-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VJ/6+SRrflGy4P+5NckcxKGM2yRHXOj0rLtOiqYgRuz0Qp6zTxCvrljhq5wUElDf aPCh/yFDhoMI4LfPmZlOGw== 0000898432-06-000532.txt : 20060614 0000898432-06-000532.hdr.sgml : 20060614 20060614172714 ACCESSION NUMBER: 0000898432-06-000532 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20060614 DATE AS OF CHANGE: 20060614 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KIMBERLIN KEVIN CENTRAL INDEX KEY: 0000904841 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: SPENCER TRASK SECURITIES INC STREET 2: 535 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123555565 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: Vyteris Holdings (Nevada), Inc. CENTRAL INDEX KEY: 0001139950 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 841394211 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-79731 FILM NUMBER: 06905541 BUSINESS ADDRESS: STREET 1: 1390 SOUTH 1100 EAST SUITE 204 CITY: SALT LAKE CITY STATE: UT ZIP: 84105-2463 BUSINESS PHONE: 2017032299 MAIL ADDRESS: STREET 1: 13-01 POLLITT DRIVE CITY: FAIR LAWN STATE: NJ ZIP: 07410 FORMER COMPANY: FORMER CONFORMED NAME: TREASURE MOUNTAIN HOLDINGS INC DATE OF NAME CHANGE: 20010503 SC 13D/A 1 sc13d-a.txt UNITED STATES OMB APPROVAL SECURITIES AND EXCHANGE COMMISSION --------------------------- Washington, DC 20549 OMB Number: 3235-0145 Expires: February 28, 2006 SCHEDULE 13D/A Estimated average burden hours per response.......15 UNDER THE SECURITIES EXCHANGE ACT OF 1934 AMENDMENT NO. 4* NAME OF ISSUER: VYTERIS HOLDINGS (NEVADA), INC. TITLE OF CLASS OF SECURITIES: Common Stock, $.001 par value per share. CUSIP NUMBER: 894631 209 NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS: Kevin B. Kimberlin C/o Spencer Trask & Co. 535 Madison Avenue, 18th Floor New York, NY 10022 Tel: (212) 355-5565 Fax: 212-751-3483 DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT: June 8, 2006 If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box: [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 (the "Act") or otherwise subject to the liabilities of that Section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO.: 894631 209 1. NAME OF REPORTING PERSON: Kevin B. Kimberlin 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) (b) x 3. SEC USE ONLY 4. SOURCE OF FUNDS: AF 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e): Yes No X 6. CITIZENSHIP OR PLACE OF ORGANIZATION: UNITED STATES 7. SOLE VOTING POWER: 16,788,251 shares 8. SHARED VOTING POWER: 0 shares 9. SOLE DISPOSITIVE POWER: 16,788,251 shares 10. SHARED DISPOSITIVE POWER: 0 shares 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 16,788,251 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: Yes No x 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 67.8% 14. TYPE OF REPORTING PERSON: IN 2 The information reported in Items 4 and 6 hereof supplements the information reported in the corresponding Items of the Amendment No. 3 to Schedule 13D filed by Kevin B. Kimberlin on April 14, 2006 (the "April 2006 13D/A"). The information reported in Items 3 and 5 hereof amends and restates the information reported in Items 3 and 5 of the April 2006 13D/A. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION As of the date of this Statement, Mr. Kimberlin may be deemed to be the beneficial owner, for purposes of Section 13(d) of the Act, of 16,788,251 shares of Common Stock, representing 67.8% of such class of securities, based on 19,295,358 shares of Common Stock issued and outstanding as of April 30, 2006, as reported in the Company's Form 10-QSB (its Quarterly Report for the quarterly period ended March 31, 2006) filed with the Securities and Exchange Commission (the "Commission") on May 18, 2006. As set forth in more detail below, the shares of Common Stock and securities convertible into, or exercisable for, shares of Common Stock are held directly by Spencer Trask Specialty Group, LLC ("STSG"), a Delaware limited liability company principally engaged in the business of investing in securities; Spencer Trask Ventures, Inc., ("STVI"), a Delaware corporation whose principal business is that of a registered broker-dealer; Spencer Trask Private Equity Fund I LP, a Delaware limited partnership ("Fund I"), Spencer Trask Private Equity Fund II LP, a Delaware limited partnership ("Fund II"), Spencer Trask Private Equity Accredited Fund III LLC, a New York limited liability company ("Fund III"), and Spencer Trask Illumination Fund LLC, a New York limited liability company ("Illumination" and, collectively with Fund I, Fund II and Fund III, the "Funds"), each of which is principally engaged in the business of investing in securities; and Scimitar Holdings, LLC ("Scimitar"), a New York limited liability company principally engaged in the business of investing in securities. Mr. Kimberlin is the non-member manager of STSG. Mr. Kimberlin is also the controlling stockholder of Spencer Trask & Co., Inc. ("ST&Co."), the 100% parent of STVI. STVI is managed by a two-person board of directors, one of whom is Mr. Kimberlin. The general partner of each of Fund I and Fund II is Trask Partners LLC, a Delaware limited liability company 100% owned by ST&Co. The manager of each of Fund I and Fund II is ST Management LLC, a Delaware limited liability company ("ST Management"). Fund III is managed by Spencer Trask Private Equity Accredited Fund III Management, LLC, a New York limited liability company 100% owned by ST&Co. Illumination is managed by LLC Management Services, Inc., a New York corporation 100% owned by ST&Co. Each of Fund III and Illumination has retained ST Management in connection with its day-to-day operations. Scimitar is a wholly owned subsidiary of ST&Co. ITEM 4. PURPOSE OF TRANSACTION On April 18, 2006, pursuant to a Note Purchase Agreement, dated April 18, 2006, STSG made a loan of $750,000 to the Company and the Company issued to STSG a 10%, convertible subordinated promissory note in principal amount of $750,000 (the "April 18, 2006 Note"). The April 18, 2006 Note: (i) matures on December 1, 2008, unless that date is extended in writing by STSG, in its sole discretion; (ii) bears interest at a rate equal to 10% per annum based on a 360-day year, payable in cash on a semi-annual basis commencing with the semi-annual period ending June 30, 2006 (subject to the terms of the 3 Subordination Agreement); (iii) bears interest at a rate equal to an additional 3% to the extent that the Company has defaulted on any payment thereunder when due; (iv) is convertible at any time (principal and interest) into shares of Common Stock at a conversion price of $2.40 per share; (v) is convertible into the Company's next private financing of equity or debt securities yielding aggregate gross proceeds (exclusive of conversion of the April 18, 2006 Note) to the Company of at least $500,000; and (vi) is expressly and fully subordinated to the payment in full of the debentures issued by the Company on August 19, 2005. The Company did not issue any warrants to STSG with respect to this Note. The Company also entered into a registration rights agreement with STSG pursuant to which STSG was granted piggy-back registration rights with respect to the shares of Common Stock into which the April 18, 2006 Note is convertible. On May 5, 2006, pursuant to a Note Purchase Agreement, dated May 5, 2006, STSG made a loan of $500,000 to the Company and the Company issued to STSG a 10%, convertible subordinated promissory note in principal amount of $500,000 (the "May 5, 2006 Note"). The May 5, 2006 Note: (i) matures on December 1, 2008, unless that date is extended in writing by STSG, in its sole discretion; (ii) bears interest at a rate equal to 10% per annum based on a 360-day year, payable in cash on a semi-annual basis commencing with the semi-annual period ending June 30, 2006 (subject to the terms of the Subordination Agreement); (iii) bears interest at a rate equal to an additional 3% to the extent that the Company has defaulted on any payment thereunder when due; (iv) is convertible at any time (principal and interest) into shares of Common Stock at a conversion price of $2.40 per share; (v) is convertible into the Company's next private financing of equity or debt securities yielding aggregate gross proceeds (exclusive of conversion of the May 5, 2006 Note) to the Company of at least $500,000; and (vi) is expressly and fully subordinated to the payment in full of the debentures issued by the Company on August 19, 2005. The Company did not issue any warrants to STSG with respect to this Note. The Company also entered into a registration rights agreement with STSG pursuant to which STSG was granted piggy-back registration rights with respect to the shares of Common Stock into which the May 5, 2006 Note is convertible. On May 23, 2006, pursuant to a Note Purchase Agreement, dated May 23, 2006, STSG made a loan of $500,000 to the Company and the Company issued to STSG a 10%, convertible subordinated promissory note in principal amount of $500,000 (the "May 23, 2006 Note"). The May 23, 2006 Note: (i) matures on December 1, 2008, unless that date is extended in writing by STSG, in its sole discretion; (ii) bears interest at a rate equal to 10% per annum based on a 360-day year, payable in cash on a semi-annual basis commencing with the semi-annual period ending June 30, 2006 (subject to the terms of the Subordination Agreement); (iii) bears interest at a rate equal to an additional 3% to the extent that the Company has defaulted on any payment thereunder when due; (iv) is convertible at any time (principal and interest) into shares of Common Stock at a conversion price of $2.40 per share; (v) is convertible into the Company's next private financing of equity or debt securities yielding aggregate gross proceeds (exclusive of conversion of the May 23, 2006 Note) to the Company of at least $500,000; and (vi) is expressly and fully subordinated to the payment in full of the debentures issued by the Company on August 19, 2005. The Company did not issue any warrants to STSG with respect to this Note. The Company also entered into a registration rights agreement with STSG pursuant to which STSG was granted piggy-back registration rights with respect to the shares of Common Stock into which the May 23, 2006 Note is convertible. On June 8, 2006, pursuant to a Note Purchase Agreement, dated June 8, 2006, STSG made a loan of $500,000 to the Company and the Company issued to STSG a 10%, convertible subordinated promissory note in principal amount of $500,000 (the "June 8, 2006 Note"). The June 8, 2006 Note: (i) matures on December 1, 4 2008, unless that date is extended in writing by STSG, in its sole discretion; (ii) bears interest at a rate equal to 10% per annum based on a 360-day year, payable in cash on a semi-annual basis commencing with the semi-annual period ending June 30, 2006 (subject to the terms of the Subordination Agreement); (iii) bears interest at a rate equal to an additional 3% to the extent that the Company has defaulted on any payment thereunder when due; (iv) is convertible at any time (principal and interest) into shares of Common Stock at a conversion price of $2.40 per share; (v) is convertible into the Company's next private financing of equity or debt securities yielding aggregate gross proceeds (exclusive of conversion of the June 8, 2006 Note) to the Company of at least $500,000; and (vi) is expressly and fully subordinated to the payment in full of the debentures issued by the Company on August 19, 2005. The Company did not issue any warrants to STSG with respect to this Note. The Company also entered into a registration rights agreement with STSG pursuant to which STSG was granted piggy-back registration rights with respect to the shares of Common Stock into which the June 8, 2006 Note is convertible. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER The percentage of shares of Common Stock reported beneficially owned by Mr. Kimberlin for purposes hereof is based upon 19,295,358 shares outstanding, which is the total number of shares of Common Stock outstanding as of April 30, 2006, as reported in the Company's Form 10-QSB (its Quarterly Report for the quarterly period ended March 31, 2006) filed with the Commission on May 18, 2006. Beneficial ownership has been determined in accordance with the rules of the Commission, based on voting and investment power with respect to such shares. Shares of Common Stock subject to options, convertible securities or warrants currently exercisable or convertible, or exercisable or convertible within 60 days after the date of this Statement, are deemed outstanding for computing the percentage ownership of Mr. Kimberlin, but are not deemed outstanding for computing the percentage ownership of any other person. Not included in the beneficial holdings of Mr. Kimberlin are the holdings of Qubit Holdings LLC ("Qubit"), a Delaware limited liability company held in trust for the benefit of Mr. Kimberlin's children, which beneficially owns 758,156 shares of Common Stock, and 1,127,041 shares of Common Stock issuable upon the conversion or exercise of convertible securities and warrants held by Qubit. Mr. Kimberlin disclaims beneficial ownership of the stock holdings of Qubit and, therefore, such holdings are not included in the calculation of securities of the Company beneficially owned by Mr. Kimberlin herein. (a) As of the date of this Statement, Mr. Kimberlin may be deemed to +be the beneficial owner of 16,788,251 shares of Common Stock, representing 67.8% of such class of securities, based on the 19,295,358 shares of Common Stock outstanding as of April 30, 2006. Specifically, Mr. Kimberlin may be deemed to be the beneficial owner of: (i) 10,666,648 outstanding shares of Common Stock held by STSG, 278,164 shares of Common Stock held by Scimitar and 388,273 shares of Common Stock held by the Funds; and (ii) 3,220,381 shares of Common Stock that may be acquired by STSG, 2,039,250 shares of Common Stock that may be acquired by STVI and 195,535 shares of Common Stock that may be acquired by the Funds, upon the conversion of convertible securities and exercise of warrants currently exercisable (or convertible) or exercisable (or convertible) within 60 days after the date of this Statement. (b) Mr. Kimberlin has the sole power indirectly to vote or direct the vote of and dispose or direct the disposition of all shares of Common Stock that may be deemed to be beneficially owned by him. 5 (c) Other than as set forth in Item 3, in the 60 days prior to the date of this Statement, Mr. Kimberlin has not engaged in any transactions in shares of Common Stock (d) No person other than Mr. Kimberlin or the direct holder of shares of Common Stock referred to herein is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such shares of Common Stock. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER The information contained in Item 3 hereof is hereby incorporated by reference into and added to this Item 6. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS 99.64 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on April 18, 2006. 99.65 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated April 18, 2006. 99.66 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated April 18, 2006. 99.67 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on May 5, 2006. 99.68 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 5, 20065. 99.69 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 5, 2006. 99.70 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on May 23, 2006. 99.71 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 23, 2006. 99.72 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 23, 2006. 99.73 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on June 8, 2006. 6 99.74 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated June 8, 2006. 99.75 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated June 8, 2006. 7 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. June 14, 2006 /s/ Kevin B. Kimberlin ---------------------- Kevin B. Kimberlin 8 EXHIBIT INDEX 99.64 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on April 18, 2006. 99.65 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated April 18, 2006. 99.66 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated April 18, 2006. 99.67 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on May 5, 2006. 99.68 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 5, 20065. 99.69 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 5, 2006. 99.70 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on May 23, 2006. 99.71 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 23, 2006. 99.72 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated May 23, 2006. 99.73 10% Subordinated Convertible Promissory Note issued to Spencer Trask Specialty Group, LLC on June 8, 2006. 99.74 Note Purchase Agreement between the Company and Spencer Trask Specialty Group, LLC, dated June 8, 2006. 99.75 Registration Rights Agreement between the Company and Spencer Trask Specialty Group, LLC, dated June 8, 2006. 9 EX-99 2 ex99-64.txt EX-99.64 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. VYTERIS HOLDINGS (NEVADA), INC. 10% CONVERTIBLE PROMISSORY NOTE ------------------------------- $750,000 Fair Lawn, New Jersey April 18, 2006 FOR VALUE RECEIVED, the undersigned, Vyteris Holdings (Nevada), Inc., a Nevada corporation (the "Issuer"), hereby unconditionally promises to pay, in accordance with the Note Purchase Agreement (the "Note Purchase Agreement"), dated as of the date hereof, by and between the Issuer and Spencer Trask Specialty Group, LLC, a Delaware limited liability company (the "Purchaser"), on the Maturity Date (as defined in the Note Purchase Agreement) to the order of the Purchaser, at the office of the Purchaser located at 535 Madison Avenue, New York, NY or such other address designated by the Purchaser, in lawful money of the United States of America and in immediately available funds, the principal amount of Seven Hundred Fifty Thousand ($750,000) Dollars. The Issuer further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from the date hereof in like money at the rates and as and on the dates specified in Section 3.3 of the Note Purchase Agreement. This Note is the promissory note referred to in the Note Purchase Agreement, and is entitled to the benefits thereof, and is subject to voluntary and mandatory conversions as set forth therein. This Note, and all representations, warranties, covenants and agreements contained herein and in the Note Purchase Agreement, shall be binding upon Issuer and its successors and permitted assigns and shall inure to the benefit of the Purchaser and its successors and assigns. Issuer may not assign or delegate any of its duties or obligations under this Note without the written consent of the Purchaser, which shall not be unreasonably withheld. Upon the occurrence of any one or more of the Events of Default specified in the Note Purchase Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Note Purchase Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Subject to Sections 3.3 and 10.5 of the Note Purchase Agreement, the Issuer agrees to pay all of the Purchaser's expenses, including reasonable attorneys' costs and fees, incurred in collecting sums due under this Note. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Tim McIntyre -------------------- Name: Tim McIntyre Title: CEO EX-99 3 ex99-65.txt EX-99.65 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT (this "Agreement"), dated as of April 18, 2006, by and between Vyteris Holdings (Nevada), Inc., a Nevada corporation ("Seller"), and Spencer Trask Specialty Group, LLC, a Delaware limited liability company ("Buyer"). WITNESSETH: ----------- WHEREAS, Seller desires to issue to Buyer, and Buyer desires to purchase from Seller, a convertible subordinated promissory note, substantially in the form of EXHIBIT A hereto, in the principal amount of $750,000 (the "Note"); WHEREAS, Seller has agreed to effect the registration of the shares of Common Stock underlying the Note under the Securities Act of 1933, as amended, pursuant to a registration statement substantially in the form of EXHIBIT B hereto (the "Registration Rights Agreement"); and WHEREAS, Seller, pursuant to that certain securities purchase agreement dated as of August 19, 2005, as same may be amended from time to time ("Securities Purchase Agreement") issued a series of senior secured convertible debentures, including debentures issued after the original issuance date (the "Debentures") in the aggregate principal amount of $10.5 million (the "Senior Debt"). NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth here in and for good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties agree as follows: 1. SALE AND PURCHASE OF THE NOTE ----------------------------- 1.1. SALE AND PURCHASE. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2.1 hereof), Seller shall issue to Buyer, and Buyer shall purchase from Seller, for the Purchase Price (as defined in Section 1.2(a) hereof), the Note. 1.2. PURCHASE PRICE AND PAYMENT. (a) PURCHASE PRICE. The purchase price for the Note shall be $750,000 (the "Purchase Price"). (b) PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid to Seller by Buyer on the Closing Date (as defined in Section 2.1 hereof) via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions provided to Buyer prior to the date hereof. 2. CLOSING. -------- 2.1. TIME AND PLACE. The closing of the sale and purchase of the Note (the "Closing") shall be deemed to take place at the offices of Littman Krooks LLP, 655 Third Avenue, 20th Floor, New York, New York, at 10:00 a.m., local time, on the date hereof, or at such later time or date as Buyer and Seller may mutually agree in writing. The date upon which the Closing shall occur is herein called the "Closing Date". 2.2. CLOSING DELIVERIES. ------------------- (a) SELLER DELIVERIES. At the Closing, Seller shall deliver or cause to be delivered to Buyer the following: (i) the duly executed Note; (ii) the duly executed Registration Rights Agreement; and (iii) copies of any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby. (b) BUYER DELIVERY. At the Closing, Buyer shall deliver or cause to be delivered to Seller the Purchase Price. 3. TERMS OF THE NOTE. ------------------ 3.1. AMOUNT. The principal amount of the Note shall be $750,000. 3.2. MATURITY. Unless otherwise converted into the Conversion Shares (as defined in Section 3.4 hereof) in accordance with the provisions hereof, the Note shall mature on December 1, 2008, unless such date shall be otherwise extended in writing by Buyer, in its sole discretion (such date, the "Maturity Date"). On the Maturity Date, unless, and to the extent, converted into Conversion Shares in accordance with the provisions hereof, all outstanding principal and any accrued and unpaid interest due and owing under the Note shall be immediately paid by Seller. 3.3. INTEREST; INTEREST RATE; PAYMENT. (a) The Note shall bear, interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in clause (b) below) at a rate equal to ten (10%) percent (the "Interest Rate") per annum on a 360-day year. Interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in subparagraph (b) below) shall be due and payable in cash semi-annually in arrears following the end of each semi-annual period, commencing with the semi-annual period ended June 30, 2006, pro rated for partial periods; PROVIDED, HOWEVER, that any interest accruing on overdue amounts pursuant to subparagraph (b) of this Section 3.3 shall be payable on demand. (b) If all or a portion of the principal amount of the Note or any interest payable thereon shall not be repaid when due whether on the applicable repayment date, by acceleration or otherwise, such overdue amounts shall bear interest at a rate per annum that is three percent (3%) above the Interest Rate (I.E., 13%) from the date of such non-payment until such amount is paid in full (as well after as before judgment). (c) All payments to be made by Seller hereunder or pursuant to the Note shall be made, without setoff or counterclaim, in lawful money of the United States by check or wire transfer in immediately available funds. 3.4. CONVERSION. (a) Subject to Sections 3.4(b) and 3.5 hereof, at any time prior to the Maturity Date, the Seller shall have the option to convert the entire principal and interest accrued and owing on the Note, or any portion of the principal and/or interest thereof, into shares (the "Conversion Shares") of Common Stock at the Conversion Price. For purposes hereof, "Conversion Price" shall mean $2.40 per share; PROVIDED, that if at any time on or after the issuance date of the Note, Seller subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then after the date of record for effecting such subdivision, the Conversion Price shall be proportionately reduced, or if Seller combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, the Conversion Price shall be proportionately increased. Upon conversion, Buyer shall be entitled to receive the number of Conversion Shares calculated by dividing the amount being converted by the Conversion Price. No fractional shares of Conversion Shares shall be issued upon conversion. In lieu of any fractional shares to which Buyer would otherwise be entitled, Seller shall pay cash in an amount equal to such fraction multiplied by the Conversion Price. The Note shall not be subject to automatic conversion or to any conversion at the option of Seller. (b) Notwithstanding the provision of Section 3.4(a), if an equity security or other derivative security convertible or exercisable into an equity 2 security of the Company ("Applicable Security") is sold in connection with a Qualified Financing (as hereinafter defined) at any time prior to payment in full of the principal balance of the Note, all of the principal and interest due thereunder shall automatically become converted into the Applicable Security with the same rights and privileges granted to investors in the Qualified Financing. The number of Applicable Securities received upon conversion pursuant to this Section 3(b) shall be determined by dividing the aggregate principal amount due under the Note, together with any accrued but unpaid interest to the date of conversion, by the price per Applicable Security paid in the Qualified Financing. For the purposes of the Note, a "Qualified Financing" shall mean the Company's next private financing of Applicable Securities to investors (i) yielding aggregate gross proceeds (exclusive of conversion of the Note) to the Company of at least $500,000 and (ii) which does not invoke or trigger the provisions of Section 4(b) of the Debentures or Section 6(c) of the Warrants (as such term is defined in the Securities Purchase Agreement. 3.5. CONVERSION PROCEDURES. In order to exercise the conversion rights set forth in Section 3.4(a) hereof, Buyer shall surrender the Note, appropriately endorsed, to Seller at Seller's principal office, accompanied by written notice to Seller setting forth the amount of principal and interest to be converted, the name or names (with address(es)) in which the Conversion Shares issuable upon such conversion shall be issued and registered on the books of Seller. For purposes hereof, the "Conversion Date" shall be deemed to be the date the Note and notice is received by Seller for conversion. Within five (5) business days after the Conversion Date, Seller shall deliver to Buyer (i) a stock certificate for the Conversion Shares or (ii) a notice certified by Seller's Secretary that the Conversion Shares due on such conversion have been issued to and registered on the books of Seller in the name or names specified by Buyer. In the case of conversion of less than the entire principal of and interest under the Note, Seller shall cancel said Note and shall execute and deliver a new Note of like tenor for the unconverted amount of the Note dated the date of execution by Seller upon initial issuance of the Note notwithstanding any subsequent substitution. 3.6. SUBORDINATION. The Note is expressly and fully subordinated, as to payment and liquidation, to the payment in full of the Debentures and the Obligations (as such term is defined in the Securities Purchase Agreement) and the holder of the Note acknowledges and agrees that the Seller is expressly restricted from pre-paying any amounts in respect of the principal of the Note (upon acceleration or otherwise) until payment in full of the Debentures. The holder of this Note shall not commence any judicial or other collection efforts or exercise any other remedies prior to the date that is ninety-one (91) days following the payment in full of the Debentures. The Note is, and is intended to be, "Subordinated Debt" as such term is defined in the Securities Purchase Agreement. 3.7. PREPAYMENT RIGHTS UPON MERGER, CONSOLIDATION, ETC. (a) If, prior to the Conversion Date, but subject to the provisions of Section 3.6 above, Seller proposes to consolidate with, or merge into, another corporation or entity, or to effect any sale or conveyance to another corporation or entity of all or substantially all of the assets of Seller, or effect any other corporate reorganization, in which the stockholders of the Seller immediately prior to such consolidation, merger or reorganization own capital stock of the entity surviving such merger, consolidation or reorganization representing less than fifty (50%) percent of the combined voting power of the outstanding securities of such entity immediately after such consolidation, merger or reorganization (collectively, a "Liquidation Event"), then Seller shall provide Buyer with at least ten (10) days' prior written notice of any such proposed action, and Buyer will, at its option, have the right to demand immediate prepayment of all amounts due and owing under the Note. Buyer will give Seller written notice of such demand within five (5) days after receiving notice of the Liquidation Event. All amounts (including all accrued and unpaid interest) due and owing under the Note shall be paid by Seller to Buyer within five (5) days from the date of such written notice via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions to be provided to Seller by Buyer within at least two (2) business days after giving Seller such written notice. The provisions of this Section 3.7(a) shall similarly apply to successive consolidations or mergers. (b) Except as set forth in Sections 3.6, 3.7(a)and 9 hereof, Seller shall not prepay prior to the Maturity Date all or part of this Note without the express written consent of Buyer. 3 3.8 INTENTIONALLY DELETED 3.9 ASSURANCES WITH RESPECT OF CONVERSION RIGHTS. Seller shall not, by amendment of its Certificate of Incorporation or By-laws or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by Seller but shall at all times in good faith assist in the carrying out of all the provisions of this Agreement and in taking of all such actions as may be necessary or appropriate in order to protect the conversion rights of Buyer against impairment. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Buyer as follows: 4.1 DUE ORGANIZATION AND QUALIFICATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Seller has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as presently conducted and as presently contemplated. Seller is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or the locations of its property requires such qualification, except where the failure to do so would not have a material adverse effect on Seller's business, operations, assets or condition (financial or otherwise). 4.2 POWER AND AUTHORITY. Seller has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements contemplated by this Agreement (including, without limitation, the Note and the Registration Rights Agreement) and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and all other agreements contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and is the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. When executed and delivered by Seller at the Closing, each of the Note and the Registration Rights Agreement will be the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 4.3. CAPITALIZATION. The capitalization of the Seller as of the date of this Agreement, including its authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Seller's stock option plans and agreements, the number of shares issuable and reserved for issuance pursuant to securities (other than the Note) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon conversion of the Note is set forth on Schedule 4.3 hereto. All issued and outstanding shares of capital stock of the Seller have been validly issued, fully paid and non-assessable. Except as disclosed on Schedule 4.3 hereto, the Seller owns all of the capital stock of each subsidiary, which capital stock is validly issued, fully paid and non-assessable, and no shares of the capital stock of the Seller or any of the subsidiaries are subject to preemptive rights or any other similar rights of the shareholders of the Seller or any such subsidiary or any liens created by or through the Seller or any such subsidiary. Except as disclosed on Schedule 4.3 or as contemplated herein, 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 shares of capital stock of the Seller or any of the subsidiaries, or arrangements by which the Seller or any of the subsidiaries is or may become bound to issue additional shares of capital stock of the Seller or any of the subsidiaries (whether pursuant to anti-dilution, "reset" or other similar provisions). Schedule 4.3 identifies all Debt of the Seller and the subsidiaries currently outstanding in excess of $100,000 individually or in the aggregate as of the date hereof. 4.4. FINANCIAL STATEMENTS, OTHER INFORMATION. Seller has filed with the Securities and Exchange Commission ("Commission") all reports, schedules, 4 registration statements and definitive proxy statements that Seller was required to file with Commission on or after December 31, 2004 (collectively, the "SEC DOCUMENTS"). Seller is not aware of any event occurring or expected to occur as of the date of this Agreement (other than the transactions effected hereby) that would require the filing of, or with respect to which Seller intends to file, a Form 8-K after the date of this Agreement. Each SEC Document, as of the date of the filing thereof with the Commission (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing), complied in all material respects with the requirements of the Securities Act of 1933, as amended ("Securities Act") or Securities Exchange Act of 1934, as amended ("Exchange Act"), as applicable, and the rules and regulations promulgated thereunder and, as of the date of such filing (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), such SEC Document (including all exhibits and schedules thereto and documents incorporated by reference therein) did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents that are required to be filed as exhibits to the SEC Documents have been filed as required. Except as set forth in Schedule 4.4, Seller has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business that, under GAAP, are not required to be reflected in the financial statements included in Schedule 4.4. Except as set forth in Schedule 4.4, as of their respective dates, the financial statements of Seller 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 Commission with respect thereto. The financial statements included in the SEC Documents have been and will be prepared in accordance with GAAP consistently applied at the times and during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements, or (iii) as set forth in the SEC Documents), and fairly present in all material respects the financial position of Seller 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 adjustments). 4.5. AUTHORIZATION OF THE NOTE AND CONVERSION SHARES. All corporate action on the part of Seller necessary for the authorization, issuance, sale and/or delivery of the Note and the capital stock issuable upon conversion of the Note (the "Conversion Shares") has been taken and when issued, sold and delivered in accordance with this Agreement and/or the Note, the Conversion Shares will be validly issued and outstanding, fully paid and nonassessable and not subject to preemptive, first refusal or any other similar rights of any stockholder of Seller or others. 4.6 COMPLIANCE WITH LAWS. To its knowledge, Seller is in compliance in all material respects with all Federal, state, local and foreign laws, statutes, ordinances, regulations, orders, judgments, injunctions, awards or decrees (collectively, "Laws") applicable to it or any of its properties or operations. Seller has not received any notice of material violation or alleged material violation of any Law by it. Seller has all material licenses, permits, orders and approvals of Federal, state, local and foreign governmental or regulatory bodies necessary for the conduct of its business and operations as presently conducted. 4.7 NO BREACH; CONSENTS. Except as set forth on SCHEDULE 4.7 hereto, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) result in any lien, pledge, mortgage, security interest, claim, lease, charge, option, easement, servitude or other encumbrance whatsoever (collectively, "Liens") upon any of the property of Seller (other than in favor of Buyer) or (ii) violate, conflict with or breach any of the terms and conditions of, result in a material modification of, accelerate or trigger the rights of any person under, or constitute (or with notice or lapse of time or both would constitute) a default under (a) any material instrument, contract or other agreement to which Seller is a party or by or to which it or any of its properties is bound or subject; (b) Seller's Certificate of Incorporation or By-laws (and all amendments thereto up through the date hereof); or (c) any Law applicable to Seller or any of its properties or operations. Except as set forth on SCHEDULE 4.7, no consent, approval or authorization of, or declaration or filing with, any governmental authority, stockholder of Seller or other person is required on the part of Seller in connection with the execution, delivery or performance of this Agreement or the consummation by it of the transactions contemplated hereby. 5 4.8 LITIGATION. Except as set forth on SCHEDULE 4.8 hereto, there are no material suits or actions, administrative, arbitration or other proceedings or governmental investigations pending or, to Seller's knowledge, threatened against or affecting Seller or any of its properties or assets. There are no judgments, orders, injunctions, decrees or awards against Seller that are not satisfied or remain outstanding. 4.9. BROKERS. Neither Seller nor any of Seller's officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by this Agreement and no fee is or will be due and owing to any broker or finder in connection with the transactions contemplated by this Agreement. 4.10 INTELLECTUAL PROPERTY. All of Seller's (i) trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, (ii) patents and patent applications, and (iii) licenses with respect to the use of patents or trademarks owned by other parties, are set forth on SCHEDULE 4.10 hereto. Except asset forth on SCHEDULE 4.10, there is not pending nor, to Seller's knowledge, threatened any claim, suit or action contesting or challenging the rights of Seller in or to any of the material item of intellectual property owned or used by Seller in the conduct of its business (the "Intellectual Property") or the validity of any of the Intellectual Property. To Seller's knowledge, there is no infringement upon or unauthorized use of any of the Intellectual Property by any third party. No officer, director, equityholder or affiliate of Seller nor any of their respective associates has any right to or interest in any of the Intellectual Property, including, without limitation, any right to payments (by royalty or otherwise) in respect of any use or transfer thereof. 4.11 PERFORMANCE OF AGREEMENTS. Except as set forth on SCHEDULE 4.11 hereto, no default by Seller exists in the due performance under any material agreement to which Seller is a party or to which any of its assets is subject. 4.12 NO WAIVER OF PRIOR OR FUTURE DEFAULTS. Seller hereby acknowledges and agrees that this Agreement and Buyer's purchase from Seller of the Note, pursuant to the terms and conditions hereof, shall not constitute or operate as a waiver or release of any default, or any future defaults, under the Default Notes. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and warrants to Seller as follows: 5.1 DUE ORGANIZATION. Buyer is a duly organized legal entity, validly existing and in good standing under the laws of the state of its organization. 5.2 POWER OF BUYER. Buyer has the requisite company power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Buyer and is the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 5.3 NO BREACH. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby will not violate, conflict with or otherwise result in the breach of any of the terms and conditions of, result in a material modification of or constitute (or with notice or lapse of time or both would constitute) a default under (i) any of the organizational documents of Buyer; (ii) any material instrument, contract or other agreement to which Buyer is a party or by or to which it or any of its properties is bound or subject; or (iii) any Law applicable to Buyer or any of its properties or operations. 5.4 GOVERNMENTAL AND OTHER CONSENTS. No consent, approval or authorization of, or declaration or filing with, any governmental authority or other person is required on the part of Buyer in connection with the execution, delivery and performance of this Agreement by it or the consummation of the transactions contemplated hereby. 6 5.5 INVESTMENT REPRESENTATIONS. Buyer is acquiring the Note (the "Securities"), and any capital stock issuable upon exercise of the Securities, for Buyer's own account, for investment and not with a view to, or for sale in connection with, any distribution of such securities or any part thereof. Buyer (i) has such knowledge and experience in financial and business affairs that it is capable of evaluating the merits and risks involved in purchasing the Securities, (ii) is able to bear the economic risks involving in purchasing the Securities, (iii) is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (iv) has had the opportunity to ask questions of, and receive answers from, Seller and persons acting on Seller's behalf concerning Seller's business, management, and financial affairs and the terms and conditions of the Securities. Buyer's state of residence is New York. 5.6. NO BROKER. Buyer has not employed any broker or finder in connection with the transactions contemplated by this Agreement. 6. COVENANTS AND AGREEMENTS. ------------------------- 6.1 PRE-CLOSING COVENANTS AND AGREEMENTS. The parties hereto covenant and agree to perform or take any and all such actions to effectuate the following from the date hereof until the earlier of the Closing Date or the termination of this Agreement: (a) FURTHER ASSURANCES. Each of the parties shall, prior to or at the Closing, as may be appropriate, execute such documents and other papers and take such other further actions as may be reasonably required to carry out the provisions hereof and effectuate the transactions contemplated hereby, and in the Note and the Registration Rights Agreement. Each party shall use its best efforts to fulfill or obtain the fulfillment of the conditions to its obligation to effect the Closing, including promptly obtaining any consents required in connection herewith. (b) ADDITIONAL DISCLOSURE. Seller shall promptly notify Buyer of, and furnish Buyer with, any information it may reasonably request with respect to the occurrence of any event or condition or the existence of any fact that would cause any of the conditions to Buyer's obligation to consummate the transactions contemplated by this Agreement not to be fulfilled. 6.2 POST-CLOSING COVENANTS AND AGREEMENTS. Buyer and Seller covenant and agree from and after the Closing Date to perform or take the following actions: (a) RESERVE FOR CONVERSION SHARES. Seller shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or other securities for the purpose of issuing Common Stock or other securities upon the conversion of the Note. If at any time the number of authorized but unissued shares of Common Stock or other securities shall not be sufficient to satisfy the conversion of the Note, if any, Seller shall forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock or other securities to such number of shares as shall be sufficient for such purpose. If any capital reorganization or any Liquidation Event of Seller shall be effected in such a way that holders of Common Stock shall be entitled to receive capital stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification or Liquidation Event, lawful and adequate provisions shall be made whereby the holder of the Note shall thereafter, upon conversion, have the right to receive such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for the number of outstanding shares of such Common Stock into which the Note held at the time of such capital reorganization, reclassification or Liquidation Event is convertible. 7. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE. --------------------------------------------------------- 7.1 CLOSING. The obligation of Buyer to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Buyer in writing: 7 (a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller shall have complied with and duly performed and satisfied in all material respects all agreements and conditions on its part to be complied with and performed by such date pursuant to this Agreement. (b) CONSENTS. Seller shall have obtained any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby and delivered copies thereof to Buyer. (c) NOTE. Seller shall have duly executed and delivered to Buyer the Note. (d) REGISTRATION RIGHTS AGREEMENT. Seller shall have duly executed and delivered to Buyer the Registration Rights Agreement. 8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE. ---------------------------------------------------------- 8.1 CLOSING. The obligation of Seller to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Seller in writing: (a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Buyer shall have complied with and performed and satisfied in all material respects all agreements and conditions to be complied with and performed by such date pursuant to this Agreement. (b) PAYMENT OF PURCHASE PRICE. Buyer shall have paid to Seller the Purchase Price. (c) REGISTRATION RIGHTS AGREEMENT. Buyer shall have duly executed and delivered to Seller the Registration Rights Agreement. 9. EVENTS OF DEFAULT. If any of the following events (each, an "Event of Default") shall occur and be continuing: (i) Seller shall fail to pay any amount payable under the Note within three (3) business days after such payment becomes due in accordance with the terms thereof; (ii) Seller shall fail to pay when due (following the expiration of applicable notice and cure periods, if any), whether upon acceleration, prepayment obligation or otherwise, any indebtedness and/or other sums payable, individually or in the aggregate, involving an amount in excess of $100,000; (iii) Any representation or warranty made or deemed made by Seller herein or in any other agreement, certificate or instrument contemplated by this Agreement or that is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall have been incorrect in any material respect on or as of the date made or deemed made; (iv) Seller shall default, in any material respect, in the observance or performance of any other agreement contained in this Agreement or any other agreement or instrument contemplated by this Agreement, and such default shall continue unremedied for a period of twenty (20) days after notice to Seller of such default; (v) Seller shall substantially curtail, alter, modify or change its business operations, as reasonably determined by Buyer; or (vi) (a) Seller shall commence any case, proceeding or other action (x) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (y) seeking appointment or a receiver, trustee, custodian, conservator or other similar official for it or 8 for all or any substantial part of its assets, or Seller shall make a general assignment for the benefit of its creditors; or (b) there shall be commenced against Seller any case, proceeding or other action of a nature referred to in clause (a) above that (A) results in the entry of an order for relief of any such adjudication of appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (c) there shall be commenced against Seller any case, proceeding other action seeking issuance of a warrant of attachment, execution, distrait or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof, or (d) Seller shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in any of the acts set forth in clauses (a), (b) or (c) above; or (e) Seller shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, then, and in any such event, but in all events subject to the provisions of Section 3.6 above, (x) if such event is an Event of Default specified in subsection (vi) above of this Section 9 with respect to Seller, automatically the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note shall immediately become due and payable, and (y) if such event is any other Event of Default, Buyer may, by written notice to Seller, declare the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 9, presentation, demand, protest and all other notices of any kind are hereby expressly waived by Seller. 10. MISCELLANEOUS. -------------- 10.1 PUBLICITY. Subject to the requirements of the Federal securities laws, no publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued without advance approval of the form and substance thereof by Buyer and Seller jointly. 10.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by facsimile transmission, when telexed, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to Seller: Vyteris Holdings (Nevada), Inc. 13-01 Pollitt Drive Fair Lawn, New Jersey 07410 Attention: Chief Executive Officer Facsimile: (201) 796-6057 With a copy (which copy shall not constitute notice) to: Lowenstein Sandler PC 65 Livingston Avenue Roseland, New Jersey 07068 Attention: Peter H. Ehrenberg, Esq. Facsimile: (973) 597-2400 (ii) If to Buyer: Spencer Trask Specialty Group, LLC 535 Madison Avenue New York, NY 10022 Attention: Bruno Lerer, Esq. Facsimile: (212) 486-7392 9 With a copy (which copy shall not constitute notice) to: Littman Krooks LLP 655 Third Avenue, 20th Floor New York, NY 10016 Attention: Mitchell C. Littman, Esq. Facsimile: (212) 490-2990 10.3. ENTIRE AGREEMENT; EXERCISE OF RIGHTS. (a) This Agreement (including the Schedules and Exhibits hereto) and the other Loan Documents (as defined in Section 10.6 hereof) embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by each of the parties hereto and no waiver of any provision of this Agreement, nor consent to any departure by either party from it, shall be effective unless it is in writing and signed by the affected party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of a party to exercise, and no delay in exercising, any right under this Agreement, or any agreement contemplated hereby, shall operate as a waiver hereof by such party, nor shall any single or partial exercise of any right under this Agreement, or any agreement contemplated hereby, preclude any other or further exercise thereof or the exercise of any other right. 10.4. GOVERNING LAW. This Agreement shall 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 within such jurisdiction. 10.5. EXPENSES. Seller and Buyer shall, subject to the immediately succeeding sentence, bear their respective expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel, brokers or finders, and accountants. 10.6 TRANSFERABILITY. Subject to securities laws restrictions of general applicability, this Agreement, the Note and the Registration Rights Agreement (collectively, the "Loan Documents") and all rights hereunder and thereunder are freely and separately transferable and assignable, in whole or in part, by Buyer. The foregoing transferees and assignees shall be entitled to the rights provided in the Loan Documents. Seller may not assign or delegate any of its obligations under the Loan Documents without the prior written consent of Buyer. For purposes hereof, a sale or exchange by Seller of all or substantially all of its assets shall constitute an assignment/delegation requiring Buyer's prior written consent. [SIGNATURE PAGE FOLLOWS) 10 IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase Agreement on the date first above written. SPENCER TRASK SPECIALTY GROUP, LLC By: /s/ Kevin Kimberlin -------------------------------- Name: Kevin Kimberlin Title: Nonmember Manager VYTERIS HOLDINGS (NEVADA), INC. By:/s/ Tim McIntyre ------------------- Name: Tim McIntyre Title: CEO 11 EXHIBIT A --------- Form of Note EXHIBIT B --------- Form of Registration Rights Agreement SCHEDULES --------- EX-99 4 ex99-66.txt EX-99-66 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April 18, 2006, is by and between VYTERIS HOLDINGS (NEVADA), INC., a Nevada corporation (the "COMPANY"), and SPENCER TRASK SPECIALTY GROUP, LLC, a Delaware limited liability company (the "INVESTOR"). The Company has agreed, on the terms and subject to the conditions set forth in the Note Purchase Agreement, dated as of April 18, 2006 (the "NOTE AGREEMENT"), to issue and sell to the Investor named therein the Note in the form attached to the Note Agreement (the "NOTE"). The Note is convertible into shares (the "REGISTRABLE SHARES") of the Company's common stock, par value $0.001 per share (the "COMMON STOCK")in accordance with its terms. In order to induce the Investor to enter into the Note Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and under applicable state securities laws. In consideration of the Investor entering into the Note Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PIGGYBACK REGISTRATION STATEMENT. If, at any time, the Company proposes to file any registration statement on Form S-1 or such other appropriate form in accordance with the Securities Act of 1933, as amended (the "Securities Act") for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act or initial public offerings) it will give written notice by facsimile or mail, at least five (5) days prior to the filing of each registration statement, to the Investor of its intention to do so. If the Investor notifies the Company within five (5) days after receipt of any such notice of its desire to include any such securities in such proposed registration statement, the Company shall afford the Investor the opportunity to have any Registrable Securities registered under such registration statement. 2. OBLIGATIONS OF THE COMPANY. In connection with the filing of any registration statement herein, the Company shall: 2.1 Prepare and file with the Securities and Exchange Commission (the "SEC") such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. 2.2 Furnish to the Investor such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 2.3 Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions as shall be reasonably requested by the Investor; PROVIDED, HOWEVER, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.4 Notify the Investor at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 2.5 Use its best efforts to cause all Registrable Securities covered by such registration statement to be listed on each securities exchange on which similar securities listed by the Company are then listed. 3. OBLIGATIONS OF THE INVESTOR. ---------------------------- The Investor shall furnish to the Company such information regarding the Investor, the number of Registrable Securities owned and proposed to be sold by it, the intended method of disposition of such securities and any other information as shall be required to effect the registration of the Investor's Registrable Securities, and cooperate with the Comp any in preparing the registration statement and in complying with the requirements of the Securities Act. 4. REGISTRATION EXPENSES. ---------------------- The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities, including without limitation all registration, listing, filing and qualification fees, printers and accounting fees, but excluding (i) underwriting discounts and commissions relating to the Registrable Securities and (ii) legal fees and disbursements of any and all counsel retained by the Investor. 5. SUSPENSION OF EFFECTIVENESS. ---------------------------- If the Company shall furnish to the Investor a certificate signed by the President or Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it is necessary to suspend the effectiveness of any registration statement filed hereunder, the Company shall have the right, exercisable two (2) times only in any consecutive twelve (12) month period, to suspend the effectiveness of the registration statement with respect to such offering for a period of not more than an aggregate of ninety (90) days per suspension. 6. INDEMNIFICATION. ---------------- 6.1 To the extent permitted by law, the Company will indemnify the Investor, its members, directors, officers, shareholders, employees, agents and affiliates, legal counsel for the Investor, and each person controlling the Investor within the meaning of the Securities Act, with respect to which registration, qualification or compliance of Registrable Securities has been effected pursuant to this Agreement, against any losses, claims, damages, liabilities or actions in respect thereof (collectively, "Damages"), arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") , or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and the Company will pay each the Investor any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 6.1 shall not apply to: (i) amounts paid in settlement of any such Damages if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); (ii) any such Damages arising out of or a based upon any untrue statement or omission based upon information furnished to the Company by the Investor and stated to be for use in connection with the offering of securities of the Company; or (iii) any such Damages arising out of or based upon the Investor's failure to deliver a copy of the registration statem ent or prospectus or any amendments or supplements thereto. 6.2 To the extent permitted by law, the Investor will, if Registrable Securities held by the Investor are included in the securities as to which such 2 registration, qualification or compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors, officers, shareholders, employees, agents and affiliates, each legal counsel and independent accountant of the Comp an y, each person who controls the Company within the meaning of the Securities Act, and each other the Investor, each of its directors, officers, shareholders, employees, agents and affiliates, legal counsel, and each person controlling such other Purchaser within the meaning of the Securities Act, against all Damages arising out of or based upon arising any untrue statement or alleged untrue statement of a material fact contained in a registration statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be sta ted therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Investor of the Securities Act, the Exchange Act, or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Investor in connection with any such registration, qualification or compliance; and the Investor will pay the Company or such other Investor any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action, in each case, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission is made in such registration statement, prospectus, offering circular or other document in reliance on and in conformity with information furnished to the Company by the Investor and stated to be for use in connection with the offering of securities of the Company; PROVIDED, HOWEVER, th at the indemnity contained in this Section 6.2 shall not apply to amounts paid in settlement of any such Damages if settlement is effected without the consent of the Investor (which consent shall not unreasonably be withheld). 6.3 Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so chooses, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented b y such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6. 6.4 If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such Damages as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by t he indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 6.5 The obligations of the Company and the Investor under this Section 6 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement. 7. NOTICES. -------- 7.1 Any notice or communication required or permitted hereunder shall be given in writing and shall be made by hand delivery, by confirmed facsimile, by overnight courier or by registered or certified mail, addressed (i) if to the 3 Investor, to the Investor's address as set forth on Schedule A hereto, and (ii) if to the Company, to Vyteris Holdings (Nevada), Inc., 13-01 Pollitt Drive, Fair Lawn, New Jersey 07410, Attention: Chief Executive Officer, Facsimile: (201) 796-6057 with a copy to Lownestein Sandler PC, 65 Livinston Avenue, Roseland, NJ 07068, facsimile number (973) 597 -2400, Attention: Peter H. Ehrenberg, Esq. 7.2 All such notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery or facsimile, on the date of such delivery, (ii) in the case of overnight courier, on the business day after the date when sent, and (iii) in the case of registered or certified mail, on the third business day following such mailing. 8. MISCELLANEOUS. -------------- 8.1 This Agreement shall be govern ed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of the conflict of laws thereof. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York located in New York County and any Federal court located within New York County for any actions, suits or proceedings arising out of or relating to this Agreement. The parties hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement in the courts of the State of New York located in New York County or the courts of the United States of America located in New York County, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit of proceeding brought in any such court has been brought in an inconvenient forum. 8.2 Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investor of an y Registrable Securities then outstanding, each future Purchaser of all such Registrable Securities, and the Company. 8.3 Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement, excepts as expressly provided herein. 8.4 If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.5 The headings of the Sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 8.6 This Agreement constitutes the entire contract among the Company and the Investor relative to the subject matter thereof and supersedes in its entirety any and all prior agreements, understandings and discussions with respect thereto. 8.7 The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4 [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SPENCER TRASK SPECIALTY GROUP, LLC By: /s/ Kevin Kimberlin -------------------------------- Name: Kevin Kimberlin Title: Nonmember Manager VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Tim McIntyre -------------------- Name: Tim McIntyre Title: CEO 6 EX-99 5 exh99-67.txt EX-99.67 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. VYTERIS HOLDINGS (NEVADA), INC. 10% CONVERTIBLE PROMISSORY NOTE ------------------------------- $500,000 Fair Lawn, New Jersey May 5, 2056 FOR VALUE RECEIVED, the undersigned, Vyteris Holdings (Nevada), Inc., a Nevada corporation (the "Issuer"), hereby unconditionally promises to pay, in accordance with the Note Purchase Agreement (the "Note Purchase Agreement"), dated as of the date hereof, by and between the Issuer and Spencer Trask Specialty Group, LLC, a Delaware limited liability company (the "Purchaser"), on the Maturity Date (as defined in the Note Purchase Agreement) to the order of the Purchaser, at the office of the Purchaser located at 535 Madison Avenue, New York, NY or such other address designated by the Purchaser, in lawful money of the United States of America and in immediately available funds, the principal amount of Five Hundred Thousand ($500,000) Dollars. The Issuer further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from the date hereof in like money at the rates and as and on the dates specified in Section 3.3 of the Note Purchase Agreement. This Note is the promissory note referred to in the Note Purchase Agreement, and is entitled to the benefits thereof, and is subject to voluntary and mandatory conversions as set forth therein. This Note, and all representations, warranties, covenants and agreements contained herein and in the Note Purchase Agreement, shall be binding upon Issuer and its successors and permitted assigns and shall inure to the benefit of the Purchaser and its successors and assigns. Issuer may not assign or delegate any of its duties or obligations under this Note without the written consent of the Purchaser, which shall not be unreasonably withheld. Upon the occurrence of any one or more of the Events of Default specified in the Note Purchase Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Note Purchase Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Subject to Sections 3.3 and 10.5 of the Note Purchase Agreement, the Issuer agrees to pay all of the Purchaser's expenses, including reasonable attorneys' costs and fees, incurred in collecting sums due under this Note. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. VYTERIS HOLDINGS (NPVADA), INC. By: /s/ Tim McIntyre -------------------- Name: Tim McIntyre Title: CEO -2- EX-99 6 ex99-68.txt EX-99.68 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT (this "Agreement"), dated as of May 5, 2006, by and between Vyteris Holdings (Nevada), Inc., a Nevada corporation ("Seller"), and Spencer Trask Specialty Group, LLC, a Delaware limited liability company ("Buyer"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Seller desires to issue to Buyer, and Buyer desires to purchase from Seller, a convertible subordinated promissory note, substantially in the form of EXHIBIT A hereto, in the principal amount of $500,000 (the "Note"); WHEREAS, Seller has agreed to effect the registration of the shares of Common Stock underlying the Note under the Securities Act of 1933, as amended, pursuant to a registration statement substantially in the form of EXHIBIT B hereto (the "Registration Rights Agreement"); and WHEREAS, Seller, pursuant to that certain securities purchase agreement dated as of August 19, 2005, as same may be amended from time to time ("Securities Purchase Agreement") issued a series of senior secured convertible debentures, including debentures issued after the original issuance date(the "Debentures") in the aggregate principal amount of $10.5 million (the "Senior Debt"). NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties agree as follows: 1. SALE AND PURCHASE OF THE NOTE. ----------------------------- 1.1. SALE AND PURCHASE. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2.1 hereof), Seller shall issue to Buyer, and Buyer shall purchase from Seller, for the Purchase Price (as defined in Section 1.2(a) hereof), the Note. 1.2. Purchase Price and Payment. -------------------------- (a) PURCHASE PRICE. The purchase price for the Note shall be $500,000 (the "Purchase Price"). (b) PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid to Seller by Buyer on the Closing Date (as defined in Section 2.1 hereof) via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions provided to Buyer prior to the date hereof. 2. CLOSING. ------- 2.1. TIME AND PLACE. The closing of the sale and purchase of the Note(the "Closing") shall be deemed to take place at the offices of Littman Krooks LLP, 655 Third Avenue, 20th Floor, New York, New York, at 10:00 a.m., local time, on the date hereof, or at such later time or date as Buyer and Seller may mutually agree in writing. The date upon which the Closing shall occur is herein called the "Closing Date". 2.2. Closing Deliveries. ------------------ (a) SELLER DELIVERIES. At the Closing, Seller shall deliver or cause to be delivered to Buyer the following: (i) the duly executed Note; (ii) the duly executed Registration Rights Agreement; and (iii) copies of any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby. (b) BUYER DELIVERY. At the Closing, Buyer shall deliver or cause to be delivered to Seller the Purchase Price. 3. TERMS OF THE NOTE. ---------------- 3.1. AMOUNT. The principal amount of the Note shall be $500,000. 3.2. MATURITY. Unless otherwise converted into the Conversion Shares (as defined in Section 3.4 hereof) in accordance with the provisions hereof, the Note shall mature on December 1, 2008, unless such date shall be otherwise extended in writing by Buyer, in its sole discretion (such date, the "Maturity Date"). On the Maturity Date, unless, and to the extent, converted into Conversion Shares in accordance with the provisions hereof, all outstanding principal and any accrued and unpaid interest due and owing under the Note shall be immediately paid by Seller. 3.3. INTEREST, INTEREST RATE; PAYMENT. (a) The Note shall bear interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in clause (b) below) at a rate equal to ten (10%) percent (the "Interest Rate") per annum on a 360-day year. Interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in subparagraph (b) below) shall be due and payable in cash semi-annually in arrears following the end of each semi-annual period, commencing with the semi-annual period ended June30, 2006, pro rated for partial periods; PROVIDED, HOWEVER, that any interest accruing on overdue amounts pursuant to subparagraph (b) of this Section 3.3 shall be payable on demand. (b) If all or a portion of the principal amount of the Note or any interest payable thereon shall not be repaid when due whether on the applicable repayment date, by acceleration or otherwise, such overdue amounts shall bear interest at a rate per annum that is three percent (3%) above the Interest Rate (I.E. 13%) from the date of such non-payment until such amount is paid in full (as well after as before judgment). (c) All payments to be made by Seller hereunder or pursuant to the Note shall be made, without setoff or counterclaim, in lawful money of the United States by check or wire transfer in immediately available funds. 3.4. CONVERSION. (a) Subject to Sections 3.4(b) and 3.5 hereof, at any time prior to the Maturity Date, the Seller shall have the option to convert the entire principal and interest accrued and owing on the Note, or any portion of the principal and/or interest thereof, into shares (the "Conversion Shares") of Common Stock at the Conversion Price. For purposes hereof, "Conversion Price" shall mean $2.40 per share; PROVIDED, that if at any time on or after the issuance date of the Note, Seller subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then after the date of record for effecting such subdivision, the Conversion Price shall be proportionately reduced, or if Seller combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, the Conversion Price shall be proportionately increased. Upon conversion, Buyer shall be entitled to receive the number of Conversion Shares calculated by dividing the amount being converted by the Conversion Price. No fractional shares of Conversion Shares shall be issued upon conversion. In lieu of any fractional shares to which Buyer would otherwise be entitled, Seller shall pay cash in an amount equal to such fraction multiplied by the Conversion Price. The Note shall not be subject to automatic conversion or to any conversion at the option of Seller. (b) Notwithstanding the provision of Section 3.4(a), if an equity security or other derivative security convertible or exercisable into an equity 2 security of the Company ("Applicable Security") is sold in connection with a Qualified Financing (as hereinafter defined) at any time prior to payment in full of the principal balance of the Note, all of the principal and interest due thereunder shall automatically become converted into the Applicable Security with the same rights and privileges granted to investors in the Qualified Financing. The number of Applicable Securities received upon conversion pursuant to this Section 3(b) shall be determined by dividing the aggregate principal amount due under the Note, together with any accrued but unpaid interest to the date of conversion, by the price per Applicable Security paid in the Qualified Financing. For the purposes of the Note, a " Qualified Financing" shall mean the Company's next private financing of Applicable Securities to investors (i) yielding aggregate gross proceeds (exclusive of conversion of the Note) to the Company of at least $500,000 and (ii) which does not invoke or trigger the provisions of Section 4(b) of the Debentures or Section 6(c) of the Warrants (as such term is defined in the Securities Purchase Agreement. 3.5. CONVERSION PROCEDURES. In order to exercise the conversion rights set forth in Section 3.4(a) hereof, Buyer shall surrender the Note, appropriately endorsed, to Seller at Seller's principal office, accompanied by written notice to Seller setting forth the amount of principal and interest to be converted, the name or names (with address(es)) in which the Conversion Shares issuable upon such conversion shall be issued and registered on the books of Seller. For purposes hereof, the "Conversion Date" shall be deemed to be the date the Note and notice is received by Seller for conversion. Within five (5) business days after the Conversion Date, Seller shall deliver to Buyer (i) a stock certificate for the Conversion Shares or (ii) a notice certified by Seller's Secretary that the Conversion Shares due on such conversion have been issued to and registered on the books of Seller in the name or names specified by Buyer. In the case of conversion of less than the entire principal of and interest under the Note, Seller shall cancel said Note and shall execute and deliver a new Note of like tenor for the unconverted amount of the Note dated the date of execution by Seller upon initial issuance of the Note notwithstanding any subsequent substitution. 3.6. SUBORDINATION. The Note is expressly and fully subordinated, as to payment and liquidation, to the payment in full of the Debentures and the Obligations (as such term is defined in the Securities Purchase Agreement) and the holder of the Note acknowledges and agrees that the Seller is expressly restricted from pre-paying any amounts in respect of the principal of the Note (upon acceleration or otherwise) until payment in full of the Debentures. The holder of this Note shall not commence any judicial or other collection efforts or exercise any other remedies prior to the date that is ninety-one (91) days following the payment in full of the Debentures. The Note is, and is intended to be, "Subordinated Debt" as such term is defined in the Securities Purchase Agreement. 3.7. PREPAYMENT RIGHTS UPON MERGER. CONSOLIDATION, ETC. (a) If, prior to the Conversion Date, but subject to the provisions of Section 3.6 above, Seller proposes to consolidate with, or merge into, another corporation or entity, or to effect any sale or conveyance to another corporation or entity of all or substantially all of the assets of Seller, or effect any other corporate reorganization, in which the stockholders of the Seller immediately prior to such consolidation, merger or reorganization own capital stock of the entity surviving such merger, consolidation or reorganization representing less than fifty (50%) percent of the combined voting power of the outstanding securities of such entity immediately after such consolidation, merger or reorganization (collectively, a "Liquidation Event"), then Seller shall provide Buyer with at least ten (10) days' prior written notice of any such proposed action, and Buyer will, at its option, have the right to demand immediate prepayment of all amounts due and owing under the Note. Buyer will give Seller written notice of such demand within five (5) days after receiving notice of the Liquidation Event. All amounts (including all accrued and unpaid interest) due and owing under the Note shall be paid by Seller to Buyer within five (5) days from the date of such written notice via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions to be provided to Seller by Buyer within at least two (2) business days after giving Seller such written notice. The provisions of this Section 3.7(a) shall similarly apply to successive consolidations or mergers. (b) Except as set forth in Sections 3.6, 3.7(a)and 9 hereof, Seller shall not prepay prior to the Maturity Date all or part of this Note without the express written consent of Buyer. 3 3.8 INTENTIONALLY DELETED. 3.9 ASSURANCES WITH RESPECT OF CONVERSION RIGHTS. Seller shall not, by amendment of its Certificate of Incorporation or By-laws or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by Seller but shall at all times in good faith assist in the carrying out of all the provisions of this Agreement and in taking of all such actions as may be necessary or appropriate in order to protect the conversion rights of Buyer against impairment. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Buyer as follows: 4.1 DUE ORGANIZATION AND QUALIFICATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Seller has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as presently conducted and as presently contemplated. Seller is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or the locations of its property requires such qualification, except where the failure to do so would not have a material adverse effect on Seller's business, operations, assets or condition (financial or otherwise). 4.2 POWER AND AUTHORITY. Seller has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements contemplated by this Agreement (including, without limitation, the Note and the Registration Rights Agreement) and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and all other agreements contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and is the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. When executed and delivered by Seller at the Closing, each of the Note and the Registration Rights Agreement will be the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 4.3. CAPITALIZATION. The capitalization of the Seller as of the date of this Agreement, including its authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Seller's stock option plans and agreements, the number of shares issuable and reserved for issuance pursuant to securities (other than the Note) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon conversion of the Note is set forth on Schedule 4.3 hereto. All issued and outstanding shares of capital stock of the Seller have been validly issued, fully paid and non-assessable. Except as disclosed on Schedule 4.3 hereto, the Seller owns all of the capital stock of each subsidiary, which capital stock is validly issued, fully paid and non-assessable, and no shares of the capital stock of the Seller or any of the subsidiaries are subject to preemptive rights or any other similar rights of the shareholders of the Seller or any such subsidiary or any liens created by or through the Seller or any such subsidiary. Except as disclosed on Schedule 4.3 or as contemplated herein, 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 shares of capital stock of the Seller or any of the subsidiaries, or arrangements by which the Seller or any of the subsidiaries is or may become bound to issue additional shares of capital stock of the Seller or any of the subsidiaries (whether pursuant to anti-dilution, "reset" or other similar provisions). Schedule 4.3 identifies all Debt of the Seller and the subsidiaries currently outstanding in excess of $100,000 individually or in the aggregate as of the date hereof. 4.4. FINANCIAL STATEMENTS, OTHER INFORMATION. Seller has filed with the Securities and Exchange Commission ("Commission") all reports, schedules, 4 registration statements and definitive proxy statements that Seller was required to file with Commission on or after December 31, 2004 (collectively, the "SEC DOCUMENTS"). Seller is not aware of any event occurring or expected to occur as of the date of this Agreement (other than the transactions effected hereby) that would require the filing of, or with respect to which Seller intends to file, a Form 8-K after the date of this Agreement. Each SEC Document, as of the date of the filing thereof with the Commission (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing), complied in all material respects with the requirements of the Securities Act of 1933, as amended ("Securities Act") or Securities Exchange Act of 1934, as amended ("Exchange Act"), as applicable, and the rules and regulations promulgated thereunder and, as of the date of such filing (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), such SEC Document (including all exhibits and schedules thereto and documents incorporated by reference therein) did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents that are required to be filed as exhibits to the SEC Documents have been filed as required. Except as set forth in Schedule 4.4, Seller has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business that, under GAAP, are not required to be reflected in the financial statements included in Schedule 4.4. Except as set forth in Schedule 4.4, as of their respective dates, the financial statements of Seller 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 Commission with respect thereto. The financial statements included in the SEC Documents have been and will be prepared in accordance with GAAP consistently applied at the times and during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements, or (iii) as set forth in the SEC Documents), and fairly present in all material respects the financial position of Seller 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 adjustments). 4.5. AUTHORIZATION OF THE NOTE AND CONVERSION SHARES. All corporate action on the part of Seller necessary for the authorization, issuance, sale and/or delivery of the Note and the capital stock issuable upon conversion of the Note (the "Conversion Shares") has been taken and when issued, sold and delivered in accordance with this Agreement and/or the Note, the Conversion Shares will be validly issued and outstanding, fully paid and nonassessable and not subject to preemptive, first refusal or any other similar rights of any stockholder of Seller or others. 4.6 COMPLIANCE WITH LAWS. To its knowledge, Seller is in compliance in all material respects with all Federal, state, local and foreign laws, statutes, ordinances, regulations, orders, judgments, injunctions, awards or decrees (collectively, "Laws") applicable to it or any of its properties or operations. Seller has not received any notice of material violation or alleged material violation of any Law by it. Seller has all material licenses, permits, orders and approvals of Federal, state, local and foreign governmental or regulatory bodies necessary for the conduct of its business and operations as presently conducted. 4.7 NO BREACH: CONSENTS. Except as set forth on SCHEDULE 4.7 hereto, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) result in any lien, pledge, mortgage, security interest, claim, lease, charge, option, easement, servitude or other encumbrance whatsoever (collectively, "Liens") upon any of the property of Seller (other than in favor of Buyer) or (ii) violate, conflict with or breach any of the terms and conditions of, result in a material modification of, accelerate or trigger the rights of any person under, or constitute (or with notice or lapse of time or both would constitute) a default under (a) any material instrument, contract or other agreement to which Seller is a party or by or to which it or any of its properties is bound or subject; (b) Seller's Certificate of Incorporation or By-laws (and all amendments thereto up through the date hereof); or (c) any Law applicable to Seller or any of its properties or operations. Except as set forth on SCHEDULE 4.7, no consent, approval or authorization of, or declaration or filing with, any governmental authority, stockholder of Seller or other person is required on the part of Seller in connection with the execution, delivery or performance of this Agreement or the consummation by it of the transactions contemplated hereby. 5 4.8 LITIGATION. Except as set forth on SCHEDULE 4.8 hereto, there are no material suits or actions, administrative, arbitration or other proceedings or governmental investigations pending or, to Seller's knowledge, threatened against or affecting Seller or any of its properties or assets. There are no judgments, orders, injunctions, decrees or awards against Seller that are not satisfied or remain outstanding. 4.9. BROKERS. Neither Seller nor any of Seller's officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by this Agreement and no fee is or will be due and owing to any broker or finder in connection with the transactions contemplated by this Agreement. 4.10 INTELLECTUAL PROPERTY. All of Seller's (i) trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, (ii) patents and patent applications, and (iii) licenses with respect to the use of patents or trademarks owned by other parties, are set forth on SCHEDULE 4.10 hereto. Except asset forth on SCHEDULE 4.10, there is not pending nor, to Seller's knowledge, threatened any claim, suit or action contesting or challenging the rights of Seller in or to any of the material item of intellectual property owned or used by Seller in the conduct of its business (the "Intellectual Property") or the validity of any of the Intellectual Property. To Seller's knowledge, there is no infringement upon or unauthorized use of any of the Intellectual Property by any third party. No officer, director, equityholder or affiliate of Seller nor any of their respective associates has any right to or interest in any of the Intellectual Property, including, without limitation, any right to payments (by royalty or otherwise) in respect of any use or transfer thereof. 4.11 PERFORMANCE OF AGREEMENTS. Except as set forth on SCHEDULE 4.11 hereto, no default by Seller exists in the due performance under any material agreement to which Seller is a party or to which any of its assets is subject. 4.12 NO WAIVER OF PRIOR OR FUTURE DEFAULTS. Seller hereby acknowledges and agrees that this Agreement and Buyer's purchase from Seller of the Note, pursuant to the terms and conditions hereof, shall not constitute or operate as a waiver or release of any default, or any future defaults, under the Default Notes. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and warrants to Seller as follows: 5.1 DUE ORGANIZATION. Buyer is a duly organized legal entity, validly existing and in good standing under the laws of the state of its organization. 5.2 POWER OF BUYER. Buyer has the requisite company power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Buyer and is the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 5.3 NO BREACH. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby will not violate, conflict with or otherwise result in the breach of any of the terms and conditions of, result in a material modification of or constitute (or with notice or lapse of time or both would constitute) a default under (i) any of the organizational documents of Buyer; (ii) any material instrument, contract or other agreement to which Buyer is a party or by or to which it or any of its properties is bound or subject; or (iii) any Law applicable to Buyer OR anY of its properties or operations. 5.4 GOVERNMENTAL AND OTHER CONSENTS. No consent, approval or authorization of, or declaration or filing with, any governmental authority or other person is required on the part of Buyer in connection with the execution, delivery and performance of this Agreement by it or the consummation of the transactions contemplated hereby. 6 5.5 INVESTMENT REPRESENTATIONS. Buyer is acquiring the Note (the "Securities"), and any capital stock issuable upon exercise of the Securities, for Buyer's own account, for investment and not with a view to, or for sale in connection with, any distribution of such securities or any part thereof. Buyer (i) has such knowledge and experience in financial and business affairs that it is capable of evaluating the merits and risks involved in purchasing the Securities, (ii) is able to bear the economic risks involving in purchasing the Securities, is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and has had the opportunity to ask questions of, and receive answers from, Seller and persons acting on Seller's behalf concerning Seller's business, management, and financial affairs and the terms and conditions of the Securities. Buyer's state of residence is New York. 5.6. NO BROKER. Buyer has not employed any broker or finder in connection with the transactions contemplated by this Agreement. 6. COVENANTS AND AGREEMENTS. 6.1 PRE-CLOSING COVENANTS AND AGREEMENTS. The parties hereto covenant and agree to perform or take any and all such actions to effectuate the following from the date hereof until the earlier of the Closing Date or the termination of this Agreement: (a) FURTHER ASSURANCES. Each of the parties shall, prior to or at the Closing, as may be appropriate, execute such documents and other papers and take such other further actions as may be reasonably required to carry out the provisions hereof and effectuate the transactions contemplated hereby, and in the Note and the Registration Rights Agreement. Each party shall use its best efforts to fulfill or obtain the fulfillment of the conditions to its obligation to effect the Closing, including promptly obtaining any consents required in connection herewith. (b) ADDITIONAL DISCLOSURE. Seller shall promptly notify Buyer of, and furnish Buyer with, any information it may reasonably request with respect to the occurrence of any event or condition or the existence of any fact that would cause any of the conditions to Buyer's obligation to consummate the transactions contemplated by this Agreement not to be fulfilled. 6.2 POST-CLOSING COVENANTS AND AGREEMENTS. Buyer and Seller covenant and agree from and after the Closing Date to perform or take the following actions: (a) RESERVE FOR CONVERSION SHARES. Seller shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or other securities for the purpose of issuing Common Stock or other securities upon the conversion of the Note. If at any time the number of authorized but unissued shares of Common Stock or other securities shall not be sufficient to satisfy the conversion of the Note, if any, Seller shall forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock or other securities to such number of shares as shall be sufficient for such purpose. If any capital reorganization or any Liquidation Event of Seller shall be effected in such a way that holders of Common Stock shall be entitled to receive capital stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification or Liquidation Event, lawful and adequate provisions shall be made whereby the holder of the Note shall thereafter, upon conversion, have the right to receive such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for the number of outstanding shares of such Common Stock into which the Note held at the time of such capital reorganization, reclassification or Liquidation Event is convertible. 7. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE. 7.1 CLOSING. The obligation of Buyer to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Buyer in writing: 7 (a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller shall have complied with and duly performed and satisfied in all material respects all agreements and conditions on its part to be complied with and performed by such date pursuant to this Agreement. (b) CONSENTS. Seller shall have obtained any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby and delivered copies thereof to Buyer. (c) NOTE. Seller shall have duly executed and delivered to Buyer the Note. (d) REGISTRATION RIGHTS AGREEMENT. Seller shall have duly executed and delivered to Buyer the Registration Rights Agreement. 8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE. 8.1 CLOSING. The obligation of Seller to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Seller in writing: (a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Buyer shall have complied with and performed and satisfied in all material respects all agreements and conditions to be complied with and performed by such date pursuant to this Agreement. (b) PAYMENT OF PURCHASE PRICE. Buyer shall have paid to Seller the Purchase Price. (c) REGISTRATION RIGHTS AGREEMENT. Buyer shall have duly executed and delivered to Seller the Registration Rights Agreement. 9. EVENTS OF DEFAULT. If any of the following events (each, an "Event of Default") shall occur and be continuing: (i) Seller shall fail to pay any amount payable under the Note within three (3) business days after such payment becomes due in accordance with the terms thereof; (ii) Seller shall fail to pay when due (following the expiration of applicable notice and cure periods, if any), whether upon acceleration, prepayment obligation or otherwise, any indebtedness and/or other sums payable, individually or in the aggregate, involving an amount in excess of $100,000; (iii) Any representation or warranty made or deemed made by Seller herein or in any other agreement, certificate or instrument contemplated by this Agreement or that is contained in any certificate, document or financial or other statement. furnished at any time under or in connection with this Agreement shall have been incorrect in any material respect on or as of the date made or deemed made; (iv) Seller shall default, in any material respect, in the observance or performance of any other agreement contained in this Agreement or any other agreement or instrument contemplated by this Agreement, and such default shall continue unremedied for a period of twenty (20) days after notice to Seller of such default; (v) Seller shall substantially curtail, alter, modify or change its business operations, as reasonably determined by Buyer; or (vi) (a) Seller shall commence any case, proceeding or other action (x) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (y) seeking appointment or a receiver, trustee, custodian, conservator or other similar official for it or 8 for all or any substantial part of its assets, or Seller shall make a general assignment for the benefit of its creditors; or (b) there shall be commenced against Seller any case, proceeding or other action of a nature referred to in clause (a) above that (A) results in the entry of an order for relief of any such adjudication of appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) DAYS; or (c) there shall be commenced against Seller any case, proceeding other action seeking issuance of a warrant of attachment, execution, distrait or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (d) Seller shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in any of the acts set forth in clauses (a), (b) or (c) above; or (e) Seller shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, then, and in any such event, but in all events subject to the provisions of Section 3.6 above, (x) if such event is an Event of Default specified in subsection (vi) above of this Section 9 with respect to Seller, automatically the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note shall immediately become due and payable, and (y) if such event is any other Event of Default, Buyer may, by written notice to Seller, declare the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 9, presentation, demand, protest and all other notices of any kind are hereby expressly waived by Seller. 10. MISCELLANEOUS. 10.1. PUBLICITY. Subject to the requirements of the Federal securities laws, no publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued without advance approval of the farm and substance thereof by Buyer and Seller jointly. 10.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by facsimile transmission, when telexed, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to Seller: Vyteris Holdings (Nevada), Inc. 13-01 Pollitt Drive Fair Lawn, New Jersey 07410 Attention: Chief Executive Officer Facsimile: (201) 796-6057 With a copy (which copy shall not constitute notice) to: Lowenstein Sandler PC 65 Livingston Avenue Roseland, New Jersey 07068 Attention: Peter H. Ehrenberg, Esq. Facsimile: (973) 597-2400 (ii) If to Buyer: Spencer Trask Specialty Group, LLC 535 Madison Avenue New York, NY 10022 Attention: Bruno Lerer, Esq. Facsimile: (212) 486-7392 9 With a copy (which copy shall not constitute notice) to: Littman Krooks LLP 655 Third Avenue, 20th Floor New York, NY 10016 Attention: Mitchell C. Littman, Esq. Facsimile: (212) 490-2990 10.3. ENTIRE AGREEMENT EXERCISE OF RIGHTS. (a) This Agreement (including the Schedules and Exhibits hereto) and the other Loan Documents (as defined in Section 10.6 hereof) embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by each of the parties hereto and no waiver of any provision of this Agreement, nor consent to any departure by either party from it, shall be effective unless it is in writing and signed by the affected party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of a party to exercise, and no delay in exercising, any right under this Agreement, or any agreement contemplated hereby, shall operate as a waiver hereof by such party, nor shall any single or partial exercise of any right under this Agreement, or any agreement contemplated hereby, preclude any other or further exercise thereof or the exercise of any other right. 10.4. GOVERNING LAW. This Agreement shall 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 within such jurisdiction. 10.5. EXPENSES. Seller and Buyer shall, subject to the immediately succeeding sentence, bear their respective expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel, brokers or finders, and accountants. 10.6 TRANSFERABILITY. Subject to securities laws restrictions of general applicability, this Agreement, the Note and the Registration Rights Agreement (collectively, the "Loan Documents") and all rights hereunder and thereunder are freely and separately transferable and assignable, in whole or in part, by Buyer. The foregoing transferees and assignees shall be entitled to the rights provided in the Loan Documents. Seller may not assign or delegate any of its obligations under the Loan Documents without the prior written consent of Buyer. For purposes hereof, a sale or exchange by Seller of all or substantially all of its assets shall constitute an assignment/delegation requiring Buyer's prior written consent. [SIGNATURE PAGE FOLLOWS] 10 IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase Agreement on the date first above written. SPENCER TRASK SPECIALTY GROUP, LLC By: /s/ Kevin Kimberlin ------------------------------------------- Name: Kevin Kimberlin Title: Nonmember Manager VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Tim McIntyre ------------------------------------------- Name: Tim McIntyre Title: CEO 11 EXHIBIT A --------- Form of Note EXHIBIT B --------- Form of Registration Rights Agreement SCHEDULES --------- EX-99 7 ex99-69.txt EX-99.69 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT'), dated as of May 5, 2006, is by and between VYTERIS HOLDINGS (NEVADA), INC., a Nevada corporation (the "COMPANY"), and SPENCER TRASK SPECIALTY GROUP, LLC, a Delaware limited liability company (the "INVESTOR"). The Company has agreed, on the terms and subject to the conditions set forth in the Note Purchase Agreement, dated as of May 5, 2006 (the "NOTE AGREEMENT"), to issue and sell to the Investor named therein the Note in the form attached to the Note Agreement (the "NOTE"). The Note is convertible into shares (the "REGISTRABLE SHARES") of the Company's common stock, par value $0.001 per share (the "COMMON STOCK) in accordance with its terms. In order to induce the Investor to enter into the Note Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and under applicable state securities laws. In consideration of the Investor entering into the Note Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PIGGYBACK REGISTRATION STATEMENT. If, at any time, the Company proposes to file any registration statement on Form S-1 or such other appropriate form in accordance with the Securities Act of 1933, as amended (the "Securities Act") for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act or initial public offerings) it will give written notice by facsimile or mail, at least five (5) days prior to the filing of each registration statement, to the Investor of its intention to do so. If the Investor notifies the Company within five (5) days after receipt of any such notice of its desire to include any such securities in such proposed registration statement, the Company shall afford the Investor the opportunity to have any Registrable Securities registered under such registration statement. 2. OBLIGATIONS OF THE COMPANY. In connection with the filing of any registration statement herein, the Company shall: 2.1 Prepare and file with the Securities and Exchange Commission (the "SEC") such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. 2.2 Furnish to the Investor such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 2.3 Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions as shall be reasonably requested by the Investor; PROVIDED HOWEVER, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.4 Notify the Investor at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 2.5 Use its best efforts to cause all Registrable Securities covered by such registration statement to be listed on each securities exchange on which similar securities listed by the Company are then listed. 3. Obligations of the Investor. --------------------------- The Investor shall furnish to the Company such information regarding the Investor, the number of Registrable Securities owned and proposed to be sold by it, the intended method of disposition of such securities and any other information as shall be required to effect the registration of the Investor's Registrable Securities, and cooperate with the Company in preparing the registration statement and in complying with the requirements of the Securities Act. 4. Registration Expenses. --------------------- The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities, including without limitation all registration, listing, filing and qualification fees, printers and accounting fees, but excluding (i) underwriting discounts and commissions relating to the Registrable Securities and (ii) legal fees and disbursements of any and all counsel retained by the Investor. 5. Suspension of Effectiveness. --------------------------- If the Company shall furnish to the Investor a certificate signed by the President or Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it is necessary to suspend the effectiveness of any registration statement filed hereunder, the Company shall have the right, exercisable two (2) times only in any consecutive twelve (12) month period, to suspend the effectiveness of the registration statement with respect to such offering for a period of not more than an aggregate of ninety (90) days per suspension. 6. Indemnification. --------------- 6.1 To the extent permitted by law, the Company will indemnify the Investor, its members, directors, officers, shareholders, employees, agents and affiliates, legal counsel for the Investor, and each person controlling the Investor within the meaning of the Securities Act, with respect to which registration, qualification or compliance of Registrable Securities has been effected pursuant to this Agreement, against any losses, claims, damages, liabilities or actions in respect thereof (collectively, "Damages"), arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and the Company will pay each the Investor any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the indemnity contained in this Section 6.1 shall not apply to: (i) amounts paid in settlement of any such Damages if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); (ii) any such Damages arising out of or a based upon any untrue statement or omission based upon information furnished to the Company by the Investor and stated to be for use in connection with the offering of securities of the Company; or (iii) any such Damages arising out of or based upon the Investor's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto. 6.2 To the extent permitted by law, the Investor will, if Registrable Securities held by the Investor are included in the securities as to which such registration, qualification or compliance is being effected pursuant to this 2 Agreement, indemnify the Company, each of its directors, officers, shareholders, employees, agents and affiliates, each legal counsel and independent accountant of the Company, each person who controls the Company within the meaning of the Securities Act, and each other the Investor, each of its directors, officers, shareholders, employees, agents and affiliates, legal counsel, and each person controlling such other Purchaser within the meaning of the Securities Act, against all Damages arising out of or based upon arising any untrue statement or alleged untrue statement of a material fact contained in a registration statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Investor of the Securities Act, the Exchange Act, or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Investor in connection with any such registration, qualification or compliance; and the Investor will pay the Company or such other Investor any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action, in each case, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission is made in such registration statement, prospectus, offering circular or other document in reliance on and in conformity with information furnished to the Company by the Investor and stated to be for use in connection with the offering of securities of the Company; PROVIDED, HOWEVER, that the indemnity contained in this Section 6.2 shall not apply to amounts paid in settlement of any such Damages if settlement is effected without the consent of the Investor (which consent shall not unreasonably be withheld). 6.3 Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so chooses, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6. 6.4 If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such Damages as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 6.5 The obligations of the Company and the Investor under this Section 6 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement. 7. Notices. ------- 7.1 Any notice or communication required or permitted hereunder shall be given in writing and shall be made by hand delivery, by confirmed facsimile, by overnight courier or by registered or certified mail, addressed (i) if to the 3 Investor, to the Investor's address as set forth on Schedule A hereto, and (ii) if to the Company, to Vyteris Holdings (Nevada), Inc., 13-01 Pollitt Drive, Fair Lawn, New Jersey 07410, Attention: Chief Executive Officer, Facsimile: (201) 796-6057with a copy to Lownestein Sandler PC, 65 Livinston Avenue, Roseland, NJ 07068, facsimile number (973) 597-2400, Attention: Peter H. Ehrenberg, Esq. 7.2 All such notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery or facsimile, on the date of such delivery, (ii) in the case of overnight courier, on the business day after the date when sent, and (iii) in the case of registered or certified mail, on the third business day following such mailing. 8. Miscellaneous. ------------- 8.1 This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of the conflict of laws thereof. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York located in New York County and any Federal court located within New York County for any actions, suits or proceedings arising out of or relating to this Agreement. The parties hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement in the courts of the State of New York located in New York County or the courts of the United States of America located in New York County, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit of proceeding brought in any such court has been brought in an inconvenient forum. 8.2 Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the investor of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investor of any Registrable Securities then outstanding, each future Purchaser of all such Registrable Securities, and the Company. 8.3 Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement, excepts as expressly provided herein. 8.4 If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.5 The headings of the Sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 8.6 This Agreement constitutes the entire contract among the Company and the Investor relative to the subject matter hereof and supersedes in its entirety any and all prior agreements, understandings and discussions with respect thereto. 8.7 The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4 [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SPENCER TRASK SPECIALTY GROUP, LLC By: /s/ Kevin Kimberlin ------------------- Name: Kevin Kimberlin Title: Nonmember Manager VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Tim McIntyre ---------------- Name: Tim McIntyre Title: CEO EX-99 8 ex99-70.txt EX-99-70 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. VYTERIS HOLDINGS (NEVADA), INC. 10% CONVERTIBLE PROMISSORY NOTE ------------------------------- $500,000 Fair Lawn, New Jersey May 23, 2006 FOR VALUE RECEIVED, the undersigned, Vyteris Holdings (Nevada), Inc., a Nevada corporation (the "Issuer"), hereby unconditionally promises to pay, in accordance with the Note Purchase Agreement (the "Note Purchase Agreement"), dated as of the date hereof, by and between the Issuer and Spencer Trask Specialty Group, LLC, a Delaware limited liability company (the "Purchaser"), on the Maturity Date (as defined in the Note Purchase Agreement) to the order of the Purchaser, at the office of the Purchaser located at 535 Madison Avenue, New York, NY or such other address designated by the Purchaser, in lawful money of the United States of America and in immediately available funds, the principal amount of Five Hundred Thousand ($500,000) Dollars. The Issuer further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from the date hereof in like money at the rates and as and on the dates specified in Section 3.3 of the Note Purchase Agreement. This Note is the promissory note referred to in the Note Purchase Agreement, and is entitled to the benefits thereof, and is subject to voluntary and mandatory conversions as set forth therein. This Note, and all representations, warranties, covenants and agreements contained herein and in the Note Purchase Agreement, shall be binding upon Issuer and its successors and permitted assigns and shall inure to the benefit of the Purchaser and its successors and assigns. Issuer may not assign or delegate any of its duties or obligations under this Note without the written consent of the Purchaser, which shall not be unreasonably withheld. Upon the occurrence of any one or more of the Events of Default specified in the Note Purchase Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Note Purchase Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Subject to Sections 3.3 and 10.5 of the Note Purchase Agreement, the Issuer agrees to pay all of the Purchaser's expenses, including reasonable attorneys' costs and fees, incurred in collecting sums due under this Note. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Patrick McKierwan ---------------------------------- Name: Patrick McKierwan Title: V.P. Operations/Principal Accounting Officer -2- EX-99 9 ex99-71.txt EX-99.71 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT (this "Agreement"), dated as of May 23, 2006, by and between Vyteris Holdings (Nevada), Inc., a Nevada corporation ("Seller"), and Spencer Trask Specialty Group, LLC, a Delaware limited liability company ("Buyer"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Seller desires to issue to Buyer, and Buyer desires to purchase from Seller, a convertible subordinated promissory note, substantially in the form of EXHIBIT A hereto, in the principal amount of $500,000 (the "Note"); WHEREAS, Seller has agreed to effect the registration of the shares of Common Stock underlying the Note under the Securities Act of 1933, as amended, pursuant to a registration statement substantially in the form of EXHIBIT B hereto (the "Registration Rights Agreement"); and WHEREAS, Seller, pursuant to that certain securities purchase agreement dated as of August 19, 2005, as same may be amended from time to time ("Securities Purchase Agreement") issued a series of senior secured convertible debentures, including debentures issued after the original issuance date (the "Debentures") in the aggregate principal amount of $10.5 million (the "Senior Debt"). NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties agree as follows: 1. SALE AND PURCHASE OF THE NOTE 1.1. SALE AND PURCHASE. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2.1 hereof), Seller shall issue to Buyer, and Buyer shall purchase from Seller, for the Purchase Price (as defined in Section 1.2(a) hereof), the Note. 1.2. PURCHASE PRICE AND PAYMENT. (a) PURCHASE PRICE. The purchase price for the Note shall be $500,000 (the "Purchase Price"). (b) PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid to Seller by Buyer on the Closing Date (as defined in Section 2.1 hereof) via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions provided to Buyer prior to the date hereof. 2. CLOSING. 2.1. TIME AND PLACE. The closing of the sale and purchase of the Note (the "Closing") shall be deemed to take place at the offices of Littman Krooks LLP, 655 Third Avenue, 20th Floor, New York, New York, at 10:00 a.m., local time, on the date hereof, or at such later time or date as Buyer and Seller may mutually agree in writing. The date upon which the Closing shall occur is herein called the "Closing Date". 2.2. CLOSING DELIVERIES. ------------------ (a) SELLER DELIVERIES. At the Closing, Seller shall deliver or cause to be delivered to Buyer the following: (i) the duly executed Note; (ii) the duly executed Registration Rights Agreement; and (iii) copies of any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby. (b) BUYER DELIVERY. At the Closing, Buyer shall deliver or cause to be delivered to Seller the Purchase Price. 3. TERMS OF THE NOTE. ------------------ 3.1. AMOUNT. The principal amount of the Note shall be $500,000. 3.2. MATURITY. Unless otherwise converted into the Conversion Shares (as defined in Section 3.4 hereof) in accordance with the provisions hereof, the Note shall mature on December 1, 2008, unless such date shall be otherwise extended in writing by Buyer, in its sole discretion (such date, the "Maturity Date"). On the Maturity Date, unless, and to the extent, converted into Conversion Shares in accordance with the provisions hereof, all outstanding principal and any accrued and unpaid interest due and owing under the Note shall be immediately paid by Seller. 3.3. INTEREST, INTEREST RATE, PAYMENT. (a) The Note shall bear interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in clause (b) below) at a rate equal to ten (10%) percent (the "Interest Rate") per annum on a 360day year. Interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in subparagraph (b) below) shall be due and payable in cash semiannually in arrears following the end of each semi-annual period, commencing with the semiannual period ended June 30, 2006, pro rated for partial periods; PROVIDED, HOWEVER, that any interest accruing on overdue amounts pursuant to subparagraph (b) of this Section 3.3 shall be payable on demand. (b) If all or a portion of the principal amount of the Note or any interest payable thereon shall not be repaid when due whether on the applicable repayment date, by acceleration or otherwise, such overdue amounts shall bear interest at a rate per annum that is three percent (3%) above the Interest Rate I.E., 13%) from the date of such non-payment until such amount is paid in full (as well after as before judgment). 2 (c) All payments to be made by Seller hereunder or pursuant to the Note shall be made, without setoff or counterclaim, in lawful money of the United States by check or wire transfer in immediately available funds. 3.4. CONVERSION. (a) Subject to Sections 3.4(b) and 3.5 hereof, at any time prior to the Maturity Date, the Seller shall have the option to convert the entire principal and interest accrued and owing on the Note, -or any portion of the principal and/or interest thereof, into shares (the "Conversion Shares") of Common Stock at the Conversion Price. For purposes hereof, "Conversion Price" shall mean $2.40 per share; PROVIDED, that if at any time on or after the issuance date of the Note, Seller subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then after the date of record for effecting such subdivision, the Conversion Price shall be proportionately reduced, or if Seller combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, the Conversion Price shall be proportionately increased. Upon conversion, Buyer shall be entitled to receive the number of Conversion Shares calculated by dividing the amount being converted by the Conversion Price. No fractional shares of Conversion Shares shall be issued upon conversion. In lieu of any fractional shares to which Buyer would otherwise be entitled, Seller shall pay cash in an amount equal to such fraction multiplied by the Conversion Price. The Note shall not be subject to automatic conversion or to any conversion at the option of Seller. (b) Notwithstanding the provision of Section 3.4(a), if an equity security or other derivative security convertible or exercisable into an equity security of the Company ("Applicable Security") is sold in connection with a Qualified Financing (as hereinafter defined) at any time prior to payment in full of the principal balance of the Note, all of the principal and interest due thereunder shall automatically become converted into the Applicable Security with the same rights and privileges granted to investors in the Qualified Financing. The number of Applicable Securities received upon conversion pursuant to this Section 3(b) shall be determined by dividing the aggregate principal amount due under the Note, together with any accrued but unpaid interest to the date of conversion, by the price per Applicable Security paid in the Qualified Financing. For the purposes of the Note, a "Qualified Financing" shall mean the Company's next private financing of Applicable Securities to investors (i) yielding aggregate gross proceeds (exclusive of conversion of the Note) to the Company of at least $500,000 and (ii) which does not invoke or trigger the provisions of Section 4(b) of the Debentures or Section 6(c) of the Warrants (as such term is defined in the Securities Purchase Agreement. 3.5. CONVERSION PROCEDURES. In order to exercise the conversion rights set forth in Section 3.4(a) hereof, Buyer shall surrender the Note, appropriately endorsed, to Seller at Seller's principal office, accompanied by written notice to Seller setting forth the amount of principal and interest to be converted, the name or names (with address(es)) in which the Conversion Shares issuable upon such conversion shall be issued and registered on the books of Seller. For purposes hereof, the "Conversion Date" shall be deemed to be the date the Note and notice is received by Seller for conversion. Within five (5) business days after the Conversion Date, Seller shall deliver to Buyer (i) a stock certificate for the Conversion Shares or (ii) a notice certified by Seller's Secretary that 3 the Conversion Shares due on such conversion have been issued to and registered on the books of Seller in the name or names specified by Buyer. In the case of conversion of less than the entire principal of and interest under the Note, Seller shall cancel said Note and shall execute and deliver a new Note of like tenor for the unconverted amount of the Note dated the date of execution by Seller upon initial issuance of the Note notwithstanding any subsequent substitution. 3.6. SUBORDINATION. The Note is expressly and fully subordinated, as to payment and liquidation, to the payment in full of the Debentures and the Obligations (as such term is defined in the Securities Purchase Agreement) and the holder of the Note acknowledges and agrees that the Seller is expressly restricted from pre-paying any amounts in respect of the principal of the Note (upon acceleration or otherwise) until payment in full of the Debentures. The holder of this Note shall not commence any judicial or other collection efforts or exercise any other remedies prior to the date that is ninety-one (91) days following the payment in full of the Debentures. The Note is, and is intended to be, "Subordinated Debt" as such term is defined in the Securities Purchase Agreement. 3.7. PREPAYMENT RIGHTS UPON MERGER, CONSOLIDATION, ETC. (a) If, prior to the Conversion Date, but subject to the provisions of Section 3.6 above, Seller proposes to consolidate with, or merge into, another corporation or entity, or to effect any sale or conveyance to another corporation or entity of all or substantially all of the assets of Seller, or effect any other corporate reorganization, in which the stockholders of the Seller immediately prior to such consolidation, merger or reorganization own capital stock of the entity surviving such merger, consolidation or reorganization representing less than fifty (50%) percent of the combined voting power of the outstanding securities of such entity immediately after such consolidation, merger or reorganization (collectively, a "Liquidation Event"), then Seller shall provide Buyer with at least ten (10) days' prior written notice of any such proposed action, and Buyer will, at its option, have the right to demand immediate prepayment of all amounts due and owing under the Note. Buyer will give Seller written notice of such demand within five (5) days after receiving notice of the Liquidation Event. All amounts (including all accrued and unpaid interest) due and owing under the Note shall be paid by Seller to Buyer within five (5) days from the date of such written notice via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions to be provided to Seller by Buyer within at least two (2) business days after giving Seller such written notice. The provisions of this Section 3.7(a) shall similarly apply to successive consolidations or mergers. (b) Except as set forth in Sections 3.6, 3.7 (a) and 9 hereof, Seller shall not prepay prior to the Maturity Date all or part of this Note without the express written consent of Buyer. 3.8 INTENTIONALLY DELETED --------------------- 3.9 ASSURANCES WITH RESPECT OF CONVERSION RIGHTS. Seller shall not, by amendment of its Certificate of Incorporation or By-laws or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by Seller but shall at all times in good faith assist in the carrying 4 out of 4 all the provisions of this Agreement and in taking of all such actions as may be necessary or appropriate in order to protect the conversion rights of Buyer against impairment. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Buyer as follows: 4.1 DUE ORGANIZATION AND QUALIFICATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Seller has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as presently conducted and as presently contemplated. Seller is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or the locations of its property requires such qualification, except where the failure to do so would not have a material adverse effect on Seller's business, operations, assets or condition (financial or otherwise). 4.2 POWER AND AUTHORITY. Seller has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements contemplated by this Agreement (including, without limitation, the Note and the Registration Rights Agreement) and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and all other agreements contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and is the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. When executed and delivered by Seller at the Closing, each of the Note and the Registration Rights Agreement will be the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 4.3. CAPITALIZATION. The capitalization of the Seller as of the date of this Agreement, including its authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Seller's stock option plans and agreements, the number of shares issuable and reserved for issuance pursuant to securities (other than the Note) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon conversion of the Note is set forth on Schedule 4.3 hereto. All issued and outstanding shares of capital stock of the Seller have been validly issued, fully paid and non-assessable. Except as disclosed on Schedule 4.3 hereto, the Seller owns all of the capital stock of each subsidiary, which capital stock is validly issued, fully paid and non-assessable, and no shares of the capital stock of the Seller or any of the subsidiaries are subject to preemptive rights or any other similar rights of the shareholders of the Seller or any such subsidiary or any liens created by or through the Seller or any such subsidiary. Except as disclosed on Schedule 4.3 or as contemplated herein, 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 shares of capital stock of the Seller or any 5 of the subsidiaries, or arrangements by which the Seller 5 or any of the subsidiaries is or may become bound to issue additional shares of capital stock of the Seller or any of the subsidiaries (whether pursuant to anti-dilution, "reset" or other similar provisions). Schedule 4.3 identifies all Debt of the Seller and the subsidiaries currently outstanding in excess of $100,000 individually or in the aggregate as of the date hereof. 4.4. FINANCIAL STATEMENTS, OTHER INFORMATION. Seller has filed with the Securities and Exchange Commission ("Commission") all reports, schedules, registration statements and definitive proxy statements that Seller was required to file with Commission on or after December 31, 2004 (collectively, the "SEC DOCUMENTS"). Seller is not aware of any event occurring or expected to occur as of the date of this Agreement (other than the transactions effected hereby) that would require the filing of, or with respect to which Seller intends to file, a Form 8-K after the date of this Agreement. Each SEC Document, as of the date of the filing thereof with the Commission (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing), complied in all material respects with the requirements of the Securities Act of 1933, as amended ("Securities Act") or Securities Exchange Act of 1934, as amended ("Exchange Act'), as applicable, and the rules and regulations promulgated thereunder and, as of the date of such filing (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), such SEC Document (including all exhibits and schedules thereto and documents incorporated by reference therein) did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents that are required to be filed as exhibits to the SEC Documents have been filed as required. Except as set forth in Schedule 4.4, Seller has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business that, under GAAP, are not required to be reflected in the financial statements included in Schedule 4.4. Except as set forth in Schedule 4.4, as of their respective dates, the financial statements of Seller 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 Commission with respect thereto. The financial statements included in the SEC Documents have been and will be prepared in accordance with GAAP consistently applied at the times and during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements, or (iii) as set forth in the SEC Documents), and fairly present in all material respects the financial position of Seller 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 adjustments). 4.5. AUTHORIZATION OF THE NOTE AND CONVERSION SHARES. All corporate action on the part of Seller necessary for the authorization, issuance, sale and/or delivery of the Note and the capital stock issuable upon conversion of the Note (the "Conversion Shares") has been taken and when issued, sold and delivered in accordance with this Agreement and/or the Note, the Conversion Shares will be validly issued and outstanding, fully paid and nonassessable and not subject to preemptive, first refusal or any other similar rights of any stockholder of Seller or others. 6 4.6 COMPLIANCE WITH LAWS. To its knowledge, Seller is in compliance in all material respects with all Federal, state, local and foreign laws, statutes, ordinances, regulations, orders, judgments, injunctions, awards or decrees (collectively, "Laws") applicable to it or any of its properties or operations. Seller has not received any notice of material violation or alleged material violation of any Law by it. Seller has all material licenses, permits, orders and approvals of Federal, state, local and foreign governmental or regulatory bodies necessary for the conduct of its business and operations as presently conducted. 4.7 NO BREACH, CONSENTS. Except as set forth on SCHEDULE 4.7 hereto, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) result in any lien, pledge, mortgage, security interest, claim, lease, charge, option, easement, servitude or other encumbrance whatsoever (collectively, "Liens") upon any of the property of Seller (other than in favor of Buyer) or (ii) violate, conflict with or breach any of the terms and conditions of, result in a material modification of, accelerate or trigger the rights of any person under, or constitute (or with notice or lapse of time or both would constitute) a default under (a) any material instrument, contract or other agreement to which Seller is a party or by or to which it or any of its properties is bound or subject; (b) Seller's Certificate of Incorporation or By-laws (and all amendments thereto up through the date hereof); or (c) any Law applicable to Seller or any of its properties or operations. Except as set forth on SCHEDULE 4.7, no consent, approval or authorization of, or declaration or filing with, any governmental authority, stockholder of Seller or other person is required on the part of Seller in connection with the execution, delivery or performance of this Agreement or the consummation by it of the transactions contemplated hereby. 4.8 LITIGATION. Except as set forth on SCHEDULE 4.8 hereto, there are no material suits or actions, administrative, arbitration or other proceedings or governmental investigations pending or, to Seller's knowledge, threatened against or affecting Seller or any of its properties or assets. There are no judgments, orders, injunctions, decrees or awards against Seller that are not satisfied or remain outstanding. 4.9. BROKERS. Neither Seller nor any of Seller's officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by this Agreement and no fee is or will be due and owing to any broker or finder in connection with the transactions contemplated by this Agreement. 4.10 INTELLECTUAL PROPERTY. All of Seller's (i) trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, (ii) patents and patent applications, and (iii) licenses with respect to the use of patents or trademarks owned by other parties, are set forth on SCHEDULE 4.10 hereto. Except as set forth on SCHEDULE 4.10, there is not pending nor, to Seller's knowledge, threatened any claim, suit or action contesting or challenging the rights of Seller in or to any of the material item of intellectual property owned or used by Seller in the conduct of its business (the "Intellectual Property") or the validity of any of the Intellectual Property. To Seller's knowledge, there is no infringement upon or unauthorized use of any of the Intellectual Property by any third party. No officer, director, equityholder or affiliate of Seller nor any of their respective associates has any right to or interest in any of the Intellectual Property, including, without limitation, any right to payments (by royalty or 7 otherwise) in respect of any use or transfer thereof. 4.11 PERFORMANCE OF AGREEMENTS. Except as set forth on SCHEDULE 4.11 hereto, no default by Seller exists in the due performance under any material agreement to which Seller is a party or to which any of its assets is subject. 4.12 NO WAIVER OF PRIOR OR FUTURE DEFAULTS. Seller hereby acknowledges and agrees that this Agreement and Buyer's purchase from Seller of the Note, pursuant to the terms and conditions hereof, shall not constitute or operate as a waiver or release of any default, or any future defaults, under the Default Notes. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and warrants to Seller as follows: 5.1 DUE ORGANIZATION. Buyer is a duly organized legal entity, validly existing and in good standing under the laws of the state of its organization. 5.2 POWER OF BUYER. Buyer has the requisite company power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Buyer and is the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 5.3 NO BREACH. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby will not violate, conflict with or otherwise result in the breach of any of the terms and conditions of, result in a material modification of or constitute (or with notice or lapse of time or both would constitute) a default under (i) any of the organizational documents of Buyer; (ii) any material instrument, contract or other agreement to which Buyer is a party or by or to which it or any of its properties is bound or subject; or (iii) any Law applicable to Buyer or any of its properties or operations. 5.4 GOVERNMENTAL AND OTHER CONSENTS. No consent, approval or authorization of, or declaration or filing with, any governmental authority or other person is required on the part of Buyer in connection with the execution, delivery and performance of this Agreement by it or the consummation of the transactions contemplated hereby. 5.5 INVESTMENT REPRESENTATIONS. Buyer is acquiring the Note (the "Securities"), and any capital stock issuable upon exercise of the Securities, for Buyer's own account, for investment and not with a view to, or for sale in connection with, any distribution of such securities or any part thereof. Buyer (i) has such knowledge and experience in financial and business affairs that it is capable of evaluating the merits and risks involved in purchasing the Securities, (ii) is able to bear the economic risks involving in purchasing the Securities, (iii) is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (iv) has had the opportunity to ask questions of, and receive answers from, Seller and persons 8 acting on Seller's behalf concerning Seller's business, management, and financial affairs and the terms and conditions of the Securities. Buyer's state of residence is New York. 5.6. NO BROKER. Buyer has not employed any broker or finder in connection with the transactions contemplated by this Agreement. 6. COVENANTS AND AGREEMENTS. 6.1 PRE-CLOSING COVENANTS AND AGREEMENTS. The parties hereto covenant and agree to perform or take any and all such actions to effectuate the following from the date hereof until the earlier of the Closing Date or the termination of this Agreement: (a) FURTHER ASSURANCES. Each of the parties shall, prior to or at the Closing, as may be appropriate, execute such documents and other papers and take such other further actions as may be reasonably required to carry out the provisions hereof and effectuate the transactions contemplated hereby, and in the Note and the Registration Rights Agreement. Each party shall use its best efforts to fulfill or obtain the fulfillment of the conditions to its obligation to effect the Closing, including promptly obtaining any consents required in connection herewith. (b) ADDITIONAL DISCLOSURE. Seller shall promptly notify Buyer of, and furnish Buyer with, any information it may reasonably request with respect to the occurrence of any event or condition or the existence of any fact that would cause any of the conditions to Buyer's obligation to consummate the transactions contemplated by this Agreement not to be fulfilled. 6.2 POST-CLOSING COVENANTS AND AGREEMENTS. Buyer and Seller covenant and agree from and after the Closing Date to perform or take the following actions: (a) RESERVE FOR CONVERSION SHARES. Seller shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or other securities for the purpose of issuing Common Stock or other securities upon the conversion of the Note. If at any time the number of authorized but unissued shares of Common Stock or other securities shall not be sufficient to satisfy the conversion of the Note, if any, Seller shall forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock or other securities to such number of shares as shall be sufficient for such purpose. If any capital reorganization or any Liquidation Event of Seller shall be effected in such a way that holders of Common Stock shall be entitled to receive capital stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification or Liquidation Event, lawful and adequate provisions shall be made whereby the holder of the Note shall thereafter, upon conversion, have the right to receive such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for the number of outstanding shares of such Common Stock into which the Note held at the time of such capital reorganization, reclassification or Liquidation Event is convertible. 9 7. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE. 7.1 CLOSING. The obligation of Buyer to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Buyer in writing: (a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller shall have complied with and duly performed and satisfied in all material respects all agreements and conditions on its part to be complied with and performed by such date pursuant to this Agreement. (b) CONSENTS. Seller shall have obtained any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby and delivered copies thereof to Buyer. (c) NOTE. Seller shall have duly executed and delivered to Buyer the Note. (d) REGISTRATION RIGHTS AGREEMENT. Seller shall have duly executed and delivered to Buyer the Registration Rights Agreement. 8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE. 8.1 CLOSING. The obligation of Seller to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Seller in writing: (a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Buyer shall have complied with and performed and satisfied in all material respects all agreements and conditions to be complied with and performed by such date pursuant to this Agreement. (b) PAYMENT OF PURCHASE PRICE. Buyer shall have paid to Seller the Purchase Price. (c) REGISTRATION RIGHTS AGREEMENT. Buyer shall have duly executed and delivered to Seller the Registration Rights Agreement. 9. EVENTS OF DEFAULT. If any of the following events (each, an "Event of Default") shall occur and be continuing: (i) Seller shall fail to pay any amount payable under the Note within three (3) business days after such payment becomes due in accordance with the terms thereof, (ii) Seller shall fail to pay when due (following the expiration of applicable notice and cure periods, if any), whether upon acceleration, prepayment obligation or otherwise, any indebtedness and/or other sums payable, individually or in the aggregate, involving an amount in excess of $100,000; 10 (iii) Any representation or warranty made or deemed made by Seller herein or in any other agreement, certificate or instrument contemplated by this Agreement or that is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall have been incorrect in any material respect on or as of the date made or deemed made; (iv) Seller shall default, in any material respect, in the observance or performance of any other agreement contained in this Agreement or any other agreement or instrument contemplated by this Agreement, and such default shall continue unremedied for a period of twenty (20) days after notice to Seller of such default; (v) Seller shall substantially curtail, alter, modify or change its business operations, as reasonably determined by Buyer; or (vi) (a) Seller shall commence any case, proceeding or other action (x) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (y) seeking appointment or a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Seller shall make a general assignment for the benefit of its creditors; or (b) there shall be commenced against Seller any case, proceeding or other action of a nature referred to in clause (a) above that (A) results in the entry of an order for relief of any such adjudication of appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (c) there shall be commenced against Seller any case, proceeding other action seeking issuance of a warrant of attachment, execution, distrait or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (d) Seller shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in any of the acts set forth in clauses (a), (b) or (c) above; or (e) Seller shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, then, and in any such event, but in all events subject to the provisions of Section 3.6 above, (x) if such event is an Event of Default specified in subsection (vi) above of this Section 9 with respect to Seller, automatically the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note shall immediately become due and payable, and (y) if such event is any other Event of Default, Buyer may, by written notice to Seller, declare the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 9, presentation, demand, protest and all other notices of any kind are hereby expressly waived by Seller. 11 10. MISCELLANEOUS. 10.1. PUBLICITY. Subject to the requirements of the Federal securities laws, no publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued without advance approval of the form and substance thereof by Buyer and Seller jointly. 10.2. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by facsimile transmission, when telexed, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to Seller: Vyteris Holdings (Nevada), Inc. 13-01 Pollitt Drive Fair Lawn, New Jersey 07410 Attention: Chief Executive Officer Facsimile: (201) 796-6057 With a copy (which copy shall not constitute notice) to: Lowenstein Sandler PC 65 Livingston Avenue Roseland, New Jersey 07068 Attention: Peter H. Ehrenberg, Esq. Facsimile: (973) 597-2400 (ii) If to Buyer: Spencer Trask Specialty Group, LLC 535 Madison Avenue New York, NY 10022 Attention: Bruno Lerer, Esq. Facsimile: (212) 486-7392 With a copy (which copy shall not constitute notice) to: Littman Krooks LLP 655 Third Avenue, 20d` Floor New York, NY 10016 Attention: Mitchell C. Littman, Esq. Facsimile: (212) 490-2990 10.3. ENTIRE AGREEMENT; EXERCISE OF RIGHTS. (a) This Agreement (including the Schedules and Exhibits hereto) and the other Loan Documents (as defined in Section 10.6 hereof) embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by each of the parties hereto and no waiver of any provision of this 12 Agreement, nor consent to any departure by either party from it, shall be effective unless it is in writing and signed by the affected party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of a party to exercise, and no delay in exercising, any right under this Agreement, or any agreement contemplated hereby, shall operate as a waiver hereof by such party, nor shall any single or partial exercise of any right under this Agreement, or any agreement contemplated hereby, preclude any other or further exercise thereof or the exercise of any other right. 10.4. GOVERNING LAW. This Agreement shall 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 within such jurisdiction. 10.5. EXPENSES. Seller and Buyer shall, subject to the immediately succeeding sentence, bear their respective expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel, brokers or finders, and accountants. 10.6. TRANSFERABILITY. Subject to securities laws restrictions of general applicability, this Agreement, the Note and the Registration Rights Agreement (collectively, the "Loan Documents") and all rights hereunder and thereunder are freely and separately transferable and assignable, in whole or in part, by Buyer. The foregoing transferees and assignees shall be entitled to the rights provided in the Loan Documents. Seller may not assign or delegate any of its obligations under the Loan Documents without the prior written consent of Buyer. For purposes hereof, a sale or exchange by Seller of all or substantially all of its assets shall constitute an assignment/delegation requiring Buyer's prior written consent. [SIGNATURE PAGE FOLLOWS] 13 IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase Agreement on the date first above written. SPENCER TRASK, SPECIALTY GROUP, LLC By: /s/ Kevin Kimberlin ------------------------------------------- Name: Kevin Kimberlin Title: Nonmember Manager VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Patrick McKiernan ------------------------------------------- Name: Patrick McKiernan Title: V.P. Operations/Principal Accounting Officer 15 EXHIBIT A --------- Form of Note EXHIBIT B --------- Form of Registration Rights Agreement SCHEDULES --------- EX-99 10 ex99-72.txt EX-99.72 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 23, 2006, is by and between VYTERIS HOLDINGS (NEVADA), INC., a Nevada corporation (the "COMPANY"), and SPENCER TRASK SPECIALTY GROUP, LLC, a Delaware limited liability company (the "INVESTOR"). The Company has agreed, on the terms and subject to the conditions set forth in the Note Purchase Agreement, dated as of May __, 2006 (the "NOTE AGREEMENT"), to issue and sell to the Investor named therein the Note in the form attached to the Note Agreement (the "NOTE"). The Note is convertible into shares (the "REGISTRABLE SHARES") of the Company's common stock, par value $0.001 per share (the "COMMON STOCK") in accordance with its terms. In order to induce the Investor to enter into the Note Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "Securities Act"), and under applicable state securities laws. In consideration of the Investor entering into the Note Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PIGGYBACK REGISTRATION STATEMENT. If, at any time, the Company proposes to file any registration statement on Form S-1 or such other appropriate form in accordance with the Securities Act of 1933, as amended (the "Securities Act") for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act or initial public offerings) it will give written notice by facsimile or mail, at least five (5) days prior to the filing of each registration statement, to the Investor of its intention to do so. If the Investor notifies the Company within five (5) days after receipt of any such notice of its desire to include any such securities in such proposed registration statement, the Company shall afford the Investor the opportunity to have any Registrable Securities registered under such registration statement. 2. OBLIGATIONS OF THE COMPANY. In connection with the filing of any registration statement herein, the Company shall: 2.1 Prepare and file with the Securities and Exchange Commission (the "SEC") such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. 2.2 Furnish to the Investor such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 2.3 Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions as shall be reasonably requested by the Investor; PROVIDED, HOWEVER, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.4 Notify the Investor at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 2.5 Use its best efforts to cause all Registrable Securities covered by such registration statement to be listed on each securities exchange on which similar securities listed by the Company are then listed. 3. OBLIGATIONS OF THE INVESTOR. The Investor shall furnish to the Company such information regarding the Investor, the number of Registrable Securities owned and proposed to be sold by it, the intended method of disposition of such securities and any other information as shall be required to effect the registration of the Investor's Registrable Securities, and cooperate with the Company in preparing the registration statement and in complying with the requirements of the Securities Act. 4. REGISTRATION EXPENSES. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities, including without limitation all registration, listing, filing and qualification fees, printers and accounting fees, but excluding (i) underwriting discounts and commissions relating to the Registrable Securities and (ii) legal fees and disbursements of any and all counsel retained by the Investor. 5. SUSPENSION OF EFFECTIVENESS. If the Company shall furnish to the Investor a certificate signed by the President or Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it is necessary to suspend the effectiveness of any registration statement filed hereunder, the Company shall have the right, exercisable two (2) times only in any consecutive 2 twelve (12) month period, to suspend the effectiveness of the registration statement with respect to such offering for a period of not more than an aggregate of ninety (90) days per suspension. 6. INDEMNIFICATION. 6.1 To the extent permitted by law, the Company will indemnify the Investor, its members, directors, officers, shareholders, employees, agents and affiliates, legal counsel for the Investor, and each person controlling the Investor within the meaning of the Securities Act, with respect to which registration, qualification or compliance of Registrable Securities has been effected pursuant to this Agreement, against any losses, claims, damages, liabilities or actions in respect thereof (collectively, "Damages"), arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and the Company will pay each the Investor any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 6.1 shall not apply to: (i) amounts paid in settlement of any such Damages if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); (ii) any such Damages arising out of or a based upon any untrue statement or omission based upon information furnished to the Company by the Investor and stated to be for use in connection with the offering of securities of the Company; or (iii) any such Damages arising out of or based upon the Investor's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto. 6.2 To the extent permitted by law, the Investor will, if Registrable Securities held by the Investor are included in the securities as to which such registration, qualification or compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors, officers, shareholders, employees, agents and affiliates, each legal counsel and independent accountant of the Company, each person who controls the Company within the meaning of the Securities Act, and each other the Investor, each of its directors, officers, shareholders, employees, agents and affiliates, legal counsel, and each person controlling such other Purchaser within the meaning of the Securities Act, against all Damages arising out of or based upon arising any untrue statement or alleged untrue statement of a material fact contained in a registration statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Investor of the Securities Act, the Exchange Act, or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Investor in connection with any such registration, qualification or compliance; and the Investor will pay the Company or such other Investor any legal and other expenses reasonably incurred by them in connection with investigating or 3 defending any such claim, loss, damage, liability or action, in each case, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission is made in such registration statement, prospectus, offering circular or other document in reliance on and in conformity with information furnished to the Company by the Investor and stated to be for use in. connection with the offering of securities of the Company; PROVIDED, HOWEVER, that the indemnity contained in this Section 6.2 shall not apply to amounts paid in settlement of any such Damages if settlement is effected without the consent of the Investor (which consent shall not unreasonably be withheld). 6.3 Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so chooses, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified parry under this Section 6, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6. 6.4 If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such Damages as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 6.5 The obligations of the Company and the Investor under this Section 6 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement. 4 7. NOTICES. 7.1 Any notice or communication required or permitted hereunder shall be given in writing and shall be made by hand delivery, by confirmed facsimile, by overnight courier or by registered or certified mail, addressed (i) if to the Investor, to the Investor's address as set forth on Schedule A hereto, and (ii) if to the Company, to Vyteris Holdings (Nevada), Inc., 13-01 Pollitt Drive, Fair Lawn, New Jersey 07410, Attention: Chief Executive Officer, Facsimile: (201) 796-6057 with a copy to Lownestein Sandler PC, 65 Livinston Avenue, Roseland, NJ 07068, facsimile number (973) 597-2400, Attention: Peter H. Ehrenberg, Esq. 7.2 All such notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery or facsimile, on the date of such delivery, (ii) in the case of overnight courier, on the business day after the date when sent, and (iii) in the case of registered or certified mail, on the third business day following such mailing. 8. MISCELLANEOUS. 8.1 This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of the conflict of laws thereof. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York located in New York County and any Federal court located within New York County for any actions, suits or proceedings arising out of or relating to this Agreement. The parties hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement in the courts of the State of New York located in New York County or the courts of the United States of America located in New York County, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit of proceeding brought in any such court has been brought in an inconvenient forum. 8.2 Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investor of any Registrable Securities then outstanding, each future Purchaser of all such Registrable Securities, and the Company. 8.3 Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement, excepts as expressly provided herein. 8.4 If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.5 The headings of the Sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 5 8.6 This Agreement constitutes the entire contract among the Company and the Investor relative to the subject matter hereof and supersedes in its entirety any and all prior agreements, understandings and discussions with respect thereto. 8.7 The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SPENCER TRASK SPECIALTY GROUP, LLC By: /s/ Kevin Kimberlin -------------------------------------- Name: Kevin Kimberlin Title: Nonmember Manager VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Patrick McKierwan -------------------------------------- Name: Patrick McKierwan Title: V.P. Operations/Principal Accounting Officer 7 EX-99 11 ex99-73.txt EX-99.73 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. VYTERIS HOLDINGS (NEVADA), INC. 10% CONVERTIBLE PROMISSORY NOTE ------------------------------- $500,000 Fair Lawn, New Jersey June 8, 2006 FOR VALUE RECEIVED, the undersigned, Vyteris Holdings (Nevada), Inc., a Nevada corporation (the "Issuer"), hereby unconditionally promises to pay, in accordance with the Note Purchase Agreement (the "Note Purchase Agreement"), dated as of the date hereof, by and between the Issuer and Spencer Trask Specialty Group, LLC, a Delaware limited liability company (the "Purchaser"), on the Maturity Date (as defined in the Note Purchase Agreement) to the order of the Purchaser, at the office of the Purchaser located at 535 Madison Avenue, New York, NY or such other address designated by the Purchaser, in lawful money of the United States of America and in immediately available funds, the principal amount of Five Hundred Thousand ($500,000) Dollars. The Issuer further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time from the date hereof in like money at the ratesand as and on the dates specified in Section 3.3 of the Note Purchase Agreement. This Note is the promissory note referred to in the Note Purchase Agreement, and is entitled to the benefits thereof, and is subject to voluntary and mandatory conversions as set forth therein. This Note, and all representations, warranties, covenants and agreements contained herein and in the Note Purchase Agreement, shall be binding upon Issuer and its successors and permitted assigns and shall inure to the benefit of the Purchaser and its successors and assigns. Issuer may not assign or delegate any of its duties or obligations under this Note without the written consent of the Purchaser, which shall not be unreasonably withheld. Upon the occurrence of any one or more of the Events of Default specified in the Note Purchase Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Note Purchase Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Subject to Sections 3.3 and 10.5 of the Note Purchase Agreement, the Issuer agrees to pay all of the Purchaser's expenses, including reasonable attorneys' costs and fees, incurred in collecting sums due under this Note. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Tim McIntyre --------------------------------- Name: Tim McIntyre Title: CEO - 2 - EX-99 12 ex99-74.txt EX-99.74 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT (this "Agreement"), dated as of June 8, 2006, by and between Vyteris Holdings (Nevada), Inc., a Nevada corporation ("Seller"), and Spencer Trask Specialty Group, LLC, a Delaware limited liability company ("Buyer"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Seller desires to issue to Buyer, and Buyer desires to purchase from Seller, a convertible subordinated promissory note, substantially in the form of EXHIBIT A hereto, in the principal amount of $500,000 (the "Note"); WHEREAS, Seller has agreed to effect the registration of the shares of Common Stock underlying the Note under the Securities Act of 1933, as amended, pursuant to a registration statement substantially in the form of EXHIBIT B hereto (the "Registration Rights Agreement"); and WHEREAS, Seller, pursuant to that certain securities purchase agreement dated as of August 19, 2005, as same may be amended from time to time ("Securities Purchase Agreement") issued a series of senior secured convertible debentures, including debentures issued after the original issuance date (the "Debentures") in the aggregate principal amount of $10.5 million (the "Senior Debt"). NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties agree as follows: 1. SALE AND PURCHASE OF THE NOTE ----------------------------- 1.1. SALE AND PURCHASE. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2.1 hereof), Seller shall issue to Buyer, and Buyer shall purchase from Seller, for the Purchase Price (as defined in Section 1.2(a) hereof), the Note. 1.2. PURCHASE PRICE AND PAYMENT. (a) PURCHASE PRICE. The purchase price for the Note shall be $500,000 (the "Purchase Price"). (b) Payment of Purchase Price. The Purchase Price shall be paid to Seller by Buyer on the Closing Date (as defined in Section 2.1 hereof) via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions provided to Buyer prior to the date hereof. 2. CLOSING. -------- 2.1. TIME AND PLACE. The closing of the sale and purchase of the Note (the "Closing") shall be deemed to take place at the offices of Littman Krooks LLP, 655 Third Avenue, 20th Floor, New York, New York, at 10:00 a.m., local time, on the date hereof, or at such later time or date as Buyer and Seller may mutually agree in writing. The date upon which the Closing shall occur is herein called the "Closing Date". 2.2. CLOSING DELIVERIES. (a) SELLER DELIVERIES. At the Closing, Seller shall deliver or cause to be delivered to Buyer the following: (i) the duly executed Note; (ii) the duly executed Registration Rights Agreement; and (iii) copies of any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby. (b) BUYER DELIVERY. At the Closing, Buyer shall deliver or cause to be delivered to Seller the Purchase Price. 3. TERMS OF THE NOTE. 3.1. AMOUNT. The principal amount of the Note shall be $500,000. 3.2. MATURITY. Unless otherwise converted into the Conversion Shares (as defined in Section 3.4 hereof) in accordance with the provisions hereof, the Note shall mature on December 1, 2008, unless such date shall be otherwise extended in writing by Buyer, in its sole discretion (such date, the "Maturity Date"). On the Maturity Date, unless, and to the extent, converted into Conversion Shares in accordance with the provisions hereof, all outstanding principal and any accrued and unpaid interest due and owing under the Note shall be immediately paid by Seller. 3.3. INTEREST, INTEREST RATE; PAYMENT. (a) The Note shall bear interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in clause (b) below) at a rate equal to ten (10%) percent (the "Interest Rate") per annum on a 360day year. Interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in subparagraph (b) below) shall be due and payable in cash semiannually in arrears following the end of each semi-annual period, commencing with the semiannual period ended June 30, 2006, pro rated for partial periods; PROVIDED, HOWEVER, that any interest accruing on overdue amounts pursuant to subparagraph (b) of this Section 3.3 shall be payable on demand. (b) If all or a portion of the principal amount of the Note or any interest payable thereon shall not be repaid when due whether on the applicable repayment date, by acceleration or otherwise, such overdue amounts shall bear interest at a rate per annum that is three percent (3%) above the Interest Rate I.E. 13%) from the date of such non-payment until such amount is paid in full (as well after as before judgment). 2 (c) All payments to be made by Seller hereunder or pursuant to the Note shall be made, without setoff or counterclaim, in lawful money of the United States by check or wire transfer in immediately available funds. 3.4. CONVERSION. (a) Subject to Sections 3.4(b) and 3.5 hereof, at any time prior to the Maturity Date, the Seller shall have the option to convert the entire principal and interest accrued and owing on the Note, or any portion of the principal and/or interest thereof, into shares (the "Conversion Shares") of Common Stock at the Conversion Price. For purposes hereof, "Conversion Price" shall mean $2.40 per share; PROVIDED, that if at any time on or after the issuance date of the Note, Seller subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then after the date of record for effecting such subdivision, the Conversion Price shall be proportionately reduced, or if Seller combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, the Conversion Price shall be proportionately increased. Upon conversion, Buyer shall be entitled to receive the number of Conversion Shares calculated by dividing the amount being converted by the Conversion Price. No fractional shares of Conversion Shares shall be issued upon conversion. In lieu of any fractional shares to which Buyer would otherwise be entitled, Seller shall pay cash in an amount equal to such fraction multiplied by the Conversion Price. The Note shall not be subject to automatic conversion or to any conversion at the option of Seller. (b) Notwithstanding the provision of Section 3.4(a), if an equity security or other derivative security convertible or exercisable into an equity security of the Company ("Applicable Security") is sold in connection with a Qualified Financing (as hereinafter defined) at any time prior to payment in full of the principal balance of the Note, all of the principal and interest due thereunder shall automatically become converted into the Applicable Security with the same rights and privileges granted to investors in the Qualified Financing. The number of Applicable Securities received upon conversion pursuant to this Section 3(b) shall be determined by dividing the aggregate principal amount due under the Note, together with any accrued but unpaid interest to the date of conversion, by the price per Applicable Security paid in the Qualified Financing. For the purposes of the Note, a "Qualified Financing" shall mean the Company's next private financing of Applicable Securities to investors (i) yielding aggregate gross proceeds (exclusive of conversion of the Note) to the Company of at least $500,000 and (ii) which does not invoke or trigger the provisions of Section 4(b) of the Debentures or Section 6(c) of the Warrants (as such term is defined in the Securities Purchase Agreement. 3.5. CONVERSION PROCEDURES. In order to exercise the conversion rights set forth in Section 3.4(a) hereof, Buyer shall surrender the Note, appropriately endorsed, to Seller at Seller's principal office, accompanied by written notice to Seller setting forth the amount of principal and interest to be converted, the name or names (with address(es)) in which the Conversion Shares issuable upon such conversion shall be issued and registered on the books of Seller. For purposes hereof, the "Conversion Date" shall be deemed to be the date the Note and notice is received by Seller for conversion. Within five (5) business days after the Conversion Date, Seller shall deliver to Buyer (i) a stock certificate for the Conversion Shares or (ii) a notice certified by Seller's Secretary that 3 the Conversion Shares due on such conversion have been issued to and registered on the books of Seller in the name or names specified by Buyer. In the case of conversion of less than the entire principal of and interest under the Note, Seller shall cancel said Note and shall execute and deliver a new Note of like tenor for the unconverted amount of the Note dated the date of execution by Seller upon initial issuance of the Note notwithstanding any subsequent substitution. 3.6. SUBORDINATION. The Note is expressly and fully subordinated, as to payment and liquidation, to the payment in full of the Debentures and the Obligations (as such term is defined in the Securities Purchase Agreement) and the holder of the Note acknowledges and agrees that the Seller is expressly restricted from pre-paying any amounts in respect of the principal of the Note (upon acceleration or otherwise) until payment in full of the Debentures. The holder of this Note shall not commence any judicial or other collection efforts or exercise any other remedies prior to the date that is ninety-one (91) days following the payment in full of the Debentures. The Note is, and is intended to be, "Subordinated Debt" as such term is defined in the Securities Purchase Agreement. 3.7. PREPAYMENT RIGHTS UPON MERGER CONSOLIDATION ETc. (a) If, prior to the Conversion Date, but subject to the provisions of Section 3.6 above, Seller proposes to consolidate with, or merge into, another corporation or entity, or to effect any sale or conveyance to another corporation or entity of all or substantially all of the assets of Seller, or effect any other corporate reorganization, in which the stockholders of the Seller immediately prior to such consolidation, merger or reorganization own capital stock of the entity surviving such merger, consolidation or reorganization representing less than fifty (50%) percent of the combined voting power of the outstanding securities of such entity immediately after such consolidation, merger or reorganization (collectively, a "Liquidation Event"), then Seller shall provide Buyer with at least ten (10) days' prior written notice of any such proposed action, and Buyer will, at its option, have the right to demand immediate prepayment of all amounts due and owing under the Note. Buyer will give Seller written notice of such demand within five (5) days after receiving notice of the Liquidation Event. All amounts (including all accrued and unpaid interest) due and owing under the Note shall be paid by Seller to Buyer within five (5) days from the date of such written notice via federal funds wire transfer(s) of immediately available funds, in accordance with written instructions to be provided to Seller by Buyer within at least two (2) business days after giving Seller such written notice. The provisions of this Section 3.7(a) shall similarly apply to successive consolidations or mergers. (b) Except as set forth in Sections 3.6, 3.7(a) and 9 hereof, Seller shall not prepay prior to the Maturity Date all or part of this Note without the express written consent of Buyer. 3.8 INTENTIONALLY DELETED 3.9 ASSURANCES WITH RESPECT OF CONVERSION RIGHTS. Seller shall not, by amendment of its Certificate of Incorporation or By-laws or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by Seller but shall at all times in good faith assist in the carrying out of all the provisions of this Agreement and in taking of all such actions as 4 may be necessary or appropriate in order to protect the conversion rights of Buyer against impairment. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Buyer as follows: 4.1 DUE ORGANIZATION AND QUALIFICATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Seller has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as presently conducted and as presently contemplated. Seller is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or the locations of its property requires such qualification, except where the failure to do so would not have a material adverse effect on Seller's business, operations, assets or condition (financial or otherwise). 4.2 POWER AND AUTHORITY. Seller has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements contemplated by this Agreement (including, without limitation, the Note and the Registration Rights Agreement) and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and all other agreements contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and is the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. When executed and delivered by Seller at the Closing, each of the Note and the Registration Rights Agreement will be the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 4.3. CAPITALIZATION. The capitalization of the Seller as of the date of this Agreement, including its authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Seller's stock option plans and agreements, the number of shares issuable and reserved for issuance pursuant to securities (other than the Note) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon conversion of the Note is set forth on Schedule 4.3 hereto. All issued and outstanding shares of capital stock of the Seller have been validly issued, fully paid and non-assessable. Except as disclosed on Schedule 4.3 hereto, the Seller owns all of the capital stock of each subsidiary, which capital stock is validly issued, fully paid and non-assessable, and no shares of the capital stock of the Seller or any of the subsidiaries are subject to preemptive rights or any other similar rights of the shareholders of the Seller or any such subsidiary or any liens created by or through the Seller or any such subsidiary. Except as disclosed on Schedule 4.3 or as contemplated herein, 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 shares of capital stock of the Seller or any of the subsidiaries, or arrangements by which the Seller or 5 any of the subsidiaries is or may become bound to issue additional shares of capital stock of the Seller or any of the subsidiaries (whether pursuant to anti-dilution, "reset" or other similar provisions). Schedule 4.3 identifies all Debt of the Seller and the subsidiaries currently outstanding in excess of $100,000 individually or in the aggregate as of the date hereof. 4.4. FINANCIAL STATEMENTS; OTHER INFORMATION. Seller has filed with the Securities and Exchange Commission ("Commission") all reports, schedules, registration statements and definitive proxy statements that Seller was required to file with Commission on or after December 31, 2004 (collectively, the "SEC DOCUMENTS"). Seller is not aware of any event occurring or expected to occur as of the date of this Agreement (other than the transactions effected hereby) that would require the filing of, or with respect to which Seller intends to file, a Form 8-K after the date of this Agreement. Each SEC Document, as of the date of the filing thereof with the Commission (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing), complied in all material respects with the requirements of the Securities Act of 1933, as amended ("Securities Act") or Securities Exchange Act of 1934, as amended ("Exchange Act"), as applicable, and the rules and regulations promulgated thereunder and, as of the date of such filing (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), such SEC Document (including all exhibits and schedules thereto and documents incorporated by reference therein) did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents that are required to be filed as exhibits to the SEC Documents have been filed as required. Except as set forth in Schedule 4.4, Seller has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business that, under GAAP, are not required to be reflected in the financial statements included in Schedule 4.4. Except as set forth in Schedule 4.4, as of their respective dates, the financial statements of Seller 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 Commission with respect thereto. The financial statements included in the SEC Documents have been and will be prepared in accordance with GAAP consistently applied at the times and during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements, or (iii) as set forth in the SEC Documents), and fairly present in all material respects the financial position of Seller 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 adjustments). 4.5. AUTHORIZATION OF THE NOTE AND CONVERSION SHARES. All corporate action on the part of Seller necessary for the authorization, issuance, sale and/or delivery of the Note and the capital stock issuable upon conversion of the Note (the "Conversion Shares") has been taken and when issued, sold and delivered in accordance with this Agreement and/or the Note, the Conversion Shares will be validly issued and outstanding, fully paid and nonassessable and not subject to preemptive, first refusal or any other similar rights of any stockholder of Seller or others. 6 4.6 COMPLIANCE WITH LAWS. To its knowledge, Seller is in compliance in all material respects with all Federal, state, local and foreign laws, statutes, ordinances, regulations, orders, judgments, injunctions, awards or decrees (collectively, "Laws") applicable to it or any of its properties or operations. Seller has not received any notice of material violation or alleged material violation of any Law by it. Seller has all material licenses, permits, orders and approvals of Federal, state, local and foreign governmental or regulatory bodies necessary for the conduct of its business and operations as presently conducted. 4.7 NO BREACH; CONSENTS. Except as set forth on SCHEDULE 4.7 hereto, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) result in any lien, pledge, mortgage, security interest, claim, lease, charge, option, easement, servitude or other encumbrance whatsoever (collectively, "Liens") upon any of the property of Seller (other than in favor of Buyer) or (ii) violate, conflict with or breach any of the terms and conditions of, result in a material modification of, accelerate or trigger the rights of any person under, or constitute (or with notice or lapse of time or both would constitute) a default under (a) any material instrument, contract or other agreement to which Seller is a party or by or to which it or any of its properties is bound or subject; (b) Seller's Certificate of Incorporation or By-laws (and all amendments thereto up through the date hereof); or (c) any Law applicable to Seller or any of its properties or operations. Except as set forth on SCHEDULE 4.7, no consent, approval or authorization of, or declaration or filing with, any governmental authority, stockholder of Seller or other person is required on the part of Seller in connection with the execution, delivery or performance of this Agreement or the consummation by it of the transactions contemplated hereby. 4.8 LITIGATION. Except as set forth on SCHEDULE 4.8 hereto, there are no material suits or actions, administrative, arbitration or other proceedings or governmental investigations pending or, to Seller's knowledge, threatened against or affecting Seller or any of its properties or assets. There are no judgments, orders, injunctions, decrees or awards against Seller that are not satisfied or remain outstanding. 4.9. BROKERS. Neither Seller nor any of Seller's officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by this Agreement and no fee is or will be due and owing to any broker or finder in connection with the transactions contemplated by this Agreement. 4.10 INTELLECTUAL PROPERTY. All of Seller's (i) trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, (ii) patents and patent applications, and (iii) licenses with respect to the use of patents or trademarks owned by other parties, are set forth on SCHEDULE 4.10 hereto. Except as set forth on SCHEDULE 4.10, there is not pending nor, to Seller's knowledge, threatened any claim, suit or action contesting or challenging the rights of Seller in or to any of the material item of intellectual property owned or used by Seller in the conduct of its business (the "Intellectual Property") or the validity of any of the Intellectual Property. To Seller's knowledge, there is no infringement upon or unauthorized use of any of the Intellectual Property by any third party. No officer, director, equityholder or affiliate of Seller nor any of their respective associates has any right to or interest in any of the Intellectual 7 Property, including, without limitation, any right to payments (by royalty or otherwise) in respect of any use or transfer thereof. 4.11 PERFORMANCE OF AGREEMENTS. Except as set forth on SCHEDULE 4.11 hereto, no default by Seller exists in the due performance under any material agreement to which Seller is a party or to which any of its assets is subject. 4.12 NO WAIVER OF PRIOR OR FUTURE DEFAULTS. Seller hereby acknowledges and agrees that this Agreement and Buyer's purchase from Seller of the Note, pursuant to the terms and conditions hereof, shall not constitute or operate as a waiver or release of any default, or any future defaults, under the Default Notes. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and warrants to Seller as follows: 5.1 DUE ORGANIZATION. Buyer is a duly organized legal entity, validly existing and in good standing under the laws of the state of its organization. 5.2 POWER OF BUYER. Buyer has the requisite company power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Buyer and is the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 5.3 NO BREACH. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby will not violate, conflict with or otherwise result in the breach of any of the terms and conditions of, result in a material modification of or constitute (or with notice or lapse of time or both would constitute) a default under (i) any of the organizational documents of Buyer; (ii) any material instrument, contract or other agreement to which Buyer is a party or by or to which it or any of its properties is bound or subject; or (iii) any Law applicable to Buyer or any of its properties or operations. 5.4 GOVERNMENTAL AND OTHER CONSENTS. No consent, approval or authorization of, or declaration or filing with, any governmental authority or other person is required on the part of Buyer in connection with the execution, delivery and performance of this Agreement by it or the consummation of the transactions contemplated hereby. 5.5 INVESTMENT REPRESENTATIONS. Buyer is acquiring the Note (the "Securities"), and any capital stock issuable upon exercise of the Securities, for Buyer's own account, for investment and not with a view to, or for sale in connection with, any distribution of such securities or any part thereof. Buyer (i) has such knowledge and experience in financial and business affairs that it is capable of evaluating the merits and risks involved in purchasing the Securities, (ii) is able to bear the economic risks involving in purchasing the Securities, (iii) is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (iv) has had the opportunity to ask questions of, and receive answers from, Seller and persons 8 acting on Seller's behalf concerning Seller's business, management, and financial affairs and the terms and conditions of the Securities. Buyer's state of residence is New York. 5.6. NO BROKER. Buyer has not employed any broker or finder in connection with the transactions contemplated by this Agreement. 6. COVENANTS AND AGREEMENTS. 6.1 PRE-CLOSING COVENANTS AND AGREEMENTS. The parties hereto covenant and agree to perform or take any and all such actions to effectuate the following from the date hereof until the earlier of the Closing Date or the termination of this Agreement: (a) FURTHER ASSURANCES. Each of the parties shall, prior to or at the Closing, as may be appropriate, execute such documents and other papers and take such other further actions as may be reasonably required to carry out the provisions hereof and effectuate the transactions contemplated hereby, and in the Note and the Registration Rights Agreement. Each party shall use its best efforts to fulfill or obtain the fulfillment of the conditions to its obligation to effect the Closing, including promptly obtaining any consents required in connection herewith. (b) ADDITIONAL DISCLOSURE. Seller shall promptly notify Buyer of, and furnish Buyer with, any information it may reasonably request with respect to the occurrence of any event or condition or the existence of any fact that would cause any of the conditions to Buyer's obligation to consummate the transactions contemplated by this Agreement not to be fulfilled. 6.2 POST-CLOSING COVENANTS AND AGREEMENTS. Buyer and Seller covenant and agree from and after the Closing Date to perform or take the following actions: (a) RESERVE FOR CONVERSION SHARES. Seller shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or other securities for the purpose of issuing Common Stock or other securities upon the conversion of the Note. If at any time the number of authorized but unissued shares of Common Stock or other securities shall not be sufficient to satisfy the conversion of the Note, if any, Seller shall forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock or other securities to such number of shares as shall be sufficient for such purpose. If any capital reorganization or any Liquidation Event of Seller shall be effected in such a way that holders of Common Stock shall be entitled to receive capital stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification or Liquidation Event, lawful and adequate provisions shall be made whereby the holder of the Note shall thereafter, upon conversion, have the right to receive such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for the number of outstanding shares of such Common Stock into which the Note held at the time of such capital reorganization, reclassification or Liquidation Event is convertible. 9 7. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE. 7.1 CLOSING. The obligation of Buyer to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Buyer in writing: (a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller shall have complied with and duly performed and satisfied in all material respects all agreements and conditions on its part to be complied with and performed by such date pursuant to this Agreement. (b) CONSENTS. Seller shall have obtained any consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby and delivered copies thereof to Buyer. (c) NOTE. Seller shall have duly executed and delivered to Buyer the Note. (d) REGISTRATION RIGHTS AGREEMENT. Seller shall have duly executed and delivered to Buyer the Registration Rights Agreement. 8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE. 8.1 CLOSING. The obligation of Seller to complete the Closing is subject to the fulfillment on or prior to the Closing Date of all of the following conditions, any one or more of which may be waived by Seller in writing: (a) Agreements and Conditions. On or before the Closing Date, Buyer shall have complied with and performed and satisfied in all material respects all agreements and conditions to be complied with and performed by such date pursuant to this Agreement. (b) PAYMENT OF PURCHASE PRICE. Buyer shall have paid to Seller the Purchase Price. (c) REGISTRATION RIGHTS AGREEMENT. Buyer shall have duly executed and delivered to Seller the Registration Rights Agreement. 9. EVENTS OF DEFAULT. If any of the following events (each, an "Event of Default") shall occur and be continuing: (i) Seller shall fail to pay any amount payable under the Note within three (3) business days after such payment becomes due in accordance with the terms thereof; (ii) Seller shall fail to pay when due (following the expiration of applicable notice and cure periods, if any), whether upon acceleration, prepayment obligation or otherwise, any indebtedness and/or other sums payable, individually or in the aggregate, involving an amount in excess of $100,000; 10 (iii) Any representation or warranty made or deemed made by Seller herein or in any other agreement, certificate or instrument contemplated by this Agreement or that is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall have been incorrect in any material respect on or as of the date made or deemed made; (iv) Seller shall default, in any material respect, in the observance or performance of any other agreement contained in this Agreement or any other agreement or instrument contemplated by this Agreement, and such default shall continue unremedied for a period of twenty (20) days after notice to Seller of such default; (v) Seller shall substantially curtail, alter, modify or change its business operations, as reasonably determined by Buyer; or (vi) (a) Seller shall commence any case, proceeding or other action (x) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (y) seeking appointment or a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Seller shall make a general assignment for the benefit of its creditors; or (b) there shall be commenced against Seller any case, proceeding or other action of a nature referred to in clause (a) above that (A) results in the entry of an order for relief of any such adjudication of appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (c) there shall be commenced against Seller any case, proceeding other action seeking issuance of a warrant of attachment, execution, distrait or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (d) Seller shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in any of the acts set forth in clauses (a), (b) or (c) above; or (e) Seller shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, then, and in any such event, but in all events subject to the provisions of Section 3.6 above, (x) if such event is an Event of Default specified in subsection (vi) above of this Section 9 with respect to Seller, automatically the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note shall immediately become due and payable, and (y) if such event is any other Event of Default, Buyer may, by written notice to Seller, declare the Note (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 9, presentation, demand, protest and all other notices of any kind are hereby expressly waived by Seller. 11 10. MISCELLANEOUS. 10.1 PUBLICITY. Subject to the requirements of the Federal securities laws, no publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued without advance approval of the form and substance thereof by Buyer and Seller jointly. 10.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by facsimile transmission, when telexed, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to Seller: Vyteris Holdings (Nevada), Inc. 13-01 Pollitt Drive Fair Lawn, New Jersey 07410 Attention: Chief Executive Officer Facsimile: (201) 796-6057 With a copy (which copy shall not constitute notice) to: Lowenstein Sandler PC 65 Livingston Avenue Roseland, New Jersey 07068 Attention: Peter H. Ehrenberg, Esq. Facsimile: (973) 597-2400 (ii) If to Buyer: Spencer Trask Specialty Group, LLC 535 Madison Avenue New York, NY 10022 Attention: Bruno Lerer, Esq. Facsimile: (212) 486-7392 With a copy (which copy shall not constitute notice) to: Littman Krooks LLP 655 Third Avenue, 2e Floor New York, NY 10016 Attention: Mitchell C. Littman, Esq. Facsimile: (212) 490-2990 10.3 Entire Agreement: Exercise of Rights. (a) This Agreement (including the Schedules and Exhibits hereto) and the other Loan Documents (as defined in Section 10.6 hereof) embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by each of the parties hereto and no waiver of any provision of this Agreement, nor consent to any departure by either party from it, shall be 12 effective unless it is in writing and signed by the affected party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of a party to exercise, and no delay in exercising, any right under this Agreement, or any agreement contemplated hereby, shall operate as a waiver hereof by such party, nor shall any single or partial exercise of any right under this Agreement, or any agreement contemplated hereby, preclude any other or further exercise thereof or the exercise of any other right. 10.4 GOVERNING LAW. This Agreement shall 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 within such jurisdiction. 10.5 EXPENSES. Seller and Buyer shall, subject to the immediately succeeding sentence, bear their respective expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel, brokers or finders, and accountants. 10.6 TRANSFERABILITY. Subject to securities laws restrictions of general applicability, this Agreement, the Note and the Registration Rights Agreement (collectively, the "Loan Documents") and all rights hereunder and thereunder are freely and separately transferable and assignable, in whole or in part, by Buyer. The foregoing transferees and assignees shall be entitled to the rights provided in the Loan Documents. Seller may not assign or delegate any of its obligations under the Loan Documents without the prior written consent of Buyer. For purposes hereof, a sale or exchange by Seller of all or substantially all of its assets shall constitute an assignment/delegation requiring Buyer's prior written consent. [SIGNATURE PAGE FOLLOWS] 13 IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase Agreement on the date first above written. SPENCER TRASK SPECIALTY GROUP, LLC By: /s/ Donald F. Farley ----------------------------------- Name: Donald F. Farley Title: CEO VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Tim McIntyre ----------------------------------- Name: Tim McIntyre Title: CEO 14 EXHIBIT A --------- Form of Note EXHIBIT B --------- Form of Registration of Rights Agreement SCHEDULES --------- EX-99 13 exh99-75.txt EX-99.75 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June 8, 2006, is by and between VYTERIS HOLDINGS (NEVADA), INC., a Nevada corporation (the "COMPANY"), and SPENCER TRASK SPECIALTY GROUP, LLC, a Delaware limited liability company (the "INVESTOR"). The Company has agreed, on the terms and subject to the conditions set forth in the Note Purchase Agreement, dated as of June 8, 2006 (the "NOTE AGREEMENT"), to issue and sell to the Investor named therein the Note in the form attached to the Note Agreement (the "NOTE"). The Note is convertible into shares (the "REGISTRABLE SHARES") of the Company's common stock, par value $0.001 per share (the "COMMON STOCK) in accordance with its terms. In order to induce the Investor to enter into the Note Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and under applicable state securities laws. In consideration of the Investor entering into the Note Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PIGGYBACK REGISTRATION STATEMENT. If, at any time, the Company proposes to file any registration statement on Form S-1 or such other appropriate form in accordance with the Securities Act of 1933, as amended (the "Securities Act") for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act or initial public offerings) it will give written notice by facsimile or mail, at least five (5) days prior to the filing of each registration statement, to the Investor of its intention to do so. If the Investor notifies the Company within five (5) days after receipt of any such notice of its desire to include any such securities in such proposed registration statement, the Company shall afford the Investor the opportunity to have any Registrable Securities registered under such registration statement. 2. OBLIGATIONS OF THE COMPANY. In connection with the filing of any registration statement herein, the Company shall: 2.1 Prepare and file with the Securities and Exchange Commission (the "SEC") such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. 2.2 Furnish to the Investor such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 2.3 Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions as shall be reasonably requested by the Investor; PROVIDED, HOWEVER, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.4 Notify the Investor at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 2.5 Use its best efforts to cause all Registrable Securities covered by such registration statement to be listed on each securities exchange on which similar securities listed by the Company are then listed. 3. OBLIGATIONS OF THE INVESTOR. The Investor shall furnish to the Company such information regarding the Investor, the number of Registrable Securities owned and proposed to be sold by it, the intended method of disposition of such securities and any other information as shall be required to effect the registration of the Investor's Registrable Securities, and cooperate with the Company in preparing the registration statement and in complying with the requirements of the Securities Act. 4. REGISTRATION EXPENSES. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities, including without limitation all registration, listing, filing and qualification fees, printers and accounting fees, but excluding (i) underwriting discounts and commissions relating to the Registrable Securities and (ii) legal fees and disbursements of any and all counsel retained by the Investor. 5. SUSPENSION OF EFFECTIVENESS. If the Company shall furnish to the Investor a certificate signed by the President or Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it is necessary to suspend the effectiveness of any registration statement filed hereunder, the Company shall have the right, exercisable two (2) times only in any consecutive twelve (12) month period, to suspend the effectiveness of the registration 2 statement with respect to such offering for a period of not more than an aggregate of ninety (90) days per suspension. 6. INDEMNIFICATION. 6.1 To the extent permitted by law, the Company will indemnify the Investor, its members, directors, officers, shareholders, employees, agents and affiliates, legal counsel for the Investor, and each person controlling the Investor within the meaning of the Securities Act, with respect to which registration, qualification or compliance of Registrable Securities has been effected pursuant to this Agreement, against any losses, claims, damages, liabilities or actions in respect thereof (collectively, "Damages"), arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and the Company will pay each the Investor any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 6.1 shall not apply to: (i) amounts paid in settlement of any such Damages if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); (ii) any such Damages arising out of or a based upon any untrue statement or omission based upon information furnished to the Company by the Investor and stated to be for use in connection with the offering of securities of the Company; or (iii) any such Damages arising out of or based upon the Investor's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto. 6.2 To the extent permitted by law, the Investor will, if Registrable Securities held by the Investor are included in the securities as to which such registration, qualification or compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors, officers, shareholders, employees, agents and affiliates, each legal counsel and independent accountant of the Company, each person who controls the Company within the meaning of the Securities Act, and each other the Investor, each of its directors, officers, shareholders, employees, agents and affiliates, legal counsel, and each person controlling such other Purchaser within the meaning of the Securities Act, against all Damages arising out of or based upon arising any untrue statement or alleged untrue statement of a material fact contained in a registration statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Investor of the Securities Act, the Exchange Act, or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Investor in connection with any such registration, qualification or compliance; and the Investor will pay the Company or such other Investor any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action, in each case, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission is made in such 3 registration statement, prospectus, offering circular or other document in reliance on and in conformity with information furnished to the Company by the Investor and stated to be for use in connection with the offering of securities of the Company; PROVIDED, HOWEVER, that the indemnity contained in this Section 6.2 shall not apply to amounts paid in settlement of any such Damages if settlement is effected without the consent of the Investor (which consent shall not unreasonably be withheld). 6.3 Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so chooses, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6. 6.4 If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such Damages as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 6.5 The obligations of the Company and the Investor under this Section 6 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement. 4 7. NOTICES. 7.1 Any notice or communication required or permitted hereunder shall be given in writing and shall be made by hand delivery, by confirmed facsimile, by overnight courier or by registered or certified mail, addressed (i) if to the Investor, to the Investor's address as set forth on Schedule A hereto, and (ii) if to the Company, to Vyteris Holdings (Nevada), Inc., 13-01 Pollitt Drive, Fair Lawn, New Jersey 07410, Attention: Chief Executive Officer, Facsimile: (201) 796-6057 with a copy to Lownestein Sandler PC, 65 Livinston Avenue, Roseland, NJ 07068, facsimile number (973) 597-2400, Attention: Peter H. Ehrenberg, Esq. 7.2 All such notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery or facsimile, on the date of such delivery, (ii) in the case of overnight courier, on the business day after the date when sent, and (iii) in the case of registered or certified mail, on the third business day following such mailing. 8. MISCELLANEOUS. 8.1 This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of the conflict of laws thereof. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York located in New York County and any Federal court located within New York County for any actions, suits or proceedings arising out of or relating to this Agreement. The parties hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement in the courts of the State of New York located in New York County or the courts of the United States of America located in New York County, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit of proceeding brought in any such court has been brought in an inconvenient forum. 8.2 Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investor of any Registrable Securities then outstanding, each future Purchaser of all such Registrable Securities, and the Company. 8.3 Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement, excepts as expressly provided herein. 8.4 If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.5 The headings of the Sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement. 5 8.6 This Agreement constitutes the entire contract among the Company and the Investor relative to the subject matter hereof and supersedes in its entirety any and all prior agreements, understandings and discussions with respect thereto. 8.7 The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date fast above written. SPENCER TRASK SPECIALTY GROUP, LLC By: /s/ Donald F. Farley ----------------------------------- Name: Donald F. Farley Title: CEO VYTERIS HOLDINGS (NEVADA), INC. By: /s/ Tim McIntyre ----------------------------------- Name: Tim McIntyre Title: CEO 7 -----END PRIVACY-ENHANCED MESSAGE-----