.             ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.
 
(a)            Stock Dividends and Splits.   If the Company, at any time on or after the date of the Securities Purchase Agreement, (i) pays a stock dividend on its then outstanding shares of Series D Preferred Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Series D Preferred Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) its then outstanding shares of Series D Preferred Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) its then outstanding shares of Series D Preferred Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Series D Preferred Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Series D Preferred Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
 
(b)            Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section 2, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
 
(c)            Other Events. In the event that the Company (or any direct or indirect subsidiary thereof) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions, then the Company’s Board of Directors shall in good faith determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(c) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s Board of Directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.

 
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(d)            Calculations. All calculations under this Section 2 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Series D Preferred Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company.
 
3.              RIGHTS UPON DISTRIBUTION OF ASSETS . If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all the holders of shares of Series D Preferred Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, this Warrant shall represent the right to acquire, in addition to the number of Warrant Shares receivable upon exercise of this Warrant, and without payment of any additional consideration therefor, the dividend or other distribution of the Company’s assets that the Holder would have received in such Distribution if the Holder were the holder of record of the Warrant Shares at the time of such Distribution (provided, however, that to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage (as defined in the Certificate of Determination), then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
 
4.
PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS .
 
(a)            Purchase Rights .   In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all the record holders of any class of shares of Series D Preferred Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Series D Preferred Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Series D Preferred Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 
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(b)            Fundamental Transactions . The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Series D Preferred Stock acquirable and receivable upon exercise of this Warrant prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Series D Preferred Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is satisfactory in form and substance to the Holder. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of Series D Preferred Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of capital stock of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been exercised immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Series D Preferred Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Series D Preferred Stock (a “ Corporate Event ”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Series D Preferred Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been exercised immediately prior to such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant). Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable (provided that the Holder shall continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such other warrant)).

 
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5.              NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value or stated value (other than in connection with a stock split or combination of the Series D Preferred Stock) of any shares of Series D Preferred Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Series D Preferred Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the Series B Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Series D Preferred Stock, solely for the purpose of effecting the exercise of the Series B Warrants, the maximum number of shares of Series D Preferred Stock as shall from time to time be necessary to effect the exercise of the Series B Warrants then outstanding.
 
6.              WARRANT HOLDER NOT DEEMED A STOCKHOLDER . Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

 
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7.              REISSUANCE OF WARRANTS .
 
(a)            Transfer of Warrant . If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7 (d) ) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
 
(b)            Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
 
(c)            Exchangeable for Multiple Warrants . This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no warrants for fractional shares of Series D Preferred Stock shall be given.
 
(d)            Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Series D Preferred Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 
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8.              NOTICES .  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder (at its last address as it shall appear upon the Warrant register of the Company) with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (at its last address as it shall appear upon the Warrant register of the Company) (i) promptly following each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to all the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of its subsidiaries, the Company shall simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K.
 
9.              AMENDMENT AND WAIVER .  Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. The Holder shall be entitled, at its option, to the benefit of any amendment of any other similar warrant issued under the Securities Purchase Agreement. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.
 
10.            SEVERABILITY .  If any provision of this Warrant or the application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of the terms of this Warrant will continue in full force and effect.
 
11.            GOVERNING LAW . This Warrant shall be governed by and construed and enforced in accor­dance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.
 
12.            CONSTRUCTION; HEADINGS . This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 
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13.            DISPUTE RESOLUTION . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile within five (5) Business Days of receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be). If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within ten (10) days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than twenty (20) days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.
 
14.            REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF .  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant 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. The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.
 
15.            TRANSFER . This Warrant may not be offered for sale, sold, transferred or assigned without the prior written consent of the Company.
 
16.            CERTAIN DEFINITIONS .  For purposes of this Warrant, the following terms shall have the following meanings:
 
(a)           “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
 
(b)           “ Certificate of Determination ” has the meaning set forth in the Securities Purchase Agreement.

 
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(c)           “ Common Stock ” means (i) the Company’s shares of common stock, no par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
 
(d)           “ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.
 
(e)           “ Expiration Date ” means the date that is the sixtieth (60 th ) calendar day following the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “ Holiday ”), the next date that is not a Holiday; provided, however, that the Expiration Date shall be extended one calendar day for each calendar day during the term of this Warrant (as extended pursuant to this proviso) that the Registration Statement (as defined in the Securities Purchase Agreement) is not effective (or the prospectus contained therein is not available for use) for all of the Securities (as defined in the Certificate of Determination).
 
(f)           “ Fundamental Transaction ” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (3) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify its Common Stock (for clarification purposes, excluding customary stock splits and stock dividends), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.
 
(g)           “ Options ” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
 
(h)           “ Parent Entity ” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 
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(i)           “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
 
(j)           “ Principal Market ” means The OTC Bulletin Board.
 
(k)           “ Series D Preferred Stock ” means (i) the Company’s shares of Series D Convertible Preferred Stock and (ii) any capital stock into which such preferred stock shall have been changed or any share capital resulting from a reclassification of such preferred stock.
 
(l)           “ Successor Entity ” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
 
(m)           “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).
 
[ signature page follows ]

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Series D Convertible Preferred Stock to be duly executed as of the Issuance Date set out above.
 
 
NUTRACEA
       
 
By:
   
 
Name:
 
 
Title:
 

 
 

 

EXHIBIT A
 
EXERCISE NOTICE
 
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE SERIES D CONVERTIBLE PREFERRED STOCK
 
NUTRACEA
 
The undersigned holder hereby exercises the right to purchase _________________ of the shares of Series D Convertible Preferred Stock (“ Warrant Shares ”) of NutraCea, a California corporation (the “ Company ”), evidenced by Warrant to Purchase Series D Convertible Preferred Stock No. _______ (the “ Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
 
1.              Payment of Exercise Price .  The Holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
 
2.             Qualified Institutional/Accredited Investor .  If the Holder is a resident of (or, in the case of an entity, such entity’s principal place of business is located in) any State other than New York or California, the Holder hereby represents that the Holder is a “qualified institutional investor” as defined in Section 2(g) of the Securities Purchase Agreement, except that if the Holder is a resident of (or, in the case of an entity, such entity’s principal place of business is located in) the State of Illinois, the Holder hereby represents that the Holder is an “accredited investor” as that term is defined in Rule 501 of the rules and regulations promulgated under the Securities Act of 1933, as amended.
 
3.               Delivery of Warrant Shares .  The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, to the following address:
 
         
         
         
         
 
Date:  _______________ ___ , ______
 
       
Name of Registered Holder
     
       
By:
       
 
Name:
     
 
Title:
     

 
 

 

ACKNOWLEDGMENT
 
The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of shares of Series D Preferred Stock in accordance with the terms of the Warrant.
 
 
NUTRACEA
 
     
 
By:
   
 
Name:
 
 
Title:
 

 
 

 

EXHIBIT B

ASSIGNMENT FORM

(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)



FOR VALUE RECEIVED, [all of the] [_______] shares of the foregoing Warrant and all rights evidenced thereby [with respect to such shares] are hereby assigned to
 
 
 whose address is
 
     
 
 
  .
     
 
 
 

 

 
   
Dated:   ______________ , _______
 
    
      
 
Holder’s Signature:
 
 
       
 
Holder’s Address:
 
 
       
   
 
   

 
NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or any change whatsoever.
 
 


Exhibit 4.3
 
[FORM OF SERIES C WARRANT]
 
NUTRACEA
 
Warrant To Purchase Common Stock
 
Warrant No.: C- ___________              
Date of Issuance: October ___, 2008 (“ Issuance Date ”)
 
NutraCea, a California corporation (the “ Company ”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, _________________, the registered holder hereof or its permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “ Warrant ”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), ______________ (subject to adjustment as provided herein) fully paid and nonassessable shares of Common Stock (as defined below)   (the “ Warrant Shares ”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the warrants to purchase Common Stock (the “ SPA Warrants ”) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of October 16, 2008, by and among the Company and the investors referred to therein (the “ Securities Purchase Agreement ”).
 
1.
EXERCISE OF WARRANT .
 
(a)        Mechanics of Exercise . Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Issuance Date, in whole or in part, by (i) delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the then-applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “ Aggregate Exercise Price ”) in cash or wire transfer of immediately available funds or, (B) if permitted pursuant to Section 1(d) of this Warrant, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder until the Holder has purchased all the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation as soon as practicable following the delivery of the applicable Exercise Delivery Documents (as defined below). Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of the Exercise Notice for all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof. On or before the second (2 nd ) Trading Day following the date on which the Company has received each of the fully completed Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise, if applicable) (the “ Exercise Delivery Documents ”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent (the “ Transfer Agent ”). On or before the third (3 rd ) Trading Day following the date on which the Company has received all of the Exercise Delivery Documents (the “ Share Delivery Date ”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at Holder’s instruction pursuant to the Exercise Notice, Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be).  If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.  No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all transfer taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, the applicable Exercise Notice shall be accompanied by the Assignment Form attached hereto as Exhibit B duly executed by the Holder, and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
 
 
 

 
 
(b)       Exercise Price . For purposes of this Warrant, “ Exercise Price ” means $0.55, subject to adjustment as provided herein.
 
(c)        Company’s Failure to Timely Deliver Securities . If within three (3) Trading Days after the Company’s receipt of the applicable Exercise Delivery Documents, the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s exercise hereunder (as the case may be), and if on or after such third (3 rd ) Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “ Buy-In ”), then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock times (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice.
 
 
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(d)       Cashless Exercise
 
. Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), if at the time of exercise hereof the Registration Statement (as defined in the Securities Purchase Agreement) is not effective (or the prospectus contained therein is not available for use) and all of the Warrant Shares are not then registered for resale into the market at market prices from time to time on an effective registration statement for use on a continuous basis (or the prospectus contained therein is not available for use), the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “ Cashless Exercise ”):
 
Net Number = (A x B) - (A x C)
 
B
 
For purposes of the foregoing formula:
 
A= the total number of shares with respect to which this Warrant is then being exercised.
 
B= the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the Exercise Notice.
 
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
 
(e)        Disputes .  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof (including, without limitation, under Section 1(h)), the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.
 
 
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(f)            Limitations on Exercises . Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the extent) that, if exercisable by the Holder, the Holder or any of its affiliates would beneficially own in excess of [4.9%][9.9%] (the “ Maximum Percentage ”) of the outstanding shares of Common Stock. To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder) and of which such securities shall be exercisable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined by the Holder in accordance with Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Warrant or securities issued pursuant to the Securities Purchase Agreement. [By written notice to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.9% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61 st ) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other holder of SPA Warrants.][HOLDER MAY ELECT WHICH BRACKETED PROVISIONS APPLY PRIOR TO ISSUANCE] Each delivery of an Exercise Notice by the Holder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested by the Holder in such Exercise Notice is permitted under this paragraph.
 
(g)            Insufficient Authorized Shares . The Company shall at all times keep reserved for issuance under this Warrant a number of shares of Common Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock hereunder (without regard to any limitation otherwise contained herein with respect to the number of shares of Common Stock that may be acquirable upon exercise of this Warrant). If, notwithstanding the foregoing, and not in limitation thereof, at any time while any of the SPA Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of the SPA Warrants at least a number of shares of Common Stock equal to the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the SPA Warrants then outstanding (the “ Required Reserve Amount ”) (an “ Authorized Share Failure ”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the SPA Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.
 
 
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(h)       Issuance Limit . Notwithstanding anything to the contrary contained in this Warrant (but subject to Section 1(f)), the maximum number of Warrant Shares for which this Warrant may be exercised at any specific time by the Holder shall be equal to the quotient of (i) the Current Available Amount as of such time over (ii) the Exercise Price then in effect as of such time. The foregoing determination shall be made upon each receipt of Exercise Delivery Documents hereunder and no inability to exercise as of any specific time as a result of this Section 1(h) shall affect any future determination of exercisability as of any other time. In the event that the Holder shall sell or otherwise transfer all or any portion of this Warrant, the Company’s Board of Directors shall in good faith make equitable adjustments with respect to the Current Available Amount (and the components thereof) to properly give effect to such sale of transfer, provided further that if the Holder does not accept such adjustments, then the Company’s Board of Directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.
 
2.              ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES . The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.
 
(a)        Stock Dividends and Splits .  If the Company, at any time on or after the date of the Securities Purchase Agreement, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
 
 
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(b)        Adjustment Upon Issuance of Shares of Common Stock . If and whenever on or after the date of the Securities Purchase Agreement the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities (as defined in the Certificate of Determination) issued or sold or deemed to have been issued or sold) for a consideration per share (the “ New Issuance Price ”) less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (such Exercise Price then in effect is referred to as the “ Applicable Price ”) (the foregoing a “ Dilutive Issuance ”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price. For purposes of determining the adjusted Exercise Price under this Section 2(b), the following shall be applicable:
 
(i)          Issuance of Options .  If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock (a) upon the granting or sale of the Option, (b) upon exercise of the Option and (c) upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
 
(ii)         Issuance of Convertible Securities .  If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 2(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock (a) upon the issuance or sale of the Convertible Security and (b) upon conversion, exercise or exchange of such Convertible Security. Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issue or sale.
 
 
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(iii)        Change in Option Price or Rate of Conversion . If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.
 
(iv)        Calculation of Consideration Received . In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01.  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the amount of consideration received by the Company. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the average VWAP of such security for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “ Valuation Event ”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10 th ) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
 
 
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(v)         Record Date . If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
 
(c)        Number of Warrant Shares . Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section 2, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).
 
(d)       Other Events . In the event that the Company (or any direct or indirect subsidiary thereof) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors shall in good faith determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(d) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s Board of Directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.
 
(e)       Calculations . All calculations under this Section 2 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. 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 Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
 
 
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3.              RIGHTS UPON DISTRIBUTION OF ASSETS . If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all the holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
 
4.
PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS .
 
(a)        Purchase Rights .  In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).
 
 
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(b)        Fundamental Transactions . The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is satisfactory in form and substance to the Holder. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of Common Stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been exercised immediately prior to such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant), as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “ Corporate Event ”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the Warrant been exercised immediately prior to such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant). Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such other warrant)).
 
 
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(c)        Black Scholes Value . Notwithstanding the foregoing and the provisions of Section 4(b) above, in the event of a Fundamental Transaction (other than a Fundamental Transaction resulting solely from a merger or consolidation in which the Company is the surviving entity, the Common Stock continues to be publicly traded on an Eligible Market following such merger or consolidation and an amount of shares of Common Stock which is less than 20% of the Company’s issued and outstanding shares of Common Stock outstanding immediately prior to such merger or consolidation are issued in connection with such merger or consolidation), at the request of the Holder delivered before the ninetieth (90 th ) day after the consummation of such Fundamental Transaction, the Company or the Successor Entity (as the case may be) shall purchase this Warrant from the Holder by paying to the Holder cash in an amount equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction.
 
5.              NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on exercise).
 
6.             WARRANT HOLDER NOT DEEMED A STOCKHOLDER . Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
 
 
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7.             REISSUANCE OF WARRANTS .
 
(a)        Transfer of Warrant . If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
 
(b)       Lost, Stolen or Mutilated Warrant . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
 
(c)        Exchangeable for Multiple Warrants . This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no warrants for fractional shares of Common Stock shall be given.
 
(d)        Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
 
8.             NOTICES .  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder (at its last address as it shall appear upon the Warrant register of the Company) with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (at its last address as it shall appear upon the Warrant register of the Company) (i) promptly following each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s) and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to all the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of its subsidiaries, the Company shall simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K.
 
 
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9.             AMENDMENT AND WAIVER .  Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. The Holder shall be entitled, at its option, to the benefit of any amendment of any other similar warrant issued under the Securities Purchase Agreement. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.
 
10.            SEVERABILITY .  If any provision of this Warrant or the application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of the terms of this Warrant will continue in full force and effect.
 
11.            GOVERNING LAW . This Warrant shall be governed by and construed and enforced in accor­dance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.
 
12.            CONSTRUCTION; HEADINGS . This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.
 
13.            DISPUTE RESOLUTION . In the case of a dispute as to the determination of the Exercise Price or fair market value or the arithmetic calculation of the Warrant Shares (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile within five (5) Business Days of receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be). If the Holder and the Company are unable to agree upon such determination or calculation (as the case may be) of the Exercise Price or fair market value or the number of Warrant Shares (as the case may be) within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Company or the Holder (as the case may be), then the Company shall, within ten (10) days submit via facsimile (a) the disputed determination of the Exercise Price or fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than twenty (20) days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error.
 
 
13

 
 
14.            REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF .  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant 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. The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.
 
15.            TRANSFER . This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company so long as the Company receives written notice of such sale, transfer or assignment within a reasonable amount of time thereafter that contains the name(s) of the transferees or assignees and the rights so sold, transferred or assigned.
 
16.            CERTAIN DEFINITIONS .  For purposes of this Warrant, the following terms shall have the following meanings:
 
(a)       “ Aggregate Face Exercise Amount ” is equal to $_____________.
 
(b)       “ Aggregate Series B Face Exercise Amount ” is equal to $_____________.
 
 
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(c)       “ Black Scholes Value ” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of closing of the applicable Fundamental Transaction for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of request, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction and (iii) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non cash consideration, if any, being offered in such Fundamental Transaction.
 
(d)       “ Bloomberg ” means Bloomberg Financial Markets.
 
(e)       “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
 
(f)       “ Certificate of Determination ” has the meaning set forth in the Securities Purchase Agreement.
 
(g)       “ Closing Sale Price ” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing does not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
 
(h)       “ Common Stock ” means (i) the Company’s shares of common stock, no par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
 
(i)        “ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.
 
 
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(j)        “ Current Available Amount ” is, as of the applicable time of determination, equal to (i) the product of (1) the Aggregate Face Exercise Amount times (2) the Series B Multiplier minus (ii) the Prior Aggregate Exercise Amount.
 
(k)       “ Eligible Market ” means The New York Stock Exchange, Inc., the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the Principal Market.
 
(l)        “ Expiration Date ” means the date that is the sixty two (62) month anniversary of the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “ Holiday ”), the next date that is not a Holiday.
 
(m)      “ Fundamental Transaction ” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (3) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify its Common Stock (for clarification purposes, excluding customary stock splits and stock dividends), or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.
 
(n)      “ Options ” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
 
(o)       “ Parent Entity ” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.
 
(p)      “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
 
(q)       “ Principal Market ” means The OTC Bulletin Board.
 
 
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(r)           “ Prior Aggregate Exercise Amount ” is, as of the applicable time of determination, equal to the total aggregate Exercise Price theretofore actually paid (whether in cash or by delivery of notice of a Cashless Exercises) with respect to the Series C Warrants initially issued to _________________ (and not including the exercise in question).
 
(s)           “ Series B Prior Aggregate Exercise Amount ” is, as of the applicable time of determination, equal to the total aggregate Exercise Price (as defined in the Series B Warrants) theretofore actually paid for prior or concurrent exercises with respect to the Series B Warrants initially issued to _________________ .
 
(t)           “ Series B Multiplier ” is equal to the quotient of (i) the Series B Prior Aggregate Exercise Amount divided by (ii) the Aggregate Series B Face Exercise Amount.
 
(u)           “ Successor Entity ” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
 
(v)           “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).
 
(w)           “ VWAP ” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any share dividend, share split or other similar transaction during such period.
 
 
[ signature page follows ]
 
 
17

 
 
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.
 
 
NUTRACEA
 
 
By:
   
 
Name:
   
 
Title:
   

 
18

 
 
EXHIBIT A
 
EXERCISE NOTICE
 
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
 
NUTRACEA
 
The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“ Warrant Shares ”) of NutraCea, a California corporation (the “ Company ”), evidenced by Warrant to Purchase Common Stock No. _______ (the “ Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
 
1.            Form of Exercise Price .  The Holder intends that payment of the Exercise Price shall be made as:
 
 
____________
a “ Cash Exercise ” with respect to _________________ Warrant Shares; and/or
 
 
____________
[if permitted] a “ Cashless Exercise ” with respect to _______________ Warrant Shares.
 
2.            Payment of Exercise Price .  In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
 
3.            Qualified Institutional/Accredited Investor .  If the Holder is a resident of (or, in the case of an entity, such entity’s principal place of business is located in) any State other than New York or California and is making a Cash Exercise, the Holder hereby represents that the Holder is a “qualified institutional investor” as defined in Section 2(g) of the Securities Purchase Agreement, except that if the Holder is a resident of (or, in the case of an entity, such entity’s principal place of business is located in) the State of Illinois and is making a Cash Exercise, the Holder hereby represents that the Holder is an “accredited investor” as that term is defined in Rule 501 of the rules and regulations promulgated under the Securities Act of 1933, as amended.
 
4.            Delivery of Warrant Shares .  The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, to the following address:
 
     
     
     
     
 
 
Date:
   
 
   

 

Name of Registered Holder
 
By:
   
 
Name:
 
 
Title:
 

 

 

ACKNOWLEDGMENT
 
The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _____________, 2008 from the Company and acknowledged and agreed to by _______________.
 
 
NUTRACEA
       
       
 
By:
   
 
Name:
   
 
Title:
   

 

 
 
EXHIBIT B

ASSIGNMENT FORM

(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)


FOR VALUE RECEIVED, [all of the] [_______] shares of the foregoing Warrant and all rights evidenced thereby [with respect to such shares] are hereby assigned to
 

 
whose address is
 
 
 
.
 
     
     
     

 
Dated:
 
,
   

 
Holder’s Signature:   
   
       
 
Holder’s Address:
   
       


NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or any change whatsoever.
 




Exhibit 5.1

 
October 20, 2008
 
 
NutraCea
5090 North 40 th Street, Fourth Floor
Phoenix, Arizona 85018


Ladies and Gentlemen:

 
We have acted as counsel for NutraCea, a California corporation (the “Company”), in connection with the registration under the Securities Act of 1933 (the “Act”) of up to 5,000 shares of our Series D Convertible Preferred Stock (“Preferred Stock”), warrants to purchase up to 5,000 shares of our Preferred Stock (“Series B Warrants”), warrants to purchase up to 4,545,455 shares of our common stock (“Series A Warrants”), warrants to purchase up to 4,545,455 shares of  our common stock (“Series C Warrants, and together with the Series A Warrants and the Series B Warrants, the “Warrants”), up to 5,000 shares of Preferred Stock issuable upon exercise of the Series B Warrant and up to 36,390,910 additional shares of our common stock (“Common Stock” and, together with the Preferred Stock and Warrants, the “Securities”) issuable upon (1) payment of dividends on the Preferred Stock (including shares of Preferred Stock that may be issued upon exercise of the Series B Warrant), (2) the conversion of the Preferred Stock (including shares of Preferred Stock that may be issued upon exercise of the Series B Warrant), and (3) the exercise of the Series A Warrant and Series C Warrant, in each case pursuant to the Registration Statement on Form S-3 (File No. 333-148929) filed by the Company with the Securities and Exchange Commission (the “Commission”) on January 30, 2008 and amended on March 28, 2008  (the “Registration Statement”) and related prospectus, dated April 8, 2008 (the “Prospectus”), and the prospectus supplement, dated October 16, 2008, relating to the Securities, filed or to be filed by the Company with the Commission pursuant to Rule 424(b) under the Act (the “Prospectus Supplement”).

 
 

 
 
NutraCea
October 20, 2008
Page 2
 
We have reviewed, among other things, (i) the Securities Purchase Agreement, dated October 16, 2008, among the Company and the buyers party thereto (the “Purchase Agreement”), (ii) the Articles of Incorporation of the Company, as in effect as of the date hereof, (iii) the Bylaws of the Company, as in effect as of the date hereof, (iv) the Certificate of Determination, Preferences and Rights of the Series D Convertible Preferred Stock of NutraCea (the “Certificate of Determination”), (v) the form of the Warrants, and (vi) the records of the corporate proceedings and other actions taken or proposed to be taken by the Company in connection with the authorization, issuance and sale of the Preferred Stock and Warrants. We have made such other factual inquiries as we deemed necessary to render this opinion.

We have assumed that (i) the Registration Statement, and any amendments thereto, will remain effective during the period when the Securities are offered, sold or issued, including upon the conversion of the Preferred Stock or exercise of the Warrants and (ii) the Warrants will be issued in the form we have reviewed and will have been signed by a duly authorized signatory.

Based upon the foregoing and our examination of such questions of law as we have deemed necessary or appropriate for the purpose of our opinion, and subject to the limitations and qualifications expressed herein, it is our opinion that (a) the Preferred Stock and Warrants, when sold and delivered in accordance with the Purchase Agreement and after receipt of payment therefor, will be validly issued, fully paid and non-assessable, (b) the Common Stock, when issued upon valid exercise of the Series A Warrants and Series C Warrant in accordance with the terms of their underlying instruments and after receipt of payment therefor, will be validly issued, fully paid and non-assessable, (c) the Preferred Stock, when issued upon valid exercise of the Series B Warrant in accordance with its terms and after receipt of payment therefor, will be validly issued, fully paid and non-assessable and (d) the Common Stock, when issued upon conversion of the Preferred Stock or payment of dividends thereon in accordance with the Certificate of Determination will be validly issued, fully paid and non-assessable.

 
 

 
 
NutraCea
October 20, 2008
Page 3
 
This opinion is limited to matters governed by the California Corporations Code and the laws of the State of California.

                We hereby consent to the filing of this opinion as an exhibit to a Form 8-K incorporated by reference in the Registration Statement and to the use of our name under the captions “Legal Matters” in the Prospectus Supplement and the Prospectus. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder.


Very truly yours,

/s/ WEINTRAUB GENSHLEA CHEDIAK


WEINTRAUB GENSHLEA CHEDIAK
law corporation

 

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “ Agreement ”), dated as of October 16, 2008, is by and among NutraCea, a California corporation with offices located at 5090 N. 40th Street, Suite 400, Phoenix, Arizona 85018 (the “ Company ”), and the investors listed on the Schedule of Buyers attached hereto (individually, a “ Buyer ” and collectively, the “ Buyers ”).

RECITALS

A.          The Company has authorized a series of preferred stock entitled the “Series D Convertible Preferred Stock” (the “ Preferred Stock ”), which Preferred Stock shall be convertible into shares of the Company’s common stock, no par value per share (the “ Common Stock ”), in accordance with the terms of the Preferred Stock.  The rights, preferences and other terms and provisions of the Preferred Stock are set forth in the Certificate of Determination, Preferences and Rights of Series D Convertible Preferred Stock in the form attached hereto as Exhibit A (the “ Certificate of Determination ”). As used herein, the term “ Conversion Shares ” shall include all shares of Common Stock issuable upon conversion of, or as dividends on, the Preferred Stock in accordance with the Certificate of Determination.

B.          Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) the number of shares of Preferred Stock set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers and (ii) a warrant to acquire up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers, in the form attached hereto as Exhibit B (the “ Series A Warrants ”) (as exercised, collectively, the “ Series A Warrant Shares ”), (iii) a warrant to acquire up to that number of additional shares of Preferred Stock set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers, in the form attached hereto as Exhibit C (the “ Series B Warrants ”) (as exercised, collectively, the “ Series B Warrant Shares ”) and (iv) a warrant to acquire up to that number of additional shares of Common Stock set forth opposite such Buyer’s name in column (6) on the Schedule of Buyers, in the form attached hereto as Exhibit D (the “ Series C Warrants ”) (as exercised, collectively, the “ Series C Warrant Shares ”). For purposes of this Agreement, (i) the Series A Warrants, the Series B Warrants and the Series C Warrants are collectively referred to herein as the “ Warrants ;” (ii) the Series A Warrants and the Series C Warrants are collectively referred to herein as the “ Common Stock Warrants ;” and (iii) the Series A Warrant Shares, the Series B Warrant Shares and the Series C Warrant Shares are collectively referred to herein as the “ Warrant Shares .”

C.          The Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “ Securities .”

D.          The Company has filed a Registration Statement under the Securities Act of 1933, as amended (the “ 1933 Act ”) on Form S-3, as amended (Registration Number 333-148929), which was declared effective by the Securities and Exchange Commission (the “ SEC ”) on April 8, 2008 (the “ Registration Statement ”).  The Company shall issue the Securities pursuant to the Registration Statement.

 
1

 

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows:
 
1.
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS.

(a)          Preferred Stock and Warrants . Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, shall purchase from the Company on the Closing Date (as defined below), the number of shares of Preferred Stock as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, at a purchase price of $1,000 per share, along with (i) the Series A Warrants to acquire up to that number of Series A Warrant Shares as is set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers, (ii) the Series B Warrants to acquire up to that number of Series B Warrant Shares as is set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers and (iii) the Series C Warrants to acquire up to that number of Series C Warrant Shares as is set forth opposite such Buyer’s name in column (6) on the Schedule of Buyers.

(b)          Closing . The closing (the “ Closing ”) of the purchase of the Preferred Stock and the Warrants by the Buyers shall occur at the offices of Greenberg Traurig, LLP, 77 W. Wacker Drive, Suite 2400, Chicago, Illinois 60601. The date and time of the Closing (the “ Closing Date ”) shall be 10:00 a.m., New York time, on the first (1 st ) Business Day on which the conditions to the Closing set forth in Sections 6 and 7 below are satisfied or waived (or such later date as is mutually agreed to by the Company and each Buyer). As used herein “ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

(c)          Purchase Price . The aggregate purchase price for the Preferred Stock and the Warrants to be purchased by each Buyer (the “ Purchase Price ”) shall be the amount set forth opposite such Buyer’s name in column (7) on the Schedule of Buyers. Each Buyer shall pay its respective Purchase Price for the Preferred Stock and related Warrants to be purchased by such Buyer at the Closing.

(d)          Form of Payment . On the Closing Date, (i) each Buyer shall pay its respective Purchase Price to the Company for the Preferred Stock and the Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Company’s written wire instructions and (ii) the Company shall deliver to each Buyer (A) the number of shares of Preferred Stock as is set forth opposite such Buyer’s name in column (3) of the Schedule of Buyers, (B) a Series A Warrant pursuant to which such Buyer shall have the right to acquire up to such number of Series A Warrant Shares as is set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers, (C) a Series B Warrant pursuant to which such Buyer shall have the right to acquire up to such number of Series B Warrant Shares as is set forth opposite such Buyer’s name in column (5) of the Schedule of Buyers and (D) a Series C Warrant pursuant to which such Buyer shall have the right to acquire up to such number of Series C Warrant Shares as is set forth opposite such Buyer’s name in column (6) of the Schedule of Buyers, in all cases, duly executed on behalf of the Company and registered in the name of such Buyer.

 
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2.
BUYER’S REPRESENTATIONS AND WARRANTIES.

Each Buyer, severally and not jointly, represents and warrants to the Company with respect to only itself that:

(a)          Organization; Authority . Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents (as defined below) to which it is a party and otherwise to carry out its obligations hereunder and thereunder.

(b)          Validity; Enforcement . This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and constitutes the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

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

(d)          Residency . Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.

(e)          Own Account . Such Buyer 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 in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law, and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty shall not limit such Buyer’s right to sell the Securities in compliance with applicable federal and state securities laws); provided , however , that by making the representations herein, such Buyer does not agree, or make any representation or warranty, to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in compliance with applicable federal and state securities laws.  Such Buyer is acquiring the Securities hereunder in the ordinary course of its business. Buyer shall notify the Company in writing of any transfers by the Buyer of any of the Preferred Stock or the Warrants and such notification shall contain the name and address of the transferee.

 
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(f)           Experience of Such Buyer . Such Buyer, either alone or together with its advisors and 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 Buyer 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.  The representations contained in this Section 2(f), however, shall not modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained herein or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

(g)          Buyer Status . At the time such Buyer was offered the Securities, it met, and as of the date hereof it meets, the definition of “institutional investor,” “accredited investor” or other similar term forth on Exhibit 2(g) that is applicable to it based on the state in which such Buyer is located. Such Buyer is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

(h)          Certain Trading Activities .  Such Buyer has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Buyer, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities) from the time that such Buyer was first contacted by the Company or the Placement Agent (as the case may be) regarding the investment in the Company contemplated by this Agreement through the date of this Agreement. “ Short Sales ” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the 1934 Act (“ Regulation SHO ”) and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). Such Buyer does not as of the date hereof, and will not immediately following the Closing, own 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Equivalents (as defined below) owned by such Buyer, whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) but taking into account any limitations on exercise or conversion (including “blockers”) contained therein).
 
3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

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

(a)          Organization and Qualification ; Subsidiaries . Each of the Company and each of its “ Subsidiaries ” (which for purposes of this Agreement means any Person in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “ Material Adverse Effect ” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any of its Subsidiaries, taken as a whole, (ii) the legality, validity or enforceability of the transactions contemplated hereby or in the other Transaction Documents or (iii) the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below). Other than the Subsidiaries, there is no Person in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest.  Except as set forth in Section 3(a) of the disclosure letter delivered by the Company to the Buyers concurrently with the execution of this Agreement (the “ Disclosure Letter ”), the Company has no Subsidiaries.

 
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(b)          Authorization; Enforcement; Validity . The Company has the requisite power and authority to enter into and, except as set forth in Section 3(b) of the Disclosure Letter, perform its obligations under this Agreement and the other Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Preferred Stock and the reservation for issuance and issuance of the Conversion Shares issuable upon conversion of, or as dividends on, the Preferred Stock, the issuance of the Warrants and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the Warrants) have been duly authorized by the Company’s board of directors and (other than the filing with the SEC of a final prospectus supplement relating to the transactions contemplated hereby (the “ Prospectus Supplement ”)) no further filing, consent or authorization is required by the Company, its board of directors or its stockholders or other governing body or regulatory authority. This Agreement and the other Transaction Documents to which the Company is a party have been (or upon delivery will have been) duly executed and delivered by the Company and when delivered in accordance with the terms hereof and thereof, will constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. “ Transaction Documents ” means, collectively, this Agreement, the Warrants, the Certificate of Determination, the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)) and each of the other agreements and instruments entered into by the parties hereto in connection with the transactions contemplated hereby and thereby. The Company has no reason to believe that it will be unable to comply with any of its obligations under any of the Transaction Documents (including, without limitation, as a result of application of Section 500 or Section 501 of the California Corporations Code).

 
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(c)          Issuance of Securities . The issuance of the Preferred Stock and the Warrants are duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents, shall be validly issued, fully paid and non-assessable and free from all taxes, liens, charges and other encumbrances imposed by the Company. As of the Closing, the Company shall have reserved from its duly authorized capital stock not less than 133% of the sum of (i) the maximum number of Conversion Shares issuable upon conversion of the Preferred Stock (assuming for purposes hereof that the Preferred Stock is convertible at the initial Conversion Price (as defined in the Certificate of Determination) and without taking into account any limitations on the conversion of the Preferred Stock set forth in the Certificate of Determination and assuming that the Series B Warrant Shares are outstanding as of the Closing) and (ii) the maximum number of Warrant Shares issuable upon exercise of the Common Stock Warrants (without regard to any limitations on the exercise of the Common Stock Warrants set forth therein). Upon (i) conversion of the Preferred Stock in accordance with the Certificate of Determination, (ii) issuance as dividends on the Preferred Stock in accordance with the Certificate of Determination or (iii) exercise of the Warrants in accordance with the Warrants (as the case may be), the Conversion Shares and the Warrant Shares, as applicable, when issued, will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances imposed by the Company, with the holders being entitled to all rights accorded to a holder of Common Stock.  The Preferred Stock and Warrants are being issued, and the Conversion Shares and the Warrant Shares have been registered by the Company under the 1933 Act. The Registration Statement is effective and available for the issuance of the Securities thereunder and the Company has not received any notice that the SEC has issued or intends to issue a stop-order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened in writing to do so. The “Plan of Distribution” section under the Registration Statement permits the issuance of the Securities hereunder. Upon issuance in accordance with the terms of the Transaction Documents, the Conversion Shares and the Warrant Shares issuable upon exercise of the Common Stock Warrants will be freely tradable without restriction. At the time the Registration Statement and any amendments thereto became effective, at the date of this Agreement and at the Closing Date, the Registration Statement and any amendments thereto conformed and will conform in all material respects to the requirements of the 1933 Act and did not and 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 not misleading; and the final prospectus included in the Registration Statement (the “ Prospectus ”) and any amendments or supplements thereto, at the time the Prospectus or any amendment or supplement thereto was issued and at the Closing Date, conformed and will conform in all material respects to the requirements of the 1933 Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d)          No Conflicts . The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Preferred Stock, the Warrants, the Conversion Shares and Warrant Shares and the reservation for issuance of the Conversion Shares and Warrant Shares) will not (i) result in a violation of the Articles of Incorporation (as defined in Section 3(r)) or other organizational documents of the Company or any of its Subsidiaries or Bylaws (as defined in Section 3(r)) of the Company, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) subject to the making of the Required Filings by the Company, result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws and regulations and the rules and regulations of the OTC Bulletin Board (the “Principal Market ”)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected except, in the case of clause (ii) or (iii) above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect.

 
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(e)          Consents .  The Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person (including, without limitation, the Financial Industry Regulatory Authority) in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case, in accordance with the terms hereof or thereof, other than (i) the filing with the SEC of the Prospectus Supplement, (ii) the filing with the SEC of the 8-K Filing, (iii) such filings as are required to be made under applicable state securities laws (collectively, “ Required Filings ”) and (iv) as set forth in Section 3(e) of the Disclosure Letter. All consents, authorizations, orders, filings and registrations which the Company is required to obtain on or before the Closing Date pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date, and neither the Company nor any of its Subsidiaries are aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings pursuant to the preceding sentence. Required Filings to be made after the Closing Date shall be made in compliance with the terms of this Agreement and applicable federal and state securities laws.  The Company is not in violation of the requirements of the Principal Market and has no knowledge of any facts or circumstances which could reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.

(f)           Acknowledgment Regarding Buyer’s Purchase of Securities . The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as defined in Rule 144) of the Company or any of its Subsidiaries or (iii) to its knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “ 1934 Act ”)). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities. The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

 
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(g)          Placement Agent’s Fees . Neither the Company nor any of its Subsidiaries has engaged any placement agent (other than Rodman & Renshaw LLC (the “ Placement Agent ”)) or other agent in connection with the sale of the Securities.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees or broker’s commissions owed to the Placement Agent or to any other Person pursuant to any other agreements entered into by the Company relating to or arising out of the transactions contemplated hereby.  Buyer shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by such Buyer pursuant to agreements entered into by such Buyer, which fees or commissions shall be the sole responsibility of such Buyer) made by or on behalf of other Persons for fees or the type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

(h)          No Integrated Offering . None of the Company, the Subsidiaries or any of their affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to require approval of stockholders of the Company under any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. None of the Company, its Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would cause the offering of any of the Securities to be integrated with other offerings.

(i)           Dilutive Effect . The Company understands and acknowledges that the number of Conversion Shares and Warrant Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue the Conversion Shares upon conversion of the Preferred Stock and the Warrant Shares upon exercise of the Warrants in accordance with this Agreement, the Certificate of Determination and the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

(j)           Application of Takeover Protections; Rights Agreement . 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 Articles of Incorporation or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company or any of its Subsidiaries.
 
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(k)          SEC Documents; Financial Statements . During the two (2) years prior to the date hereof, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being referred to herein as the “ SEC Documents ”). The Company has delivered to the Buyers or their respective representatives true, correct and complete copies of each of the SEC Documents not available on the EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate). No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein not misleading, in the light of the circumstance under which they are or were made.

 
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(l)           Absence of Certain Changes . Since the date of the Company’s most recent audited or reviewed financial statements contained in the Form 10-K, except as disclosed in subsequent SEC Documents filed prior to the date hereof, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any of its Subsidiaries.  Since the date of the Company’s most recent audited financial statements contained in the Form 10-K, except as disclosed in a subsequent SEC Documents filed prior to the date hereof, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends other than by Subsidiaries to the Company, (ii) sold any material assets, individually or in the aggregate, outside of the ordinary course of business or (iii) made any material capital expenditures, individually or in the aggregate. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, liquidation or winding up, nor does the Company or any Subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below). For purposes of this Section 3(l), “ Insolvent ” means, on a consolidated basis, (i) the present fair saleable value of the Company’s and its Subsidiaries’ assets is less than the amount required to pay the Company’s and its Subsidiaries’ total Indebtedness (as defined in Section 3(s)), (ii) the Company and its Subsidiaries are unable to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company and its Subsidiaries intend to incur or believe that they will incur debts that would be beyond their ability to pay as such debts mature. Neither the Company nor any of its Subsidiaries has engaged in business or in any transaction, and is not about to engage in business or in any transaction, for which the Company’s or such Subsidiary’s remaining assets constitute unreasonably small capital.  For purposes of this Agreement:  (x) “ Indebtedness ” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally accepted accounting principles) other than trade payables entered into in the ordinary course of business, (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person that owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
 
(m)         No Undisclosed Events, Liabilities, Developments or Circumstances . No event, liability, development or circumstance has occurred or exists, or is reasonably expected to exist or occur with respect to the Company, any of its Subsidiaries or their respective business, properties, liabilities, prospects, operations (including results thereof) or condition (financial or otherwise), that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which either (i) except as set forth in Section 3(m) of the Disclosure Letter, has not been publicly announced or contained in the SEC Documents or (ii) could reasonably result in a Material Adverse Effect or a material adverse effect on any Buyer’s investment hereunder.

 
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(n)          Conduct of Business; Regulatory Permits . Neither the Company nor any of its Subsidiaries is in violation of any term of or in default under its Articles of Incorporation, any certificate of determination of any other outstanding series of preferred stock of the Company or any of its Subsidiaries or Bylaws or their organizational charter, certificate of formation or certificate of incorporation or bylaws, respectively. Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Principal Market and has no knowledge of any facts or circumstances that could reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future. Since January 1, 2006, (i) the Common Stock has been designated for quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market. The Company and each of its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any written notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

(o)          Foreign Corrupt Practices .  Neither the Company nor any of the Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

(p)          Sarbanes-Oxley Act . Except as set forth in Section 3(p) of the Disclosure Letter, the Company and each Subsidiary is in material compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof.

(q)          Transactions With Affiliates . Except as set forth in the SEC Documents, none of the officers or directors of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers or 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 or director 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 $120,000 other than for (i) payment of salary or bonuses for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company, and (iii) 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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(r)           Equity Capitalization .  The capitalization of the Company as of the date hereof is as described in Section 3(r)(i) of the Disclosure Letter. No shares of Common Stock are held in treasury. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. 3,079,853 shares of the Company’s issued and outstanding Common Stock on the date hereof are as of the date hereof owned by Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at least 10% of the Company’s issued and outstanding Common Stock are “affiliates” without conceding that any such Persons are “affiliates” for purposes of federal securities laws) of the Company or any of its Subsidiaries. To the Company’s knowledge, as of the date hereof no Person owns 10% or more of the Company’s issued and outstanding shares of Common Stock (calculated based on the assumption that all Equivalents, whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) taking account of any limitations on exercise or conversion (including “blockers”) contained therein without conceding that such identified Person is a 10% stockholder for purposes of federal securities laws). Except as disclosed in Section 3(r)(ii) of the Disclosure Letter: (i) none of the Company’s or any material Subsidiary’s capital stock is subject to preemptive rights or any other similar rights or any liens suffered or permitted by the Company or any Subsidiary; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any material amounts filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except as contemplated by this Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) neither the Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate, do not or could not have a Material Adverse Effect.  The Company has furnished to the Buyers true, correct and complete copies of the Company’s Articles of Incorporation, as amended and as in effect on the date hereof, including, without limitation, any certificates of determination contained therein or attached thereto (the “ Articles of Incorporation ”), and the Company’s bylaws, as amended and as in effect on the date hereof (the “ Bylaws ”).

 
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(s)          Indebtedness and Other Contracts . Except as disclosed in the SEC Documents or in Section 3(s) of the Disclosure Letter, neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect.

(t)           Absence of Litigation . There is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’ officers or directors which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.  There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company or any current or former director or officer of the Company.  The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the 1934 Act or the 1933 Act.

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

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

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

(x)           Intellectual Property Rights . The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“ Intellectual Property Rights ”) necessary to conduct their respective businesses as now conducted and as presently proposed to be conducted, unless failure to own or possess such rights or licenses would not reasonably be likely to result in a Material Adverse Effect.  None of the Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement, unless such expiration, termination or abandonment would not reasonably be likely to result in a Material Adverse Effect.  The Company has no knowledge of any infringement by the Company or any of its Subsidiaries of Intellectual Property Rights of others.  There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or any of its Subsidiaries, being threatened, against the Company or any of the Subsidiaries regarding their material Intellectual Property Rights.  The Company is not aware of any facts or circumstances that reasonably could be expected to give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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

 
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(z)           Subsidiary Rights . Except as disclosed in Section 3(z) of the Disclosure Letter, the Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.

(aa)         Tax Status . Except for matters that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. To the Company’s knowledge and except as set forth in Section 3(aa) of the Disclosure Letter, there are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim.  The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

(bb)       Internal Accounting and Disclosure Controls . Except as set forth in the Company’s Form 10-K for the year ended December 31, 2007 and any of the Company’s Form 10-Q’s covering periods in 2008, the Company maintains internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. Except as set forth in the Company’s Form 10-K for the year ended December 31, 2007 and any of the Company’s Form 10-Qs covering periods in 2008, neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant or other Person relating to any potential material weakness or significant deficiency in any part of the Company’s internal control over financial reporting.

 
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(cc)         Off Balance Sheet Arrangements . There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.

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

(ee)         Acknowledgement Regarding Buyers’ Trading Activity . It is understood and acknowledged by the Company (i) that following the public disclosure of the transactions contemplated by the Transaction Documents, in accordance with the terms thereof, none of the Buyers have been asked by the Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its Subsidiaries, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that any Buyer, and counter parties in “derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may have a “short” position in the Common Stock which were established prior to such Buyer’s knowledge of the transactions contemplated by the Transaction Documents, and (iii) that each Buyer shall not be deemed to have any affiliation with or control over any arm’s length counter party in any “derivative” transaction. The Company further understands and acknowledges that following the public disclosure of the transactions contemplated by the Transaction Documents pursuant to the Press Release (as defined below) one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares or Conversion Shares, as applicable, deliverable with respect to the Securities are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement or any other Transaction Document or any of the documents executed in connection herewith or therewith.

(ff)          Manipulation of Price . Neither the Company nor any of its Subsidiaries has, and, to the knowledge of the Company, no Person acting on their behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities (other than the Placement Agent), or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company or any of its Subsidiaries.

 
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(gg)        U.S. Real Property Holding Corporation . Neither the Company nor any of its Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company and each Subsidiary shall so certify upon any Buyer’s request.

(hh)        Registration Eligibility . The Company is eligible to register the issuance of the Securities to the Buyers using Form S-3 promulgated under the 1933 Act.

(ii)          Transfer Taxes . On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

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

(kk)         Disclosure .  The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, nonpublic information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company.  All written materials provided to the Buyers regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the Disclosure Letter and the Schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries is true and correct and does 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 the light of the circumstances under which they were made, not misleading. Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly announced or disclosed, other than the transactions contemplated hereby. The Company acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.

 
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(ll)          FDA . As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (the “ FDA ”) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (the “ FDCA ”) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “ Food Product ”), such Food Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company or such Subsidiary (as the case may be) in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Material Adverse Effect.  There is no pending, completed or, to the Company’s knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any written notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Food Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Food Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries or (vi) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect. The properties, business and operations of the Company subject to the jurisdiction of the FDA have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA. The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company.
 
 
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4.
COVENANTS.
 
(a)          Commercially Reasonably Best Efforts . Each party shall use commercially reasonable best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.

(b)          Securities Compliance .  The Prospectus Supplement, containing all information required by SEC rules and regulations, shall be filed in accordance with Rule 424 under the 1933 Act.  The Company shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities (and the issuance of the Securities pursuant to the Registration Statement) to the Buyers or subsequent holders.  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 Buyers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date.

(c)          Registration Statement; Reporting Status . Until the date on which the Buyers shall have sold all of the Securities (the “ Reporting Period ”), the Company shall (i) maintain the effectiveness of the Registration Statement to cover the issuance of all Securities and (ii) timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination.  If at any time following the date hereof the Registration Statement is not effective or is not otherwise available for the issuance of the Securities, the Company shall immediately notify the holders of Preferred Stock and/or Warrants (as the case may be) in writing that the Registration Statement is not then effective and thereafter shall promptly notify such holders when the Registration Statement is effective again and available for the issuance of the Securities.

(d)          Use of Proceeds . The Company shall use the proceeds from the sale of the Securities solely (i) to pay legal fees and expenses incurred in connection with the transactions contemplated by this Agreement, (ii) to pay the placement fee owed to the Placement Agent in connection with the transactions contemplated by this Agreement, (iii) for capital improvements to the Company’s Brazilian facilities (it being understood that $3,000,000 of such proceeds shall be used for such capital improvements) and (iv) for general working capital purposes.

(e)          Financial Information . The Company agrees to send the following to each Buyer during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, and (ii) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders.

 
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(f)           Listing .  The Company shall promptly secure the listing of all of the Conversion Shares and Warrant Shares issuable upon exercise of the Common Stock Warrants upon each national securities exchange and automated quotation system, if any, upon which the shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain such listing of all such Securities from time to time issuable under the terms of the Transaction Documents on such national securities exchange or automated quotation system. The Company shall maintain the Common Stock’s authorization for quotation on the Principal Market, the New York Stock Exchange, the Nasdaq Global Market or the Nasdaq Global Select Market (each, an “ Eligible Market ”). The Company shall not take any action which could be reasonably expected to result in the delisting or suspension of the Common Stock on an Eligible Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f).

(g)          Fees .  The Company shall reimburse Cranshire Capital, L.P. (“ Cranshire ”) or its designee(s) (in addition to any other expense amounts paid to any Buyer prior to the date of this Agreement) for all costs and expenses incurred by it or its affiliates in connection with the transactions contemplated by the Transaction Documents (including, without limitation, all legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence in connection therewith), which amount shall be withheld by Cranshire from its Purchase Price at the Closing or paid by the Company upon termination of this Agreement so long as such termination did not occur as a result of a material breach by Cranshire of any of its obligations hereunder (as the case may be). The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby (including, without limitation, the Placement Agent) incurred by the Company. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorney’s fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

(h)          Pledge of Securities . The Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. No Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer.  Notwithstanding the foregoing, if the Securities so pledged are Preferred Stock or Warrants, and such Securities are subsequently acquired by the pledgee upon default, then such Buyer will provide the Company with written notice of the transfer and the names of the record holders of such Securities within a reasonable amount of time after such Securities are transferred. Additionally, the transferee shall agree to be bound by the provisions of the Transaction Documents if the transferee will obtain any rights under the Transaction Documents.

 
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(i)            Disclosure of Transactions and Other Material Information . The Company shall, on or before 8:30 a.m., New York time, on the second (2 nd ) Business Day after the date of this Agreement, issue a press release (the “ Press Release ”) reasonably acceptable to each Buyer disclosing all the material terms of the transactions contemplated by the Transaction Documents.  On or before 8:30 a.m., New York time, on the second (2 nd ) Business Day following the date of this Agreement, the Company shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching this Agreement, the Certificate of Determination and the form of the Warrants (including all attachments, the “ 8-K Filing ”). From and after the issuance of the Press Release, the Company shall have disclosed all material, nonpublic information delivered to any of the Buyers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents (if any) in connection with the transactions contemplated by the Transaction Documents. The Company shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents not to, provide any Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the issuance of the Press Release without the express prior written consent of such Buyer, except as expressly contemplated by Section 4(n)(viii). If a Buyer has, or believes it has, received any material, nonpublic information regarding the Company or any of its Subsidiaries in breach of the immediately preceding sentence, such Buyer shall provide the Company with written notice thereof in which case the Company shall, within one (1) Trading Day of the receipt of such notice, make a public disclosure of all such material, nonpublic information so provided.  In the event of a breach of any of the foregoing covenants by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents (as determined in the reasonable good faith judgment of such Buyer), in addition to any other remedy provided herein or in the Transaction Documents, such Buyer shall have the right to make a 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, any of its Subsidiaries, or any of its or their respective officers, directors, employees or agents. No Buyer shall have any liability to the Company, any of the Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents, for any such disclosure of such information. Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided , however , that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).  Without the prior written consent of any applicable Buyer, the Company shall not (and shall cause each of its Subsidiaries and affiliates to not) disclose the name of such Buyer in any filing (other than the 8-K Filing), announcement, release or otherwise, except (a) as required by federal securities law in connection with the filing of final Transaction Documents (including signature pages thereto) with the SEC and (b) to the extent such disclosure is required by law or Principal Market regulations, in which case the Company shall provide the applicable Buyers with prior notice of such disclosure permitted hereunder.

 
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(j)            Additional Issuance of Securities . Except as set forth on Schedule 4(j), the Company agrees that for the period commencing on the date hereof and ending ninety (90)   days after the Closing Date (the “ Restricted Period ”), neither the Company nor any of its Subsidiaries shall directly or indirectly issue, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any issuance, offer, sale, grant or any option to purchase or other disposition of) any of their respective equity or equity equivalent securities, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time and under any circumstances convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, capital stock and other securities of the Company (including, without limitation, any securities of the Company or any Subsidiary which entitle the holder thereof to acquire Common Stock at any time, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock) (collectively with such capital stock or other securities of the Company, “ Equivalents ”) (any such issuance, offer, sale, grant, disposition or announcement being referred to as a “ Subsequent Placement ”). Notwithstanding the foregoing, this Section 4(j) shall not apply in respect of the issuance of (A) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers, employees or consultants of the Company in connection with their service as directors or officers of the Company, their employment by the Company or their retention as consultants by the Company pursuant to an equity compensation program or other contract or arrangement approved by the board of directors of the Company (or the compensation committee of the board of directors of the Company), provided that all such issuances of shares of Common Stock (including, shares of Common Stock issuable upon exercise of such standard options) after the date hereof pursuant to this clause (A) that are not described in clause (B) below do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the date hereof (as adjusted for any stock dividend, stock split, stock combination or other similar transaction) (excluding, for purposes of the foregoing 5% calculation, shares of Common Stock issuable upon exercise of such standard options issued after the date hereof that have been terminated or forfeited), provided further that all such issuances must be for consideration per share or have an exercise price (as the case may be) (as determined pursuant to the provisions of Section 3(f)(i) of the Series A Warrants) greater than or equal to the fair market value of the Common Stock on the date of such issuance; (B) shares of Common Stock issued upon the conversion or exercise of Equivalents issued prior to the date hereof, provided that such Equivalents have not been amended since the date hereof to increase the number of shares issuable thereunder or to lower the exercise or conversion price thereof or otherwise materially change the terms or conditions thereof in any manner that adversely affects any of the Buyers (it being understood that the adjustment of the exercise or conversion price thereof pursuant to anti-dilution provisions contained therein as of the date of this Agreement that are triggered by the transactions contemplated hereby shall not be deemed to be an amendment; any such adjustments, however, shall be described in Section 3(r)(ii) of the Disclosure Letter); (C) the Conversion Shares; (D) the Warrant Shares; (E) shares of Common Stock issued or issuable as a dividend on Common Stock; (F) up to 1,090,910 shares of Common Stock issuable pursuant to warrants issued to the Placement Agent in connection with the transactions contemplated by this Agreement; (G) shares of Common Stock issued by the Company solely as a penalty pursuant to the registration rights agreements entered into by the Company in connection with the Company’s September 28, 2005, May 12, 2006 and February 15, 2007 private placement transactions; or (H) shares of Common Stock issued in connection with strategic transactions or acquisitions (the primary purpose of which is not to raise capital, and which are approved in good faith by the board of directors of the Company), provided that (i) any such issuance after the date hereof pursuant to this clause (H) shall only be to a Person that is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company; (ii) all such issuances after the date hereof pursuant to this clause (H) do not, in the aggregate, exceed more than 10% of the shares of Common Stock issued and outstanding immediately prior to the date hereof (as adjusted for any stock dividend, stock split, stock combination or other similar transaction) and (iii) all such issuances after the date hereof pursuant to this clause (H) must have a price per share (as determined pursuant to the provisions of Section 3(f)(i) of the Series A Warrants) greater than or equal to the fair market value of the Common Stock on the date of such issuance (each of the foregoing in clauses (A) through (H), collectively the “ Excluded Securities ”). Notwithstanding anything to the contrary set forth herein or in the Certificate of Determination, with respect to clause (F) above, as well as clause (F) of the definition of “Excluded Securities” in the Certificate of Determination, the aggregate number of shares of Common Stock issuable pursuant to the warrants issued to the Placement Agent in connection with the transactions contemplated by this Agreement shall not exceed the sum of (i) 545,455 plus (ii) an amount equal to 6% of the number of shares of Common Stock issuable upon conversion of the shares of Preferred Stock actually issued upon exercise of the Series B Warrants, determined on the dates such Series B Warrants are exercised.

 
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(k)          Reservation of Shares . So long as any shares of Preferred Stock or Warrants remain outstanding, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 133% of (i) the maximum number of shares of Common Stock issuable upon conversion of all the Preferred Stock (assuming for purposes hereof, that the Preferred Stock convertible at the Conversion Price (as defined in the Certificate of Determination and assuming that the Series B Warrants Shares are outstanding as of the Closing) and without regard to any limitations on the conversion of the Preferred Stock set forth in the Certificate of Determination) and (ii) the maximum number of shares of Common Stock issuable upon exercise of all the Common Stock Warrants (without regard to any limitations on the exercise of the Common Stock Warrants set forth therein).

(l)            Conduct of Business .  The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.

(m)         Variable Rate Transaction . Until all of the shares of Preferred Stock have been converted or redeemed in accordance with the terms of the Certificate of Determination, the Company and each Subsidiary shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a “ Variable Rate Transaction .” The term “ Variable Rate Transaction ” shall mean a transaction in which the Company or any Subsidiary (i) issues or sells any Equivalents either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such Equivalents, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Equivalents or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary price-based anti-dilution provision or (ii) enters into any agreement (including, but not limited to, an equity line of credit) whereby the Company or any material Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights, or in transaction where the price of the securities is determined at the time of closing of such transaction and such closing is subject to customary closing conditions such as shareholder approval). Each Buyer shall be entitled to obtain injunctive relief against the Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 
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(n)          Participation Right . Until all of the shares of Preferred Stock have been converted or redeemed in accordance with the terms of the Certificate of Determination, neither the Company nor any of its Subsidiaries shall, directly or indirectly, effect any Subsequent Placement or any issuance of debt (excluding bona fide third-party commercial bank debt) (such issuance of debt, a “ Debt Placement ”) unless the Company shall have first complied with this Section 4(n). The Company acknowledges and agrees that the right set forth in this Section 4(n) is a right granted by the Company, separately, to each Buyer.

(i)           The Company shall deliver to each Buyer an irrevocable written notice (the “ Offer Notice ”) of any proposed or intended issuance or sale or exchange (the “ Offer ”) of the securities being offered (the “ Offered Securities ”) in a Subsequent Placement or Debt Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyer in accordance with the terms of the Offer all of the Offered Securities if the aggregate offering price for all the Offered Securities in such Subsequent Placement or Debt Placement (as the case may be) is less than or equal to $25,000,000 (or 25% of the Offered Securities if the aggregate offering price for all the Offered Securities in such Subsequent Placement or Debt Placement (as the case may be) is greater than $25,000,000, as applicable), provided that the number of Offered Securities which such Buyer shall have the right to subscribe for under this Section 4(n) shall be (a) based on such Buyer’s pro rata portion of the aggregate number of shares of Preferred Stock purchased hereunder by all Buyers (the “ Basic Amount ”), and (b) with respect to each Buyer that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Buyers as such Buyer shall indicate it will purchase or acquire should the other Buyers subscribe for less than their Basic Amounts (the “ Undersubscription Amount ”).

(ii)           To accept an Offer, in whole or in part, such Buyer must deliver a written notice to the Company prior to the end of the fifth (5 th ) Business Day after such Buyer’s receipt of the Offer Notice (the “ Offer Period ”), setting forth the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Buyer elects to purchase (in either case, the “ Notice of Acceptance ”). If the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic Amounts, then such Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided , however , that if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the “ Available Undersubscription Amount ”), such Buyer who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company may deliver to each Buyer a new Offer Notice and the Offer Period shall expire on the fifth (5 th ) Business Day after such Buyer’s receipt of such new Offer Notice.

 
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(iii)          The Company shall have fifteen (15) Business Days from the expiration of the Offer Period above to (A) offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Buyer (the “ Refused Securities ”) pursuant to a definitive agreement(s) (the “ Subsequent Placement Agreement ”), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in the Offer Notice and (B) publicly announce (a) the execution of such Subsequent Placement Agreement, and (b) either (x) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto.

(iv)         In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4(n)(iii) above), then such Buyer may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Buyer elected to purchase pursuant to Section 4(n)(ii) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Buyers pursuant to this Section 4(n) prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Buyers in accordance with Section 4(n)(i) above.

(v)          Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Buyer shall acquire from the Company, and the Company shall issue to such Buyer, the number or amount of Offered Securities specified in its Notice of Acceptance. The purchase by such Buyer of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Buyer of a separate purchase agreement relating to such Offered Securities that incorporates the terms of the Offer Notice and that is reasonably satisfactory in form and substance to such Buyer and its counsel.

 
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(vi)         Any Offered Securities not acquired by a Buyer or other Persons in accordance with this Section 4(n) may not be issued, sold or exchanged until they are again offered to such Buyer under the procedures specified in this Agreement.

(vii)        The Company and each Buyer agree that if any Buyer elects to participate in the Offer, neither the Subsequent Placement Agreement with respect to such Offer nor any other transaction documents related thereto (collectively, the “ Subsequent Placement Documents ”) shall include any term or provision whereby such Buyer shall be required to agree to any restrictions on trading as to any securities of the Company owned by such Buyer prior to such Subsequent Placement or Debt Placement.

(viii)       Notwithstanding anything to the contrary in this Section 4(n) and unless otherwise agreed to by such Buyer, the Company shall either confirm in writing to such Buyer that the transaction with respect to the Subsequent Placement or Debt Placement has been abandoned or shall publicly disclose its intention to issue the Offered Securities, in either case in such a manner such that such Buyer will not be in possession of any material, non-public information, by the twelfth (12 th ) Business Day following delivery of the Offer Notice. If by such twelfth (12 th ) Business Day, no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Buyer, such transaction shall be deemed to have been abandoned and such Buyer shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide such Buyer with another Offer Notice and such Buyer will again have the right of participation set forth in this Section 4(n).  The Company shall not be permitted to deliver more than one such Offer Notice (not including subsequent Offer Notices relating to the same transaction) to such Buyer in any sixty (60) day period.

(ix)          The restrictions contained in this Section 4(n) shall not apply in connection with the issuance of any Excluded Securities. The Company shall not circumvent the provisions of this Section 4(n) by providing terms or conditions to one Buyer that are not provided to all.

(o)          Passive Foreign Investment Company .  The Company shall conduct its business in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 
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(p)          Restriction on Redemption and Cash Dividends . So long as any shares of Preferred Stock are outstanding, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, the Common Stock without the prior express written consent of the Required Holders (as defined in the Certificate of Determination).

(q)          DTC Eligibility . The Company shall pay all fees to DTC (as defined below) required to be paid, and shall take all other necessary actions, so that the Company is eligible to participate in DTC’s Fast Automated Securities Transfer Program no later than thirty (30) days after the Closing Date.
 
5.
REGISTER; TRANSFER AGENT INSTRUCTIONS; NO LEGENDS.

(a)          Register . The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Preferred Stock and the Warrants in which the Company shall record the name and address of the Person in whose name the Preferred Stock and   the Warrants have been issued (including the name and address of each transferee), the number of shares of Preferred Stock held by such Person, the number of Conversion Shares issuable upon conversion of the Preferred Stock and the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.

(b)          Transfer Agent Instructions . The Company shall issue irrevocable instructions to its transfer agent and any subsequent transfer agent in the form acceptable to the Buyers (the “ Irrevocable Transfer Agent Instructions ”) to issue certificates (free of any restrictive or other legends) or credit shares to the applicable balance accounts at The Depository Trust Company (“ DTC ”), registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares issuable upon exercise of the Common Stock Warrants in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Preferred Stock, issuance of Common Stock as dividends on the Preferred Stock or the exercise of the Common Stock Warrants (as the case may be). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b) will be given by the Company to its transfer agent with respect to the Securities, and that the Securities shall be freely transferable on the books and records of the Company. If a Buyer effects a sale, assignment or transfer of the Securities, the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates (free of any restrictive or other legends) or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. The Company shall cause its counsel to issue the legal opinion referred to in the Irrevocable Transfer Agent Instructions to the Company’s transfer agent on the Closing Date and such other legal opinions as the transfer agent may require from time to time in order to ensure that the Securities are issued free of any restrictive or other legends. Any fees (with respect to the transfer agent, counsel to the Company or otherwise) associated with the issuance of such opinions shall be borne by the Company.

 
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(c)          Legends . The certificates or other instruments representing the Securities shall not bear any restrictive or other legends.
 
6.
CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

(a)         The obligation of the Company hereunder to issue and sell the Preferred Stock   and the related Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in their sole discretion by providing each Buyer with prior written notice thereof:

(i)            Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

(ii)          Such Buyer shall have delivered to the Company the Purchase Price (less, in the case of Cranshire, the amounts withheld pursuant to Section 4(g)) for the Preferred Stock and the related Warrants being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

(iii)         the aggregate Purchase Price hereunder for all Buyers shall be no less than $5,000,000.

(iv)         Each and every representation and warranty of such Buyer shall be true and correct as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date), and such Buyer shall have performed, satisfied and complied with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date.
 
7.
CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

(a)         The obligation of each Buyer hereunder to purchase its shares of Preferred Stock   and its related Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

(i)           The Company shall have duly executed and delivered to such Buyer each of the Transaction Documents and the Company shall have duly executed and delivered to such Buyer a certificate representing the number of shares of Preferred Stock set forth across from such Buyer’s name in column (3) of the Schedule of Buyers   and the related Warrants (for such number of shares of Common Stock as is set forth across from such Buyer’s name in columns (4), (5) and (6) of the Schedule of Buyers) being purchased by such Buyer at the Closing pursuant to this Agreement.

 
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(ii)          Such Buyer shall have received the opinion of Weintraub Genshlea Chediak Law Corporation, the Company’s counsel, dated as of the Closing Date, in the form reasonably acceptable to such Buyer.

(iii)         The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in form acceptable to such Buyer, which instructions shall have been delivered to and acknowledged in writing by the Company’s transfer agent.

(iv)         The Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company and each of its material Subsidiaries in each such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction of formation as of a date within ten (10) days of the Closing Date.

(v)          The Company shall have delivered to such Buyer a certificate evidencing the Company’s and each material Subsidiary’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company and each Subsidiary is so qualified, as of a date within ten (10) days of the Closing Date.

(vi)         The Company shall have delivered to such Buyer a certified copy of the Articles of Incorporation as certified by the California Secretary of State within ten (10) days of the Closing Date.

(vii)        The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s board of directors in a form reasonably acceptable to such Buyer, (ii) the Articles of Incorporation, and (iii) the Bylaws, each as in effect at the Closing, and (iv) the number of shares of Common Stock outstanding on the day immediately preceding the Closing Date, each in the form acceptable to such Buyer.

(viii)       Each and every representation and warranty of the Company shall be true and correct as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date), and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  Such Buyer shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form acceptable to such Buyer.

(ix)          The Common Stock (I) shall be designated for quotation or listed on the Principal Market and (II) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum maintenance requirements of the Principal Market.

 
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(x)           The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities, including without limitation, those required by the Principal Market.

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

(xii)         Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result in a Material Adverse Effect.

(xiii)        The Company shall have obtained approval of the Principal Market to list the Conversion Shares and the Warrant Shares issuable upon exercise of the Common Stock Warrants to the extent such approval is required by the Principal Market.

(xiv)       (A) The Registration Statement shall remain effective at all times up to and including the Closing Date and the issuance of the Securities to the Buyers may be made thereunder; (B) the Prospectus Supplement shall have been delivered to the Buyers; (C) neither the Company nor any of the Buyers shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement either, temporarily or permanently, or intends or has threatened to do so; and (D) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or Prospectus shall exist.

(xv)         The Company shall have delivered to such buyer the Prospectus and Prospectus Supplement (unless the conditions set forth under Rule 172 under the 1933 Act have been satisfied).
 
8.
TERMINATION.

In the event that the Closing shall not have occurred with respect to a Buyer on or before ten (10) days from the date hereof due to the Company’s or such Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and a non-breaching party’s failure to waive such unsatisfied condition(s)), any such non-breaching party at any time shall have the right to terminate its obligations under this Agreement with respect to such breaching party on or after the close of business on such date without liability of such non-breaching party to any other party; provided , however , that the abandonment of the sale and purchase of the Preferred Stock and the Warrants shall be applicable only to such non-breaching party providing such written notice; provided further , notwithstanding any such termination the Company shall remain obligated to reimburse the non-breaching Buyers for the expenses described in Section 4(g) above. Nothing contained in this Section 8 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

 
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9.
MISCELLANEOUS.

(a)          Governing Law; Jurisdiction; Jury Trial . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State 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, 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 brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. 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 to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(b)          Counterparts . This Agreement may be executed in two or more identical counterparts, all of which 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. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page 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 signature page were an original thereof.

(c)          Headings; Gender . The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “ including ,” “ includes ,” “ include ” and words of like import shall be construed broadly as if followed by the words “without limitation.”  The terms “ herein ,” “ hereunder ,” “ hereof ” and words of like import refer to this entire Agreement instead of just the provision in which they are found.

(d)         Severability .  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 
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(e)          Entire Agreement; Amendments . This Agreement, the other Transaction Documents and the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein supersede all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters contained herein and therein (provided that the foregoing shall not have any effect on any agreements any Buyer has entered into with the Company or any of its Subsidiaries prior to the date hereof with respect to any prior investment made by such Buyer in the Company), and this Agreement, the other Transaction Documents, the schedules and exhibits attached hereto and thereto and the instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of all of the then outstanding shares of Preferred Stock, and any amendment or to, or waiver of any provision of, this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable, provided that any party may give a waiver in writing as to itself. No such amendment or waiver (unless given pursuant to the foregoing proviso) shall be effective to the extent that it applies to less than all of the holders of the shares of Preferred Stock then outstanding. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents, holders of the Preferred Stock or holders of the Warrants (as the case may be). The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company, any Subsidiary or otherwise.

(f)           Notices . Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company:

NutraCea
5090 N. 40th Street , Suite 400
Phoenix, AZ 85018
Telephone:  (602) 522-3000
Facsimile:  (602) 522-3001
Attention:  Chief Executive Officer

 
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With a copy (for informational purposes only) to:

Weintraub Genshlea Chediak Law Corporation
400 Capitol Mall
Sacramento, CA 95814
Telephone:  (916) 558-6164
Facsimile:  (916) 446-1611
Attention:  Christopher Chediak, Esq.
Michael DeAngelis, Esq.

If to the Transfer Agent:

American Stock Transfer & Trust 
59 Maiden Lane, Plaza Level - Lobby 
New York, NY  10038 
Telephone:  718 921 8143
Facsimile: 718-921-8116
Attention:  Joe Wolf, Vice President

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers,

with a copy (for informational purposes only) to:

Greenberg Traurig, LLP
77 W. Wacker Drive, Suite 2400
Chicago, Illinois 60602
Telephone:  (312) 456-8400
Facsimile:  (312) 456-8435
Attention:  Peter H. Lieberman, Esq.
Todd A. Mazur, Esq.

or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party ten (10) days prior to the effectiveness of such change; provided , that Greenberg Traurig, LLP shall only be provided copies of notices sent to Cranshire. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

(g)          Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of any of the Securities. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of all of the aggregate number of shares of Common Stock (or securities issued in exchange for Common Stock) issued and issuable under the Transaction Documents, including, without limitation, by way of a Fundamental Transaction (as defined in the Certificate of Determination) (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Certificate of Determination and Warrants). A Buyer may assign some or all of its rights hereunder in connection with a transfer of any of its Securities without the consent of the Company, provided the Company receives written notice of the rights assigned and the name of such assignee within a reasonable amount of time after such assignment and such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Buyers.” After such assignment, the assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 
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(h)          No Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than the Indemnitees referred to in Section 9(k).

(i)            Survival . The representations, warranties, agreements and covenants shall survive the Closing; provided that the survival period for the representations and warranties of the Company shall continue only for forty-eight (48) months following the Closing Date. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

(j)            Further Assurances . Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(k)          Indemnification .

(i)           In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each holder of any Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of any of the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents, except, with respect to clause (c), to the extent such Indemnified Liability arises solely from an Indemnitee’s gross negligence or willful misconduct. The Company shall reimburse the Indemnitees, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Indemnified Liabilities.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 
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(ii)          Promptly after receipt by an Indemnitee under this Section 9(k) of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Section 9(k), deliver to the Company a written notice of the commencement thereof, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its own counsel with the fees and expenses of such counsel to be paid by the Company if: (i) the Company has agreed in writing to pay such fees and expenses; (ii) the Company shall have failed promptly to assume the defense of such Indemnified Liability and to employ counsel reasonably satisfactory to such Indemnitee in any such Indemnified Liability; or (iii) the named parties to any such Indemnified Liability (including any impleaded parties) include both such Indemnitee and the Company, and such Indemnitee shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnitee and the Company (in which case, if such Indemnitee notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, then the Company shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Company), provided further, that in the case of clause (iii) above the Company shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal counsel for such Indemnitee. The Indemnitee shall reasonably cooperate with the Company in connection with any negotiation or defense of any such action or Indemnified Liability by the Company and shall furnish to the Company all information reasonably available to the Indemnitee which relates to such action or Indemnified Liability. The Company shall keep the Indemnitee reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. The Company shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not, without the prior written consent of the Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such Indemnified Liability or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnitee. Following indemnification as provided for hereunder, the Company shall be subrogated to all rights of the Indemnitee with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the Company within a reasonable time of the commencement of any such action shall not relieve the Company of any liability to the Indemnitee under this Section 9(k), except to the extent that the Company is materially and adversely prejudiced in its ability to defend such action.

 
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(iii)        The indemnification required by this Section 9(k) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Liabilities are incurred.

(iv)        The indemnity agreement contained herein shall be in addition to (A) any cause of action or similar right of the Indemnitee against the Company or others, and (B) any liabilities the Company may be subject to pursuant to the law.

(l)           Construction . 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. For clarification purposes, the Recitals are part of this Agreement and are hereby incorporated by reference.

(m)         Remedies .  Each Buyer and each holder of any Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security.

(n)          Withdrawal Right . Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights

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

 
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(p)          Independent Nature of Buyers’ Obligations and Rights .  The obligations of each Buyer under the Transaction Documents are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Buyers are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Buyers are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Buyer to purchase Securities pursuant to the Transaction Documents has been made by such Buyer independently of any other Buyer. Each Buyer acknowledges that no other Buyer has acted as agent for such Buyer in connection with such Buyer making its investment hereunder and that no other Buyer will be acting as agent of such Buyer in connection with monitoring such Buyer’s investment in the Securities or enforcing its rights under the Transaction Documents. The Company and each Buyer confirms that each Buyer has independently participated with the Company in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose. The use of a single agreement to effectuate the purchase and sale of the Securities contemplated hereby was solely in the control of the Company, not the action or decision of any Buyer, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Buyer.  It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Buyer, solely, and not between the Company and the Buyers collectively and not between and among the Buyers.

[ signature pages follow ]

 
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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.


 
COMPANY:
 
     
 
NUTRACEA
 
       
       
 
By:
   
   
Name:
 
   
Title:
 

 

 
 
IN WITNESS WHEREOF, Buyer and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.


 
BUYER:
 
       
 
 
 
       
 
 
 
 
 
 
 
 
       
       
     
 
By:
 
 
 
Its:
 
 

 

 
 
EXHIBITS

Exhibit A
Form of Certificate of Determination
Exhibit B
Form of Series A Warrant
Exhibit C
Form of Series B Warrant
Exhibit D
Form of Series C Warrant