EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of August 30, 2006, by
and among Image Entertainment, Inc., a Delaware corporation, with headquarters
located at 20525 Nordhoff Street, Suite 200, Chatsworth, California 91311 (the
“Company”), and the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and collectively, the “Buyers”).

WHEREAS:

A.            THE COMPANY AND EACH BUYER IS EXECUTING AND DELIVERING THIS
AGREEMENT IN RELIANCE UPON THE EXEMPTION FROM SECURITIES REGISTRATION AFFORDED
BY SECTION 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), AND
RULE 506 OF REGULATION D (“REGULATION D”) AS PROMULGATED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) UNDER THE 1933 ACT.

B.            THE COMPANY HAS AUTHORIZED A NEW SERIES OF SENIOR CONVERTIBLE
NOTES OF THE COMPANY, IN THE FORM ATTACHED HERETO AS EXHIBIT A (THE “NOTES”),
WHICH NOTES SHALL BE CONVERTIBLE INTO THE COMPANY’S COMMON STOCK, PAR VALUE
$0.0001 PER SHARE (THE ”COMMON STOCK”) (AS CONVERTED, THE “CONVERSION SHARES”),
IN ACCORDANCE WITH THE TERMS OF THE NOTES.

C.            EACH BUYER WISHES TO PURCHASE, AND THE COMPANY WISHES TO SELL,
UPON THE TERMS AND CONDITIONS STATED IN THIS AGREEMENT, (I) THAT AGGREGATE
PRINCIPAL AMOUNT OF THE NOTES SET FORTH OPPOSITE SUCH BUYER’S NAME IN COLUMN (3)
ON THE SCHEDULE OF BUYERS ATTACHED HERETO (WHICH AGGREGATE AMOUNT FOR ALL BUYERS
SHALL BE $17,000,000) AND (II) WARRANTS, IN SUBSTANTIALLY THE FORM ATTACHED
HERETO AS EXHIBIT B (THE “WARRANTS”), TO ACQUIRE UP TO THAT NUMBER OF ADDITIONAL
SHARES OF COMMON STOCK SET FORTH OPPOSITE SUCH BUYER’S NAME IN COLUMN (4) OF THE
SCHEDULE OF BUYERS (AS EXERCISED, COLLECTIVELY, THE ” WARRANT SHARES”).

D.            THE NOTES BEAR INTEREST, WHICH AT THE OPTION OF THE COMPANY,
SUBJECT TO CERTAIN CONDITIONS, MAY BE PAID IN SHARES OF COMMON STOCK (THE
“INTEREST SHARES”).

E.             CONTEMPORANEOUSLY WITH THE EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE PARTIES HERETO ARE EXECUTING AND DELIVERING A REGISTRATION RIGHTS
AGREEMENT, SUBSTANTIALLY IN THE FORM ATTACHED HERETO AS EXHIBIT C (THE
“REGISTRATION RIGHTS AGREEMENT”), PURSUANT TO WHICH THE COMPANY WILL AGREE TO
PROVIDE CERTAIN REGISTRATION RIGHTS WITH RESPECT TO THE REGISTRABLE SECURITIES
(AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) UNDER THE 1933 ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER, AND APPLICABLE STATE SECURITIES
LAWS.

F.             THE NOTES, THE CONVERSION SHARES, THE INTEREST SHARES, THE
WARRANTS AND THE WARRANT SHARES COLLECTIVELY ARE REFERRED TO HEREIN AS THE
“SECURITIES”.

NOW, THEREFORE, THE COMPANY AND EACH BUYER HEREBY AGREE AS FOLLOWS:

1.             PURCHASE AND SALE OF NOTES AND WARRANTS.

(A)           PURCHASE OF NOTES AND WARRANTS.

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(I)            NOTES AND WARRANTS.  SUBJECT TO THE SATISFACTION (OR WAIVER) OF
THE CONDITIONS SET FORTH IN SECTIONS 6 AND 7 BELOW, THE COMPANY SHALL ISSUE AND
SELL TO EACH BUYER, AND EACH BUYER SEVERALLY, BUT NOT JOINTLY, AGREES TO
PURCHASE FROM THE COMPANY ON THE CLOSING DATE (AS DEFINED BELOW), (X) A
PRINCIPAL AMOUNT OF NOTES AS IS SET FORTH OPPOSITE SUCH BUYER’S NAME IN COLUMN
(3) ON THE SCHEDULE OF BUYERS AND (Y) WARRANTS TO ACQUIRE UP TO THAT NUMBER OF
WARRANT SHARES AS IS SET FORTH OPPOSITE SUCH BUYER’S NAME IN COLUMN (4) ON THE
SCHEDULE OF BUYERS (THE “CLOSING”).

(II)           CLOSING.  THE DATE AND TIME OF THE CLOSING (THE “CLOSING DATE”)
SHALL BE 10:00 A.M., NEW YORK CITY TIME, ON THE DATE HEREOF (OR SUCH LATER DATE
AS IS MUTUALLY AGREED TO BY THE COMPANY AND EACH BUYER) AFTER NOTIFICATION OF
SATISFACTION (OR WAIVER) OF THE CONDITIONS TO THE CLOSING SET FORTH IN SECTIONS
6 AND 7 BELOW AT THE OFFICES OF SCHULTE ROTH & ZABEL LLP, 919 THIRD AVENUE, NEW
YORK, NEW YORK 10022.

(III)          PURCHASE PRICE.  THE AGGREGATE PURCHASE PRICE FOR THE NOTES AND
THE WARRANTS TO BE PURCHASED BY EACH SUCH BUYER AT THE CLOSING (THE “PURCHASE
PRICE”) SHALL BE THE AMOUNT SET FORTH OPPOSITE EACH BUYER’S NAME IN COLUMN (5)
OF THE SCHEDULE OF BUYERS.  EACH BUYER SHALL PAY $1,000 FOR EACH $1,000 OF
PRINCIPAL AMOUNT OF NOTES AND RELATED WARRANTS TO BE PURCHASED BY SUCH BUYER AT
THE CLOSING.

(B)           FORM OF PAYMENT.  ON THE CLOSING DATE, (I) EACH BUYER SHALL PAY
ITS PURCHASE PRICE TO THE COMPANY FOR THE NOTES AND THE WARRANTS TO BE ISSUED
AND SOLD TO SUCH BUYER AT THE CLOSING, BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE
FUNDS IN ACCORDANCE WITH THE COMPANY’S WRITTEN WIRE INSTRUCTIONS AND (II) THE
COMPANY SHALL DELIVER TO EACH BUYER THE NOTES (ALLOCATED IN THE PRINCIPAL
AMOUNTS AS SUCH BUYER SHALL REQUEST) WHICH SUCH BUYER IS THEN PURCHASING
HEREUNDER ALONG WITH THE WARRANTS (ALLOCATED IN THE AMOUNTS AS SUCH BUYER SHALL
REQUEST) WHICH SUCH BUYER IS PURCHASING, IN EACH CASE DULY EXECUTED ON BEHALF OF
THE COMPANY AND REGISTERED IN THE NAME OF SUCH BUYER OR ITS DESIGNEE.

2.             BUYER’S REPRESENTATIONS AND WARRANTIES.  EACH BUYER, SEVERALLY
AND NOT JOINTLY, REPRESENTS AND WARRANTS WITH RESPECT TO ONLY ITSELF THAT:

(A)           NO SALE OR DISTRIBUTION.  SUCH BUYER IS ACQUIRING THE NOTES, AND
THE WARRANTS, AND UPON CONVERSION OF THE NOTES AND EXERCISE OF THE WARRANTS
(OTHER THAN PURSUANT TO A CASHLESS EXERCISE (AS DEFINED IN THE WARRANTS)) WILL
ACQUIRE THE CONVERSION SHARES ISSUABLE UPON CONVERSION OF THE NOTES AND THE
WARRANT SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS, FOR ITS OWN ACCOUNT AND
NOT WITH A VIEW TOWARDS, OR FOR RESALE IN CONNECTION WITH, THE PUBLIC SALE OR
DISTRIBUTION THEREOF, EXCEPT PURSUANT TO SALES REGISTERED OR EXEMPTED UNDER THE
1933 ACT; PROVIDED, HOWEVER, THAT BY MAKING THE REPRESENTATIONS HEREIN, SUCH
BUYER DOES NOT AGREE TO HOLD ANY OF THE SECURITIES FOR ANY MINIMUM OR OTHER
SPECIFIC TERM AND RESERVES THE RIGHT TO DISPOSE OF THE SECURITIES AT ANY TIME IN
ACCORDANCE WITH OR PURSUANT TO A REGISTRATION STATEMENT OR AN EXEMPTION UNDER
THE 1933 ACT AND PURSUANT TO THE APPLICABLE TERMS OF THE TRANSACTION DOCUMENTS
(AS DEFINED IN SECTION 3(B)).  SUCH BUYER IS ACQUIRING THE SECURITIES HEREUNDER
IN THE ORDINARY COURSE OF ITS BUSINESS.  SUCH BUYER DOES NOT PRESENTLY HAVE ANY
AGREEMENT OR UNDERSTANDING, DIRECTLY OR INDIRECTLY, WITH ANY PERSON TO
DISTRIBUTE ANY OF THE SECURITIES.

(B)           ACCREDITED INVESTOR STATUS.  SUCH BUYER IS AN “ACCREDITED
INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A) OF REGULATION D.

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(C)           RELIANCE ON EXEMPTIONS.  SUCH BUYER UNDERSTANDS THAT THE
SECURITIES ARE BEING OFFERED AND SOLD TO IT IN RELIANCE ON SPECIFIC EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF UNITED STATES FEDERAL AND STATE SECURITIES
LAWS AND THAT THE COMPANY IS RELYING IN PART UPON THE TRUTH AND ACCURACY OF, AND
SUCH BUYER’S COMPLIANCE WITH, THE REPRESENTATIONS, WARRANTIES, AGREEMENTS,
ACKNOWLEDGMENTS AND UNDERSTANDINGS OF SUCH BUYER SET FORTH HEREIN IN ORDER TO
DETERMINE THE AVAILABILITY OF SUCH EXEMPTIONS AND THE ELIGIBILITY OF SUCH BUYER
TO ACQUIRE THE SECURITIES.

(D)           INFORMATION.  SUCH BUYER AND ITS ADVISORS, IF ANY, HAVE BEEN
FURNISHED WITH ALL MATERIALS RELATING TO THE BUSINESS, FINANCES AND OPERATIONS
OF THE COMPANY AND MATERIALS RELATING TO THE OFFER AND SALE OF THE SECURITIES
THAT HAVE BEEN REQUESTED BY SUCH BUYER.  SUCH BUYER AND ITS ADVISORS, IF ANY,
HAVE BEEN AFFORDED THE OPPORTUNITY TO ASK QUESTIONS OF THE COMPANY.  NEITHER
SUCH INQUIRIES NOR ANY OTHER DUE DILIGENCE INVESTIGATIONS CONDUCTED BY SUCH
BUYER OR ITS ADVISORS, IF ANY, OR ITS REPRESENTATIVES SHALL MODIFY, AMEND OR
AFFECT SUCH BUYER’S RIGHT TO RELY ON THE COMPANY’S REPRESENTATIONS AND
WARRANTIES CONTAINED HEREIN.  SUCH BUYER UNDERSTANDS THAT ITS INVESTMENT IN THE
SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IS ABLE TO AFFORD A COMPLETE LOSS
OF SUCH INVESTMENT.  SUCH BUYER HAS SOUGHT SUCH ACCOUNTING, LEGAL AND TAX ADVICE
AS IT HAS CONSIDERED NECESSARY TO MAKE AN INFORMED INVESTMENT DECISION WITH
RESPECT TO ITS ACQUISITION OF THE SECURITIES.

(E)           NO GOVERNMENTAL REVIEW.  SUCH BUYER UNDERSTANDS THAT NO UNITED
STATES FEDERAL OR STATE AGENCY OR ANY OTHER GOVERNMENT OR GOVERNMENTAL AGENCY
HAS PASSED ON OR MADE ANY RECOMMENDATION OR ENDORSEMENT OF THE SECURITIES OR THE
FAIRNESS OR SUITABILITY OF THE INVESTMENT IN THE SECURITIES NOR HAVE SUCH
AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF THE
SECURITIES.

(F)            TRANSFER OR RESALE.  SUCH BUYER UNDERSTANDS THAT EXCEPT AS
PROVIDED IN THE REGISTRATION RIGHTS AGREEMENT: (I) THE SECURITIES HAVE NOT BEEN
AND ARE NOT BEING REGISTERED UNDER THE 1933 ACT OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED OR TRANSFERRED UNLESS (A)
SUBSEQUENTLY REGISTERED THEREUNDER, (B) SUCH BUYER SHALL HAVE DELIVERED TO THE
COMPANY AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, TO THE EFFECT
THAT SUCH SECURITIES TO BE SOLD, ASSIGNED OR TRANSFERRED MAY BE SOLD, ASSIGNED
OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION, OR (C) SUCH
BUYER PROVIDES THE COMPANY WITH REASONABLE ASSURANCE THAT SUCH SECURITIES CAN BE
SOLD, ASSIGNED OR TRANSFERRED PURSUANT TO RULE 144 OR RULE 144A PROMULGATED
UNDER THE 1933 ACT, AS AMENDED, (OR A SUCCESSOR RULE THERETO) (COLLECTIVELY,
“RULE 144”); (II) ANY SALE OF THE SECURITIES MADE IN RELIANCE ON RULE 144 MAY BE
MADE ONLY IN ACCORDANCE WITH THE TERMS OF RULE 144 AND FURTHER, IF RULE 144 IS
NOT APPLICABLE, ANY RESALE OF THE SECURITIES UNDER CIRCUMSTANCES IN WHICH THE
SELLER (OR THE PERSON (AS DEFINED IN SECTION 3(S)) THROUGH WHOM THE SALE IS
MADE) MAY BE DEEMED TO BE AN UNDERWRITER (AS THAT TERM IS DEFINED IN THE 1933
ACT) MAY REQUIRE COMPLIANCE WITH SOME OTHER EXEMPTION UNDER THE 1933 ACT OR THE
RULES AND REGULATIONS OF THE SEC THEREUNDER; AND (III) NEITHER THE COMPANY NOR
ANY OTHER PERSON IS UNDER ANY OBLIGATION TO REGISTER THE SECURITIES UNDER THE
1933 ACT OR ANY STATE SECURITIES LAWS OR TO COMPLY WITH THE TERMS AND CONDITIONS
OF ANY EXEMPTION THEREUNDER.  THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES AND SUCH PLEDGE OF SECURITIES SHALL NOT BE DEEMED TO BE A TRANSFER,
SALE OR ASSIGNMENT OF THE SECURITIES HEREUNDER, AND NO BUYER EFFECTING A PLEDGE
OF SECURITIES SHALL BE REQUIRED TO PROVIDE THE COMPANY WITH ANY NOTICE THEREOF
OR

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OTHERWISE MAKE ANY DELIVERY TO THE COMPANY PURSUANT TO THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT (AS DEFINED IN SECTION 3(B)), INCLUDING WITHOUT
LIMITATION, THIS SECTION 2(F).

(G)           LEGENDS.  SUCH BUYER UNDERSTANDS THAT THE CERTIFICATES OR OTHER
INSTRUMENTS REPRESENTING THE NOTES AND THE WARRANTS AND, UNTIL SUCH TIME AS THE
RESALE OF THE CONVERSION SHARES AND THE WARRANT SHARES HAVE BEEN REGISTERED
UNDER THE 1933 ACT AS CONTEMPLATED BY THE REGISTRATION RIGHTS AGREEMENT, THE
STOCK CERTIFICATES REPRESENTING THE CONVERSION SHARES AND THE WARRANT SHARES,
EXCEPT AS SET FORTH BELOW, SHALL BEAR ANY LEGEND AS REQUIRED BY THE “BLUE SKY”
LAWS OF ANY STATE AND A RESTRICTIVE LEGEND IN SUBSTANTIALLY THE FOLLOWING FORM
(AND A STOP-TRANSFER ORDER MAY BE PLACED AGAINST TRANSFER OF SUCH STOCK
CERTIFICATES):

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of a law firm reasonably acceptable to the Company (with Schulte Roth &
Zabel LLP being deemed acceptable), in a generally acceptable form, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or (iii)
such holder provides the Company with reasonable assurance that the Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.

(H)           VALIDITY; ENFORCEMENT.  THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT TO WHICH SUCH BUYER IS A PARTY HAVE BEEN DULY AND VALIDLY AUTHORIZED,
EXECUTED AND DELIVERED ON BEHALF OF SUCH BUYER AND SHALL CONSTITUTE THE LEGAL,
VALID AND BINDING OBLIGATIONS OF SUCH BUYER ENFORCEABLE AGAINST SUCH BUYER IN
ACCORDANCE WITH THEIR RESPECTIVE

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TERMS, EXCEPT AS SUCH ENFORCEABILITY MAY BE LIMITED BY GENERAL PRINCIPLES OF
EQUITY OR TO APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM,
LIQUIDATION AND OTHER SIMILAR LAWS RELATING TO, OR AFFECTING GENERALLY, THE
ENFORCEMENT OF APPLICABLE CREDITORS’ RIGHTS AND REMEDIES.

(I)            NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE BY SUCH
BUYER OF THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT TO WHICH SUCH
BUYER IS A PARTY AND THE CONSUMMATION BY SUCH BUYER OF THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY WILL NOT (I) RESULT IN A VIOLATION OF THE
ORGANIZATIONAL DOCUMENTS OF SUCH BUYER OR (II) CONFLICT WITH, OR CONSTITUTE A
DEFAULT (OR AN EVENT WHICH WITH NOTICE OR LAPSE OF TIME OR BOTH WOULD BECOME A
DEFAULT) UNDER, OR GIVE TO OTHERS ANY RIGHTS OF TERMINATION, AMENDMENT,
ACCELERATION OR CANCELLATION OF, ANY AGREEMENT, INDENTURE OR INSTRUMENT TO WHICH
SUCH BUYER IS A PARTY, OR (III) RESULT IN A VIOLATION OF ANY LAW, RULE,
REGULATION, ORDER, JUDGMENT  OR DECREE (INCLUDING FEDERAL AND STATE SECURITIES
LAWS) APPLICABLE TO SUCH BUYER, EXCEPT IN THE CASE OF CLAUSES (II) AND (III)
ABOVE, FOR SUCH CONFLICTS, DEFAULTS, RIGHTS OR VIOLATIONS WHICH WOULD NOT,
INDIVIDUALLY OR IN THE AGGREGATE, REASONABLY BE EXPECTED TO HAVE A MATERIAL
ADVERSE EFFECT ON THE ABILITY OF SUCH BUYER TO PERFORM ITS OBLIGATIONS
HEREUNDER.

(J)            RESIDENCY.  SUCH BUYER IS A RESIDENT OF THAT JURISDICTION
SPECIFIED BELOW ITS ADDRESS ON THE SCHEDULE OF BUYERS.

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  THE COMPANY
REPRESENTS AND WARRANTS TO EACH OF THE BUYERS THAT, AS OF THE DATE HEREOF AND AS
OF THE CLOSING DATE:

(A)           ORGANIZATION AND QUALIFICATION.  THE COMPANY AND ITS
“SUBSIDIARIES” (WHICH FOR PURPOSES OF THIS AGREEMENT MEANS ANY ENTITY IN WHICH
THE COMPANY, DIRECTLY OR INDIRECTLY, OWNS ANY OF THE CAPITAL STOCK OR HOLDS AN
EQUITY OR SIMILAR INTEREST) ARE ENTITIES DULY ORGANIZED AND VALIDLY EXISTING
AND, TO THE EXTENT LEGALLY APPLICABLE, IN GOOD STANDING UNDER THE LAWS OF THE
JURISDICTION IN WHICH THEY ARE FORMED, AND HAVE THE REQUISITE POWER AND
AUTHORIZATION TO OWN THEIR PROPERTIES AND TO CARRY ON THEIR BUSINESS AS NOW
BEING CONDUCTED.  EACH OF THE COMPANY AND ITS SUBSIDIARIES IS DULY QUALIFIED AS
A FOREIGN ENTITY TO DO BUSINESS AND TO THE EXTENT LEGALLY APPLICABLE, IS IN GOOD
STANDING IN EVERY JURISDICTION IN WHICH ITS OWNERSHIP OF PROPERTY OR THE NATURE
OF THE BUSINESS CONDUCTED BY IT MAKES SUCH QUALIFICATION NECESSARY, EXCEPT TO
THE EXTENT THAT THE FAILURE TO BE SO QUALIFIED OR BE IN GOOD STANDING WOULD NOT
HAVE A MATERIAL ADVERSE EFFECT.  AS USED IN THIS AGREEMENT, “MATERIAL ADVERSE
EFFECT” MEANS ANY MATERIAL ADVERSE EFFECT ON THE BUSINESS, PROPERTIES, ASSETS,
OPERATIONS, RESULTS OF OPERATIONS, CONDITION (FINANCIAL OR OTHERWISE) OR
PROSPECTS OF THE COMPANY AND ITS SUBSIDIARIES, TAKEN AS A WHOLE, OR ON THE
TRANSACTIONS CONTEMPLATED HEREBY AND THE OTHER TRANSACTION DOCUMENTS OR BY THE
AGREEMENTS AND INSTRUMENTS TO BE ENTERED INTO IN CONNECTION HEREWITH OR
THEREWITH, OR ON THE AUTHORITY OR ABILITY OF THE COMPANY TO PERFORM ITS
OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS (AS DEFINED BELOW).  THE COMPANY HAS
NO SUBSIDIARIES EXCEPT AS SET FORTH ON SCHEDULE 3(A).

(B)           AUTHORIZATION; ENFORCEMENT; VALIDITY.  THE COMPANY HAS THE
REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO AND PERFORM ITS
OBLIGATIONS UNDER THIS AGREEMENT, THE NOTES, THE REGISTRATION RIGHTS AGREEMENT,
THE IRREVOCABLE TRANSFER AGENT INSTRUCTIONS (AS DEFINED IN SECTION 5(B)), THE
WARRANTS AND EACH OF THE OTHER AGREEMENTS ENTERED INTO BY THE PARTIES HERETO IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT

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(COLLECTIVELY, THE “TRANSACTION DOCUMENTS”) AND TO ISSUE THE SECURITIES IN
ACCORDANCE WITH THE TERMS HEREOF AND THEREOF.  THE EXECUTION AND DELIVERY OF THE
TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY THE COMPANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, INCLUDING, WITHOUT LIMITATION, THE
ISSUANCE OF THE NOTES AND THE WARRANTS, THE RESERVATION FOR ISSUANCE AND THE
ISSUANCE OF THE CONVERSION SHARES ISSUABLE UPON CONVERSION OF THE NOTES AND THE
RESERVATION FOR ISSUANCE AND ISSUANCE OF WARRANT SHARES ISSUABLE UPON EXERCISE
OF THE WARRANTS, HAVE BEEN DULY AUTHORIZED BY THE COMPANY’S BOARD OF DIRECTORS
AND OTHER THAN AS SET FORTH IN SECTION 3(E), NO FURTHER FILING, CONSENT OR
AUTHORIZATION IS REQUIRED BY THE COMPANY, ITS BOARD OF DIRECTORS OR ITS
STOCKHOLDERS.  THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS OF EVEN DATE
HEREWITH HAVE BEEN DULY EXECUTED AND DELIVERED BY THE COMPANY, AND CONSTITUTE
THE LEGAL, VALID AND BINDING OBLIGATIONS OF THE COMPANY ENFORCEABLE AGAINST THE
COMPANY IN ACCORDANCE WITH THEIR RESPECTIVE TERMS, EXCEPT AS SUCH ENFORCEABILITY
MAY BE LIMITED BY GENERAL PRINCIPLES OF EQUITY OR APPLICABLE BANKRUPTCY,
INSOLVENCY, REORGANIZATION, MORATORIUM, LIQUIDATION OR SIMILAR LAWS RELATING TO,
OR AFFECTING GENERALLY, THE ENFORCEMENT OF APPLICABLE CREDITORS’ RIGHTS AND
REMEDIES.

(C)           ISSUANCE OF SECURITIES.  THE ISSUANCE OF THE NOTES AND THE
WARRANTS ARE DULY AUTHORIZED AND ARE FREE FROM ALL TAXES, LIENS AND CHARGES WITH
RESPECT TO THE ISSUE THEREOF.  AS OF THE CLOSING, A NUMBER OF SHARES OF COMMON
STOCK SHALL HAVE BEEN DULY AUTHORIZED AND RESERVED FOR ISSUANCE WHICH EQUALS OR
EXCEEDS (I) 150% OF THE AGGREGATE OF THE MAXIMUM NUMBER OF SHARES OF COMMON
STOCK ISSUABLE (I) UPON CONVERSION OF THE NOTES, (II) AS INTEREST SHARES
PURSUANT TO THE TERMS OF THE NOTES AND (III) UPON EXERCISE OF THE WARRANTS. 
UPON CONVERSION OR EXERCISE IN ACCORDANCE WITH THE NOTES OR THE WARRANTS, AS THE
CASE MAY BE, THE CONVERSION SHARES, THE INTEREST SHARES AND THE WARRANT SHARES,
RESPECTIVELY, WILL BE VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND FREE FROM
ALL PREEMPTIVE OR SIMILAR RIGHTS, TAXES, LIENS AND CHARGES WITH RESPECT TO THE
ISSUE THEREOF, WITH THE HOLDERS BEING ENTITLED TO ALL RIGHTS ACCORDED TO A
HOLDER OF COMMON STOCK.  ASSUMING THE ACCURACY OF EACH OF THE REPRESENTATIONS
AND WARRANTIES SET FORTH IN SECTION 2 OF THIS AGREEMENT, THE OFFER AND ISSUANCE
BY THE COMPANY OF THE SECURITIES IS EXEMPT FROM REGISTRATION UNDER THE 1933 ACT.

(D)           NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY THE COMPANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY (INCLUDING, WITHOUT LIMITATION, THE
ISSUANCE OF THE NOTES AND WARRANTS AND RESERVATION FOR ISSUANCE AND ISSUANCE OF
THE CONVERSION SHARES, THE INTEREST SHARES AND THE WARRANT SHARES) WILL NOT (I)
RESULT IN A VIOLATION OF ANY CERTIFICATE OF INCORPORATION, CERTIFICATE OF
FORMATION, ANY CERTIFICATE OF DESIGNATIONS OR OTHER CONSTITUENT DOCUMENTS OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES, ANY CAPITAL STOCK OF THE COMPANY OR ANY OF
ITS SUBSIDIARIES OR BYLAWS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR (II)
CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN EVENT WHICH WITH NOTICE OR LAPSE
OF TIME OR BOTH WOULD BECOME A DEFAULT) IN ANY RESPECT UNDER, OR GIVE TO OTHERS
ANY RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR CANCELLATION OF, ANY
AGREEMENT, INDENTURE OR INSTRUMENT TO WHICH THE COMPANY OR ANY OF ITS
SUBSIDIARIES IS A PARTY, OR (III) RESULT IN A VIOLATION OF ANY LAW, RULE,
REGULATION, ORDER, JUDGMENT OR DECREE (INCLUDING FOREIGN, FEDERAL AND STATE
SECURITIES LAWS AND REGULATIONS AND THE RULES AND REGULATIONS OF THE NASDAQ
GLOBAL MARKET (THE “PRINCIPAL MARKET”) APPLICABLE TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES IS BOUND OR AFFECTED.

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(E)           CONSENTS.  NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS
REQUIRED TO OBTAIN ANY CONSENT, AUTHORIZATION OR ORDER OF, OR MAKE ANY FILING OR
REGISTRATION WITH, ANY COURT, GOVERNMENTAL AGENCY OR ANY REGULATORY OR
SELF-REGULATORY AGENCY OR ANY OTHER PERSON IN ORDER FOR IT TO EXECUTE, DELIVER
OR PERFORM ANY OF ITS OBLIGATIONS UNDER OR CONTEMPLATED BY THE TRANSACTION
DOCUMENTS, IN EACH CASE IN ACCORDANCE WITH THE TERMS HEREOF OR THEREOF, EXCEPT
FOR THE FOLLOWING CONSENTS, AUTHORIZATIONS, ORDERS, FILINGS AND REGISTRATIONS
(NONE OF WHICH IS REQUIRED TO BE FILED OR OBTAINED BEFORE THE CLOSING): (I) THE
FILING WITH THE SEC OF ONE OR MORE REGISTRATION STATEMENTS IN ACCORDANCE WITH
THE REQUIREMENTS OF THE REGISTRATION RIGHTS AGREEMENT AND (II) THE FILING OF A
LISTING APPLICATION FOR THE CONVERSION SHARES, THE INTEREST SHARES AND WARRANT
SHARES WITH THE PRINCIPAL MARKET, WHICH SHALL BE DONE PURSUANT TO THE RULES OF
THE PRINCIPAL MARKET.  THE COMPANY AND ITS SUBSIDIARIES ARE UNAWARE OF ANY FACTS
OR CIRCUMSTANCES THAT MIGHT PREVENT THE COMPANY FROM OBTAINING OR EFFECTING ANY
OF THE REGISTRATION, APPLICATION OR FILINGS PURSUANT TO THE PRECEDING SENTENCE. 
THE COMPANY IS NOT IN VIOLATION OF THE LISTING REQUIREMENTS OF THE PRINCIPAL
MARKET AND HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD REASONABLY LEAD TO DELISTING
OR SUSPENSION OF THE COMMON STOCK IN THE FORESEEABLE FUTURE.

(F)            ACKNOWLEDGMENT REGARDING BUYER’S PURCHASE OF SECURITIES.  THE
COMPANY ACKNOWLEDGES AND AGREES THAT EACH BUYER IS ACTING SOLELY IN THE CAPACITY
OF AN ARM’S LENGTH PURCHASER WITH RESPECT TO THE TRANSACTION DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY AND THAT NO BUYER IS (I) AN OFFICER
OR DIRECTOR OF THE COMPANY, (II) AN “AFFILIATE” OF THE COMPANY (AS DEFINED IN
RULE 144 OF THE 1933 ACT) OR (III) TO THE KNOWLEDGE OF THE COMPANY, A
“BENEFICIAL OWNER” OF MORE THAN 10% OF THE SHARES OF COMMON STOCK (AS DEFINED
FOR PURPOSES OF RULE 13D-3 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
(THE “1934 ACT”)).  THE COMPANY FURTHER ACKNOWLEDGES THAT NO BUYER IS ACTING AS
A FINANCIAL ADVISOR OR FIDUCIARY OF THE COMPANY OR ANY OF ITS SUBSIDIARIES (OR
IN ANY SIMILAR CAPACITY) WITH RESPECT TO THE TRANSACTION DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND ANY ADVICE GIVEN BY A BUYER OR
ANY OF ITS REPRESENTATIVES OR AGENTS IN CONNECTION WITH THE TRANSACTION
DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY IS MERELY
INCIDENTAL TO SUCH BUYER’S PURCHASE OF THE SECURITIES.  THE COMPANY FURTHER
REPRESENTS TO EACH BUYER THAT THE COMPANY’S DECISION TO ENTER INTO THE
TRANSACTION DOCUMENTS HAS BEEN BASED SOLELY ON THE INDEPENDENT EVALUATION BY THE
COMPANY AND ITS REPRESENTATIVES.

(G)           NO GENERAL SOLICITATION; PLACEMENT AGENT’S FEES.  NEITHER THE
COMPANY, NOR ANY OF ITS AFFILIATES, NOR ANY PERSON ACTING ON ITS OR THEIR
BEHALF, HAS ENGAGED IN ANY FORM OF GENERAL SOLICITATION OR GENERAL ADVERTISING
(WITHIN THE MEANING OF REGULATION D) IN CONNECTION WITH THE OFFER OR SALE OF THE
SECURITIES.  THE COMPANY SHALL BE RESPONSIBLE FOR THE PAYMENT OF ANY PLACEMENT
AGENT’S FEES, FINANCIAL ADVISORY FEES, OR BROKERS’ COMMISSIONS (OTHER THAN FOR
PERSONS ENGAGED BY ANY BUYER OR ITS INVESTMENT ADVISOR) RELATING TO OR ARISING
OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY.  THE COMPANY ACKNOWLEDGES THAT IT
HAS ENGAGED C. E. UNTERBERG, TOWBIN AS PLACEMENT AGENT (COLLECTIVELY, THE
“AGENT”) IN CONNECTION WITH THE SALE OF THE SECURITIES.  OTHER THAN THE AGENT,
NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS ENGAGED ANY PLACEMENT AGENT
OR OTHER AGENT IN CONNECTION WITH THE SALE OF THE SECURITIES.

(H)           NO INTEGRATED OFFERING.  NONE OF THE COMPANY, ITS SUBSIDIARIES,
ANY OF THEIR AFFILIATES, AND ANY PERSON ACTING ON THEIR BEHALF HAS, DIRECTLY OR
INDIRECTLY, MADE ANY OFFERS OR SALES OF ANY SECURITY OR SOLICITED ANY OFFERS TO
BUY ANY SECURITY, UNDER CIRCUMSTANCES

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THAT WOULD REQUIRE REGISTRATION OF ANY OF THE SECURITIES UNDER THE 1933 ACT OR
CAUSE THIS OFFERING OF THE SECURITIES TO BE INTEGRATED WITH PRIOR OFFERINGS BY
THE COMPANY FOR PURPOSES OF THE 1933 ACT OR ANY APPLICABLE STOCKHOLDER APPROVAL
PROVISIONS, INCLUDING, WITHOUT LIMITATION, UNDER THE RULES AND REGULATIONS OF
ANY EXCHANGE OR AUTOMATED QUOTATION SYSTEM ON WHICH ANY OF THE SECURITIES OF THE
COMPANY ARE LISTED OR DESIGNATED.  NONE OF THE COMPANY, ITS SUBSIDIARIES, THEIR
AFFILIATES AND ANY PERSON ACTING ON THEIR BEHALF WILL TAKE ANY ACTION OR STEPS
REFERRED TO IN THE PRECEDING SENTENCE THAT WOULD REQUIRE REGISTRATION OF ANY OF
THE SECURITIES UNDER THE 1933 ACT OR CAUSE THE OFFERING OF THE SECURITIES TO BE
INTEGRATED WITH OTHER OFFERINGS.

(I)            DILUTIVE EFFECT.  THE COMPANY UNDERSTANDS AND ACKNOWLEDGES THAT
THE NUMBER OF CONVERSION SHARES ISSUABLE UPON CONVERSION OF THE NOTES AND THE
WARRANT SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS WILL INCREASE IN CERTAIN
CIRCUMSTANCES.  THE COMPANY FURTHER ACKNOWLEDGES THAT ITS OBLIGATION TO ISSUE
CONVERSION SHARES UPON CONVERSION OF THE NOTES IN ACCORDANCE WITH THIS AGREEMENT
AND THE NOTES AND ITS OBLIGATION TO ISSUE THE WARRANT SHARES UPON EXERCISE OF
THE WARRANTS IN ACCORDANCE WITH THIS AGREEMENT AND THE WARRANTS IS, IN EACH
CASE, ABSOLUTE AND UNCONDITIONAL REGARDLESS OF THE DILUTIVE EFFECT THAT SUCH
ISSUANCE MAY HAVE ON THE OWNERSHIP INTERESTS OF OTHER STOCKHOLDERS OF THE
COMPANY.

(J)            APPLICATION OF TAKEOVER PROTECTIONS; RIGHTS AGREEMENT.  THE
COMPANY AND ITS BOARD OF DIRECTORS HAVE TAKEN ALL NECESSARY ACTION, IF ANY, IN
ORDER TO RENDER INAPPLICABLE ANY CONTROL SHARE ACQUISITION, BUSINESS
COMBINATION, POISON PILL (INCLUDING ANY DISTRIBUTION UNDER A RIGHTS AGREEMENT)
OR OTHER SIMILAR ANTI-TAKEOVER PROVISION UNDER THE CERTIFICATE OF INCORPORATION
(AS DEFINED IN SECTION 3(R)) OR THE LAWS OF THE STATE OF ITS INCORPORATION WHICH
IS OR COULD BECOME APPLICABLE TO ANY BUYER AS A RESULT OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE COMPANY’S
ISSUANCE OF THE SECURITIES AND ANY BUYER’S OWNERSHIP OF THE SECURITIES.  THE
COMPANY AND ITS BOARD OF DIRECTORS HAVE TAKEN ALL NECESSARY ACTION, IF ANY, IN
ORDER TO RENDER INAPPLICABLE ANY STOCKHOLDER RIGHTS PLAN OR SIMILAR ARRANGEMENT
RELATING TO ACCUMULATIONS OF BENEFICIAL OWNERSHIP OF COMMON STOCK OR A CHANGE IN
CONTROL OF THE COMPANY.

(K)           SEC DOCUMENTS; FINANCIAL STATEMENTS.  DURING THE TWO (2) YEARS
PRIOR TO THE DATE HEREOF, THE COMPANY HAS FILED ALL REPORTS, SCHEDULES, FORMS,
STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED BY IT WITH THE SEC PURSUANT
TO THE REPORTING REQUIREMENTS OF THE 1934 ACT (ALL OF THE FOREGOING FILED PRIOR
TO THE DATE HEREOF AND ALL EXHIBITS INCLUDED THEREIN AND FINANCIAL STATEMENTS,
NOTES AND SCHEDULES THERETO AND DOCUMENTS INCORPORATED BY REFERENCE THEREIN
BEING HEREINAFTER REFERRED TO AS THE “SEC DOCUMENTS”).  THE COMPANY HAS
DELIVERED TO THE BUYERS OR THEIR RESPECTIVE REPRESENTATIVES TRUE, CORRECT AND
COMPLETE COPIES OF THE SEC DOCUMENTS NOT AVAILABLE ON THE EDGAR SYSTEM.  AS OF
THEIR RESPECTIVE DATES, THE SEC DOCUMENTS COMPLIED IN ALL MATERIAL RESPECTS WITH
THE REQUIREMENTS OF THE 1934 ACT AND THE RULES AND REGULATIONS OF THE SEC
PROMULGATED THEREUNDER APPLICABLE TO THE SEC DOCUMENTS, AND NONE OF THE SEC
DOCUMENTS, AT THE TIME THEY WERE FILED WITH THE SEC, CONTAINED ANY UNTRUE
STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE
STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN THE
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  AS OF
THEIR RESPECTIVE DATES, THE FINANCIAL STATEMENTS OF THE COMPANY INCLUDED IN THE
SEC DOCUMENTS COMPLIED AS TO FORM IN ALL MATERIAL RESPECTS WITH APPLICABLE
ACCOUNTING REQUIREMENTS AND THE PUBLISHED RULES AND REGULATIONS OF THE SEC WITH
RESPECT THERETO.  SUCH FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING

8

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PRINCIPLES, CONSISTENTLY APPLIED, DURING THE PERIODS INVOLVED (EXCEPT (I) AS MAY
BE OTHERWISE INDICATED IN SUCH FINANCIAL STATEMENTS OR THE NOTES THERETO, OR
(II) IN THE CASE OF UNAUDITED INTERIM STATEMENTS, TO THE EXTENT THEY MAY EXCLUDE
FOOTNOTES OR MAY BE CONDENSED OR SUMMARY STATEMENTS) AND FAIRLY PRESENT IN ALL
MATERIAL RESPECTS THE FINANCIAL POSITION OF THE COMPANY AS OF THE DATES THEREOF
AND THE RESULTS OF ITS OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN ENDED
(SUBJECT, IN THE CASE OF UNAUDITED STATEMENTS, TO NORMAL YEAR-END AUDIT
ADJUSTMENTS).  NO OTHER INFORMATION PROVIDED BY OR ON BEHALF OF THE COMPANY TO
THE BUYERS WHICH IS NOT INCLUDED IN THE SEC DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, INFORMATION REFERRED TO IN SECTION 2(D) OF THIS AGREEMENT, CONTAINS
ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE ANY MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN THE LIGHT OF THE
CIRCUMSTANCE UNDER WHICH THEY ARE OR WERE MADE NOT MISLEADING.

(L)            ABSENCE OF CERTAIN CHANGES.  SINCE MARCH 31, 2006, THERE HAS BEEN
NO MATERIAL ADVERSE CHANGE AND NO MATERIAL ADVERSE DEVELOPMENT IN THE BUSINESS,
PROPERTIES, OPERATIONS, CONDITION (FINANCIAL OR OTHERWISE), RESULTS OF
OPERATIONS OR PROSPECTS OF THE COMPANY OR ITS SUBSIDIARIES.  EXCEPT AS DISCLOSED
IN SCHEDULE 3(L), SINCE MARCH 31, 2006, THE COMPANY HAS NOT (I) DECLARED OR PAID
ANY DIVIDENDS, (II) SOLD ANY ASSETS, INDIVIDUALLY OR IN THE AGGREGATE, IN EXCESS
OF $100,000 OUTSIDE OF THE ORDINARY COURSE OF BUSINESS OR (III) HAD CAPITAL
EXPENDITURES, INDIVIDUALLY OR IN THE AGGREGATE, IN EXCESS OF $500,000.  NEITHER
THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS TAKEN ANY STEPS TO SEEK PROTECTION
PURSUANT TO ANY BANKRUPTCY LAW NOR DOES THE COMPANY HAVE ANY KNOWLEDGE OR REASON
TO BELIEVE THAT ITS CREDITORS INTEND TO INITIATE INVOLUNTARY BANKRUPTCY
PROCEEDINGS OR ANY ACTUAL KNOWLEDGE OF ANY FACT THAT WOULD REASONABLY LEAD A
CREDITOR TO DO SO.  THE COMPANY AND ITS SUBSIDIARIES, INDIVIDUALLY AND ON A
CONSOLIDATED BASIS, ARE NOT AS OF THE DATE HEREOF, AND AFTER GIVING EFFECT TO
THE TRANSACTIONS CONTEMPLATED HEREBY TO OCCUR AT THE CLOSING, WILL NOT BE
INSOLVENT (AS DEFINED BELOW).  FOR PURPOSES OF THIS SECTION 3(L), “INSOLVENT”
MEANS, WITH RESPECT TO ANY PERSON (AS DEFINED IN SECTION 3(S)), (I) THE PRESENT
FAIR SALEABLE VALUE OF SUCH PERSON’S ASSETS IS LESS THAN THE AMOUNT REQUIRED TO
PAY SUCH PERSON’S TOTAL INDEBTEDNESS (AS DEFINED IN SECTION 3(S)), (II) SUCH
PERSON IS UNABLE TO PAY ITS DEBTS AND LIABILITIES, SUBORDINATED, CONTINGENT OR
OTHERWISE, AS SUCH DEBTS AND LIABILITIES BECOME ABSOLUTE AND MATURED, (III) SUCH
PERSON INTENDS TO INCUR OR BELIEVES THAT IT WILL INCUR DEBTS THAT WOULD BE
BEYOND ITS ABILITY TO PAY AS SUCH DEBTS MATURE OR (IV) SUCH PERSON HAS
UNREASONABLY SMALL CAPITAL WITH WHICH TO CONDUCT THE BUSINESS IN WHICH IT IS
ENGAGED AS SUCH BUSINESS IS NOW CONDUCTED AND IS PROPOSED TO BE CONDUCTED.

(M)          NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. 
NO EVENT, LIABILITY, DEVELOPMENT OR CIRCUMSTANCE HAS OCCURRED OR EXISTS, OR IS
CONTEMPLATED TO OCCUR, WITH RESPECT TO THE COMPANY, ITS SUBSIDIARIES OR THEIR
RESPECTIVE BUSINESS, PROPERTIES, PROSPECTS, OPERATIONS OR FINANCIAL CONDITION,
THAT WOULD BE REQUIRED TO BE DISCLOSED BY THE COMPANY UNDER APPLICABLE
SECURITIES LAWS ON A REGISTRATION STATEMENT ON FORM S-1 FILED WITH THE SEC
RELATING TO AN ISSUANCE AND SALE BY THE COMPANY OF ITS COMMON STOCK AND WHICH
HAS NOT BEEN PUBLICLY ANNOUNCED.

(N)           CONDUCT OF BUSINESS; REGULATORY PERMITS.  NEITHER THE COMPANY NOR
ANY OF ITS SUBSIDIARIES IS IN VIOLATION OF ANY TERM OF OR IN DEFAULT UNDER ITS
CERTIFICATE OF INCORPORATION, ANY CERTIFICATE OF DESIGNATIONS OF ANY OUTSTANDING
SERIES OF PREFERRED STOCK OF THE COMPANY OR THE BYLAWS OR THEIR ORGANIZATIONAL
CHARTER OR BYLAWS, RESPECTIVELY.  NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS IN VIOLATION OF ANY JUDGMENT, DECREE OR ORDER OR ANY

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STATUTE, ORDINANCE, RULE OR REGULATION APPLICABLE TO THE COMPANY OR ITS
SUBSIDIARIES, AND NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES WILL CONDUCT
ITS BUSINESS IN VIOLATION OF ANY OF THE FOREGOING, EXCEPT FOR POSSIBLE
VIOLATIONS WHICH COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.  WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, THE COMPANY IS NOT IN VIOLATION OF ANY OF THE RULES, REGULATIONS
OR REQUIREMENTS OF THE PRINCIPAL MARKET AND HAS NO KNOWLEDGE OF ANY FACTS OR
CIRCUMSTANCES THAT WOULD REASONABLY LEAD TO DELISTING OR SUSPENSION OF THE
COMMON STOCK BY THE PRINCIPAL MARKET IN THE FORESEEABLE FUTURE.  DURING THE TWO
(2) YEARS PRIOR TO THE DATE HEREOF, (I) THE COMMON STOCK HAS BEEN DESIGNATED FOR
QUOTATION ON THE PRINCIPAL MARKET, (II) TRADING IN THE COMMON STOCK HAS NOT BEEN
SUSPENDED BY THE SEC OR THE PRINCIPAL MARKET AND (III) THE COMPANY HAS RECEIVED
NO COMMUNICATION, WRITTEN OR ORAL, FROM THE SEC OR THE PRINCIPAL MARKET
REGARDING THE SUSPENSION OR DELISTING OF THE COMMON STOCK FROM THE PRINCIPAL
MARKET.  THE COMPANY AND ITS SUBSIDIARIES POSSESS ALL CERTIFICATES,
AUTHORIZATIONS AND PERMITS ISSUED BY THE APPROPRIATE REGULATORY AUTHORITIES
NECESSARY TO CONDUCT THEIR RESPECTIVE BUSINESSES, EXCEPT WHERE THE FAILURE TO
POSSESS SUCH CERTIFICATES, AUTHORIZATIONS OR PERMITS WOULD NOT HAVE,
INDIVIDUALLY OR IN THE AGGREGATE, A MATERIAL ADVERSE EFFECT, AND NEITHER THE
COMPANY NOR ANY SUCH SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS RELATING
TO THE REVOCATION OR MODIFICATION OF ANY SUCH CERTIFICATE, AUTHORIZATION OR
PERMIT.

(O)           FOREIGN CORRUPT PRACTICES.  NEITHER THE COMPANY, NOR ANY OF ITS
SUBSIDIARIES, NOR ANY DIRECTOR, OFFICER, AGENT, EMPLOYEE OR OTHER PERSON ACTING
ON BEHALF OF THE COMPANY OR ANY OF ITS SUBSIDIARIES HAS, IN THE COURSE OF ITS
ACTIONS FOR, OR ON BEHALF OF, THE COMPANY OR ANY OF ITS SUBSIDIARIES (I) USED
ANY CORPORATE FUNDS FOR ANY UNLAWFUL CONTRIBUTION, GIFT, ENTERTAINMENT OR OTHER
UNLAWFUL EXPENSES RELATING TO POLITICAL ACTIVITY; (II) MADE ANY DIRECT OR
INDIRECT UNLAWFUL PAYMENT TO ANY FOREIGN OR DOMESTIC GOVERNMENT OFFICIAL OR
EMPLOYEE FROM CORPORATE FUNDS; (III) VIOLATED OR IS IN VIOLATION OF ANY
PROVISION OF THE U.S. FOREIGN CORRUPT PRACTICES ACT OF 1977, AS AMENDED; OR (IV)
MADE ANY UNLAWFUL BRIBE, REBATE, PAYOFF, INFLUENCE PAYMENT, KICKBACK OR OTHER
UNLAWFUL PAYMENT TO ANY FOREIGN OR DOMESTIC GOVERNMENT OFFICIAL OR EMPLOYEE.

(P)           SARBANES-OXLEY ACT.  THE COMPANY IS IN COMPLIANCE WITH ANY AND ALL
APPLICABLE REQUIREMENTS OF THE SARBANES-OXLEY ACT OF 2002 THAT ARE EFFECTIVE AS
OF THE DATE HEREOF, AND ANY AND ALL APPLICABLE RULES AND REGULATIONS PROMULGATED
BY THE SEC THEREUNDER THAT ARE EFFECTIVE AS OF THE DATE HEREOF.

(Q)           TRANSACTIONS WITH AFFILIATES.  EXCEPT AS SET FORTH IN THE SEC
DOCUMENTS FILED AT LEAST TEN (10) DAYS PRIOR TO THE DATE HEREOF AND OTHER THAN
THE GRANT OF STOCK OPTIONS DISCLOSED ON SCHEDULE 3(Q), NONE OF THE OFFICERS,
DIRECTORS OR EMPLOYEES OF THE COMPANY OR ANY OF ITS SUBSIDIARIES IS PRESENTLY A
PARTY TO ANY TRANSACTION WITH THE COMPANY OR ANY OF ITS SUBSIDIARIES (OTHER THAN
FOR ORDINARY COURSE SERVICES AS EMPLOYEES, OFFICERS OR DIRECTORS), INCLUDING ANY
CONTRACT, AGREEMENT OR OTHER ARRANGEMENT PROVIDING FOR THE FURNISHING OF
SERVICES TO OR BY, PROVIDING FOR RENTAL OF REAL OR PERSONAL PROPERTY TO OR FROM,
OR OTHERWISE REQUIRING PAYMENTS TO OR FROM ANY SUCH OFFICER, DIRECTOR OR
EMPLOYEE OR, TO THE KNOWLEDGE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, ANY
CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY IN WHICH ANY SUCH OFFICER,
DIRECTOR, OR EMPLOYEE HAS A SUBSTANTIAL INTEREST OR IS AN OFFICER, DIRECTOR,
TRUSTEE OR PARTNER.

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(R)            EQUITY CAPITALIZATION.  AS OF THE DATE HEREOF, THE AUTHORIZED
CAPITAL STOCK OF THE COMPANY CONSISTS OF (I) 100,000,000 SHARES OF COMMON STOCK,
OF WHICH AS OF THE DATE HEREOF, 21,576,544 ARE ISSUED AND OUTSTANDING, 2,710,900
SHARES ARE RESERVED FOR ISSUANCE PURSUANT TO THE COMPANY’S STOCK OPTION AND
PURCHASE PLANS, 3,400,000 SHARES ARE RESERVED FOR ISSUANCE PURSUANT TO THE
RELATIVITY AGREEMENT (AS DEFINED BELOW) AND 984,284 SHARES ARE RESERVED FOR
ISSUANCE PURSUANT TO SECURITIES (OTHER THAN THE AFOREMENTIONED OPTIONS, THE
NOTES AND THE WARRANTS) EXERCISABLE OR EXCHANGEABLE FOR, OR CONVERTIBLE INTO,
SHARES OF COMMON STOCK AND (II) 25,000,000 SHARES OF PREFERRED STOCK, PAR VALUE
$0.0001 PER SHARE, OF WHICH, AS OF THE DATE HEREOF, NONE ARE ISSUED AND
OUTSTANDING.  ALL OF SUCH OUTSTANDING SHARES HAVE BEEN, OR UPON ISSUANCE WILL
BE, VALIDLY ISSUED AND ARE FULLY PAID AND NONASSESSABLE.  EXCEPT AS DISCLOSED IN
SCHEDULE 3(R): (I) NONE OF THE COMPANY’S CAPITAL STOCK IS SUBJECT TO PREEMPTIVE
RIGHTS OR ANY OTHER SIMILAR RIGHTS OR ANY LIENS OR ENCUMBRANCES SUFFERED OR
PERMITTED BY THE COMPANY; (II) THERE ARE NO OUTSTANDING OPTIONS, WARRANTS,
SCRIP, RIGHTS TO SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY CHARACTER WHATSOEVER
RELATING TO, OR SECURITIES OR RIGHTS CONVERTIBLE INTO, OR EXERCISABLE OR
EXCHANGEABLE FOR, ANY CAPITAL STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES,
OR CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH THE COMPANY
OR ANY OF ITS SUBSIDIARIES IS OR MAY BECOME BOUND TO ISSUE ADDITIONAL CAPITAL
STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR OPTIONS, WARRANTS, SCRIP,
RIGHTS TO SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY CHARACTER WHATSOEVER
RELATING TO, OR SECURITIES OR RIGHTS CONVERTIBLE INTO, OR EXERCISABLE OR
EXCHANGEABLE FOR, ANY CAPITAL STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES;
(III) THERE ARE NO OUTSTANDING DEBT SECURITIES, NOTES, CREDIT AGREEMENTS, CREDIT
FACILITIES OR OTHER AGREEMENTS, DOCUMENTS OR INSTRUMENTS EVIDENCING INDEBTEDNESS
OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR BY WHICH THE COMPANY OR ANY OF ITS
SUBSIDIARIES IS OR MAY BECOME BOUND; (IV) THERE ARE NO FINANCING STATEMENTS
SECURING OBLIGATIONS IN ANY MATERIAL AMOUNTS, EITHER SINGLY OR IN THE AGGREGATE,
FILED IN CONNECTION WITH THE COMPANY OR ANY OF ITS SUBSIDIARIES; (V) THERE ARE
NO AGREEMENTS OR ARRANGEMENTS UNDER WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES
IS OBLIGATED TO REGISTER THE SALE OF ANY OF THEIR SECURITIES UNDER THE 1933 ACT
(EXCEPT PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT); (VI) THERE ARE NO
OUTSTANDING SECURITIES OR INSTRUMENTS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES
WHICH CONTAIN ANY REDEMPTION OR SIMILAR PROVISIONS, AND THERE ARE NO CONTRACTS,
COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH THE COMPANY OR ANY OF ITS
SUBSIDIARIES IS OR MAY BECOME BOUND TO REDEEM A SECURITY OF THE COMPANY OR ANY
OF ITS SUBSIDIARIES; (VII) THERE ARE NO SECURITIES OR INSTRUMENTS CONTAINING
ANTI-DILUTION OR SIMILAR PROVISIONS THAT WILL BE TRIGGERED BY THE ISSUANCE OF
THE SECURITIES; (VIII) THE COMPANY DOES NOT HAVE ANY STOCK APPRECIATION RIGHTS
OR “PHANTOM STOCK” PLANS OR AGREEMENTS OR ANY SIMILAR PLAN OR AGREEMENT; AND
(IX) THE COMPANY AND ITS SUBSIDIARIES HAVE NO LIABILITIES OR OBLIGATIONS
REQUIRED TO BE DISCLOSED IN THE SEC DOCUMENTS BUT NOT SO DISCLOSED IN THE SEC
DOCUMENTS, OTHER THAN THOSE INCURRED IN THE ORDINARY COURSE OF THE COMPANY’S OR
ITS SUBSIDIARIES’ RESPECTIVE BUSINESSES AND WHICH, INDIVIDUALLY OR IN THE
AGGREGATE, DO NOT OR WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.  THE COMPANY HAS
FURNISHED TO THE BUYERS TRUE, CORRECT AND COMPLETE COPIES OF THE COMPANY’S
CERTIFICATE OF INCORPORATION, AS AMENDED AND AS IN EFFECT ON THE DATE HEREOF
(THE “CERTIFICATE OF INCORPORATION”), AND THE COMPANY’S BYLAWS, AS AMENDED AND
AS IN EFFECT ON THE DATE HEREOF (THE “BYLAWS”), AND THE TERMS OF ALL SECURITIES
CONVERTIBLE INTO, OR EXERCISABLE OR EXCHANGEABLE FOR, SHARES OF COMMON STOCK AND
THE MATERIAL RIGHTS OF THE HOLDERS THEREOF IN RESPECT THERETO.

(S)           INDEBTEDNESS AND OTHER CONTRACTS.  EXCEPT AS DISCLOSED IN SCHEDULE
3(S), NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES (I) HAS ANY OUTSTANDING
INDEBTEDNESS (AS DEFINED BELOW), (II) IS A PARTY TO ANY CONTRACT, AGREEMENT OR
INSTRUMENT, THE

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VIOLATION OF WHICH, OR DEFAULT UNDER WHICH, BY THE OTHER PARTY(IES) TO SUCH
CONTRACT, AGREEMENT OR INSTRUMENT COULD REASONABLY BE EXPECTED TO RESULT IN A
MATERIAL ADVERSE EFFECT, (III) IS IN VIOLATION OF ANY TERM OF OR IN DEFAULT
UNDER ANY CONTRACT, AGREEMENT OR INSTRUMENT RELATING TO ANY INDEBTEDNESS, EXCEPT
WHERE SUCH VIOLATIONS AND DEFAULTS WOULD NOT RESULT, INDIVIDUALLY OR IN THE
AGGREGATE, IN A MATERIAL ADVERSE EFFECT, OR (IV) IS A PARTY TO ANY CONTRACT,
AGREEMENT OR INSTRUMENT RELATING TO ANY INDEBTEDNESS, THE PERFORMANCE OF WHICH,
IN THE JUDGMENT OF THE COMPANY’S OFFICERS, HAS OR IS EXPECTED TO HAVE A MATERIAL
ADVERSE EFFECT.  SCHEDULE 3(S) PROVIDES A DETAILED DESCRIPTION OF THE MATERIAL
TERMS OF ANY SUCH OUTSTANDING INDEBTEDNESS.  FOR PURPOSES OF THIS AGREEMENT: 
(X) “INDEBTEDNESS” OF ANY PERSON MEANS, WITHOUT DUPLICATION (A) ALL INDEBTEDNESS
FOR BORROWED MONEY, (B) ALL OBLIGATIONS ISSUED, UNDERTAKEN OR ASSUMED AS THE
DEFERRED PURCHASE PRICE OF PROPERTY OR SERVICES, INCLUDING (WITHOUT LIMITATION)
“CAPITAL LEASES” IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(OTHER THAN TRADE PAYABLES ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS), (C)
ALL REIMBURSEMENT OR PAYMENT OBLIGATIONS WITH RESPECT TO LETTERS OF CREDIT,
SURETY BONDS AND OTHER SIMILAR INSTRUMENTS, (D) ALL OBLIGATIONS EVIDENCED BY
NOTES, BONDS, DEBENTURES OR SIMILAR INSTRUMENTS, INCLUDING OBLIGATIONS SO
EVIDENCED INCURRED IN CONNECTION WITH THE ACQUISITION OF PROPERTY, ASSETS OR
BUSINESSES, (E) ALL INDEBTEDNESS CREATED OR ARISING UNDER ANY CONDITIONAL SALE
OR OTHER TITLE RETENTION AGREEMENT, OR INCURRED AS FINANCING, IN EITHER CASE
WITH RESPECT TO ANY PROPERTY OR ASSETS ACQUIRED WITH THE PROCEEDS OF SUCH
INDEBTEDNESS (EVEN THOUGH THE RIGHTS AND REMEDIES OF THE SELLER OR BANK UNDER
SUCH AGREEMENT IN THE EVENT OF DEFAULT ARE LIMITED TO REPOSSESSION OR SALE OF
SUCH PROPERTY), (F) ALL MONETARY OBLIGATIONS UNDER ANY LEASING OR SIMILAR
ARRANGEMENT WHICH, IN CONNECTION WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
CONSISTENTLY APPLIED FOR THE PERIODS COVERED THEREBY, IS CLASSIFIED AS A CAPITAL
LEASE, (G) ALL INDEBTEDNESS REFERRED TO IN CLAUSES (A) THROUGH (F) ABOVE SECURED
BY (OR FOR WHICH THE HOLDER OF SUCH INDEBTEDNESS HAS AN EXISTING RIGHT,
CONTINGENT OR OTHERWISE, TO BE SECURED BY) ANY MORTGAGE, LIEN, PLEDGE, CHARGE,
SECURITY INTEREST OR OTHER ENCUMBRANCE UPON OR IN ANY PROPERTY OR ASSETS
(INCLUDING ACCOUNTS AND CONTRACT RIGHTS) OWNED BY ANY PERSON, EVEN THOUGH THE
PERSON WHICH OWNS SUCH ASSETS OR PROPERTY HAS NOT ASSUMED OR BECOME LIABLE FOR
THE PAYMENT OF SUCH INDEBTEDNESS, AND (H) ALL CONTINGENT OBLIGATIONS IN RESPECT
OF INDEBTEDNESS OR OBLIGATIONS OF OTHERS OF THE KINDS REFERRED TO IN CLAUSES (A)
THROUGH (G) ABOVE; (Y) “CONTINGENT OBLIGATION” MEANS, AS TO ANY PERSON, ANY
DIRECT OR INDIRECT LIABILITY, CONTINGENT OR OTHERWISE, OF THAT PERSON WITH
RESPECT TO ANY INDEBTEDNESS, LEASE, DIVIDEND OR OTHER OBLIGATION OF ANOTHER
PERSON IF THE PRIMARY PURPOSE OR INTENT OF THE PERSON INCURRING SUCH LIABILITY,
OR THE PRIMARY EFFECT THEREOF, IS TO PROVIDE ASSURANCE TO THE OBLIGEE OF SUCH
LIABILITY THAT SUCH LIABILITY WILL BE PAID OR DISCHARGED, OR THAT ANY AGREEMENTS
RELATING THERETO WILL BE COMPLIED WITH, OR THAT THE HOLDERS OF SUCH LIABILITY
WILL BE PROTECTED (IN WHOLE OR IN PART) AGAINST LOSS WITH RESPECT THERETO; AND
(Z) “PERSON” MEANS AN INDIVIDUAL, A LIMITED LIABILITY COMPANY, A PARTNERSHIP, A
JOINT VENTURE, A CORPORATION, A TRUST, AN UNINCORPORATED ORGANIZATION AND A
GOVERNMENT OR ANY DEPARTMENT OR AGENCY THEREOF.

(T)            ABSENCE OF LITIGATION.  EXCEPT AS SET FORTH IN SCHEDULE 3(T),
THERE IS NO ACTION, SUIT, PROCEEDING, INQUIRY OR INVESTIGATION BEFORE OR BY THE
PRINCIPAL MARKET, ANY COURT, PUBLIC BOARD, GOVERNMENT AGENCY, SELF-REGULATORY
ORGANIZATION OR BODY PENDING OR, TO THE KNOWLEDGE OF THE COMPANY, THREATENED
AGAINST OR AFFECTING THE COMPANY OR ANY OF ITS SUBSIDIARIES, THE COMMON STOCK OR
ANY OF THE COMPANY’S SUBSIDIARIES OR ANY OF THE COMPANY’S OR ITS SUBSIDIARIES’
OFFICERS OR DIRECTORS.

(U)           INSURANCE.  THE COMPANY AND EACH OF ITS SUBSIDIARIES ARE INSURED
BY INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH LOSSES AND RISKS
AND IN SUCH

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AMOUNTS AS MANAGEMENT OF THE COMPANY BELIEVES TO BE PRUDENT AND CUSTOMARY IN THE
BUSINESSES IN WHICH THE COMPANY AND ITS SUBSIDIARIES ARE ENGAGED.  NEITHER THE
COMPANY NOR ANY SUCH SUBSIDIARY HAS BEEN REFUSED ANY INSURANCE COVERAGE SOUGHT
OR APPLIED FOR AND NEITHER THE COMPANY NOR ANY SUCH SUBSIDIARY HAS ANY REASON TO
BELIEVE THAT IT WILL NOT BE ABLE TO RENEW ITS EXISTING INSURANCE COVERAGE AS AND
WHEN SUCH COVERAGE EXPIRES OR TO OBTAIN SIMILAR COVERAGE FROM SIMILAR INSURERS
AS MAY BE NECESSARY TO CONTINUE ITS BUSINESS AT A COST THAT WOULD NOT HAVE A
MATERIAL ADVERSE EFFECT.

(V)           EMPLOYEE RELATIONS.  (I) NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS A PARTY TO ANY COLLECTIVE BARGAINING AGREEMENT OR EMPLOYS ANY
MEMBER OF A UNION.  THE COMPANY AND ITS SUBSIDIARIES BELIEVE THAT THEIR
RELATIONS WITH THEIR EMPLOYEES ARE GOOD.  NO EXECUTIVE OFFICER OF THE COMPANY 
OR ANY OF ITS SUBSIDIARIES (AS DEFINED IN RULE 501(F) OF THE 1933 ACT) HAS
NOTIFIED THE COMPANY OR ANY SUCH SUBSIDIARY THAT SUCH OFFICER INTENDS TO LEAVE
THE COMPANY OR ANY SUCH SUBSIDIARY OR OTHERWISE TERMINATE SUCH OFFICER’S
EMPLOYMENT WITH THE COMPANY OR ANY SUCH SUBSIDIARY.  NO EXECUTIVE OFFICER OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES, IS, OR IS NOW EXPECTED TO BE, IN VIOLATION
OF ANY MATERIAL TERM OF ANY EMPLOYMENT CONTRACT, CONFIDENTIALITY, DISCLOSURE OR
PROPRIETARY INFORMATION AGREEMENT, NON-COMPETITION AGREEMENT, OR ANY OTHER
CONTRACT OR AGREEMENT OR ANY RESTRICTIVE COVENANT, AND THE CONTINUED EMPLOYMENT
OF EACH SUCH EXECUTIVE OFFICER DOES NOT SUBJECT THE COMPANY OR ANY OF ITS
SUBSIDIARIES TO ANY LIABILITY WITH RESPECT TO ANY OF THE FOREGOING MATTERS.

(II)           THE COMPANY AND ITS SUBSIDIARIES, TO THEIR KNOWLEDGE, ARE IN
COMPLIANCE WITH ALL FEDERAL, STATE, LOCAL AND FOREIGN LAWS AND REGULATIONS
RESPECTING LABOR, EMPLOYMENT AND EMPLOYMENT PRACTICES AND BENEFITS, TERMS AND
CONDITIONS OF EMPLOYMENT AND WAGES AND HOURS, EXCEPT WHERE FAILURE TO BE IN
COMPLIANCE WOULD NOT, EITHER INDIVIDUALLY OR IN THE AGGREGATE, REASONABLY BE
EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.

(W)          TITLE. THE COMPANY AND ITS SUBSIDIARIES HAVE GOOD AND MARKETABLE
TITLE IN FEE SIMPLE TO ALL REAL PROPERTY AND GOOD AND MARKETABLE TITLE TO ALL
PERSONAL PROPERTY OWNED BY THEM WHICH IS MATERIAL TO THE BUSINESS OF THE COMPANY
AND ITS SUBSIDIARIES, IN EACH CASE FREE AND CLEAR OF ALL LIENS, ENCUMBRANCES AND
DEFECTS EXCEPT SUCH AS ARE DESCRIBED IN SCHEDULE 3(W) OR SUCH AS DO NOT
MATERIALLY AFFECT THE VALUE OF SUCH PROPERTY AND DO NOT INTERFERE WITH THE USE
MADE AND PROPOSED TO BE MADE OF SUCH PROPERTY BY THE COMPANY AND ANY OF ITS
SUBSIDIARIES.  ANY REAL PROPERTY AND FACILITIES HELD UNDER LEASE BY THE COMPANY
AND ANY OF ITS SUBSIDIARIES ARE HELD BY THEM UNDER VALID, SUBSISTING AND
ENFORCEABLE LEASES WITH SUCH EXCEPTIONS AS ARE NOT MATERIAL AND DO NOT INTERFERE
WITH THE USE MADE AND PROPOSED TO BE MADE OF SUCH PROPERTY AND BUILDINGS BY THE
COMPANY AND ITS SUBSIDIARIES.

(X)            INTELLECTUAL PROPERTY RIGHTS. THE COMPANY AND ITS SUBSIDIARIES
OWN OR POSSESS ADEQUATE RIGHTS OR LICENSES TO USE ALL TRADEMARKS, SERVICE MARKS
AND ALL APPLICATIONS AND REGISTRATIONS THEREFOR, TRADE NAMES, PATENTS, PATENT
RIGHTS, COPYRIGHTS, ORIGINAL WORKS OF AUTHORSHIP, INVENTIONS, TRADE SECRETS AND
OTHER INTELLECTUAL PROPERTY RIGHTS (“INTELLECTUAL PROPERTY RIGHTS”) NECESSARY TO
CONDUCT THEIR RESPECTIVE BUSINESSES AS NOW CONDUCTED.  NONE OF THE COMPANY’S
REGISTERED, OR APPLIED FOR, INTELLECTUAL PROPERTY RIGHTS HAVE EXPIRED OR
TERMINATED OR HAVE BEEN ABANDONED, OR ARE EXPECTED TO EXPIRE OR TERMINATE OR
EXPECTED TO BE ABANDONED, WITHIN THREE YEARS FROM THE DATE OF THIS AGREEMENT. 
THE COMPANY DOES NOT HAVE ANY KNOWLEDGE OF ANY INFRINGEMENT BY THE COMPANY OR
ITS SUBSIDIARIES OF INTELLECTUAL PROPERTY RIGHTS OF OTHERS.  THERE IS NO CLAIM,
ACTION OR PROCEEDING BEING MADE OR BROUGHT, OR TO THE KNOWLEDGE OF THE

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COMPANY, BEING THREATENED, AGAINST THE COMPANY OR ITS SUBSIDIARIES REGARDING ITS
INTELLECTUAL PROPERTY RIGHTS.  NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES
IS AWARE OF ANY FACTS OR CIRCUMSTANCES WHICH MIGHT GIVE RISE TO ANY OF THE
FOREGOING INFRINGEMENTS OR CLAIMS, ACTIONS OR PROCEEDINGS.  THE COMPANY AND ITS
SUBSIDIARIES HAVE TAKEN REASONABLE SECURITY MEASURES TO PROTECT THE SECRECY,
CONFIDENTIALITY AND VALUE OF ALL OF THEIR INTELLECTUAL PROPERTY RIGHTS.

(Y)           ENVIRONMENTAL LAWS.  THE COMPANY AND ITS SUBSIDIARIES, TO THEIR
KNOWLEDGE, (I) ARE IN COMPLIANCE WITH ANY AND ALL ENVIRONMENTAL LAWS (AS
HEREINAFTER DEFINED), (II) HAVE RECEIVED ALL PERMITS, LICENSES OR OTHER
APPROVALS REQUIRED OF THEM UNDER APPLICABLE ENVIRONMENTAL LAWS TO CONDUCT THEIR
RESPECTIVE BUSINESSES AND (III) ARE IN COMPLIANCE WITH ALL TERMS AND CONDITIONS
OF ANY SUCH PERMIT, LICENSE OR APPROVAL WHERE, IN EACH OF THE FOREGOING CLAUSES
(I), (II) AND (III), THE FAILURE TO SO COMPLY COULD BE REASONABLY EXPECTED TO
HAVE, INDIVIDUALLY OR IN THE AGGREGATE, A MATERIAL ADVERSE EFFECT.  THE TERM
“ENVIRONMENTAL LAWS” MEANS ALL FEDERAL, STATE, LOCAL OR FOREIGN LAWS RELATING TO
POLLUTION OR PROTECTION OF HUMAN HEALTH OR THE ENVIRONMENT (INCLUDING, WITHOUT
LIMITATION, AMBIENT AIR, SURFACE WATER, GROUNDWATER, LAND SURFACE OR SUBSURFACE
STRATA), INCLUDING, WITHOUT LIMITATION, LAWS RELATING TO EMISSIONS, DISCHARGES,
RELEASES OR THREATENED RELEASES OF CHEMICALS, POLLUTANTS, CONTAMINANTS, OR TOXIC
OR HAZARDOUS SUBSTANCES OR WASTES (COLLECTIVELY, “HAZARDOUS MATERIALS”) INTO THE
ENVIRONMENT, OR OTHERWISE RELATING TO THE MANUFACTURE, PROCESSING, DISTRIBUTION,
USE, TREATMENT, STORAGE, DISPOSAL, TRANSPORT OR HANDLING OF HAZARDOUS MATERIALS,
AS WELL AS ALL AUTHORIZATIONS, CODES, DECREES, DEMANDS OR DEMAND LETTERS,
INJUNCTIONS, JUDGMENTS, LICENSES, NOTICES OR NOTICE LETTERS, ORDERS, PERMITS,
PLANS OR REGULATIONS ISSUED, ENTERED, PROMULGATED OR APPROVED THEREUNDER.

(Z)            SUBSIDIARY RIGHTS.  THE COMPANY OR ONE OF ITS SUBSIDIARIES HAS
THE UNRESTRICTED RIGHT TO VOTE, AND (SUBJECT TO LIMITATIONS IMPOSED BY
APPLICABLE LAW) TO RECEIVE DIVIDENDS AND DISTRIBUTIONS ON, ALL CAPITAL
SECURITIES OF ITS SUBSIDIARIES AS OWNED BY THE COMPANY OR SUCH SUBSIDIARY.

(AA)         TAX STATUS.  THE COMPANY AND EACH OF ITS SUBSIDIARIES (I) HAS MADE
OR FILED ALL FOREIGN, FEDERAL AND STATE INCOME AND ALL OTHER TAX RETURNS,
REPORTS AND DECLARATIONS REQUIRED BY ANY JURISDICTION TO WHICH IT IS SUBJECT,
(II) HAS PAID ALL TAXES AND OTHER GOVERNMENTAL ASSESSMENTS AND CHARGES THAT ARE
MATERIAL IN AMOUNT, SHOWN OR DETERMINED TO BE DUE ON SUCH RETURNS, REPORTS AND
DECLARATIONS, EXCEPT THOSE BEING CONTESTED IN GOOD FAITH AND (III) HAS SET ASIDE
ON ITS BOOKS PROVISION REASONABLY ADEQUATE FOR THE PAYMENT OF ALL TAXES FOR
PERIODS SUBSEQUENT TO THE PERIODS TO WHICH SUCH RETURNS, REPORTS OR DECLARATIONS
APPLY.  THERE ARE NO UNPAID TAXES IN ANY MATERIAL AMOUNT CLAIMED TO BE DUE BY
THE TAXING AUTHORITY OF ANY JURISDICTION, AND THE OFFICERS OF THE COMPANY KNOW
OF NO BASIS FOR ANY SUCH CLAIM.

(BB)         INTERNAL ACCOUNTING AND DISCLOSURE CONTROLS.  THE COMPANY AND EACH
OF ITS SUBSIDIARIES MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROLS SUFFICIENT
TO PROVIDE REASONABLE ASSURANCE THAT (I) TRANSACTIONS ARE EXECUTED IN ACCORDANCE
WITH MANAGEMENT’S GENERAL OR SPECIFIC AUTHORIZATIONS, (II) TRANSACTIONS ARE
RECORDED AS NECESSARY TO PERMIT PREPARATION OF FINANCIAL STATEMENTS IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND TO MAINTAIN ASSET
AND LIABILITY ACCOUNTABILITY, (III) ACCESS TO ASSETS OR INCURRENCE OF
LIABILITIES IS PERMITTED ONLY IN ACCORDANCE WITH MANAGEMENT’S GENERAL OR
SPECIFIC AUTHORIZATION AND (IV) THE RECORDED ACCOUNTABILITY FOR ASSETS AND
LIABILITIES IS COMPARED WITH THE EXISTING ASSETS AND LIABILITIES AT REASONABLE
INTERVALS AND APPROPRIATE ACTION IS TAKEN WITH RESPECT TO ANY DIFFERENCE.  THE
COMPANY MAINTAINS DISCLOSURE CONTROLS AND PROCEDURES (AS SUCH TERM IS DEFINED IN
RULE 13A-14

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UNDER THE 1934 ACT) THAT ARE EFFECTIVE IN ENSURING THAT INFORMATION REQUIRED TO
BE DISCLOSED BY THE COMPANY IN THE REPORTS THAT IT FILES OR SUBMITS UNDER THE
1934 ACT IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED, WITHIN THE TIME
PERIODS SPECIFIED IN THE RULES AND FORMS OF THE SEC, INCLUDING, WITHOUT
LIMITATION, CONTROLS AND PROCEDURES DESIGNED IN TO ENSURE THAT INFORMATION
REQUIRED TO BE DISCLOSED BY THE COMPANY IN THE REPORTS THAT IT FILES OR SUBMITS
UNDER THE 1934 ACT IS ACCUMULATED AND COMMUNICATED TO THE COMPANY’S MANAGEMENT,
INCLUDING ITS PRINCIPAL EXECUTIVE OFFICER OR OFFICERS AND ITS PRINCIPAL
FINANCIAL OFFICER OR OFFICERS, AS APPROPRIATE, TO ALLOW TIMELY DECISIONS
REGARDING REQUIRED DISCLOSURE.  DURING THE TWELVE MONTHS PRIOR TO THE DATE
HEREOF NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAVE RECEIVED ANY NOTICE
OR CORRESPONDENCE FROM ANY ACCOUNTANT RELATING TO ANY POTENTIAL MATERIAL
WEAKNESS IN ANY PART OF THE SYSTEM OF INTERNAL ACCOUNTING CONTROLS OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES.

(CC)         RANKING OF NOTES.  EXCEPT AS SET FORTH ON SCHEDULE 3(CC), NO
INDEBTEDNESS OF THE COMPANY IS SENIOR TO OR RANKS PARI PASSU WITH THE NOTES IN
RIGHT OF PAYMENT, WHETHER WITH RESPECT OF PAYMENT OF REDEMPTIONS, INTEREST,
DAMAGES OR UPON LIQUIDATION OR DISSOLUTION OR OTHERWISE.

(DD)         OFF BALANCE SHEET ARRANGEMENTS.  THERE IS NO TRANSACTION,
ARRANGEMENT, OR OTHER RELATIONSHIP BETWEEN THE COMPANY AND AN UNCONSOLIDATED OR
OTHER OFF BALANCE SHEET ENTITY THAT IS REQUIRED TO BE DISCLOSED BY THE COMPANY
IN ITS 1934 ACT FILINGS AND IS NOT SO DISCLOSED OR THAT OTHERWISE WOULD BE
REASONABLY LIKELY TO HAVE A MATERIAL ADVERSE EFFECT.

(EE)         INVESTMENT COMPANY STATUS.  THE COMPANY IS NOT, AND UPON
CONSUMMATION OF THE SALE OF THE SECURITIES WILL NOT BE, AN “INVESTMENT COMPANY,”
A COMPANY CONTROLLED BY AN “INVESTMENT COMPANY” OR AN “AFFILIATED PERSON” OF, OR
“PROMOTER” OR “PRINCIPAL UNDERWRITER” FOR, AN “INVESTMENT COMPANY” AS SUCH TERMS
ARE DEFINED IN THE INVESTMENT COMPANY ACT OF  1940, AS AMENDED.

(FF)           FORM S-3 ELIGIBILITY.  THE COMPANY IS ELIGIBLE TO REGISTER THE
CONVERSION SHARES, THE INTEREST SHARES AND THE WARRANT SHARES FOR RESALE BY THE
BUYERS USING FORM S-3 PROMULGATED UNDER THE 1933 ACT.

(GG)         TRANSFER TAXES.  ON THE CLOSING DATE, ALL STOCK TRANSFER OR OTHER
TAXES (OTHER THAN INCOME OR SIMILAR TAXES) WHICH ARE REQUIRED TO BE PAID IN
CONNECTION WITH THE SALE AND TRANSFER OF THE SECURITIES TO BE SOLD TO EACH BUYER
HEREUNDER WILL BE, OR WILL HAVE BEEN, FULLY PAID OR PROVIDED FOR BY THE COMPANY,
AND ALL LAWS IMPOSING SUCH TAXES WILL BE OR WILL HAVE BEEN COMPLIED WITH.

(HH)         MANIPULATION OF PRICE.  THE COMPANY HAS NOT, AND TO ITS KNOWLEDGE
NO ONE ACTING ON ITS BEHALF HAS, (I) TAKEN, DIRECTLY OR INDIRECTLY, ANY ACTION
DESIGNED TO CAUSE OR TO RESULT IN THE STABILIZATION OR MANIPULATION OF THE PRICE
OF ANY SECURITY OF THE COMPANY TO FACILITATE THE SALE OR RESALE OF ANY OF THE
SECURITIES, (II) OTHER THAN THE AGENT, SOLD, BID FOR, PURCHASED, OR PAID ANY
COMPENSATION FOR SOLICITING PURCHASES OF, ANY OF THE SECURITIES, OR (III) PAID
OR AGREED TO PAY TO ANY PERSON ANY COMPENSATION FOR SOLICITING ANOTHER TO
PURCHASE ANY OTHER SECURITIES OF THE COMPANY.

(II)           DISCLOSURE.  THE COMPANY CONFIRMS THAT NEITHER IT NOR ANY OTHER
PERSON ACTING ON ITS BEHALF HAS PROVIDED ANY OF THE BUYERS OR THEIR AGENTS OR
COUNSEL WITH ANY

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INFORMATION THAT CONSTITUTES OR COULD REASONABLY BE EXPECTED TO CONSTITUTE
MATERIAL, NONPUBLIC INFORMATION.  THE COMPANY UNDERSTANDS AND CONFIRMS THAT EACH
OF THE BUYERS WILL RELY ON THE FOREGOING REPRESENTATIONS IN EFFECTING
TRANSACTIONS IN SECURITIES OF THE COMPANY.  ALL DISCLOSURE PROVIDED TO THE
BUYERS REGARDING THE COMPANY AND, ITS SUBSIDIARIES, THEIR BUSINESS AND THE
TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING THE SCHEDULES TO THIS AGREEMENT,
FURNISHED BY OR ON BEHALF OF THE COMPANY IS TRUE AND CORRECT AND DOES NOT
CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY MATERIAL
FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS MADE THEREIN, IN THE LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  EACH PRESS RELEASE
ISSUED BY THE COMPANY OR ITS SUBSIDIARIES DURING THE TWELVE (12) MONTHS
PRECEDING THE DATE OF THIS AGREEMENT DID NOT AT THE TIME OF RELEASE CONTAIN ANY
UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT REQUIRED TO
BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN THE
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  NO EVENT
OR CIRCUMSTANCE HAS OCCURRED OR INFORMATION EXISTS WITH RESPECT TO THE COMPANY
OR ANY OF ITS SUBSIDIARIES OR ITS OR THEIR BUSINESS, PROPERTIES, PROSPECTS,
OPERATIONS OR FINANCIAL CONDITIONS, WHICH, UNDER APPLICABLE LAW, RULE OR
REGULATION, REQUIRES PUBLIC DISCLOSURE OR ANNOUNCEMENT BY THE COMPANY BUT WHICH
HAS NOT BEEN SO PUBLICLY ANNOUNCED OR DISCLOSED.

(JJ)           ACKNOWLEDGEMENT REGARDING BUYERS’ TRADING ACTIVITY.  ANYTHING IN
THIS AGREEMENT OR ELSEWHERE HEREIN TO THE CONTRARY NOTWITHSTANDING, BUT SUBJECT
TO COMPLIANCE BY THE BUYERS WITH APPLICABLE LAW AND THE PROVISIONS OF SECTION
4(T) HERETO, IT IS UNDERSTOOD AND ACKNOWLEDGED BY THE COMPANY (I) THAT NONE OF
THE BUYERS HAVE BEEN ASKED TO AGREE, NOR HAS ANY BUYER AGREED, TO DESIST FROM
PURCHASING OR SELLING, LONG AND/OR SHORT, SECURITIES OF THE COMPANY, OR
“DERIVATIVE” SECURITIES BASED ON SECURITIES ISSUED BY THE COMPANY OR TO HOLD THE
SECURITIES FOR ANY SPECIFIED TERM; (II) THAT PAST OR FUTURE OPEN MARKET OR OTHER
TRANSACTIONS BY ANY BUYER, INCLUDING, WITHOUT LIMITATION, SHORT SALES OR
“DERIVATIVE” TRANSACTIONS, BEFORE OR AFTER THE CLOSING OF THIS OR FUTURE PRIVATE
PLACEMENT TRANSACTIONS, MAY NEGATIVELY IMPACT THE MARKET PRICE OF THE COMPANY’S
PUBLICLY-TRADED SECURITIES; (III) THAT ANY BUYER, AND COUNTER PARTIES IN
“DERIVATIVE” TRANSACTIONS TO WHICH ANY SUCH BUYER IS A PARTY, DIRECTLY OR
INDIRECTLY, PRESENTLY MAY HAVE A “SHORT” POSITION IN THE COMMON STOCK, AND (IV)
THAT EACH BUYER SHALL NOT BE DEEMED TO HAVE ANY AFFILIATION WITH OR CONTROL OVER
ANY ARM’S LENGTH COUNTER-PARTY IN ANY “DERIVATIVE” TRANSACTION.  THE COMPANY
FURTHER UNDERSTANDS AND ACKNOWLEDGES THAT (A) ONE OR MORE BUYERS MAY ENGAGE IN
HEDGING ACTIVITIES AT VARIOUS TIMES DURING THE PERIOD THAT THE SECURITIES ARE
OUTSTANDING, INCLUDING, WITHOUT LIMITATION, DURING THE PERIODS THAT THE VALUE OF
THE CONVERSION SHARES DELIVERABLE WITH RESPECT TO SECURITIES ARE BEING
DETERMINED AND (B) SUCH HEDGING ACTIVITIES (IF ANY) COULD REDUCE THE VALUE OF
THE EXISTING STOCKHOLDERS’ EQUITY INTERESTS IN THE COMPANY AT AND AFTER THE TIME
THAT THE HEDGING ACTIVITIES ARE BEING CONDUCTED.

(KK)         U.S. REAL PROPERTY HOLDING CORPORATION.  THE COMPANY IS NOT, NOR
HAS IT EVER BEEN, A U.S. REAL PROPERTY HOLDING CORPORATION WITHIN THE MEANING OF
SECTION 897 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND THE COMPANY
SHALL SO CERTIFY UPON ANY BUYER’S REQUEST.

(LL)           NOTHING CONTAINED IN, OR CONTEMPLATED BY, THAT CERTAIN
DISTRIBUTION AGREEMENT, DATED AS OF AUGUST 11, 2006, BETWEEN THE COMPANY AND
RELATIVITY MEDIA, LLC (THE “RELATIVITY AGREEMENT”) COULD INHIBIT OR PREVENT THE
COMPANY FROM GRANTING THE SECURITY INTERESTS CONTEMPLATED BY SECTION 4(P).

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4.             COVENANTS.

(A)           BEST EFFORTS.  EACH PARTY SHALL USE ITS BEST EFFORTS TIMELY TO
SATISFY EACH OF THE CONDITIONS TO BE SATISFIED BY IT AS PROVIDED IN SECTIONS 6
AND 7 OF THIS AGREEMENT.

(B)           FORM D AND BLUE SKY.  THE COMPANY AGREES TO FILE A FORM D WITH
RESPECT TO THE SECURITIES AS REQUIRED UNDER REGULATION D AND TO PROVIDE A COPY
THEREOF TO EACH BUYER PROMPTLY AFTER SUCH FILING.  THE COMPANY SHALL, ON OR
BEFORE THE CLOSING DATE, TAKE SUCH ACTION AS THE COMPANY SHALL REASONABLY
DETERMINE IS NECESSARY IN ORDER TO OBTAIN AN EXEMPTION FOR OR TO QUALIFY THE
SECURITIES FOR SALE TO THE BUYERS AT THE CLOSING PURSUANT TO THIS AGREEMENT
UNDER APPLICABLE SECURITIES OR “BLUE SKY” LAWS OF THE STATES OF THE UNITED
STATES (OR TO OBTAIN AN EXEMPTION FROM SUCH QUALIFICATION), AND SHALL PROVIDE
EVIDENCE OF ANY SUCH ACTION SO TAKEN TO THE BUYERS ON OR PRIOR TO THE CLOSING
DATE.  THE COMPANY SHALL MAKE ALL FILINGS AND REPORTS RELATING TO THE OFFER AND
SALE OF THE SECURITIES REQUIRED UNDER APPLICABLE SECURITIES OR “BLUE SKY” LAWS
OF THE STATES OF THE UNITED STATES FOLLOWING THE CLOSING DATE.

(C)           REPORTING STATUS.  UNTIL THE DATE ON WHICH THE INVESTORS (AS
DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) SHALL HAVE SOLD ALL THE CONVERSION
SHARES, THE INTEREST SHARES AND WARRANT SHARES AND NONE OF THE NOTES OR WARRANTS
IS OUTSTANDING, (THE “REPORTING PERIOD”), THE COMPANY SHALL TIMELY FILE ALL
REPORTS REQUIRED TO BE FILED WITH THE SEC PURSUANT TO THE 1934 ACT, AND THE
COMPANY SHALL NOT TERMINATE ITS STATUS AS AN ISSUER REQUIRED TO FILE REPORTS
UNDER THE 1934 ACT EVEN IF THE 1934 ACT OR THE RULES AND REGULATIONS THEREUNDER
WOULD PERMIT SUCH TERMINATION.

(D)           USE OF PROCEEDS.  THE COMPANY WILL USE THE PROCEEDS FROM THE SALE
OF THE SECURITIES FOR GENERAL CORPORATE PURPOSES, AND NOT FOR (A) EXCEPT AS SET
FORTH ON SCHEDULE 4(D), THE REPAYMENT OF ANY OUTSTANDING INDEBTEDNESS OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES OR (B) REDEMPTION OR REPURCHASE OF ANY OF ITS
OR ITS SUBSIDIARIES’ EQUITY SECURITIES.

(E)           FINANCIAL INFORMATION.  THE COMPANY AGREES TO SEND THE FOLLOWING
TO EACH INVESTOR (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) DURING THE
REPORTING PERIOD (I) UNLESS THE FOLLOWING ARE FILED WITH THE SEC THROUGH EDGAR
AND ARE AVAILABLE TO THE PUBLIC THROUGH THE EDGAR SYSTEM, WITHIN ONE (1)
BUSINESS DAY AFTER THE FILING THEREOF WITH THE SEC, A COPY OF ITS ANNUAL REPORTS
AND QUARTERLY REPORTS ON FORM 10-K, 10-KSB, 10-Q OR 10-QSB, ANY INTERIM REPORTS
OR ANY CONSOLIDATED BALANCE SHEETS, INCOME STATEMENTS, STOCKHOLDERS’ EQUITY
STATEMENTS AND/OR CASH FLOW STATEMENTS FOR ANY PERIOD OTHER THAN ANNUAL, ANY
CURRENT REPORTS ON FORM 8-K AND ANY REGISTRATION STATEMENTS (OTHER THAN ON FORM
S-8) OR AMENDMENTS FILED PURSUANT TO THE 1933 ACT, (II) ON THE SAME DAY AS THE
RELEASE THEREOF, FACSIMILE OR E-MAILED COPIES OF ALL PRESS RELEASES ISSUED BY
THE COMPANY OR ANY OF ITS SUBSIDIARIES, AND (III) COPIES OF ANY NOTICES AND
OTHER INFORMATION MADE AVAILABLE OR GIVEN TO THE STOCKHOLDERS OF THE COMPANY
GENERALLY, CONTEMPORANEOUSLY WITH THE MAKING AVAILABLE OR GIVING THEREOF TO THE
STOCKHOLDERS.  AS USED HEREIN, “BUSINESS DAY” MEANS ANY DAY OTHER THAN SATURDAY,
SUNDAY OR OTHER DAY ON WHICH COMMERCIAL BANKS IN THE CITY OF NEW YORK ARE
AUTHORIZED OR REQUIRED BY LAW TO REMAIN CLOSED.

(F)            LISTING.  THE COMPANY SHALL PROMPTLY SECURE THE LISTING OF ALL OF
THE REGISTRABLE SECURITIES (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT)
UPON EACH NATIONAL SECURITIES EXCHANGE AND AUTOMATED QUOTATION SYSTEM, IF ANY,
UPON WHICH THE COMMON STOCK IS

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THEN LISTED (SUBJECT TO OFFICIAL NOTICE OF ISSUANCE) AND SHALL MAINTAIN, IN
ACCORDANCE WITH THE NOTES AND WARRANTS, SUCH LISTING OF ALL REGISTRABLE
SECURITIES FROM TIME TO TIME ISSUABLE UNDER THE TERMS OF THE TRANSACTION
DOCUMENTS.  THE COMPANY SHALL MAINTAIN THE COMMON STOCKS’ AUTHORIZATION FOR
QUOTATION ON THE PRINCIPAL MARKET.  NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES SHALL TAKE ANY ACTION WHICH WOULD BE REASONABLY EXPECTED TO RESULT
IN THE DELISTING OR SUSPENSION OF THE COMMON STOCK ON THE PRINCIPAL MARKET.  THE
COMPANY SHALL PAY ALL FEES AND EXPENSES IN CONNECTION WITH SATISFYING ITS
OBLIGATIONS UNDER THIS SECTION 4(F).

(G)           FEES.  SUBJECT TO SECTION 8 BELOW, AT CLOSING, THE COMPANY SHALL
PAY AN EXPENSE ALLOWANCE TO PORTSIDE GROWTH AND OPPORTUNITY FUND (A BUYER) OR
ITS DESIGNEE(S) (IN ADDITION TO ANY OTHER EXPENSE AMOUNTS PAID TO ANY BUYER
PRIOR TO THE DATE OF THIS AGREEMENT) FOR ALL REASONABLE COSTS AND EXPENSES
INCURRED IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION
DOCUMENTS (INCLUDING ALL REASONABLE LEGAL FEES AND DISBURSEMENTS IN CONNECTION
THEREWITH, DOCUMENTATION AND IMPLEMENTATION OF THE TRANSACTIONS CONTEMPLATED BY
THE TRANSACTION DOCUMENTS AND DUE DILIGENCE IN CONNECTION THEREWITH), IN AN
AMOUNT NOT TO EXCEED $45,000  (IN ADDITION TO ANY OTHER EXPENSE AMOUNTS PAID TO
ANY BUYER PRIOR TO THE DATE OF THIS AGREEMENT), WHICH AMOUNT SHALL BE WITHHELD
BY SUCH BUYER FROM ITS PURCHASE PRICE AT THE CLOSING.  THE COMPANY SHALL BE
RESPONSIBLE FOR THE PAYMENT OF ANY PLACEMENT AGENT’S FEES, FINANCIAL ADVISORY
FEES, OR BROKER’S COMMISSIONS RELATING TO OR ARISING OUT OF THE TRANSACTIONS
CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY FEES PAYABLE TO THE
AGENT.  THE COMPANY SHALL PAY, AND HOLD EACH BUYER HARMLESS AGAINST, ANY
LIABILITY, LOSS OR EXPENSE (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEY’S
FEES AND OUT-OF-POCKET EXPENSES) ARISING IN CONNECTION WITH ANY CLAIM RELATING
TO ANY SUCH PAYMENT.

(H)           PLEDGE OF SECURITIES.  THE COMPANY ACKNOWLEDGES AND AGREES THAT
THE SECURITIES MAY BE PLEDGED BY AN INVESTOR (AS DEFINED IN THE REGISTRATION
RIGHTS AGREEMENT) IN CONNECTION WITH A BONA FIDE MARGIN AGREEMENT OR OTHER LOAN
OR FINANCING ARRANGEMENT THAT IS SECURED BY THE SECURITIES.  THE PLEDGE OF
SECURITIES SHALL NOT BE DEEMED TO BE A TRANSFER, SALE OR ASSIGNMENT OF THE
SECURITIES HEREUNDER, AND NO INVESTOR EFFECTING A PLEDGE OF SECURITIES SHALL BE
REQUIRED TO PROVIDE THE COMPANY WITH ANY NOTICE THEREOF OR OTHERWISE MAKE ANY
DELIVERY TO THE COMPANY PURSUANT TO THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT, INCLUDING, WITHOUT LIMITATION, SECTION 2(F) HEREOF; PROVIDED THAT AN
INVESTOR AND ITS PLEDGEE SHALL BE REQUIRED TO COMPLY WITH THE PROVISIONS OF
SECTION 2(F) HEREOF IN ORDER TO EFFECT A SALE, TRANSFER OR ASSIGNMENT OF
SECURITIES TO SUCH PLEDGEE.  THE COMPANY HEREBY AGREES TO EXECUTE AND DELIVER
SUCH DOCUMENTATION AS A PLEDGEE OF THE SECURITIES MAY REASONABLY REQUEST IN
CONNECTION WITH A PLEDGE OF THE SECURITIES TO SUCH PLEDGEE BY AN INVESTOR.

(I)            DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION.  ON OR
BEFORE 8:30 A.M., NEW YORK CITY TIME, ON THE FIRST BUSINESS DAY FOLLOWING THE
DATE OF THIS AGREEMENT, THE COMPANY SHALL ISSUE A PRESS RELEASE AND FILE A
CURRENT REPORT ON FORM 8-K DESCRIBING THE TERMS OF THE TRANSACTIONS CONTEMPLATED
BY THE TRANSACTION DOCUMENTS IN THE FORM REQUIRED BY THE 1934 ACT AND ATTACHING
THE MATERIAL TRANSACTION DOCUMENTS (INCLUDING, WITHOUT LIMITATION, THIS
AGREEMENT (AND ALL SCHEDULES TO THIS AGREEMENT), THE FORM OF THE NOTES, THE FORM
OF WARRANT AND THE FORM OF THE REGISTRATION RIGHTS AGREEMENT) AS EXHIBITS TO
SUCH FILING (INCLUDING ALL ATTACHMENTS, THE “8-K FILING”).  FROM AND AFTER THE
FILING OF THE 8-K FILING WITH THE SEC, NO BUYER SHALL BE IN POSSESSION OF ANY
MATERIAL, NONPUBLIC INFORMATION RECEIVED FROM THE COMPANY, ANY OF ITS
SUBSIDIARIES OR ANY OF ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS,

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THAT IS NOT DISCLOSED IN THE 8-K FILING.  THE COMPANY SHALL NOT, AND SHALL CAUSE
EACH OF ITS SUBSIDIARIES AND ITS AND EACH OF THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS, NOT TO, PROVIDE ANY BUYER WITH ANY MATERIAL,
NONPUBLIC INFORMATION REGARDING THE COMPANY OR ANY OF ITS SUBSIDIARIES FROM AND
AFTER THE FILING OF THE 8-K FILING WITH THE SEC WITHOUT THE EXPRESS WRITTEN
CONSENT OF SUCH BUYER.  IF A BUYER HAS, OR BELIEVES IT HAS, RECEIVED ANY SUCH
MATERIAL, NONPUBLIC INFORMATION REGARDING THE COMPANY OR ANY OF ITS
SUBSIDIARIES, IT SHALL PROVIDE THE COMPANY WITH WRITTEN NOTICE THEREOF.  THE
COMPANY SHALL, WITHIN FIVE (5) TRADING DAYS (AS DEFINED IN THE NOTES) OF RECEIPT
OF SUCH NOTICE, MAKE PUBLIC DISCLOSURE OF SUCH MATERIAL, NONPUBLIC INFORMATION. 
IN THE EVENT OF A BREACH OF THE FOREGOING COVENANT BY THE COMPANY, ANY OF ITS
SUBSIDIARIES, OR ANY OF ITS OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES
AND AGENTS, IN ADDITION TO ANY OTHER REMEDY PROVIDED HEREIN OR IN THE
TRANSACTION DOCUMENTS, A BUYER SHALL HAVE THE RIGHT TO MAKE A PUBLIC DISCLOSURE,
IN THE FORM OF A PRESS RELEASE, PUBLIC ADVERTISEMENT OR OTHERWISE, OF SUCH
MATERIAL, NONPUBLIC INFORMATION WITHOUT THE PRIOR APPROVAL BY THE COMPANY, ITS
SUBSIDIARIES, OR ANY OF ITS OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES
OR AGENTS.  NO BUYER SHALL HAVE ANY LIABILITY TO THE COMPANY, ITS SUBSIDIARIES,
OR ANY OF ITS OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS
OR AGENTS FOR ANY SUCH DISCLOSURE.  SUBJECT TO THE FOREGOING, NEITHER THE
COMPANY, ITS SUBSIDIARIES NOR ANY BUYER SHALL ISSUE ANY PRESS RELEASES OR ANY
OTHER PUBLIC STATEMENTS WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY;
PROVIDED, HOWEVER, THAT THE COMPANY SHALL BE ENTITLED, WITHOUT THE PRIOR
APPROVAL OF ANY BUYER, TO MAKE ANY PRESS RELEASE OR OTHER PUBLIC DISCLOSURE WITH
RESPECT TO SUCH TRANSACTIONS (I) IN SUBSTANTIAL CONFORMITY WITH THE 8-K FILING
AND CONTEMPORANEOUSLY THEREWITH AND (II) AS IS REQUIRED BY APPLICABLE LAW AND
REGULATIONS (PROVIDED THAT IN THE CASE OF CLAUSE (I) EACH BUYER SHALL BE
CONSULTED BY THE COMPANY IN CONNECTION WITH ANY SUCH PRESS RELEASE OR OTHER
PUBLIC DISCLOSURE PRIOR TO ITS RELEASE).  WITHOUT THE PRIOR WRITTEN CONSENT OF
ANY APPLICABLE BUYER, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES OR
AFFILIATES SHALL DISCLOSE THE NAME OF SUCH BUYER IN ANY FILING, ANNOUNCEMENT,
RELEASE OR OTHERWISE.

(J)            RESTRICTION ON REDEMPTION AND CASH DIVIDENDS.  SO LONG AS ANY
NOTES ARE OUTSTANDING, THE COMPANY SHALL NOT, DIRECTLY OR INDIRECTLY, REDEEM, OR
DECLARE OR PAY ANY CASH DIVIDEND OR DISTRIBUTION ON, THE COMMON STOCK WITHOUT
THE PRIOR EXPRESS WRITTEN CONSENT OF THE HOLDERS OF NOTES REPRESENTING NOT LESS
THAN A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE THEN OUTSTANDING NOTES.

(K)           ADDITIONAL NOTES; VARIABLE SECURITIES; DILUTIVE ISSUANCES.  SO
LONG AS ANY BUYER BENEFICIALLY OWNS ANY SECURITIES, THE COMPANY WILL NOT ISSUE
ANY NOTES OTHER THAN TO THE BUYERS AS CONTEMPLATED HEREBY AND THE COMPANY SHALL
NOT ISSUE ANY OTHER SECURITIES THAT WOULD CAUSE A BREACH OR DEFAULT UNDER THE
NOTES.  FOR SO LONG AS ANY NOTES OR WARRANTS REMAIN OUTSTANDING, THE COMPANY
SHALL NOT, IN ANY MANNER, ISSUE OR SELL ANY RIGHTS, WARRANTS OR OPTIONS TO
SUBSCRIBE FOR OR PURCHASE COMMON STOCK OR DIRECTLY OR INDIRECTLY CONVERTIBLE
INTO OR EXCHANGEABLE OR EXERCISABLE FOR COMMON STOCK AT A PRICE WHICH VARIES OR
MAY VARY WITH THE MARKET PRICE OF THE COMMON STOCK, INCLUDING BY WAY OF ONE OR
MORE RESET(S) TO ANY FIXED PRICE UNLESS THE CONVERSION, EXCHANGE OR EXERCISE
PRICE OF ANY SUCH SECURITY CANNOT BE LESS THAN THE THEN APPLICABLE CONVERSION
PRICE (AS DEFINED IN THE NOTES) WITH RESPECT TO THE COMMON STOCK INTO WHICH ANY
NOTE IS CONVERTIBLE OR THE THEN APPLICABLE EXERCISE PRICE (AS DEFINED IN THE
WARRANTS) WITH RESPECT TO THE COMMON STOCK INTO WHICH ANY WARRANT IS
EXERCISABLE.  FOR SO LONG AS ANY NOTES OR WARRANTS REMAIN OUTSTANDING, THE
COMPANY SHALL NOT, IN ANY MANNER, ENTER INTO OR AFFECT ANY DILUTIVE ISSUANCES
(AS DEFINED IN THE NOTES) IF THE EFFECT OF SUCH DILUTIVE ISSUANCE IS

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TO CAUSE THE COMPANY TO BE REQUIRED TO ISSUE UPON CONVERSION OF ANY NOTE OR
EXERCISE OF ANY WARRANT ANY SHARES OF COMMON STOCK IN EXCESS OF THAT NUMBER OF
SHARES OF COMMON STOCK WHICH THE COMPANY MAY ISSUE UPON CONVERSION OF THE NOTES
AND EXERCISE OF THE WARRANTS WITHOUT BREACHING THE COMPANY’S OBLIGATIONS UNDER
THE RULES OR REGULATIONS OF THE PRINCIPAL MARKET.

(L)            CORPORATE EXISTENCE.  SO LONG AS ANY BUYER BENEFICIALLY OWNS ANY
SECURITIES, THE COMPANY SHALL NOT BE PARTY TO ANY FUNDAMENTAL TRANSACTION (AS
DEFINED IN THE NOTES) UNLESS THE COMPANY IS IN COMPLIANCE WITH THE APPLICABLE
PROVISIONS GOVERNING FUNDAMENTAL TRANSACTIONS SET FORTH IN THE NOTES AND THE
WARRANTS.

(M)          RESERVATION OF SHARES.  THE COMPANY SHALL TAKE ALL ACTION NECESSARY
TO AT ALL TIMES HAVE AUTHORIZED, AND RESERVED FOR THE PURPOSE OF ISSUANCE, NO
LESS THAN 150% OF THE SUM OF  THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE (I)
UPON CONVERSION OF THE NOTES ISSUED AT THE CLOSING, (II) AS INTEREST SHARES
PURSUANT TO THE TERMS OF THE NOTES AND (III) UPON EXERCISE OF THE WARRANTS
ISSUED AT THE CLOSING (WITHOUT TAKING INTO ACCOUNT ANY LIMITATIONS ON THE
CONVERSION OF THE NOTES OR EXERCISE OF THE WARRANTS SET FORTH IN THE NOTES AND
WARRANTS, RESPECTIVELY).

(N)           CONDUCT OF BUSINESS.  THE BUSINESS OF THE COMPANY AND ITS
SUBSIDIARIES SHALL NOT BE CONDUCTED IN VIOLATION OF ANY LAW, ORDINANCE OR
REGULATION OF ANY GOVERNMENTAL ENTITY, EXCEPT WHERE SUCH VIOLATIONS WOULD NOT
RESULT, EITHER INDIVIDUALLY OR IN THE AGGREGATE, IN A MATERIAL ADVERSE EFFECT.

(O)           ADDITIONAL ISSUANCES OF SECURITIES.

(I)            FOR PURPOSES OF THIS SECTION 4(O), THE FOLLOWING DEFINITIONS
SHALL APPLY.

(A)          “CONVERTIBLE SECURITIES” MEANS ANY STOCK OR SECURITIES (OTHER THAN
OPTIONS) CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR SHARES OF COMMON
STOCK.

(B)           “OPTIONS” MEANS ANY RIGHTS, WARRANTS OR OPTIONS TO SUBSCRIBE FOR
OR PURCHASE SHARES OF COMMON STOCK OR CONVERTIBLE SECURITIES.

(C)           “COMMON STOCK EQUIVALENTS” MEANS, COLLECTIVELY, OPTIONS AND
CONVERTIBLE SECURITIES.

(II)           FROM THE DATE HEREOF UNTIL THE DATE THAT IS 30 TRADING DAYS
FOLLOWING THE EFFECTIVE DATE (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT)
(THE “TRIGGER DATE”), THE COMPANY WILL NOT, DIRECTLY OR INDIRECTLY, FILE ANY
REGISTRATION STATEMENT WITH THE SEC OTHER THAN THE REGISTRATION STATEMENT (AS
DEFINED IN THE REGISTRATION RIGHTS AGREEMENT).  FROM THE DATE HEREOF UNTIL THE
TRIGGER DATE, THE COMPANY WILL NOT, DIRECTLY OR INDIRECTLY, OFFER, SELL, GRANT
ANY OPTION TO PURCHASE, OR OTHERWISE DISPOSE OF (OR ANNOUNCE ANY OFFER, SALE,
GRANT OR ANY OPTION TO PURCHASE OR OTHER DISPOSITION OF) ANY OF ITS OR ITS
SUBSIDIARIES’ EQUITY OR EQUITY EQUIVALENT SECURITIES, INCLUDING WITHOUT
LIMITATION ANY DEBT, PREFERRED STOCK OR OTHER INSTRUMENT OR SECURITY THAT IS, AT
ANY TIME DURING ITS LIFE AND UNDER ANY CIRCUMSTANCES, CONVERTIBLE INTO OR

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EXCHANGEABLE OR EXERCISABLE FOR SHARES OF COMMON STOCK OR COMMON STOCK
EQUIVALENTS (ANY SUCH OFFER, SALE, GRANT, DISPOSITION OR ANNOUNCEMENT BEING
REFERRED TO AS A “SUBSEQUENT PLACEMENT”).

(III)          FROM THE TRIGGER DATE UNTIL THE SECOND ANNIVERSARY OF THE CLOSING
DATE, THE COMPANY WILL NOT, DIRECTLY OR INDIRECTLY, EFFECT ANY SUBSEQUENT
PLACEMENT UNLESS THE COMPANY SHALL HAVE FIRST COMPLIED WITH THIS SECTION
4(O)(III).

(A)          THE COMPANY SHALL DELIVER TO EACH BUYER AN IRREVOCABLE WRITTEN
NOTICE (THE ”OFFER NOTICE”) OF ANY PROPOSED OR INTENDED ISSUANCE OR SALE OR
EXCHANGE (THE ”OFFER”) OF THE SECURITIES BEING OFFERED (THE “OFFERED
SECURITIES”) IN A SUBSEQUENT PLACEMENT, WHICH OFFER NOTICE SHALL (W) IDENTIFY
AND DESCRIBE THE OFFERED SECURITIES, (X) DESCRIBE THE PRICE AND OTHER TERMS UPON
WHICH THEY ARE TO BE ISSUED, SOLD OR EXCHANGED, AND THE NUMBER OR AMOUNT OF THE
OFFERED SECURITIES TO BE ISSUED, SOLD OR EXCHANGED, (Y) IDENTIFY THE PERSONS OR
ENTITIES (IF KNOWN) TO WHICH OR WITH WHICH THE OFFERED SECURITIES ARE TO BE
OFFERED, ISSUED, SOLD OR EXCHANGED AND (Z) OFFER TO ISSUE AND SELL TO OR
EXCHANGE WITH SUCH BUYERS AT LEAST 30% OF THE OFFERED SECURITIES ALLOCATED AMONG
SUCH BUYERS (A) BASED ON SUCH BUYER’S PRO RATA PORTION OF THE AGGREGATE
PRINCIPAL AMOUNT OF NOTES PURCHASED HEREUNDER (THE “BASIC AMOUNT”), AND (B) WITH
RESPECT TO EACH BUYER THAT ELECTS TO PURCHASE ITS BASIC AMOUNT, ANY ADDITIONAL
PORTION OF THE OFFERED SECURITIES ATTRIBUTABLE TO THE BASIC AMOUNTS OF OTHER
BUYERS AS SUCH BUYER SHALL INDICATE IT WILL PURCHASE OR ACQUIRE SHOULD THE OTHER
BUYERS SUBSCRIBE FOR LESS THAN THEIR BASIC AMOUNTS (THE “UNDERSUBSCRIPTION
AMOUNT”), WHICH PROCESS SHALL BE REPEATED UNTIL THE BUYERS SHALL HAVE AN
OPPORTUNITY TO SUBSCRIBE FOR ANY REMAINING UNDERSUBSCRIPTION AMOUNT.

(B)           TO ACCEPT AN OFFER, IN WHOLE OR IN PART, SUCH BUYER MUST DELIVER A
WRITTEN NOTICE TO THE COMPANY PRIOR TO THE END OF THE TENTH (10TH) BUSINESS DAY
AFTER SUCH BUYER’S RECEIPT OF THE OFFER NOTICE (THE “OFFER PERIOD”), SETTING
FORTH THE PORTION OF SUCH BUYER’S BASIC AMOUNT THAT SUCH BUYER ELECTS TO
PURCHASE AND, IF SUCH BUYER SHALL ELECT TO PURCHASE ALL OF ITS BASIC AMOUNT, THE
UNDERSUBSCRIPTION AMOUNT, IF ANY, THAT SUCH BUYER ELECTS TO PURCHASE (IN EITHER
CASE, THE “NOTICE OF ACCEPTANCE”); PROVIDED, HOWEVER, THAT SUCH BUYERS MAY NOT
ACCEPT AN OFFER BY ELECTING TO PURCHASE LESS THAN 5% OF THE OFFERED SECURITIES
ON AN AGGREGATE BASIS.  IF THE BASIC AMOUNTS SUBSCRIBED FOR BY ALL BUYERS ARE
LESS THAN THE TOTAL OF ALL OF THE BASIC AMOUNTS, THEN EACH BUYER WHO HAS SET
FORTH AN UNDERSUBSCRIPTION AMOUNT IN ITS NOTICE OF ACCEPTANCE SHALL BE ENTITLED
TO PURCHASE, IN ADDITION TO THE BASIC AMOUNTS SUBSCRIBED FOR, THE
UNDERSUBSCRIPTION AMOUNT IT HAS SUBSCRIBED FOR; PROVIDED, HOWEVER, THAT IF THE
UNDERSUBSCRIPTION AMOUNTS SUBSCRIBED FOR EXCEED THE DIFFERENCE BETWEEN THE TOTAL
OF ALL THE BASIC AMOUNTS AND THE BASIC AMOUNTS SUBSCRIBED FOR (THE “AVAILABLE
UNDERSUBSCRIPTION AMOUNT”), EACH BUYER WHO HAS SUBSCRIBED FOR ANY
UNDERSUBSCRIPTION AMOUNT SHALL BE ENTITLED TO PURCHASE ONLY THAT PORTION OF THE
AVAILABLE UNDERSUBSCRIPTION AMOUNT AS THE BASIC AMOUNT OF SUCH BUYER BEARS TO
THE TOTAL BASIC AMOUNTS OF ALL BUYERS THAT HAVE SUBSCRIBED FOR UNDERSUBSCRIPTION
AMOUNTS, SUBJECT TO ROUNDING BY THE COMPANY TO THE EXTENT ITS DEEMS REASONABLY
NECESSARY.

(C)           THE COMPANY SHALL HAVE FIFTEEN (15) BUSINESS DAYS FROM THE
EXPIRATION OF THE OFFER PERIOD ABOVE TO OFFER, ISSUE, SELL OR EXCHANGE ALL OR
ANY

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PART OF SUCH OFFERED SECURITIES AS TO WHICH A NOTICE OF ACCEPTANCE HAS NOT BEEN
GIVEN BY THE BUYERS (THE “REFUSED SECURITIES”), BUT ONLY TO THE OFFEREES
DESCRIBED IN THE OFFER NOTICE (IF SO DESCRIBED THEREIN) AND ONLY UPON TERMS AND
CONDITIONS (INCLUDING, WITHOUT LIMITATION, UNIT PRICES AND INTEREST RATES) THAT
ARE NOT MORE FAVORABLE TO THE ACQUIRING PERSON OR PERSONS OR LESS FAVORABLE TO
THE COMPANY THAN THOSE SET FORTH IN THE OFFER NOTICE.

(D)          IN THE EVENT THE COMPANY SHALL PROPOSE TO SELL LESS THAN ALL THE
REFUSED SECURITIES (ANY SUCH SALE TO BE IN THE MANNER AND ON THE TERMS SPECIFIED
IN SECTION 4(O)(III)(C) ABOVE), THEN EACH BUYER MAY, AT ITS SOLE OPTION AND IN
ITS SOLE DISCRETION, REDUCE THE NUMBER OR AMOUNT OF THE OFFERED SECURITIES
SPECIFIED IN ITS NOTICE OF ACCEPTANCE TO AN AMOUNT THAT SHALL BE NOT LESS THAN
THE NUMBER OR AMOUNT OF THE OFFERED SECURITIES THAT SUCH BUYER ELECTED TO
PURCHASE PURSUANT TO SECTION 4(O)(III)(B) ABOVE MULTIPLIED BY A FRACTION, (I)
THE NUMERATOR OF WHICH SHALL BE THE NUMBER OR AMOUNT OF OFFERED SECURITIES THE
COMPANY ACTUALLY PROPOSES TO ISSUE, SELL OR EXCHANGE (INCLUDING OFFERED
SECURITIES TO BE ISSUED OR SOLD TO BUYERS PURSUANT TO SECTION 4(O)(III)(C) ABOVE
PRIOR TO SUCH REDUCTION) AND (II) THE DENOMINATOR OF WHICH SHALL BE THE ORIGINAL
AMOUNT OF THE OFFERED SECURITIES.  IN THE EVENT THAT ANY BUYER SO ELECTS TO
REDUCE THE NUMBER OR AMOUNT OF OFFERED SECURITIES SPECIFIED IN ITS NOTICE OF
ACCEPTANCE, THE COMPANY MAY NOT ISSUE, SELL OR EXCHANGE MORE THAN THE REDUCED
NUMBER OR AMOUNT OF THE OFFERED SECURITIES UNLESS AND UNTIL SUCH SECURITIES HAVE
AGAIN BEEN OFFERED TO THE BUYERS IN ACCORDANCE WITH SECTION 4(O)(III)(A) ABOVE.

(E)           UPON THE CLOSING OF THE ISSUANCE, SALE OR EXCHANGE OF ALL OR LESS
THAN ALL OF THE REFUSED SECURITIES, THE BUYERS SHALL ACQUIRE FROM THE COMPANY,
AND THE COMPANY SHALL ISSUE TO THE BUYERS, THE NUMBER OR AMOUNT OF OFFERED
SECURITIES SPECIFIED IN THE NOTICES OF ACCEPTANCE, AS REDUCED PURSUANT TO
SECTION 4(P)(III)(C) ABOVE IF THE BUYERS HAVE SO ELECTED, UPON THE TERMS AND
CONDITIONS SPECIFIED IN THE OFFER.  NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, IF THE COMPANY DOES NOT CONSUMMATE THE CLOSING OF
THE ISSUANCE, SALE OR EXCHANGE OF ALL OR LESS THAN ALL OF THE REFUSED SECURITIES
WITHIN FIFTEEN (15) BUSINESS DAYS OF THE EXPIRATION OF THE OFFER PERIOD, THE
COMPANY SHALL ISSUE TO THE BUYERS THE NUMBER OR AMOUNT OF OFFERED SECURITIES
SPECIFIED IN THE NOTICES OF ACCEPTANCE, AS REDUCED PURSUANT TO SECTION
4(P)(III)(D) ABOVE IF THE BUYERS HAVE SO ELECTED, UPON THE TERMS AND CONDITIONS
SPECIFIED IN THE OFFER.  THE PURCHASE BY THE BUYERS OF ANY OFFERED SECURITIES IS
SUBJECT IN ALL CASES TO THE PREPARATION, EXECUTION AND DELIVERY BY THE COMPANY
AND THE BUYERS OF A PURCHASE AGREEMENT RELATING TO SUCH OFFERED SECURITIES
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE BUYERS AND THEIR RESPECTIVE
COUNSEL.

(F)           ANY OFFERED SECURITIES NOT ACQUIRED BY THE BUYERS OR OTHER PERSONS
IN ACCORDANCE WITH SECTION 4(O)(III)(C) ABOVE MAY NOT BE ISSUED, SOLD OR
EXCHANGED UNTIL THEY ARE AGAIN OFFERED TO THE BUYERS UNDER THE PROCEDURES
SPECIFIED IN THIS AGREEMENT.

(IV)          THE RESTRICTIONS CONTAINED IN SUBSECTIONS (II) AND (III) OF THIS
SECTION 4(O) SHALL NOT APPLY IN CONNECTION WITH THE ISSUANCE OF ANY EXCLUDED
SECURITIES (AS DEFINED IN THE NOTES).

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(P)           FUTURE SECURITY.

(I)            AT SUCH TIME AS THE SONOPRESS INDEBTEDNESS (AS DEFINED IN THE
NOTES) HAS BEEN REPAID IN FULL OR IS OTHERWISE TERMINATED, CANCELLED OR FORGIVEN
(THE “SONOPRESS TERMINATION”), THE COMPANY SHALL USE ITS BEST EFFORTS TO
PROMPTLY (AND SHALL PROMPTLY CAUSE ITS SUBSIDIARIES TO) SECURE THE COMPANY’S
LIABILITIES AND OBLIGATIONS UNDER THE NOTES BY GRANTING TO THE BUYERS A SECOND
PRIORITY PERFECTED SECURITY INTEREST IN ALL OF THE ASSETS AND PROPERTIES OF THE
COMPANY (AND ITS SUBSIDIARIES), INCLUDING (WITHOUT LIMITATION) THE CAPITAL STOCK
AND ASSETS AND PROPERTIES OF EACH OF THE COMPANY’S SUBSIDIARIES, JUNIOR SOLELY
TO THE LIEN SECURING THE PERMITTED SENIOR INDEBTEDNESS (COLLECTIVELY, THE
“SECOND PRIORITY INTERESTS”), WHICH SECOND PRIORITY INTERESTS SHALL BE EVIDENCED
BY DOCUMENTATION REASONABLY SATISFACTORY TO THE BUYERS.

(II)           THE COMPANY SHALL NOT AMEND, MODIFY OR REFINANCE ANY OF ITS
PERMITTED SENIOR INDEBTEDNESS (AS DEFINED IN THE NOTES) UNLESS, PRIOR TO OR
CONTEMPORANEOUSLY THEREWITH, THE COMPANY SHALL HAVE SECURED ITS LIABILITIES AND
OBLIGATIONS UNDER THE NOTES BY (A) IN THE EVENT THAT THE SONOPRESS TERMINATION
SHALL HAVE OCCURRED, GRANTING (AND CAUSING ITS SUBSIDIARIES TO GRANT) THE SECOND
PRIORITY INTERESTS TO THE BUYERS, OR (B) IN THE EVENT THAT THE SONOPRESS
TERMINATION SHALL NOT THEN HAVE OCCURRED, BY GRANTING (AND BY CAUSING ITS
SUBSIDIARIES TO GRANT) TO THE BUYERS A THIRD PRIORITY PERFECTED SECURITY
INTEREST IN ALL OF THE ASSETS AND PROPERTIES OF THE COMPANY (AND ITS
SUBSIDIARIES), INCLUDING (WITHOUT LIMITATION) THE CAPITAL STOCK AND ASSETS AND
PROPERTIES OF EACH OF THE COMPANY’S SUBSIDIARIES, JUNIOR SOLELY TO THE LIENS
SECURING THE PERMITTED SENIOR INDEBTEDNESS AND THE SONOPRESS INDEBTEDNESS
(COLLECTIVELY, THE “THIRD PRIORITY INTERESTS”), AND SHALL EVIDENCE THE SECURITY
INTEREST CONTEMPLATED BY CLAUSES (A) OR (B), AS APPLICABLE, BY DOCUMENTATION
REASONABLY SATISFACTORY TO THE BUYERS.

(III)          NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS
4(P)(I) AND 4(P)(II) HEREOF, THE COMPANY (AND ITS SUBSIDIARIES) SHALL USE ITS
BEST EFFORTS TO GRANT (AND TO CAUSE ITS SUBSIDIARIES TO GRANT) THE THIRD
PRIORITY INTERESTS TO THE BUYERS WITHIN 120 DAYS AFTER THE DATE OF THIS
AGREEMENT.

(IV)          NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS
4(P)(I), 4(P)(II) AND 4(P)(III) HEREOF, (A) THE COMPANY (AND ITS SUBSIDIARIES)
SHALL NOT GRANT THE SECOND PRIORITY INTERESTS TO ANY BUYER, NOR SHALL ANY BUYER
ACCEPT ANY SUCH GRANT, UNLESS EACH BUYER AND WELLS FARGO FOOTHILL, INC. (“WFF”)
SHALL HAVE ENTERED INTO A DEBT AND LIEN SUBORDINATION AGREEMENT IN FORM AND
SUBSTANCE ACCEPTABLE TO WFF IN ITS SOLE AND ABSOLUTE DISCRETION, AND (B) THE
COMPANY (AND ITS SUBSIDIARIES) SHALL NOT GRANT THE THIRD PRIORITY INTERESTS TO
ANY BUYER, NOR SHALL ANY BUYER ACCEPT ANY SUCH GRANT, UNLESS (X) EACH BUYER AND
WFF SHALL HAVE ENTERED INTO A DEBT AND LIEN SUBORDINATION AGREEMENT IN FORM AND
SUBSTANCE SATISFACTORY TO WFF IN ITS SOLE AND ABSOLUTE DISCRETION, AND (Y) TO
THE EXTENT SUCH CONSENT IS REQUIRED UNDER THE REPLICATION AGREEMENT, DATED AS OF
JUNE 30, 2006, BETWEEN SONOPRESS LLC AND THE COMPANY, WFF AND THE COMPANY SHALL
HAVE RECEIVED THE CONSENT OF SONOPRESS LLC TO THE GRANTING OF THE THIRD PRIORITY
INTERESTS, IN FORM AND SUBSTANCE SATISFACTORY TO WFF IN ITS SOLE AND ABSOLUTE
DISCRETION, WHICH SUBORDINATION AGREEMENT AND/OR CONSENT, AS CONTEMPLATED BY
CLAUSES (A) AND (B) HEREOF, THE COMPANY SHALL USE ITS BEST EFFORTS TO OBTAIN.

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(Q)           THE COMPANY SHALL NOT IN ANY WAY AMEND OR MODIFY THE RELATIVITY
AGREEMENT IN A MANNER THAT COULD INHIBIT OR PREVENT THE COMPANY FROM GRANTING
THE SECURITY INTERESTS CONTEMPLATED BY SECTION 4(P).

(R)            WITHIN TEN (10) DAYS AFTER THE CLOSING DATE, THE COMPANY SHALL
DELIVER THE BUYER A CERTIFICATE EVIDENCING THE COMPANY’S QUALIFICATION AS A
FOREIGN CORPORATION AND GOOD STANDING ISSUED BY THE SECRETARY OF STATE (OR
COMPARABLE OFFICE) OF EACH JURISDICTION IN WHICH THE COMPANY CONDUCTS BUSINESS,
EACH AS OF A DATE WITHIN 10 DAYS OF THE CLOSING DATE.

5.             REGISTER; TRANSFER AGENT INSTRUCTIONS.

(A)           REGISTER.  THE COMPANY SHALL MAINTAIN AT ITS PRINCIPAL EXECUTIVE
OFFICES (OR SUCH OTHER OFFICE OR AGENCY OF THE COMPANY AS IT MAY DESIGNATE BY
NOTICE TO EACH HOLDER OF SECURITIES), A REGISTER FOR THE NOTES AND THE WARRANTS,
IN WHICH THE COMPANY SHALL RECORD THE NAME AND ADDRESS OF THE PERSON IN WHOSE
NAME THE NOTES AND THE WARRANTS HAVE BEEN ISSUED (INCLUDING THE NAME AND ADDRESS
OF EACH TRANSFEREE), THE PRINCIPAL AMOUNT OF NOTES HELD BY SUCH PERSON, THE
NUMBER OF CONVERSION SHARES ISSUABLE UPON CONVERSION OF THE NOTES, AND WARRANT
SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS HELD BY SUCH PERSON.  THE COMPANY
SHALL KEEP THE REGISTER OPEN AND AVAILABLE AT ALL TIMES DURING BUSINESS HOURS
FOR INSPECTION OF ANY BUYER OR ITS LEGAL REPRESENTATIVES.

(B)           TRANSFER AGENT INSTRUCTIONS.  THE COMPANY SHALL ISSUE IRREVOCABLE
INSTRUCTIONS TO ITS TRANSFER AGENT, AND ANY SUBSEQUENT TRANSFER AGENT, TO ISSUE
CERTIFICATES OR CREDIT SHARES TO THE APPLICABLE BALANCE ACCOUNTS AT THE
DEPOSITORY TRUST COMPANY (“DTC”), REGISTERED IN THE NAME OF EACH BUYER OR ITS
RESPECTIVE NOMINEE(S), FOR THE CONVERSION SHARES, THE INTEREST SHARES AND THE
WARRANT SHARES ISSUED AT THE CLOSING OR UPON CONVERSION OF THE NOTES OR EXERCISE
OF THE WARRANTS IN SUCH AMOUNTS AS SPECIFIED FROM TIME TO TIME BY EACH BUYER TO
THE COMPANY UPON CONVERSION OF THE NOTES OR EXERCISE OF THE WARRANTS IN THE FORM
OF EXHIBIT D ATTACHED HERETO (THE “IRREVOCABLE TRANSFER AGENT INSTRUCTIONS”). 
THE COMPANY WARRANTS THAT NO INSTRUCTION OTHER THAN THE IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS REFERRED TO IN THIS SECTION 5(B), AND STOP TRANSFER
INSTRUCTIONS TO GIVE EFFECT TO SECTION 2(G) HEREOF, WILL BE GIVEN BY THE COMPANY
TO ITS TRANSFER AGENT, AND THAT THE SECURITIES SHALL OTHERWISE BE FREELY
TRANSFERABLE ON THE BOOKS AND RECORDS OF THE COMPANY AS AND TO THE EXTENT
PROVIDED IN THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS.  IF A BUYER
EFFECTS A SALE, ASSIGNMENT OR TRANSFER OF THE SECURITIES IN ACCORDANCE WITH
SECTION 2(F), THE COMPANY SHALL PERMIT THE TRANSFER AND SHALL PROMPTLY INSTRUCT
ITS TRANSFER AGENT TO ISSUE ONE OR MORE CERTIFICATES OR CREDIT SHARES TO THE
APPLICABLE BALANCE ACCOUNTS AT DTC IN SUCH NAME AND IN SUCH DENOMINATIONS AS
SPECIFIED BY SUCH BUYER TO EFFECT SUCH SALE, TRANSFER OR ASSIGNMENT.  IN THE
EVENT THAT SUCH SALE, ASSIGNMENT OR TRANSFER INVOLVES CONVERSION SHARES, THE
INTEREST SHARES OR WARRANT SHARES SOLD, ASSIGNED OR TRANSFERRED PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO RULE 144, THE TRANSFER AGENT
SHALL ISSUE SUCH SECURITIES TO THE BUYER, ASSIGNEE OR TRANSFEREE, AS THE CASE
MAY BE, WITHOUT ANY RESTRICTIVE LEGEND.  THE COMPANY ACKNOWLEDGES THAT A BREACH
BY IT OF ITS OBLIGATIONS HEREUNDER WILL CAUSE IRREPARABLE HARM TO A BUYER. 
ACCORDINGLY, THE COMPANY ACKNOWLEDGES THAT THE REMEDY AT LAW FOR A BREACH OF ITS
OBLIGATIONS UNDER THIS SECTION 5(B) WILL BE INADEQUATE AND AGREES, IN THE EVENT
OF A BREACH OR THREATENED BREACH BY THE COMPANY OF THE PROVISIONS OF THIS
SECTION 5(B), THAT A BUYER SHALL BE ENTITLED, IN ADDITION TO ALL OTHER AVAILABLE
REMEDIES, TO AN ORDER AND/OR INJUNCTION RESTRAINING ANY BREACH AND REQUIRING
IMMEDIATE ISSUANCE AND TRANSFER, WITHOUT THE NECESSITY OF SHOWING ECONOMIC LOSS
AND WITHOUT ANY BOND OR OTHER SECURITY BEING REQUIRED.

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6.             CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.   THE OBLIGATION
OF THE COMPANY HEREUNDER TO ISSUE AND SELL THE NOTES AND THE RELATED WARRANTS TO
EACH BUYER AT THE CLOSING IS SUBJECT TO THE SATISFACTION, AT OR BEFORE THE
CLOSING DATE, OF EACH OF THE FOLLOWING CONDITIONS, PROVIDED THAT THESE
CONDITIONS ARE FOR THE COMPANY’S SOLE BENEFIT AND MAY BE WAIVED BY THE COMPANY
AT ANY TIME IN ITS SOLE DISCRETION BY PROVIDING EACH BUYER WITH PRIOR WRITTEN
NOTICE THEREOF:

(A)           SUCH BUYER SHALL HAVE EXECUTED EACH OF THE TRANSACTION DOCUMENTS
TO WHICH IT IS A PARTY AND DELIVERED THE SAME TO THE COMPANY

(B)           SUCH BUYER AND EACH OTHER BUYER SHALL HAVE DELIVERED TO THE
COMPANY THE PURCHASE PRICE (LESS, IN THE CASE OF PORTSIDE GROWTH AND OPPORTUNITY
FUND, THE AMOUNTS WITHHELD PURSUANT TO SECTION 4(G)) FOR THE NOTES AND THE
RELATED WARRANTS BEING PURCHASED BY SUCH BUYER AT THE CLOSING BY WIRE TRANSFER
OF IMMEDIATELY AVAILABLE FUNDS PURSUANT TO THE WIRE INSTRUCTIONS PROVIDED BY THE
COMPANY.

(C)           THE REPRESENTATIONS AND WARRANTIES OF SUCH BUYER SHALL BE TRUE AND
CORRECT IN ALL MATERIAL RESPECTS (EXCEPT FOR THOSE REPRESENTATIONS AND
WARRANTIES THAT ARE QUALIFIED BY MATERIALITY OR MATERIAL ADVERSE EFFECT, WHICH
SHALL BE TRUE AND CORRECT IN ALL RESPECTS) AS OF THE DATE WHEN MADE AND AS OF
THE CLOSING DATE AS THOUGH MADE AT THAT TIME (EXCEPT FOR REPRESENTATIONS AND
WARRANTIES THAT SPEAK AS OF A SPECIFIC DATE, WHICH SHALL BE TRUE AND CORRECT AS
OF SUCH SPECIFIED DATE), AND SUCH BUYER SHALL HAVE PERFORMED, SATISFIED AND
COMPLIED IN ALL MATERIAL RESPECTS WITH THE COVENANTS, AGREEMENTS AND CONDITIONS
REQUIRED BY THIS AGREEMENT TO BE PERFORMED, SATISFIED OR COMPLIED WITH BY SUCH
BUYER AT OR PRIOR TO THE CLOSING DATE.

7.             CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.  THE
OBLIGATION OF EACH BUYER HEREUNDER TO PURCHASE THE NOTES AND THE RELATED
WARRANTS AT THE CLOSING IS SUBJECT TO THE SATISFACTION, AT OR BEFORE THE CLOSING
DATE, OF EACH OF THE FOLLOWING CONDITIONS, PROVIDED THAT THESE CONDITIONS ARE
FOR EACH BUYER’S SOLE BENEFIT AND MAY BE WAIVED BY SUCH BUYER AT ANY TIME IN ITS
SOLE DISCRETION BY PROVIDING THE COMPANY WITH PRIOR WRITTEN NOTICE THEREOF:

(A)           THE COMPANY SHALL HAVE DULY EXECUTED AND DELIVERED TO SUCH BUYER
(I) EACH OF THE TRANSACTION DOCUMENTS AND (II) THE NOTES (ALLOCATED IN SUCH
PRINCIPAL AMOUNTS AS SUCH BUYER SHALL REQUEST), BEING PURCHASED BY SUCH BUYER AT
THE CLOSING PURSUANT TO THIS AGREEMENT, AND (III) THE RELATED WARRANTS
(ALLOCATED IN SUCH AMOUNTS AS SUCH BUYER SHALL REQUEST) BEING PURCHASED BY SUCH
BUYER AT THE CLOSING PURSUANT TO THIS AGREEMENT.

(B)           SUCH BUYER SHALL HAVE RECEIVED THE OPINION OF GREENBERG TRAURIG,
LLP, THE COMPANY’S OUTSIDE COUNSEL, DATED AS OF THE CLOSING DATE, IN
SUBSTANTIALLY THE FORM OF EXHIBIT E ATTACHED HERETO.

(C)           THE COMPANY SHALL HAVE DELIVERED TO SUCH BUYER A COPY OF THE
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS, IN THE FORM OF EXHIBIT D ATTACHED
HERETO, WHICH INSTRUCTIONS SHALL HAVE BEEN DELIVERED TO AND ACKNOWLEDGED IN
WRITING BY THE COMPANY’S TRANSFER AGENT.

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(D)           THE COMPANY SHALL HAVE DELIVERED TO SUCH BUYER A CERTIFICATE
EVIDENCING THE FORMATION AND GOOD STANDING OF THE COMPANY AND EACH OF ITS
SUBSIDIARIES IN SUCH ENTITY’S JURISDICTION OF FORMATION ISSUED BY THE SECRETARY
OF STATE (OR COMPARABLE OFFICE) OF SUCH JURISDICTION, AS OF A DATE WITHIN 10
DAYS OF THE CLOSING DATE.

(E)           [RESERVED]

(F)            THE COMPANY SHALL HAVE DELIVERED TO SUCH BUYER A CERTIFIED COPY
OF THE CERTIFICATE OF INCORPORATION AS CERTIFIED BY THE SECRETARY OF STATE OF
THE STATE OF DELAWARE WITHIN 10 DAYS OF THE CLOSING DATE.

(G)           THE COMPANY SHALL HAVE DELIVERED TO SUCH BUYER A CERTIFICATE,
EXECUTED BY THE SECRETARY OF THE COMPANY AND DATED AS OF THE CLOSING DATE, AS TO
(I) THE RESOLUTIONS CONSISTENT WITH SECTION 3(B) AS ADOPTED BY THE COMPANY’S
BOARD OF DIRECTORS IN A FORM REASONABLY ACCEPTABLE TO SUCH BUYER, (II) THE
CERTIFICATE OF INCORPORATION AND (III) THE BYLAWS, EACH AS IN EFFECT AT THE
CLOSING IN THE FORM ATTACHED HERETO AS EXHIBIT F.

(H)           THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHALL BE TRUE
AND CORRECT IN ALL MATERIAL RESPECTS (EXCEPT FOR THOSE REPRESENTATIONS AND
WARRANTIES THAT ARE QUALIFIED BY MATERIALITY OR MATERIAL ADVERSE EFFECT, WHICH
SHALL BE TRUE AND CORRECT IN ALL RESPECTS) AS OF THE DATE WHEN MADE AND AS OF
THE CLOSING DATE AS THOUGH MADE AT THAT TIME (EXCEPT FOR REPRESENTATIONS AND
WARRANTIES THAT SPEAK AS OF A SPECIFIC DATE, WHICH SHALL BE TRUE AND CORRECT AS
OF SUCH SPECIFIED DATE) AND THE COMPANY SHALL HAVE PERFORMED, SATISFIED AND
COMPLIED IN ALL MATERIAL RESPECTS WITH THE COVENANTS, AGREEMENTS AND CONDITIONS
REQUIRED BY THE TRANSACTION DOCUMENTS TO BE PERFORMED, SATISFIED OR COMPLIED
WITH BY THE COMPANY AT OR PRIOR TO THE CLOSING DATE.  SUCH BUYER SHALL HAVE
RECEIVED A CERTIFICATE, EXECUTED BY THE CHIEF EXECUTIVE OFFICER OF THE COMPANY,
DATED AS OF THE CLOSING DATE, TO THE FOREGOING EFFECT AND AS TO SUCH OTHER
MATTERS AS MAY BE REASONABLY REQUESTED BY SUCH BUYER IN THE FORM ATTACHED HERETO
AS EXHIBIT G.

(I)            THE COMPANY SHALL HAVE DELIVERED TO SUCH BUYER A LETTER FROM THE
COMPANY’S TRANSFER AGENT CERTIFYING THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AS OF A DATE WITHIN FIVE DAYS OF THE CLOSING DATE.

(J)            THE COMMON STOCK (I) SHALL BE DESIGNATED FOR QUOTATION OR LISTED
ON THE PRINCIPAL MARKET AND (II) SHALL NOT HAVE BEEN SUSPENDED, AS OF THE
CLOSING DATE, BY THE SEC OR THE PRINCIPAL MARKET FROM TRADING ON THE PRINCIPAL
MARKET NOR SHALL SUSPENSION BY THE SEC OR THE PRINCIPAL MARKET HAVE BEEN
THREATENED, AS OF THE CLOSING DATE, EITHER (A) IN WRITING BY THE SEC OR THE
PRINCIPAL MARKET OR (B) BY FALLING BELOW THE MINIMUM LISTING MAINTENANCE
REQUIREMENTS OF THE PRINCIPAL MARKET.

(K)           THE COMPANY SHALL HAVE OBTAINED ALL GOVERNMENTAL, REGULATORY OR
THIRD PARTY CONSENTS AND APPROVALS, IF ANY, NECESSARY FOR THE SALE OF THE
SECURITIES.

(L)            THE COMPANY SHALL HAVE DELIVERED TO SUCH BUYER SUCH OTHER
DOCUMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AS SUCH
BUYER OR ITS COUNSEL MAY REASONABLY REQUEST.

26

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8.             TERMINATION.  IN THE EVENT THAT THE CLOSING SHALL NOT HAVE
OCCURRED WITH RESPECT TO A BUYER ON OR BEFORE FIVE (5) BUSINESS DAYS FROM THE
DATE HEREOF DUE TO THE COMPANY’S OR SUCH BUYER’S FAILURE TO SATISFY THE
CONDITIONS SET FORTH IN SECTIONS 6 AND 7 ABOVE (AND THE NONBREACHING PARTY’S
FAILURE TO WAIVE SUCH UNSATISFIED CONDITION(S)), THE NONBREACHING PARTY SHALL
HAVE THE OPTION TO TERMINATE THIS AGREEMENT WITH RESPECT TO SUCH BREACHING PARTY
AT THE CLOSE OF BUSINESS ON SUCH DATE WITHOUT LIABILITY OF ANY PARTY TO ANY
OTHER PARTY; PROVIDED, HOWEVER, IF THIS AGREEMENT IS TERMINATED PURSUANT TO THIS
SECTION 8, THE COMPANY SHALL REMAIN OBLIGATED TO REIMBURSE THE NON-BREACHING
BUYERS FOR THE EXPENSES DESCRIBED IN SECTION 4(G) ABOVE.

9.             MISCELLANEOUS.

(A)           GOVERNING LAW; JURISDICTION; JURY TRIAL.  ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTIONS) THAT WOULD CAUSE THE APPLICATION
OF THE LAWS OF ANY JURISDICTIONS OTHER THAN THE STATE OF NEW YORK.  EACH PARTY
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE
VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH
PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(B)           COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN TWO OR MORE
IDENTICAL COUNTERPARTS, ALL OF WHICH SHALL BE CONSIDERED ONE AND THE SAME
AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN SIGNED BY EACH
PARTY AND DELIVERED TO THE OTHER PARTY; PROVIDED THAT A FACSIMILE SIGNATURE
SHALL BE CONSIDERED DUE EXECUTION AND SHALL BE BINDING UPON THE SIGNATORY
THERETO WITH THE SAME FORCE AND EFFECT AS IF THE SIGNATURE WERE AN ORIGINAL, NOT
A FACSIMILE SIGNATURE.

(C)           HEADINGS.  THE HEADINGS OF THIS AGREEMENT ARE FOR CONVENIENCE OF
REFERENCE AND SHALL NOT FORM PART OF, OR AFFECT THE INTERPRETATION OF, THIS
AGREEMENT.

(D)           SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID
OR UNENFORCEABLE IN ANY JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL
NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN
THAT JURISDICTION OR THE VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS
AGREEMENT IN ANY OTHER JURISDICTION.

27

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(E)           ENTIRE AGREEMENT; AMENDMENTS.  THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS SUPERSEDE ALL OTHER PRIOR ORAL OR WRITTEN AGREEMENTS
BETWEEN THE BUYERS, THE COMPANY, THEIR AFFILIATES AND PERSONS ACTING ON THEIR
BEHALF WITH RESPECT TO THE MATTERS DISCUSSED HEREIN, AND THIS AGREEMENT, THE
OTHER TRANSACTION DOCUMENTS AND THE INSTRUMENTS REFERENCED HEREIN AND THEREIN
CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE MATTERS
COVERED HEREIN AND THEREIN AND, EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR
THEREIN, NEITHER THE COMPANY NOR ANY BUYER MAKES ANY REPRESENTATION, WARRANTY,
COVENANT OR UNDERTAKING WITH RESPECT TO SUCH MATTERS.  NO PROVISION OF THIS
AGREEMENT MAY BE AMENDED OTHER THAN BY AN INSTRUMENT IN WRITING SIGNED BY THE
COMPANY AND THE HOLDERS OF AT LEAST A MAJORITY OF THE AGGREGATE NUMBER OF
REGISTRABLE SECURITIES ISSUED AND ISSUABLE HEREUNDER AND UNDER THE NOTES, AND
ANY AMENDMENT TO THIS AGREEMENT MADE IN CONFORMITY WITH THE PROVISIONS OF THIS
SECTION 9(E) SHALL BE BINDING ON ALL BUYERS AND HOLDERS OF SECURITIES AS
APPLICABLE.  NO PROVISION HEREOF MAY BE WAIVED OTHER THAN BY AN INSTRUMENT IN
WRITING SIGNED BY THE PARTY AGAINST WHOM ENFORCEMENT IS SOUGHT.  NO SUCH
AMENDMENT SHALL BE EFFECTIVE TO THE EXTENT THAT IT APPLIES TO LESS THAN ALL OF
THE HOLDERS OF THE APPLICABLE SECURITIES THEN OUTSTANDING.  NO CONSIDERATION
SHALL BE OFFERED OR PAID TO ANY PERSON TO AMEND OR CONSENT TO A WAIVER OR
MODIFICATION OF ANY PROVISION OF ANY OF THE TRANSACTION DOCUMENTS UNLESS THE
SAME CONSIDERATION ALSO IS OFFERED TO ALL OF THE PARTIES TO THE TRANSACTION
DOCUMENTS, HOLDERS OF NOTES OR HOLDERS OF THE WARRANTS, AS THE CASE MAY BE.  THE
COMPANY HAS NOT, DIRECTLY OR INDIRECTLY, MADE ANY AGREEMENTS WITH ANY BUYERS
RELATING TO THE TERMS OR CONDITIONS OF THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS EXCEPT AS SET FORTH IN THE TRANSACTION DOCUMENTS.  WITHOUT
LIMITING THE FOREGOING, THE COMPANY CONFIRMS THAT, EXCEPT AS SET FORTH IN THIS
AGREEMENT, NO BUYER HAS MADE ANY COMMITMENT OR PROMISE OR HAS ANY OTHER
OBLIGATION TO PROVIDE ANY FINANCING TO THE COMPANY OR OTHERWISE.

(F)            NOTICES.  ANY NOTICES, CONSENTS, WAIVERS OR OTHER COMMUNICATIONS
REQUIRED OR PERMITTED TO BE GIVEN UNDER THE TERMS OF THIS AGREEMENT MUST BE IN
WRITING AND WILL BE DEEMED TO HAVE BEEN DELIVERED:  (I) UPON RECEIPT, WHEN
DELIVERED PERSONALLY; (II) UPON RECEIPT, WHEN SENT BY FACSIMILE (PROVIDED
CONFIRMATION OF TRANSMISSION IS MECHANICALLY OR ELECTRONICALLY GENERATED AND
KEPT ON FILE BY THE SENDING PARTY); OR (III) ONE BUSINESS DAY AFTER DEPOSIT WITH
AN OVERNIGHT COURIER SERVICE, IN EACH CASE PROPERLY ADDRESSED TO THE PARTY TO
RECEIVE THE SAME.  THE ADDRESSES AND FACSIMILE NUMBERS FOR SUCH COMMUNICATIONS
SHALL BE:

If to the Company:

Image Entertainment, Inc.

20525 Nordhoff Street, Suite 200

Chatsworth, California 91311

Telephone:            (818) 407-9100

Facsimile:             (818) 407-9331

Attention:  Jeff Framer

with a copy to:

Greenberg Traurig, LLP

50 Town Center Drive #1700

Costa Mesa, California 92626

Telephone 714-708-6510

28

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Facsimile 714-708-6501

Attention: Raymond A. Lee

John C. Kirkland

If to the Transfer Agent:

Computershare Investor Services
350 Indiana Street, Suite 800
Golden, CO 80401

Telephone: (303) 262-0710

Facsimile: (303) 262-0700

Attention: Kathy Heagerty

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

with a copy (for informational purposes) to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Telephone: (212) 756-2000

Facsimile: (212) 593-5955

Attention: Eleazer N. Klein, Esq.

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

(G)           SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF THE PARTIES AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS,
INCLUDING ANY PURCHASERS OF THE NOTES OR THE WARRANTS.  THE COMPANY SHALL NOT
ASSIGN THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR
WRITTEN CONSENT OF THE HOLDERS OF AT LEAST A MAJORITY OF THE AGGREGATE NUMBER OF
REGISTRABLE SECURITIES ISSUED AND ISSUABLE HEREUNDER, INCLUDING BY WAY OF A
FUNDAMENTAL TRANSACTION (UNLESS THE COMPANY IS IN COMPLIANCE WITH THE APPLICABLE
PROVISIONS GOVERNING FUNDAMENTAL TRANSACTIONS SET FORTH IN THE NOTES AND THE
WARRANTS).  A BUYER MAY ASSIGN SOME OR ALL OF ITS RIGHTS HEREUNDER WITHOUT THE
CONSENT OF THE COMPANY, IN WHICH EVENT SUCH ASSIGNEE SHALL BE DEEMED TO BE A
BUYER HEREUNDER WITH RESPECT TO SUCH ASSIGNED RIGHTS

29

--------------------------------------------------------------------------------

(H)           NO THIRD PARTY BENEFICIARIES.  THIS AGREEMENT IS INTENDED FOR THE
BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE PERMITTED SUCCESSORS AND
ASSIGNS, AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY PROVISION HEREOF BE ENFORCED
BY, ANY OTHER PERSON.

(I)            SURVIVAL.  UNLESS THIS AGREEMENT IS TERMINATED UNDER SECTION 8,
THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE BUYERS CONTAINED IN
SECTIONS 2 AND 3, AND THE AGREEMENTS AND COVENANTS SET FORTH IN SECTIONS 4, 5
AND 9 SHALL SURVIVE THE CLOSING.  EACH BUYER SHALL BE RESPONSIBLE ONLY FOR ITS
OWN REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS HEREUNDER.

(J)            FURTHER ASSURANCES.  EACH PARTY SHALL DO AND PERFORM, OR CAUSE TO
BE DONE AND PERFORMED, ALL SUCH FURTHER ACTS AND THINGS, AND SHALL EXECUTE AND
DELIVER ALL SUCH OTHER AGREEMENTS, CERTIFICATES, INSTRUMENTS AND DOCUMENTS, AS
ANY OTHER PARTY MAY REASONABLY REQUEST IN ORDER TO CARRY OUT THE INTENT AND
ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY.

(K)           INDEMNIFICATION.  IN CONSIDERATION OF EACH BUYER’S EXECUTION AND
DELIVERY OF THE TRANSACTION DOCUMENTS AND ACQUIRING THE SECURITIES THEREUNDER
AND IN ADDITION TO ALL OF THE COMPANY’S OTHER OBLIGATIONS UNDER THE TRANSACTION
DOCUMENTS, THE COMPANY SHALL DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS EACH
BUYER AND EACH OTHER HOLDER OF THE SECURITIES AND ALL OF THEIR STOCKHOLDERS,
PARTNERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES AND DIRECT OR INDIRECT
INVESTORS AND ANY OF THE FOREGOING PERSONS’ AGENTS OR OTHER REPRESENTATIVES
(INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT) (COLLECTIVELY, THE “INDEMNITEES”)
FROM AND AGAINST ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, CLAIMS, LOSSES,
COSTS, PENALTIES, FEES, LIABILITIES AND DAMAGES, AND EXPENSES IN CONNECTION
THEREWITH (IRRESPECTIVE OF WHETHER ANY SUCH INDEMNITEE IS A PARTY TO THE ACTION
FOR WHICH INDEMNIFICATION HEREUNDER IS SOUGHT), AND INCLUDING REASONABLE
ATTORNEYS’ FEES AND DISBURSEMENTS (THE “INDEMNIFIED LIABILITIES”), INCURRED BY
ANY INDEMNITEE AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO (A) ANY
MISREPRESENTATION OR BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY THE
COMPANY IN THE TRANSACTION DOCUMENTS OR ANY OTHER CERTIFICATE, INSTRUMENT OR
DOCUMENT CONTEMPLATED HEREBY OR THEREBY, (B) ANY BREACH OF ANY COVENANT,
AGREEMENT OR OBLIGATION OF THE COMPANY CONTAINED IN THE TRANSACTION DOCUMENTS OR
ANY OTHER CERTIFICATE, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR THEREBY OR
(C) ANY CAUSE OF ACTION, SUIT OR CLAIM BROUGHT OR MADE AGAINST SUCH INDEMNITEE
BY A THIRD PARTY (INCLUDING FOR THESE PURPOSES A DERIVATIVE ACTION BROUGHT ON
BEHALF OF THE COMPANY) AND ARISING OUT OF OR RESULTING FROM (I) THE EXECUTION,
DELIVERY, PERFORMANCE OR ENFORCEMENT OF THE TRANSACTION DOCUMENTS OR ANY OTHER
CERTIFICATE, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR THEREBY, (II) ANY
TRANSACTION FINANCED OR TO BE FINANCED IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, WITH THE PROCEEDS OF THE ISSUANCE OF THE SECURITIES, (III) ANY
DISCLOSURE MADE BY SUCH BUYER PURSUANT TO SECTION 4(I), OR (IV) THE STATUS OF
SUCH BUYER OR HOLDER OF THE SECURITIES AS AN INVESTOR IN THE COMPANY PURSUANT TO
THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.  TO THE EXTENT THAT
THE FOREGOING UNDERTAKING BY THE COMPANY MAY BE UNENFORCEABLE FOR ANY REASON,
THE COMPANY SHALL MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION
OF EACH OF THE INDEMNIFIED LIABILITIES THAT IS PERMISSIBLE UNDER APPLICABLE
LAW.  EXCEPT AS OTHERWISE SET FORTH HEREIN, THE MECHANICS AND PROCEDURES WITH
RESPECT TO THE RIGHTS AND OBLIGATIONS UNDER THIS SECTION 9(K) SHALL BE THE SAME
AS THOSE SET FORTH IN SECTION 6 OF THE REGISTRATION RIGHTS AGREEMENT.

30

--------------------------------------------------------------------------------

(L)            NO STRICT CONSTRUCTION.  THE LANGUAGE USED IN THIS AGREEMENT WILL
BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL
INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED AGAINST ANY PARTY.

(M)          REMEDIES.  EACH BUYER AND EACH HOLDER OF THE SECURITIES SHALL HAVE
ALL RIGHTS AND REMEDIES SET FORTH IN THE TRANSACTION DOCUMENTS AND ALL RIGHTS
AND REMEDIES WHICH SUCH HOLDERS HAVE BEEN GRANTED AT ANY TIME UNDER ANY OTHER
AGREEMENT OR CONTRACT AND ALL OF THE RIGHTS WHICH SUCH HOLDERS HAVE UNDER ANY
LAW.  ANY PERSON HAVING ANY RIGHTS UNDER ANY PROVISION OF THIS AGREEMENT SHALL
BE ENTITLED TO ENFORCE SUCH RIGHTS SPECIFICALLY (WITHOUT POSTING A BOND OR OTHER
SECURITY), TO RECOVER DAMAGES BY REASON OF ANY BREACH OF ANY PROVISION OF THIS
AGREEMENT AND TO EXERCISE ALL OTHER RIGHTS GRANTED BY LAW.  FURTHERMORE, THE
COMPANY RECOGNIZES THAT IN THE EVENT THAT IT FAILS TO PERFORM, OBSERVE, OR
DISCHARGE ANY OR ALL OF ITS OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS, ANY
REMEDY AT LAW MAY PROVE TO BE INADEQUATE RELIEF TO THE BUYERS.  THE COMPANY
THEREFORE AGREES THAT THE BUYERS SHALL BE ENTITLED TO SEEK TEMPORARY AND
PERMANENT INJUNCTIVE RELIEF IN ANY SUCH CASE WITHOUT THE NECESSITY OF PROVING
ACTUAL DAMAGES AND WITHOUT POSTING A BOND OR OTHER SECURITY.

(N)           RESCISSION AND WITHDRAWAL RIGHT.  NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN (AND WITHOUT LIMITING ANY SIMILAR PROVISIONS OF) THE
TRANSACTION DOCUMENTS, WHENEVER ANY BUYER EXERCISES A RIGHT, ELECTION, DEMAND OR
OPTION UNDER A TRANSACTION DOCUMENT AND THE COMPANY DOES NOT TIMELY PERFORM ITS
RELATED OBLIGATIONS WITHIN THE PERIODS THEREIN PROVIDED, THEN SUCH BUYER MAY
RESCIND OR WITHDRAW, IN ITS SOLE DISCRETION FROM TIME TO TIME UPON WRITTEN
NOTICE TO THE COMPANY, ANY RELEVANT NOTICE, DEMAND OR ELECTION IN WHOLE OR IN
PART WITHOUT PREJUDICE TO ITS FUTURE ACTIONS AND RIGHTS

(O)           PAYMENT SET ASIDE.  TO THE EXTENT THAT THE COMPANY MAKES A PAYMENT
OR PAYMENTS TO THE BUYERS HEREUNDER OR PURSUANT TO ANY OF THE OTHER TRANSACTION
DOCUMENTS OR THE BUYERS ENFORCE OR EXERCISE THEIR RIGHTS HEREUNDER OR
THEREUNDER, AND SUCH PAYMENT OR PAYMENTS OR THE PROCEEDS OF SUCH ENFORCEMENT OR
EXERCISE OR ANY PART THEREOF ARE SUBSEQUENTLY INVALIDATED, DECLARED TO BE
FRAUDULENT OR PREFERENTIAL, SET ASIDE, RECOVERED FROM, DISGORGED BY OR ARE
REQUIRED TO BE REFUNDED, REPAID OR OTHERWISE RESTORED TO THE COMPANY, A TRUSTEE,
RECEIVER OR ANY OTHER PERSON UNDER ANY LAW (INCLUDING, WITHOUT LIMITATION, ANY
BANKRUPTCY LAW, FOREIGN, STATE OR FEDERAL LAW, COMMON LAW OR EQUITABLE CAUSE OF
ACTION), THEN TO THE EXTENT OF ANY SUCH RESTORATION THE OBLIGATION OR PART
THEREOF ORIGINALLY INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUED IN
FULL FORCE AND EFFECT AS IF SUCH PAYMENT HAD NOT BEEN MADE OR SUCH ENFORCEMENT
OR SETOFF HAD NOT OCCURRED.

(P)           INDEPENDENT NATURE OF BUYERS’ OBLIGATIONS AND RIGHTS.  THE
OBLIGATIONS OF EACH BUYER UNDER ANY TRANSACTION DOCUMENT ARE SEVERAL AND NOT
JOINT WITH THE OBLIGATIONS OF ANY OTHER BUYER, AND NO BUYER SHALL BE RESPONSIBLE
IN ANY WAY FOR THE PERFORMANCE OF THE OBLIGATIONS OF ANY OTHER BUYER UNDER ANY
TRANSACTION DOCUMENT.  NOTHING CONTAINED HEREIN OR IN ANY OTHER TRANSACTION
DOCUMENT, AND NO ACTION TAKEN BY ANY BUYER PURSUANT HERETO OR THERETO, SHALL BE
DEEMED TO CONSTITUTE THE BUYERS AS, AND THE COMPANY ACKNOWLEDGES THAT THE BUYERS
DO NOT SO CONSTITUTE, A PARTNERSHIP, AN ASSOCIATION, A JOINT VENTURE OR ANY
OTHER KIND OF ENTITY, OR CREATE A PRESUMPTION THAT THE BUYERS ARE IN ANY WAY
ACTING IN CONCERT OR AS A GROUP, AND THE COMPANY WILL NOT ASSERT ANY SUCH CLAIM
WITH RESPECT TO SUCH OBLIGATIONS OR THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS AND THE COMPANY ACKNOWLEDGES THAT THE BUYERS ARE NOT
ACTING IN CONCERT OR AS A GROUP WITH RESPECT TO SUCH

31

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OBLIGATIONS OR THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.  THE
COMPANY ACKNOWLEDGES AND EACH BUYER CONFIRMS THAT IT HAS INDEPENDENTLY
PARTICIPATED IN THE NEGOTIATION OF THE TRANSACTION CONTEMPLATED HEREBY WITH THE
ADVICE OF ITS OWN COUNSEL AND ADVISORS.  EACH BUYER SHALL BE ENTITLED TO
INDEPENDENTLY PROTECT AND ENFORCE ITS RIGHTS, INCLUDING, WITHOUT LIMITATION, THE
RIGHTS ARISING OUT OF THIS AGREEMENT OR OUT OF ANY OTHER TRANSACTION DOCUMENTS,
AND IT SHALL NOT BE NECESSARY FOR ANY OTHER BUYER TO BE JOINED AS AN ADDITIONAL
PARTY IN ANY PROCEEDING FOR SUCH PURPOSE.

(Q)           INDIVIDUAL BUYER.   NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, OR ANY REFERENCES TO “BUYERS” HEREIN, PORTSIDE GROWTH AND
OPPORTUNITY FUND ACKNOWLEDGES AND THE COMPANY CONFIRMS THAT PORTSIDE GROWTH AND
OPPORTUNITY FUND IS THE ONLY BUYER PARTY TO THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT.

[Signature Page Follows]

32

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

 

COMPANY:

 

 

 

 

 

IMAGE ENTERTAINMENT, INC.

 

 

 

 

 

 

 

 

By:

/s/ MARTIN W. GREENWALD

 

 

 

 

Name:

Martin W. Greenwald

 

 

 

Title:

President and CEO

 

[Signature Page to Securities Purchase Agreement]

--------------------------------------------------------------------------------

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

 

BUYERS:

 

 

 

 

 

PORTSIDE GROWTH AND OPPORTUNITY
FUND

 

 

 

 

 

 

 

 

By:

/s/ JEFF SMITH

 

 

 

 

Name:

Jeff Smith

 

 

 

Title:

Authorized Signatory

 

[Signature Page to Securities Purchase Agreement]

--------------------------------------------------------------------------------

SCHEDULE OF BUYERS

(1)

 

(2)

 

(3)

 

(4)

 

(5)

 

(5)

Buyer

 

Address and Facsimile Number

 

Principal
Amount of
Notes

 

Number of
Warrant
Shares

 

Purchase Price

 

Legal Representative’s
Address and Facsimile Number

Portside Growth and Opportunity Fund

 

c/o Ramius Capital Group, L.L.C.
666 Third Avenue, 26th Floor
New York, New York 10017

Attention: Jeffrey Smith

Owen Littman

Facsimile: (212) 201-4802

(212) 845-7995

Telephone: (212) 845-7955

(212) 201-4841

Residence: Cayman Islands

 

$

17,000,000

 

1,000,000

 

$

17,000,000

 

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Eleazer Klein, Esq.
Facsimile:  (212) 593-5955
Telephone: (212) 756-2376

 

--------------------------------------------------------------------------------

EXHIBITS

Exhibit A

 

Form of Notes

Exhibit B

 

Form of Warrant

Exhibit C

 

Form of Registration Rights Agreement

Exhibit D

 

Form of Irrevocable Transfer Agent Instructions

Exhibit E

 

Form of Opinion of Company’s Counsel

Exhibit F

 

Form of Secretary’s Certificate

Exhibit G

 

Form of Officers Certificate

 

SCHEDULES

Schedule 3(a)

 

Subsidiaries

Schedule 3(l)

 

Absence of Certain Changes

Schedule 3(q)

 

Transactions with Affiliates

Schedule 3(r)

 

Equity Capitalization

Schedule 3(s)

 

Indebtedness and Other Contracts

Schedule 3(t)

 

Absence of Litigation

Schedule 3(w)

 

Title

Schedule 3(cc)

 

Ranking

Schedule 4(d)

 

Use of Proceeds

 

--------------------------------------------------------------------------------