Placement Memorandum (Series A Round) (Model

Name of Offeree: [__________] Copy No. [_____] Investors should be aware that issuers sometimes do not want the investors to know certain information. For example, some issuers elect to code the numbers on the private placement memorandum so that no investor knows he is receiving, say, number 140; he is, instead, receiving "14-G." Some old hands advise against dating the document, else the recipient may know at a glance the issuer has been struggling for months.

Issuers should approach offerings that have stated maximums and minimums, or an exact number of shares, with caution. The SEC has made its position clear. If the issuer elects to increase or decrease the size of the offering above/below the stated maximum/minimum, each of the investors who has signed subscription agreements must consent to the change in writing.[1] It is not open to the issuer to send out a notice to the effect that "We are raising or lowering the minimum and, if we do not hear from you, we assume you consent." The issuer must obtain the affirmative consent of each investor, which may be a bit difficult if the investor is in a remote location.

Please Do Not Examine The Contents Unless You Have Executed the Attached Confidentiality Agreement The resistance of venture capitalists to executing confidentiality agreements is legendary, at least until the term sheet stage.

Ready Capital Placement Agent



This Memorandum relates to the issuance and sale of [_____] shares of Convertible Preferred Stock, Series A, par value €.01 per share (the "Shares" or "Series A


Preferred Stock"), of Newco, a Delaware corporation (the "Company"). The Shares are convertible at any time at the option of the holder into shares of the Company's Common Stock on a one share for one share basis. The Shares are not redeemable [are redeemable at the option of the holder] and carry no stated dividend. The Shares have a liquidation preference of €[_____] per Share. This Offering Memorandum contains certain "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995), which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof, or other variations thereon or comparable terminology, or by discussions of strategy that involve risk and uncertainties. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company or industry to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include the timing, costs, and scope of any acquisition, the revenue and profitability levels of any company that it may acquire, the anticipated reduction of operating costs resulting from the integration and optimization of such companies, and other matters contained above and herein in this Offering Memorandum. Certain of these factors are discussed in more detail elsewhere in this Offering Memorandum including, without limitation, under "Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business." Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements are based on current expectations, and the Company assumes no obligations to update this information. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THE SECURITIES OFFERED BY THIS MEMORANDUM NOR THE MERITS OF THIS OFFERING HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY SIMILAR REGULATORY AGENCY OF ANY STATE; NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR ANY SIMILAR REGULATORY AGENCY OF ANY STATE, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. See "RISK FACTORS." 1. The Shares will be sold on a "best efforts" basis exclusively through Ready Capital, Inc. ("Agent"), which will be entitled to receive a placement fee of [_____]% of the aggregate purchase price of all Shares sold, except that Agent will receive a [_____]% placement fee (€[_____] per share) for sales resulting from the Company's direct selling efforts. Agent will also be entitled to purchase for a nominal amount five-year warrants to purchase [_____] shares of Common Stock. The Company has agreed to indemnify Agent against


certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. See "THE OFFERING." 2. Before deducting expenses payable by the Company (excluding the fees referred to in Note 1 above) estimated to be €[_____]. The Shares are being offered for sale only to "accredited investors", subject to the Company's right to reject subscriptions, in whole or in part. The minimum subscription will be [_____] Shares, unless otherwise approved by the Company. The Company reserves the right, in its discretion, to reject any subscription by any investor and to hold multiple closings. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. IN ADDITION, THIS MEMORANDUM CONSTITUTES AN OFFER ONLY TO THE PERSON WHOSE NAME APPEARS IN THE SPACE MARKED "NAME OF OFFEREE" ON THE COVER PAGE. [COMPANY NAME] The securities offered hereby will be sold subject to the provisions of a stock subscription agreement (the "Subscription Agreement") containing certain representations, warranties, terms, and conditions. Any investment in the securities offered hereby should be made only after a complete and thorough review of the provisions of the Subscription Agreement. The Company will make available to any prospective qualified investor, prior to the closing, the opportunity to ask questions of and receive answers from the Company or persons acting on behalf of the Company concerning the terms and conditions of the offering and the business and operations of the Company, and to obtain any additional information to the extent the Company possesses such information. This Memorandum contains summaries, believed by the Company to be accurate, of certain agreements and other documents which are identified under "Documents Available For Inspection." All such summaries are qualified in their entirety by reference to such agreements or documents referred to herein, which documents will be available to qualified prospective investors. This Memorandum does not purport to be all-inclusive or contain all of the information which a prospective investor may desire. The delivery of this memorandum at any time does not imply that information herein is correct as of any time subsequent to its date. The forecasts included herein have been prepared on the basis of assumptions stated therein. Future operating results are impossible to predict and no representation of any kind is made respecting the future accuracy or completeness of these forecasts. Inquiries regarding this Memorandum should be directed to the Company [ADDRESS] or to the Placement Agent [ADDRESS]. No person is authorized to give any information or make any representations (whether oral or written) in connection with this offering except such information as is contained in this Memorandum and in the exhibits hereto and documents summarized


herein. Only information or representations contained herein may be relied upon as having been authorized. This Memorandum is not an offer to sell to or a solicitation of an offer to buy from, nor shall any securities be offered or sold to, any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. This investment involves a high degree of risk. It is speculative and suitable only for persons who have substantial financial resources and have no need for liquidity in this investment. Further, this investment should only be made by those who understand or have been advised with respect to the tax consequences of and risk factors associated with the investment and who are able to bear the substantial economic risk of the investment for an indefinite period of time. See "Risk Factors." Prospective investors should not construe the contents of this Memorandum, or any prior or subsequent communications from the Company of any of its agents, officers, or representatives, as legal or tax advice. Each offeree should consult his own advisors as to legal, tax, and related matters concerning an investment in the Company. There is no public market for the securities offered hereby, and there is no assurance that one will ever develop. Furthermore, the transferability of these securities is severely restricted by the securities laws. See "Risk Factors." The offeree, by accepting delivery of this Memorandum, agrees to return it and all enclosed documents to the Company if the offeree does not subscribe for shares within the time period stated below. This offering will terminate on [DATE], unless extended by the Company, in its sole discretion, to a date not later than [DATE].

Summary Of The Offering
The following summary is qualified in its entirety by the detailed information appearing elsewhere in this Memorandum and by reference to the Certificate of Designation of the Series A Preferred Stock attached as Appendix A setting forth the rights and preferences of the Series A Preferred Stock. The executive summary is sometimes known as the "elevator pitch" or "summary" ... a summary to be delivered within the time it takes an elevator to go five floors. The writer should organize the executive summary, with the understanding that investors are extraordinarily busy and will skim the document. Brevity is thus critical.[2] Indeed, one expert suggests the plan be prepared assuming the reader will only devote five minutes to it, attempting in that period to accomplish the following: - Determine the characteristics of the company and the industry; - Determine the terms of the deal; - Read the latest balance sheet;


- Determine the caliber of the people in the deal; - Determine what is different about this deal;.[3]

The Company
Newco, a ---COUNTRY--- corporation incorporated in [STATE] (the "Company"), has its principal place of business at [ADDRESS]. Its telephone number is [PHONE].

Use Of Proceeds
The net proceeds to the Company from the sale of the Shares offered hereby, after deduction of all fees and expenses, are estimated to be €[_____]. The Company will allocate the proceeds of this offering for the purposes shown below. 1. 2. 3. 4. 5. 6. 7. Advertising fees, pre-production and distribution costs € to secure sales and market development leads Cooperative advertising charges with manufacturers € and/or service networks Promotional costs associated with trade shows and € sample products Research and development costs €

Recruiting and hiring key personnel to pursue strategies € outlined in Business Plan Staging the manufacturing process with raw materials € and product in process Working capital and miscellaneous Total Use of Proceeds € €

The net proceeds to the Company may not be sufficient to provide all of the funds required by the Company to achieve profitable operations. Consequently, additional financing may be required during such period. See "RISK FACTORS, No Operating History and Need for Substantial Additional Financing."

Dividend Policy
The Series A Preferred Stock does not have a stated dividend. The Company intends to employ all available funds for the development of its business and, accordingly, does not intend to declare or pay any cash dividends on its Series A Preferred Stock or Common Stock in the foreseeable future. See "DESCRIPTION OF CAPITAL STOCK."


The following table sets forth the capitalization of the Company at [DATE], and at that date giving effect to the net proceeds resulting from the sale of the Shares. Outstanding[4] Shareholders' Equity Convertible Preferred Stock, Series A [____] shares authorized and issued after the offering Common Stock, €.01 Par Value - [____] shares authorized and [____] shares issued prior to and after the offering Additional Paid-In Capital Retained Earnings (deficit) Total Shareholders' Equity Total Capitalization

Risk Factors (Sometimes "Special Factors")
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND THEIR PURCHASE SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT. THE COMPANY'S PLANNED OPERATIONS HAVE BEEN UNDERTAKEN COMMERCIALLY ONLY BY COMPETITORS ON A LIMITED BASIS AND THERE CAN BE NO ASSURANCE THAT THE BUSINESS PLAN DESCRIBED HEREIN WILL BE COMMERCIALLY VIABLE. IN ADDITION, ACTUAL RESULTS OF OPERATIONS MAY REQUIRE SIGNIFICANT MODIFICATIONS OF ALL OR PART OF SUCH PLAN. PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE FOLLOWING: 1. No Operating History and Need for Substantial Additional Financing. The Company has engaged in no revenue-producing activities to date and expects to incur substantial losses at least through [Year]. The Company may need additional financing to support its projected level of operations. No assurance can be given as to the availability of additional financing or, if available, the terms upon which it may be obtained. Any such additional financing may result in dilution of an Investor's equity investment in the Company. 2. Uncertainties Regarding New Business. The Company has only engaged in a limited amount of marketing of its products. Although Dr. Smith and the Company have successfully installed a number of units around the country, no sales and service organization has yet been organized. There can be no assurance that the Company's products will find market acceptance or will be saleable at a price that is profitable to the Company. 6

3. Dependence on Agreement with Licensee/Joint Venturer. The company does not, and will not, have sufficient funds to establish an adequate marketing and distribution network and is, therefore, entirely dependent on its agreements with Bigco, Inc. Those agreements contain a number of conditions which may allow Bigco to cancel the same. 4. Dependence on Management. The success of the Company depends to a large degree upon the personal efforts and ability of its President, John Brown, and its founder, Dr. John Smith, the loss of whose services would have a materially adverse effect on the Company. The Company has entered into employment agreements with Mr. Brown and Dr. Smith. See "MANAGEMENT." 5. Technological Change. Certain intellectual property is patented. See "INTELLECTUAL PROPERTY." However, new developments in the field of electronics are occurring at a rapid pace and there can be no assurance that such developments will not render the Company's products obsolete. The Company's employees have signed confidentiality agreements under which they have agreed not to use or disclose any of the Company's proprietary information. There can be no assurance that any commercially successful products will be developed from the Company's proprietary technology. 6. Competition. Several competitors presently compete directly with the Company. Many potential competitors have substantially greater financial resources and significantly greater accumulated experience in marketing products. 7. No Public Market for Shares. There is no public market for the Common or Series A Preferred Stock of the Company and none will result from this offering. The sale of the Series A Preferred Stock is not being registered under the Securities Act of 1933, as amended (the "Securities Act"), and the Shares may not be resold or otherwise transferred unless they are subsequently registered under the Securities Act and qualified under applicable state laws or unless exemptions from registration and qualification are available. Accordingly, purchasers may not be able to readily liquidate their investment. 8. Although the Common Stock into which Series A Preferred Stock issued in this offering may be converted has certain registration rights, (i) it is highly uncertain whether the Company can effectuate an initial public offering and/or (ii) holders may not be able to include any or all of the underlying shares of Common Stock for which registration is requested in an offering of the Company's Common Stock registered under the Securities Act. Even if the Company is public, the ability of an investor to sell shares of Common Stock in compliance with Rule 144 under the Act at satisfactory prices may depend on, among other things, development of a trading market for the Company's Common Stock. Moreover, such sales may have a depressive effect on the market price of the Company's Common Stock and adversely affect the price per share received in a subsequent Rule 144 sale or a public offering of the Company's Common Stock. It is not anticipated that a trading market will develop for the Series A Preferred Stock. 9. Financial Projections. Appendix C to this Memorandum contains five-year financial projections with respect to the Company's operations. The Company believes that the assumptions underlying the projections are reasonable. However, the projections are based upon numerous assumptions, the most significant of which relate to the market penetration of and costs associated


with the Company's product. Some of the assumptions may not materialize and unanticipated events and circumstances may occur. For these reasons, actual results achieved during these periods may vary from the projections, and the variations may be material. 10. Absence of Dividends. The Company does not expect to declare or pay any cash dividends in the foreseeable future. See "DIVIDEND POLICY" and "DESCRIPTION OF CAPITAL STOCK." 11. Continued Control by Management. After completion of the offering made hereby, the directors and officers of the Company will continue to exercise voting control over approximately [ ]% of the outstanding shares of Common Stock of the Company. The holders of the Company's Common Stock are entitled to one vote for each share held, without cumulative voting for directors. This means that the holders of more than 50% of the shares voting for the election of directors can elect all the directors to be elected if they choose to do so, and in such event, the holders of the remaining shares will not be able to elect any person as a director. See "DESCRIPTION OF SECURITIES" and "MANAGEMENT, SHARE OWNERSHIP." 12. Environmental Regulations. Many of the Company's operations are affected by federal, state and local environmental regulations and could potentially be interrupted or terminated on the basis of environmental or other considerations. Moreover, the Company is potentially subject to significant financial penalties if it violates such regulations. Attempted compliance with such regulations may affect the Company's operations and may necessitate significant capital outlays. THE PROSPECTIVE FINANCIAL INFORMATION CONTAINED HEREIN REPRESENTS PROJECTIONS OF FUTURE EVENTS WHICH MAY OR MAY NOT OCCUR. THEY ARE BASED ON ASSUMPTIONS WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO INDICATE THE ACTUAL RESULTS WHICH MIGHT BE OBTAINED BY THE COMPANY. NO REPRESENTATION OR WARRANTY OF ANY KIND IS GIVEN WITH RESPECT TO THE ACCURACY OF SUCH PROJECTIONS. THE PROJECTIONS HAVE BEEN PREPARED BY MANAGEMENT OF THE COMPANY AND HAVE NOT BEEN REVIEWED OR COMPILED BY INDEPENDENT PUBLIC ACCOUNTANTS.

Intellectual Property
The description under this heading should include a documented story on proprietary protection of intellectual property, including not just a reference to, but a discussion of, existing or pending patents and the trade secret protection program.[5]

Determination Of The Offering Price
The offering price and the conversion price for the Series A Preferred Stock were determined through negotiations between the Company and the Agent. Such price was based on a number of factors, including the estimates of the business potential and earnings prospects of the Company, the consideration of the above factors in relation


to market valuations of comparable companies, and the current condition of the market and the economy as a whole. The offering price should not, however, be considered a determination of the actual value of the Series A Preferred Stock.

One of the most widely read segments of the memo is the discussion of management, the curricula vitae of the directors and senior officers, together with an exposition of their compensation. In the start-up world, nothing is tranquil, thus, in describing the management team, even the disclosure of names may occasionally be dicey; some people will agree to join the officer corps of a start-up if, and only if, the financing is successful. Because there is no other solution, it is permissible to denote these individuals as Doctor X and Mister Y. Disclosure of compensation euro can also be sensitive. Prudent issuers should fully set forth for all senior employees the terms of the employment agreement, any understandings concerning bonuses, the "parachutes" (i.e., the penalty paid if the employee is dismissed) and the stock arrangements. The investors are likely to zero in on the agreements between the firm and its key managers; the memorandum should disclose how the managers have had their wagons hitched to the company with non-compete clauses and "golden handcuffs." There is a relatively high potential for embarrassment in this section for those charged with due diligence. For some perverse reason, resumes often contain easily checkable lies (X claims a doctorate in chemical engineering from Purdue when he didn't complete the course). Moreover, federal and state laws contain so called "bad boy" provisions meaning that disclosures are required and exemptions from registration are not available if anyone connected with the issue (or the issuer) has in the recent past been convicted of crimes or subjected to administrative proceedings which are relevant to the sale of securities. An overlooked felony conviction for mail fraud (particularly if a computer search on the Nexus system would have disclosed it) can be more embarrassing than a phony degree]

Directors and Officers
The table below lists all directors of the Company, their ages and other corporate offices held by them, if any. Directors of the Company hold such positions until the next annual shareholders' meeting and until their respective successors are elected and are duly qualified. Each officer holds his respective position at the discretion of the Board of Directors. Name Age Office Director and Secretary Director Chairman of the Board of Directors Director


Director, Vice President and Chief Operating Officer Director, President Executive Officer and Chief

In addition, three directors will be appointed by the Investors at the Closing. Thereafter, as long as any shares of Preferred Stock are outstanding, the three directors appointed by the Investors will be reelected annually unless one or more such directors is unable to serve or does not seek reelection, in which event the remaining director or directors chosen by the Investors shall designate a successor who shall be elected to fill any such vacancy. Locating useful directors for a start-up company is difficult but often vital. While the founder, his wife and his lawyer comprise the paradigmatic start-up board, perceptive organizers try to fill gaps in their business expertise by adding experienced directors. Start-ups backed by professionally managed venture firms are lucky; the investors' representative ordinarily makes an enormous contribution. Many emerging companies do not enjoy professional backing in the first round. Accordingly, with no money to pay for full- or part-time experts, a founder is often well-advised to dangle directorships, coupled with cheap stock, in front of experienced individual businessmen. In today's corporate world, as multinationals change ownership in staccato fashion and fashion dictates that white-collar staffs be pared to the bone, a large cohort of relatively young, dynamic, and highly competent businessmen have been released into the workforce. Many are loath to return to the large corporate environment; they are disgusted and enraged at the big company culture, and they have "parachutes" which relieve them of the necessity of working full time. Thus they are prime candidates to help nurture an emerging business to maturity. Accordingly, it is increasingly becoming an integral part of an advanced venture strategy to harness the energy of early retirees, inducing them to join start-up boards and fill in the experience gap.

Employment Contracts
The Company has entered into employment contracts with Mr. Brown and Dr. Smith which provide for base salaries, as indicated below, optional bonuses, severance pay equal to one year's salary and a one-year non-compete obligation post-termination if voluntary or for cause (as defined).

The following information is furnished as to the current annual rate being paid by the Company with respect to each executive officer or director whose annual rate of compensation exceeds €60,000 and as to all officers and directors as a group: Name Capacities in Which Current Annual Rate Remuneration Received President and Chief €


Executive Officer Vice President and Chief € Operating Officer All Officers and Directors as a group (6 persons) €

Stock Option Plan
The Company has adopted the [__________] Stock Option Plan for Executive and Key Employees (the "Plan") for the granting of "incentive stock options" as well as nonqualified stock options. The Plan provides for the granting of options to key employees designated from time to time by the Compensation Committee of the Board, which administers the Plan. The aggregate number of shares which may be issued upon exercise of options may not exceed 10% of the shares of the Company's Common Stock outstanding. Presently, [_____] shares of the Company's Common Stock have been reserved for issuance pursuant to the Plan. The per share exercise price of an option will not be less than 100% of the fair market value of the shares on the date of the grant, or 110% of the fair market value in the case of incentive stock options granted to an individual then owning more than 10% of the total combined voting power of all classes of stock of the Company, any subsidiary or any parent corporation. No incentive stock option may be exercised after ten years from the date the option was granted (or five years in the case of an individual owning more than 10% of the total combined voting power of stock of the Company) or one year from the date of the employee's termination of employment, except that if the option is exercised after three months from the date of termination by reason other than death or permanent disability, the option will not be considered an incentive stock option but rather will be taxed as a nonqualified option. No nonqualified option may be exercised after ten years and one day from the date the option was granted. The following table sets forth the options held by the Company's employees under the Plan: Name John Brown Dr. John Smith Patricia Jones Number of Shares Weighted Average Expiration Subject to Option Exercise Price Dates 00,000 00,000 00,000 €0.00 €0.00 €0.50 June 30, 20__ June 30, 20__ June 30, 20__

Certain Transactions
The purchase price for the shares sold in each of the foregoing transactions was equal to the fair value of the shares at the respective dates of sale or option grant, as determined by the Company's Board of Directors. 11

The compensation issue overlaps with a section on conflicts of interest. This section, mandated by rule in public offerings and by prudence in private placements, requires the disclosure of any transactions between the issuer and its insiders, the company leasing its offices from the founder, for example. Tax implications lurk below the surface; if goods or services are exchanged with an employee at bargain prices, the bargain element may be compensation. Corporate law also imposes a gloss. Insider transactions may be avoided later as a result of a lawsuit by a disgruntled stockholder unless the transaction is approved by disinterested directors and/or stockholders or is "fair" to the corporation] The institution of a financing, public or private, often is the occasion for reviewing and canceling some of those "sweetheart" deals. The disclosure requirement can be therapeutic and educational, by educating the founder on what it means to have partners.

The following table sets forth information with respect to all persons owning the Company's equity securities, as of the date hereof and assuming the sale of all of the shares offered hereby: Name Class of Number Securities Shares of Percentage of Percentage of Class Common Stock Assuming Conversion[11]

Dr. John Smith John Brown Patricia Jones

Common Stock Common Stock Common Stock A

Investors in Series Series A Preferred Preferred Stock Stock offered hereby Common Stock Options

Description Of Capital Stock
The authorized capital stock of the Company consists of (i) [_____] shares of Common Stock, par value at €.01 per share, and (ii) [_____] shares of Series A Convertible Preferred Stock, par value €.01 per share.


Common Stock
Each share of Common Stock is entitled to one vote per share for the election of directors and on all other matters submitted to a vote of stockholders. There are no cumulative voting rights. Common stockholders do not have preemptive rights or other rights to subscribe for additional shares, and the Company's Common Stock is not subject to conversion or redemption. All the outstanding Common Stock is, and all shares issuable upon conversion of the Series A Universal Preferred Stock offered hereby will be, duly and validly issued and fully paid and nonassessable. In the event of liquidation, subject to the rights of holders of the Series A Preferred Stock and any other preferred stock subsequently issued, the holders of Common Stock will share equally in any balance of corporate assets available for distribution to them. Subject to the rights of holders of the Series A Preferred Stock and any other preferred stock subsequently issued, holders of the Common Stock are entitled to receive dividends when and as declared by the Company's Board of Directors out of funds legally available therefor. The Company has not paid any dividends since its inception and has no intention to pay any dividends in the foreseeable future. Any future dividends would be subject to the discretion of the Company's Board of Directors and would depend on, among other things, future earnings, the operating and financial condition of the Company, its capital requirements, and general business conditions.

Series A Preferred Stock
The following description of the Series A Preferred Stock offered hereby (the "Shares") is a brief summary of certain provisions contained in the Certificate of Designation of the Convertible Preferred Stock, Series A (the "Certificate") and is qualified in its entirety by the provisions of the Company's Certificate of Incorporation, the Certificate and the resolutions of the Board of Directors of the Company creating the Series A Preferred Stock. The Certificate (which includes such Board resolutions) is attached hereto as Exhibit A. Pursuant to the Certificate, there will be authorized [_____] shares of Series A Preferred Stock. The Shares, when issued against payment therefor as set forth in this Confidential Private Placement Memorandum, will be fully paid and nonassessable. The terms of the Series A Preferred Stock are summarized below.

Holders of Series A Preferred Stock shall be entitled to cash dividends out of any funds legally available therefor, but only if, as and when declared and paid thereon in the discretion of the Board of Directors. Such dividends are noncumulative and no dividend shall accrue to the holders of the Shares by reason of the fact that dividends on such Shares were not declared or paid in any prior year.

Note on Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, any merger or consolidation in which the Corporation is not the surviving entity, or any sale of all or substantially all of the Corporation's assets,


holders of Shares shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus of any nature, an amount per Share equal to $[ ] and no more. In the event assets are insufficient to pay the entire liquidation preference of the Shares, the entire assets of the Company legally available for distribution shall be distributed among the holders of Series A Preferred Stock in proportion to their respective liquidation preferences.

Optional Conversion
Each Share is convertible at the option of the holder thereof at any time into Common Stock on a one-for-one basis, subject to adjustment to prevent dilution in certain circumstances, as summarized below.

Automatic Conversion
Each Share shall automatically be converted into shares of Common Stock upon the earlier of either (i) the closing of a firm commitment underwritten offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of any Common Stock for the account of the Company to the public at an aggregate offering price of not less than €7,500,000, or (ii) upon the aggregate remaining outstanding number of Shares of Series A Preferred Stock being less than or equal to [_____].

Antidilution Provisions
The conversion rate of the Series A Preferred Stock shall be subject to adjustment to prevent dilution in the event of (i) any subdivision, combination or reclassification of the Company's outstanding Common Stock, (ii) the payment of a stock dividend to holders of Common Stock or to holders of any other series of stock convertible into Common Stock, or (iii) any future issuances of Common Stock or Common Stock equivalents at a price less than €[ ] per share, the original purchase price per Share of the Series A Preferred Stock.

Voting Rights
Except as otherwise provided by law, holders of Shares shall vote on all matters together as a single class with all other stockholders of the Company. In such matters, a holder of Shares will be entitled to the number of votes equal to the number of shares of Common Stock into which his Shares are then convertible.

The Series A Preferred Stock is not redeemable [is redeemable at the option of the holder on or after the fifth anniversary of the closing at the liquidation preference per Share plus accrued but unpaid dividends].

Sinking Fund
There shall be no sinking fund with respect to the Series A Preferred Stock.


Reports to Shareholders
The Company will furnish when available annual and quarterly unaudited financial statements to each holder of Series A Preferred Stock. The right to receive such financial statements shall terminate upon the effective date of an offering of the Company's securities registered under the Securities Act.

Documents Available For Inspection
The following is a list of documents available for inspection by prospective purchasers of the Series A Preferred Stock. Some documents provided may contain deletions to protect confidential information. 1. Certificate of Incorporation of the Company as amended to date 2. Form of Restated Certificate of Incorporation to be filed by the closing setting forth the rights, preferences, privileges, and restrictions of the Series A Preferred Stock 3. Bylaws of the Company 4. Lease Agreement for the Company's facilities 5. Stock Option Plan dated [DATE] and form of Stock Option Grant 6. Employment Agreements between the Company and Mr. Brown and Dr. Smith 7. Forms of legal opinions of Smith & Kelly, counsel to the Company, to be delivered at the closing 8. The Company's revolving and lease lines of credit agreements with Bank of [_____] 9. Placement Agent Agreement between Agent and the Company 10. Shareholders Agreement between the Company and certain shareholders of the Company. 11. A carefully prepared business plan will usually contain third-party endorsements, ranging from letters from satisfied customers to studies by independent consultants.

Certain Legal Matters
The validity of the Series A Preferred Stock will be passed upon for the Company by --NAME LAW FIRM---, are acting as counsel for the Placement Agent in connection with certain legal matters relating to the shares of Series A Preferred Stock. As of the close of the offering, certain attorneys of the firm of Smith & Kelly will own [Number] shares of the Common Stock of the Company. There is some question whether, from the law firm's point of view, its name should be mentioned in the document. The issue of whether the firm holds itself out as having prepared the document, and this increases its exposure.


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