Exhibit 10.7

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) dated March 22, 2012 is
made by and between Earth911, Inc., a Delaware corporation (the “Company”), and
Stockbridge Enterprises, L.P., a Nevada limited partnership (the “Buyer”).

RECITALS

A. The parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Buyer, and the Buyer
shall purchase (i) One Million Dollars ($1,000,000.00) of senior secured bridge
notes in the form attached hereto as “Exhibit A” (the “Notes”), which shall be
convertible into shares of the Company’s common stock, par value, $0.0001 per
share (as converted, the “Conversion Shares”), of which up to Five Hundred
Thousand Dollars ($500,000.00) (the “Subscription Amount”) shall be funded as
set forth in Section 3.16, (ii) a warrant (the “Initial Warrant”) to acquire up
to 1,000,000 shares of Common Stock (as defined herein) and which is immediately
exercisable, (iii) a warrant (the “12-Month Warrant”) to acquire up to 250,000
shares of Common Stock which is exercisable at the conclusion of twelve
(12) months after the issuance date of the warrant, but only in the event that
all outstanding principal and accrued interest on the Note is not paid in full
at such date, as provided for therein, (iv) a warrant (the “15-Month Warrant”)
to acquire up to 250,000 shares of Common Stock which is exercisable at the
conclusion of fifteen (15) months after the issuance date of the warrant, but
only in the event that all outstanding principal and accrued interest on the
Note is not paid in full at such date, as provided for therein ,and (v) a
warrant (the “18-Month Warrant” and, along with the 12-Month Warrant and the
15-Month Warrant, the “Contingent Warrants”) to acquire up to 500,000 shares of
Common Stock which is exercisable at the conclusion of eighteen (18) months
after the issuance date of the warrant, but only in the event that all
outstanding principal and accrued interest on the Note is not paid in full at
such date, as provided for therein (collectively, the Initial Warrant and the
Contingent Warrants are referred to herein as the “Warrants” and, as exercised,
the “Warrant Shares”), with all Warrants substantially in the form attached
hereto as “Exhibit B” (with respect to the Initial Warrant) and “Exhibit C”
(with respect to the Contingent Warrants).

B. Contemporaneously with the execution and delivery of this Agreement, (i) the
Buyer, the Company, and each subsidiary of the Company are executing and
delivering a Security Agreement (the “Security Agreement”) pursuant to which the
Company and its wholly owned subsidiaries agree to provide the Buyer a security
interest in Pledged Property (as this term is defined in the Security
Agreement), (ii) the Buyer, the Company, and each subsidiary of the Company are
executing and delivering a Patent Security Agreement (the “Patent Security
Agreement”) pursuant to which the Company and its wholly owned subsidiaries
agree to provide the Buyer a security interest in Patent Collateral (as this
term is defined in the Patent Security Agreement), and (iii) each subsidiary of
the Company is executing and delivering a Guaranty dated the date hereof (the
“Guaranty” and collectively with the Security Agreement and the Patent Security
Agreement, the “Security Documents”) in favor of the Buyer.

C. The Notes, the Conversion Shares, the Warrants, and the Warrants Shares
collectively are referred to herein as the (“Securities”).

D. The Company is executing and delivering the Securities in reliance upon an
exemption from securities registration pursuant to Section 3(11) or Section 4(2)
and/or Rule 506 of Regulation D (“Regulation D”) as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “Securities Act”).

 

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AGREEMENT

NOW, THEREFORE, in consideration of the premises, the promises, the mutual
covenants and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Buyer hereby agree as
follows:

SECTION 1

Purchase and Sale of Notes

1.1 Purchase of Notes. Subject to the satisfaction (or waiver) of the terms and
conditions of this Agreement, the Buyer agrees to purchase at the Closing, and
the Company agrees to sell and issue to the Buyer at the Closing, Notes in the
Subscription Amount and the Warrants to acquire up to that number of Warrant
Shares.

1.2 Form of Payment. Subject to the satisfaction of the terms and conditions of
this Agreement, on the date of this Agreement, (i) the Buyer shall deliver to
the Company such proceeds for the Notes and Warrants to be issued and sold to
such Buyer at such Closing, minus the fees to be paid directly from the proceeds
of such Closing as set forth herein, and (ii) the Company shall deliver to
Buyer, Notes and Warrants which Buyer is purchasing at the Closing, duly
executed on behalf of the Company.

SECTION 2

Representations and Warranties

2.1 Buyer’s Representations and Warranties. Buyer represents and warrants that:

(a) Investment Purpose. Buyer is acquiring the Securities for its own account
for investment only 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 Securities Act; provided, however, that by
making the representations herein, Buyer reserves the right to dispose of the
Securities at any time in accordance with or pursuant to an effective
registration statement covering such Securities or an available exemption under
the Securities Act. Buyer does not presently have any agreement or
understanding, directly or indirectly, with any corporation, limited liability
company, association, partnership, organization, business, individual,
government or political subdivision thereof or governmental agency (“Person”) to
distribute any of the Securities.

(b) Accredited Investor Status. Buyer is an “Accredited Investor” as that term
is defined in Rule 501(a)(3) of Regulation D.

(c) Reliance on Exemptions. 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.

 

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(d) Information. Buyer and its advisors (and his, her or its counsel), if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and information it deemed material to making an
informed investment decision regarding its purchase of the Securities, which
have been requested by Buyer. Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by Buyer or its
advisors, if any, or its representatives shall modify, amend or affect Buyer’s
right to rely on the Company’s representations and warranties contained in
Section 3 below. Buyer understands that its investment in the Securities
involves a high degree of risk. Buyer is in a position regarding the Company,
which, based upon employment, family relationship or economic bargaining power,
enabled and enables Buyer to obtain information from the Company in order to
evaluate the merits and risks of this investment. 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. 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. Buyer understands that: (i) the Securities have not been
and are not being registered under the Securities Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, (B) 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 requirements, or
(C) Buyer provides the Company with reasonable assurances (in the form of seller
and broker representation letters) that such Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A promulgated under the Securities
Act, as amended (or a successor rule thereto) (collectively, “Rule 144”), in
each case following the applicable holding period set forth therein; (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 through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities 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 Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.

(g) Legends. Buyer agrees to the imprinting, so long as is required by this
Section 2.1(g), of a restrictive legend in substantially the following form:

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 HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

 

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Certificates evidencing the Conversion Shares or Warrant Shares shall not
contain any legend (including the legend set forth above), (i) while a
registration statement covering the resale of such security is effective under
the Securities Act, (ii) following any sale of such Conversion Shares or Warrant
Shares pursuant to Rule 144, (iii) if such Conversion Shares or Warrant Shares
are eligible for sale under Rule 144(b)(1), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the SEC). The Company
shall cause its counsel to issue a legal opinion to the Company’s transfer agent
promptly after the effective date (the “Effective Date”) of a registration
statement if required by the Company’s transfer agent to effect the removal of
the legend hereunder. If all or any portion of the Notes or Warrants are
exercised by a Holder that is not an affiliate of the Company (a “Non-Affiliated
Buyer”) at a time when there is an effective registration statement to cover the
resale of the Conversion Shares or the Warrant Shares, such Conversion Shares or
Warrant Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 2(g), it will, no later than three (3) business days
following the delivery by a Non-Affiliated Buyer to the Company or the Company’s
transfer agent of a certificate representing Conversion Shares or Warrant
Shares, as the case may be, issued with a restrictive legend (such third
business day, the “Legend Removal Date”), deliver or cause to be delivered to
such Non-Affiliated Buyer a certificate representing such shares that are free
from all restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section. Buyer
acknowledges that the Company’s agreement hereunder to remove all legends from
Conversion Shares or Warrant Shares is not an affirmative statement or
representation that such Conversion Shares or Warrant Shares are freely
tradable. Buyer, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 2(g) is
predicated upon the Company’s reliance that Buyer will sell any Securities
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a registration statement,
they will be sold in compliance with the plan of distribution set forth therein.

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

(i) Receipt of Documents. Buyer and his, her or its counsel, if any, has
received and read in their entirety: (i) this Agreement and each representation,
warranty and covenant set forth herein and the Transaction Documents (as defined
herein); (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company’s audited financial statements for the fiscal year ended
December 31, 2010; (iv) the Company’s unaudited financial statements for the
period ended [December 31, 2011] and (v) answers to all questions Buyer
submitted to the Company regarding an investment in the Company; and Buyer has
relied on the information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus.

(j) Due Formation of Corporate and Other Buyers. If the Buyer is a corporation,
limited liability company, trust, partnership or other entity that is not an
individual person, it has been formed and validly exists and has not been
organized for the specific purpose of purchasing the Securities and is not
prohibited from doing so.

(k) No Legal Advice From the Company. Buyer acknowledges that it had the
opportunity to review this Agreement and the transactions contemplated by this
Agreement with its own legal counsel and investment and tax advisors. Buyer is
relying solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representatives or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.

 

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2.2 The Company’s Representations and Warranties. Except as set forth under the
corresponding section of the Disclosure Schedules, which Disclosure Schedules
shall be deemed a part hereof and to qualify any representation or warranty
otherwise made herein to the extent of such disclosure, the Company hereby makes
the representations and warranties set forth below to Buyer:

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 2.2(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each subsidiary free and clear of
any liens, and all the issued and outstanding shares of capital stock of each
subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.

(b) Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power 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 corporation to do business and is in good standing in every jurisdiction
in which 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 or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or condition (financial or otherwise) of the
Company and the subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

(c) Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Notes, the Warrants, the
Security Documents, and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively the “Transaction Documents”) and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Securities, the reservation for issuance and the issuance of the
Conversion Shares, and the reservation for issuance and the issuance of the
Warrant Shares, have been duly authorized by the Company’s Board of Directors
(“Board of Directors”) and no further consent or authorization is required by
the Company, its Board of Directors or its stockholders, (iii) the Transaction
Documents have been duly executed and delivered by the Company, (iv) the
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their 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 creditors’
rights and remedies. The authorized officer of the Company executing the
Transaction Documents knows of no reason why the Company cannot perform any of
the Company’s obligations under the Transaction Documents.

 

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(d) Capitalization. The authorized capital stock of the Company consists of
20,000,000 shares of preferred stock, par value $.0001 per share (“Preferred
Stock”), and 100,000,000 shares of common stock, par value $0.0001 (“Common
Stock”) of which [0] shares of Preferred Stock and [34,417,589] shares of Common
Stock are issued and outstanding. Where applicable, the term “Common Stock”
shall also include any securities received by the Buyer in an Asset Sale or
Organic Change as set forth in Section 2.2(cc). All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. Except as disclosed
in Schedule 2.2(d): (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 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; (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities; (vii) the Company does
not have any stock appreciation rights or “phantom stock” plans or agreements or
any similar plan or agreement; and (viii) the Company and its subsidiaries have
no liabilities or obligations required to be disclosed in any filings under the
Securities Act of 1933, as amended (the “Securities Act”), or the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) (each an “SEC Document”
and collectively, 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 Buyer true, correct and complete copies of the Company’s
Amended and Restated Articles of Incorporation and as in effect on the date
hereof (the “Articles of Incorporation”), 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. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the Securities. There
are no stockholders agreements, voting agreements or other similar agreements
with respect to the Company’s capital stock to which the Company is a party or,
to the “knowledge” of the Company, between or among any of the Company’s
stockholders. The term “knowledge” means the actual knowledge of (i) as it
relates to the Company, any of the Company’s executive officers, or (ii) as it
relates to the Buyer, any of the Buyers’ partners.

(e) Issuance of Securities. The issuance of the Notes and the Warrants is duly
authorized and free from all taxes, liens and charges with respect to the issue
thereof. Upon conversion in accordance with the terms of the Notes or exercise
in accordance with the Warrants, as the case may be, the Conversion Shares and
Warrant Shares, respectively, when issued will be validly issued, fully paid and
nonassessable, free from all taxes, liens and charges with respect to the issue
thereof. The Company has reserved from its duly authorized capital stock the
appropriate number of shares of Common Stock as set forth in this Agreement.

 

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(f) 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 the Warrants, and reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) will not (i) result in a violation of
the Articles of Incorporation, any articles 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 the
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 applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected; except in the case of each of clauses (ii) and (iii), such as could
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect. The business of the Company and its subsidiaries
is not being conducted, and shall not be conducted, in violation of any material
law, ordinance, or regulation of any governmental entity violation of which
would have a Material Adverse Effect. Except as specifically contemplated by
this Agreement and as required under the Securities Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement in accordance with the terms
hereof. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
subsidiaries are unaware of any facts or circumstance, which might give rise to
any of the foregoing.

(g) SEC Documents; Securities Offerings. Except as disclosed on Schedule 2.2(g),
the Company has filed all forms, statements and other documents required to be
filed by it with the SEC under the Securities Act of 1933, as amended (the
“Securities Act”), for all securities offerings, option grants and securities
issuances upon the exercise of options, whether made publicly or non-publicly on
a timely basis. Except as disclosed on Schedule 2.2(g), the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such
material) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Document prior to the expiration of any such
extension (filings under the Securities Act and the Exchange Act are each an
“SEC Document” and collectively, the “SEC Documents”). Except as disclosed on
Schedule 2.2(g), all of the Company’s SEC Documents have been amended to respond
to all written comment letters received by the Company from the SEC relating to
the SEC Documents. The Company has delivered to the Buyers or their
representatives, or made available through the SEC’s website at
http://www.sec.gov, true and complete copies of the SEC Documents. Except as set
forth on Schedule 2.2(g) as of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 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 provided to all purchasers related to all of 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 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).

 

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(h) Absence of Litigation. To the best of the Company’s knowledge, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company’s
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
Material Adverse Effect.

(i) Acknowledgment Regarding Buyer’s Purchase of the Notes. The Company
acknowledges and agrees that Buyer is acting solely in the capacity of an arm’s
length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that Buyer is not acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
advice given by Buyer or any of his, her or its respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to such Buyer’s purchase of the Securities. The
Company further represents to Buyer that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation by the
Company and its representatives.

(j) No General Solicitation. 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 under
the Securities Act) in connection with the offer or sale of the Securities.

(k) No Integrated Offering. To the knowledge of the Company, neither the
Company, nor any of its affiliates, nor any person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of the Securities under the Securities Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the Securities Act.

(l) Employee Relations. To the best of the Company’s knowledge, neither the
Company nor any of its subsidiaries is involved in any labor dispute or, to the
knowledge of the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company’s or its subsidiaries’ employees is a member of
a union and the Company and its subsidiaries believe that their relations with
their employees are good.

(m) Intellectual Property Rights. The Company and its subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, and, to the knowledge of the Company there is no claim, action or
proceeding being made or brought against, or to the Company’s knowledge, being
threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing.

(n) Environmental Laws. To the best of the Company’s knowledge, the Company and
its subsidiaries are (i) in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (“Environmental Laws”), the violation of
which would have a Material Adverse Effect, (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses, the failure of which to obtain would not
have a Material Adverse Effect and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, the violation of which would
have a Material Adverse Effect.

 

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(o) Title. All real property and facilities held under lease by the Company and
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.

(p) Insurance. The Company and each of its subsidiaries is insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its subsidiaries are engaged. Neither the
Company nor any such subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such subsidiary has any reason to
believe that it will 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, materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.

(q) Regulatory Permits. The Company and its subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, 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.

(r) Internal Accounting Controls. The Company and each of its subsidiaries
maintains 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 accountability,
and (iii) the recorded amounts for assets are compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences; provided, however, that such controls do not meet the standards
that an independent public accountant would apply in connection with an audit of
the Company’s financial statements.

(s) No Material Adverse Breaches, etc. Neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation, which in the judgment of the
Company’s officers, has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries is in breach of any
contract or agreement which breach, in the judgment of the Company’s officers,
has or is expected to have a Material Adverse Effect.

(t) Tax Status. To the best of the Company’s knowledge, the Company and each of
its subsidiaries has made and filed all federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to which it
is subject and (unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) 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 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.

 

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(u) Certain Transactions. Except for arm’s length transactions pursuant to which
the Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties, none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
limited liability company, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

(v) Fees and Rights of First Refusal. The Company is not obligated to offer the
Securities on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties.

(w) Investment Company. The Company is not, and is not an affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.

(x) Registration Rights. Except as disclosed on Schedule 2.2(x), other than the
Buyer, no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company. There are no
outstanding registration statements not yet declared effective and there are no
outstanding comment letters from the SEC or any other regulatory agency. The
Company does not owe any liquidated damages or have any liabilities to any
person for failing to obtain the effectiveness of any registration statements.

(y) Private Placement. Assuming the accuracy of the Buyers’ representations and
warranties set forth in Section 2.1, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the Buyer as
contemplated hereby.

(z) 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) 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, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

(aa) 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, in each case,
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.

(bb) No SEC Enforcement. The Company has not received any correspondence or
letters from the SEC’s enforcement division or from any other regulatory entity
concerning actions of the Company or its officers or directors and has no reason
to believe that any inquiry or investigation has begun.

 

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(cc) Reorganization, Reclassification, Consolidation, Merger or Sale. In the
event of any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company’s assets to another
Person or other transaction in each case which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock (an “Organic Change”), then prior to the consummation
of any (i) sale of all or substantially all of the Company’s assets to an
acquiring Person (the “Asset Sale”) or (ii) other Organic Change following which
the Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the “Acquiring Entity”) a written agreement (in form and substance
satisfactory to the Buyer and delivered to the Buyer) that the Company has
delegated all of its duties, obligations and liabilities under this Agreement to
the Acquiring Entity (collectively, the “Duties”) and that the Acquiring Entity
has and shall assume without restrictions or conditions the Duties and the
performance thereof upon the consummation of the Asset Sale or Organic Change,
provided, however, that the Note is not going to be paid in full prior to or in
connection with the closing of such transaction.

 

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SECTION 3

Covenants

3.1 Best Efforts. Each party shall use its best efforts to timely satisfy each
of the conditions to be satisfied by it as provided in Sections 4 and 5 of this
Agreement.

3.2 Form D. 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 Buyer promptly
after such filing. The Company shall, on or before the date of this Agreement,
take such action as the Company shall reasonably determine is necessary to
qualify the Securities, or obtain an exemption for the Securities for sale to
the Buyer at the Closing pursuant to this Agreement under applicable securities
or “Blue Sky” laws of the states of the United States, and shall provide
evidence of any such action so taken to the Buyer on or prior to the date of
this Agreement.

3.3 Reporting Status. With a view to making available to the Buyer the benefits
of Rule 144 promulgated under the Securities Act or any similar rule or
regulation of the SEC that may at any time permit the Buyer to sell securities
of the Company to the public without registration (“Rule 144”), and as a
material inducement to the Buyer’s purchase of the Securities, the Company
represents, warrants, and covenants to the following:

(a) The Company is not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act;

(b) Upon consummation of an Asset Sale or Organic Change whereby the Acquiring
Entity or the Company is or becomes subject to the reporting requirements of
section 13 or 15(d) of the Exchange Act, from the date thereof until all the
Securities either have been sold by the Buyer, or may permanently be sold by the
Buyer without any restrictions pursuant to Rule 144 (the “Registration Period”),
the Company shall file with the SEC, or cause to be filed with the SEC in a
timely manner, as the case may be, all required reports under section 13 or
15(d) of the Exchange Act and such reports shall conform to the requirement of
the Exchange Act and the SEC for filing thereunder; and

(c) To the extent the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall furnish to the Buyer
so long as the Buyer owns Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents of the Company, and (iii) such
other information as may be reasonably requested to permit the Buyer to sell
such securities pursuant to Rule 144 without registration.

3.4 Registration Rights. In the event the Company elects to prepare and file
with the SEC, or cause to be prepared and filed with the SEC, a registration
statement on such form of registration statement as is then available to effect
a registration of the Conversion Shares and the Warrant Shares (the
“Registration Statement”), then the Company shall provide written notice no
later than thirty (30) days prior to such filing to allow the Buyer and the
Holder of the Warrants the opportunity to include for resale in the Registration
Statement, the Conversion Shares and the Warrant Shares, subject to underwriter
cutbacks and any limitations that may be imposed by the SEC or the rules and
regulations thereunder. Within ten (10) days following receipt of such written
notice, the Buyer and the Holder of the Warrants shall respond in writing to the
Company as to the number, if any, of the Conversion Shares and the Warrant
Shares to be included in such Registration Statement.

3.5 Use of Proceeds. The Company will use the proceeds from the sale of the
Notes for working capital purposes and to pay fees associated with taking the
Company public.

 

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3.6 Reservation of Shares. On the date hereof, the Company shall reserve for
issuance to the Buyer 1,000,000 shares for issuance of the Conversion Shares and
2,000,000 shares for issuance upon exercise of the Warrants (the “Share
Reserve”). The Company represents that it has sufficient authorized and unissued
shares of Common Stock available to create the Share Reserve after considering
all other commitments that may require the issuance of Common Stock. The Company
shall take all action reasonably necessary to at all times have authorized, and
reserved for the purpose of issuance, such number of shares of Common Stock as
shall be necessary to effect the full conversion of the Notes and the full
exercise of the Warrants. If at any time the Share Reserve is insufficient to
effect the full conversion of the Notes or the full exercise of the Warrants,
the Company shall increase the Share Reserve accordingly. If the Company does
not have sufficient authorized and unissued shares of Common Stock available to
increase the Share Reserve, the Company shall call and hold a special meeting of
the stockholders within thirty (30) days of such occurrence, for the sole
purpose of increasing the number of shares authorized. The Company’s management
shall recommend to its stockholders to vote in favor of increasing the number of
shares of Common Stock authorized. Management shall also vote all of its shares
in favor of increasing the number of authorized shares of Common Stock.

3.7 Fees and Expenses. The Company shall pay all of its costs and expenses
incurred by it connection with the negotiation, investigation, preparation,
execution and delivery of the Transaction Documents. The Company shall reimburse
Buyer out of the proceeds funded under the Note, for Buyer’s costs and expenses,
including reasonable attorney fees, incurred in connection with the negotiation,
investigation, preparation, execution and delivery of the Transaction Documents,
up to a maximum amount of ten thousand dollars ($10,000).

3.8 Corporate Existence. So long as any of the Notes remain outstanding, the
Company or any subsidiary of the Company shall not be party to any Change of
Control Transaction (as defined in the Notes) unless, prior to the consummation
of such Change of Control Transaction, the Company offers the Buyer the right to
either (i) be redeemed of all amounts outstanding under the Notes, or
(ii) exercise its rights to convert the Notes, in each case, in accordance with
the terms and conditions of the Notes. Nothing in this Section 3.8 shall
prohibit the Company from exercising its right to prepay the principal amount
outstanding under the Notes at any time, in whole or in part, together with the
accrued and unpaid interest owing, if any, prior to or in connection with, any
such Change of Control Transaction, as permitted by and in compliance with
Section 3 of the Notes.

3.9 Transfer Agent. The Company has no transfer agent. If and when it retains a
transfer agent, the Company covenants and agrees that, in the event that the
Company’s agency relationship with the transfer agent should be terminated for
any reason prior to a date which is two (2) years after the date of this
Agreement, the Company shall immediately appoint a new transfer agent and shall
use its best efforts to require that the new transfer agent execute and agree to
be bound by the terms of the Irrevocable Transfer Agent Instructions (as defined
herein).

3.10 Restriction on Issuance of the Capital Stock and Incurrence of Additional
Debt.

 

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(a) So long as any Notes are outstanding, the Company shall be prohibited from
effecting or entering into an agreement to effect any issuance by the Company or
any of its subsidiaries of Common Stock or securities or instruments convertible
or exercisable into Common Stock involving a “Variable Rate Transaction.” The
term “Variable Rate Transaction” shall mean a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock, or (ii) enters into any
agreement, including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price. Notwithstanding the
foregoing, this Section shall not apply in respect of (i) any Excluded
Securities or (ii) any transaction with the Buyer. “Excluded Securities” shall
mean, (a) shares or options issued or deemed to have been issued by the Company
pursuant to any means including a stock option plan that has been approved by
the Board of Directors of the Company, and the Company’s shareholders where
applicable, (b) shares of Common Stock issued or deemed to be issued by the
Company upon the conversion, exchange or exercise of any right, option,
obligation or security outstanding on the date prior to date of this Agreement,
provided that the terms of such right, option, obligation or security are not
amended or otherwise modified on or after the date of this Agreement, and
provided that the conversion price, exchange price, exercise price or other
purchase price is not reduced, adjusted or otherwise modified and the number of
shares of Common Stock issued or issuable is not increased (whether by operation
of, or in accordance with, the relevant governing documents or otherwise) on or
after the date of this Agreement, (c) shares issued in connection with any
acquisition or strategic transaction by the Company, whether through an
acquisition of stock or a merger of any business, assets or technologies,
leasing arrangement or any other transaction the primary purpose of which is not
to raise equity capital, and (d) the shares of Common Stock issued or deemed to
be issued by the Company upon conversion of the Notes or exercise of the
Warrants.

(b) So long as any Notes are outstanding, except as permitted by the terms of
the Security Agreement, of even date herewith, by and between the Company and
Buyer, the Company is prohibited from effecting or entering into an agreement to
effect any issuance by the Company of any debt instruments or debt securities
unless junior in payment and security to the Notes.

(c) Notwithstanding the foregoing, nothing in this Section 3.10 will prohibit
the Company from entering into a Variable Rate Transaction, provided that, such
instrument is junior in payment and security to the Notes, and, provided further
that, nothing in this Section 3.10 will prohibit the Company from exercising its
right to prepay the principal amount outstanding under the Notes at any time, in
whole or in part, together with the accrued and unpaid interest owing, if any,
prior to or in connection with, any such Variable Rate Transaction.

3.11 No Short Position. Neither the Buyer nor any of its affiliates have an open
short position in the Common Stock of the Company, and the Buyer agrees that it
shall not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock as long as any
Notes shall remain outstanding.

3.12 Rights of First Refusal. So long as any portion of the Notes are
outstanding, if the Company intends to raise additional capital by the issuance
or sale of capital stock of the Company, including without limitation shares of
any class of common stock, any class of preferred stock, options, warrants or
any other securities convertible or exercisable into shares of common stock
(whether the offering is conducted by the Company, underwriter, placement agent
or any third party) but excluding any Excluded Securities, the Company shall be
obligated to offer to the Buyer such issuance or sale of capital stock, by
providing in writing the principal amount of capital it intends to raise and
outline of the material terms of such capital raise, prior to the offering of
such issuance or sale of capital stock to any third parties including, but not
limited to, current or former officers or directors, current or former
shareholders and/or investors of the obligor, underwriters, brokers, agents or
other third parties. The Buyer shall have ten (10) business days from receipt of
such notice of the sale or issuance of capital stock to accept or reject all or
a portion of such capital raising offer.

 

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3.13 Review of Public Disclosures. All SEC filings (including, without
limitation, all filings required under the Exchange Act, which include Forms
10-Q and 10-QSB, 10-K and 10-KSB, 8-K, etc) and other public disclosures made by
the Company, including, without limitation, all press releases, investor
relations materials, and scripts of analysts meetings and calls, shall be
reviewed and approved for release by the Company’s attorneys and, if containing
financial information, the Company’s independent certified public accountants.

3.14 No Adjustment to Convertible Securities. For so long as the Notes remain
outstanding, the Company shall not adjust any terms of any Convertible
Securities, including, without limitation, reducing the conversion price,
exchange price, exercise price or other purchase price, or increasing the number
of shares of Common Stock issued or issuable under such Convertible Securities.
“Convertible Securities” shall mean any right, obligation, or security directly
or indirectly convertible into or exchangeable for Common Stock.

3.15 Board of Director Rights. So long as any Notes are outstanding, the Company
shall allow one representative of Buyer to attend and participate, as an
observer, in all meetings of the Board of Directors of the Company and all
committees thereof. The Company shall give Buyer notice of all such meetings, at
the same time as furnished to the directors of the Company.

3.16 Conditions to Draw the Proceeds Under the Note. After the Closing, Buyer
shall provide funding of the proceeds under the Note conditioned as follows:

Condition to Draw

(a) Initial draw shall be no greater than $500,000; once $500,000 is reached,
any subsequent draw must be thirty (30) days later

(b) No Default (or event which with notice or lapse of time or both would become
a default) shall exist

(c) Buyer shall have received notice at least five (5) business days prior to
such draw

(d) Each draw shall be made on notice by the Company with such notice made in
writing (by facsimile or recognized overnight delivery service) substantially in
the form of Exhibit 3.16 (d) and shall include the information required in such
Exhibit and such other information as may be required by the Buyer

(e) No additional indebtedness or other liabilities shall be incurred, assumed
or otherwise be reflected on the Company’s consolidated financial statements,
excluding trade payables and operating expenses incurred in the normal course of
business

3.17 Drawing Period. Subject to the satisfaction (or waiver) of the terms and
conditions of this Agreement, the Buyer agrees to provide funding of the
proceeds under the Note for the period ending six (6) months from the date of
the Agreement.

SECTION 4

Transfer Agent Instructions

4.1 Transfer Agent Instructions. The Company shall use its best efforts to cause
its transfer agent, and any subsequent transfer agent, to enter into the
Transfer Instructions Agreement and abide by the Irrevocable Transfer Agent
Instructions, irrevocably appointing Mitchell Saltz, as the Company’s agent for
purpose of instructing its transfer agent to issue certificates registered in
the name of the Buyer or its respective nominee(s), for the Conversion Shares
issued upon conversion of the Notes and the Warrant Shares issued upon exercise
of the Warrants as specified from time to time by Buyer to the Company upon
conversion or exercise as the case may be. The Company shall not change its
transfer agent without the express written consent of the Buyer, which shall not
be unreasonably withheld. The Company warrants that, in respect of the
Securities, no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 4.1, and stop transfer instructions to
give effect to Section 2.2(g) hereof (in the case of the Warrant Shares prior to
registration of such shares under the Securities Act), will be given by the
Company to its transfer agent, and will use its best efforts to ensure 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 promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyer to effect such sale, transfer or
assignment and, with respect to any transfer, shall permit the transfer. In the
event that such sale, assignment or transfer involves 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. Nothing in this Section 4.1 shall affect in any way the Buyer’s
obligations and agreement to comply with all applicable securities laws upon
resale of the Conversion Shares and the Warrant Shares. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyer by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 4.1 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 4.1, that the Buyer shall be entitled, in addition to all other
available remedies, to an 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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SECTION 5

Conditions To The Company’s Obligation to Sell

5.1 Conditions to the Company’s Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Notes and Warrants to the Buyer at the
Closing is subject to the satisfaction, at or before the date of this Agreement,
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:

(a) Buyer shall have executed the Transaction Documents and delivered them to
the Company.

(b) Buyer shall have delivered to the Company the purchase price for the Notes
and Warrants minus any fees to be paid directly from the proceeds at the Closing
as set forth herein, by wire transfer of immediately available U.S. funds
pursuant to the wire instructions provided by the Company.

(c) The representations and warranties of the Buyer shall be true and correct in
all material respects as of the date when made and as of the date of this
Agreement as though made at that time (except for representations and warranties
that speak as of a specific date), and the 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 the Buyer at or prior to the date of this Agreement.

SECTION 6

Conditions To The Buyer’s Obligation To Purchase

6.1 Conditions to the Buyer’s Obligation to Purchase. The obligation of the
Buyer hereunder to purchase the Notes and the Warrants at the Closing is subject
to the satisfaction, at or before the date of this Agreement, of each of the
following conditions, provided that these conditions are for the Buyer’s sole
benefit and may be waived by the Buyer at any time in its sole discretion:

(a) The Company shall have executed the Transaction Documents and delivered the
same to the Buyer.

 

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(b) The representations and warranties of the Company shall be true and correct
to the best of the Company’s knowledge in all material respects (except to the
extent that any of such representations and warranties is already qualified as
to materiality in Section 2.2 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the date of this Agreement as though made at that time
(except for representations and warranties that speak as of a specific date) and
the Company 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 the Company at or prior
to the date of this Agreement.

(c) The Company shall have executed and delivered to Buyer the Notes and
Warrants in the respective amounts.

(d) The Company shall have provided to the Buyer a true copy of a certificate of
good standing evidencing the formation and good standing of the Company from the
secretary of state (or comparable office) from the jurisdiction in which the
Company is incorporated, as of a date within ten (10) days of the date of this
Agreement.

(e) The Company shall have delivered to the Buyer a certificate, executed by the
Secretary of the Company and dated within thirty (30) days of the date of this
Agreement, as to (i) the resolutions consistent with Section 2.2(c) as adopted
by the Company’s Board of Directors in a form reasonably acceptable to such
Buyer, (ii) the Amended and Restated Articles of Incorporation and (iii) the
Bylaws, each as in effect at the Closing.

(f) The Company or the Buyer shall have filed a form UCC-1 or such other forms
as may be required to perfect the Buyer’s interest in the Pledged Property as
detailed in the Security Agreement dated the date hereof and provided proof of
such filing to the Buyer.

(g) The Company shall have created the Share Reserve.

(h) No event or series of events shall have occurred that would, individually or
in the aggregate, have any effect that is material and adverse to the Company
and such subsidiaries, taken as a whole, or that would prohibit or otherwise
interfere with the ability of the Company to perform any of its obligations
under the Transaction Documents.

(i) The Company shall have certified, in a certificate executed by two officers
of the Company and dated as of the date of this Agreement, that to the best of
its knowledge all conditions to the Closing have been satisfied.

 

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SECTION 7

Indemnification, Affirmation and Waiver

7.1 In consideration of the Buyer’s execution and delivery of this Agreement and
acquiring the Notes, the Conversion Shares, the Warrants and the Warrant Shares
hereunder, and in addition to all of the Company’s other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless Buyer
and each other Holder of the Notes, the Conversion Shares, the Warrants and the
Warrant Shares, and all of their officers, directors, employees and
agents (including, without limitation, Mitchell Saltz, Southwest Capital
Partners, LLC and those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Buyer 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 indemnified party is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified Liabilities”), incurred by the Buyer
Indemnitees or any of them 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 this Agreement, the Notes, the Warrants or the other 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 this Agreement, or the other 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 Buyer
Indemnitee, other than due to intentional misconduct on the part of any of the
Buyer Indemnitees, and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the parties hereto, any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Notes or the status of the
Buyer or holder of the Notes, the Conversion Shares, the Warrants or the Warrant
Shares, as a Buyer of Notes in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.

7.2 In consideration of the Company’s execution and delivery of this Agreement,
and in addition to all of the Buyer’s other obligations under this Agreement,
Buyer shall defend, protect, indemnify and hold harmless the Company and all of
its officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the “Company Indemnitees”) from and against any and
all Indemnified Liabilities incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Buyer in this Agreement, the
Notes, the Warrants or any other Transaction Document or any other certificate,
instrument or document contemplated hereby or thereby executed by the Buyer,
(b) any breach of any covenant, agreement or obligation of the Buyer contained
in this Agreement, or the other Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby executed by the Buyer, or
(c) any cause of action, suit or claim brought or made against such Company
Indemnitee based on material misrepresentations or due to a material breach and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement, the Transaction Documents or any other
instrument, document or agreement executed pursuant hereto by any of the parties
hereto. To the extent that the foregoing undertaking by Buyer may be
unenforceable for any reason, Buyer shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

7.3 In consideration of the Buyer’s execution and delivery of this Agreement,
and in addition to all of the Company’s other obligations under this Agreement,
the Company reaffirms its knowledge of the beneficial ownership interest of
Mitchell Saltz in Buyer and Southwest Capital Partners, LLC and shall waive and
fully release, and will hold harmless and forever discharge Mitchell Saltz,
including his agents, employees, consultants, related companies, subsidiaries
and attorneys from and against any and all liabilities, claims, demands,
administrative complaints, causes of action and suits that it may have, or may
hereafter acquire, of whatever kind and nature, known or unknown, presently
existing or hereafter arising in the future, including, but not limited to, any
claims and causes of action that arise from or relate to the beneficial
ownership interest of Mitchell Saltz in Buyer and Southwest Capital Partners,
LLC, acquiring the Notes, the Conversion Shares, the Warrants and the Warrant
Shares, or any dealings between the parties thereby.

 

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SECTION 8

Miscellaneous

8.1 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Arizona without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Maricopa County, Arizona, and expressly consent
to the jurisdiction and venue of the Superior Court of Maricopa County, Arizona,
and the United States District Court for the District of Arizona sitting in
Phoenix, Arizona for the adjudication of any civil action asserted pursuant to
this Section.

8.2 Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.

8.3 Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

8.4 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.

8.5 Entire Agreement; Amendments. This Agreement supersedes all other prior oral
or written agreements between the Buyer, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein 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 the Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.

 

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8.6 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 confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery 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, to:    Earth911, Inc.       1375 N. Scottsdale Rd., Suite 140
      Scottsdale, AZ 85257       Attention:    Chief Executive Officer      
Telephone:    (480) 337-3025       Facsimile:    (480) 348-0422    With a copy
to:    Greenberg Traurig, LLP       2375 E. Camelback Road, Suite 700      
Phoenix, AZ 85016       Attention:    Robert Kant       Telephone:    (602)
445-8301       Facsimile:    (602) 445-8100    If to Buyer, to:    Stockbridge
Enterprises, LP       7277 E. Doubletree Ranch Rd.       Suite 200      
Attention:    Mitchell Saltz       Telephone:    (602) 885-7854       Facsimile:
   (602) 907-1613    With a copy to:    Jeffrey R. Perry Law Firm, P.C.      
7119 E. Shea Blvd., Suite 109-111       Scottsdale, AZ 85254-6107      
Attention:    Jeffrey Perry, Esq.       Telephone:    (480) 368-5441      
Facsimile:    (866) 288-4877   

Each party shall provide five (5) days’ prior written notice to the other party
of any change in address or facsimile number.

8.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. Except
as otherwise provided for in this Agreement, neither the Company nor the Buyer
shall assign this Agreement or any rights or obligations hereunder without the
prior written consent of the other party hereto.

8.8 No Third Party Beneficiaries. Except as otherwise provided for in this
Agreement, 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.

8.9 Survival. Subject to Section 8.12, the representations and warranties of the
Company and Buyer contained in Sections 2.1 and 2.2, the agreements and
covenants set forth in Section 4, and the indemnification provisions set forth
in Section 7, shall survive the Closing for a period of two (2) years following
the date on which the Notes are converted in full. The Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.

8.10 Publicity. The Company and the Buyer shall have the right to approve,
before issuance any press release or any other public statement with respect to
the transactions contemplated hereby made by any party; provided, however, that
the Company shall be entitled, without the prior approval of the Buyer, to issue
any press release or other public disclosure with respect to such transactions
required under applicable securities or other laws or regulations (the Company
shall use its best efforts to consult the Buyer in connection with any such
press release or other public disclosure prior to its release and Buyer shall be
provided with a copy thereof upon release thereof).

 

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8.11 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 the 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.

8.12 Termination. In the event that the Closing shall not have occurred with
respect to the Buyers on or before ten (10) business days following the date of
this Agreement set forth in Section 1.2 due to the Company’s or the Buyer’s
failure to satisfy the conditions set forth in Sections 5 and 6 above (and the
non-breaching party’s failure to waive such unsatisfied condition(s)), the
non-breaching 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, that if this
Agreement is terminated by the Company pursuant to this Section 8.12, the
Company shall remain obligated to reimburse the Buyer for its fees and expenses
described in Section 3.7 above.

8.13 Brokerage. The Company represents that no broker, agent, finder or other
party has been retained by it in connection with the transactions contemplated
hereby and that no other fee or commission has been agreed by the Company to be
paid for or on account of the transactions contemplated hereby.

8.14 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.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, 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: EARTH911, INC. By:  

/s/ Barry Monheit

Name: Barry Monheit Title: Chief Executive Officer

 

BUYER: STOCKBRIDGE ENTERPRISES, L.P. By:  

/s/ Daniel Gross

Name: Daniel Gross Title: Manager of the General Partner

 

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LIST OF EXHIBITS:

Disclosure Schedule

Exhibit A – Form of Notes

Exhibit B – Form of Initial Warrant

Exhibit C – Form of Contingent Warrant

Exhibit 3.16 (d)

 

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DISCLOSURE SCHEDULE

Disclosure Schedules have been omitted pursuant to Regulation S-K Item
601(b)(2), and Infinity agrees to furnish a supplemental copy of such exhibits
or schedules upon request of the SEC.

 

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THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.

EARTH911, INC.

SENIOR SECURED CONVERTIBLE NOTE

 

Issuance Date: March 22, 2012       Original Principal Amount:    $1,000,000.00
No. EARTH911, INC.-1-         

FOR VALUE RECEIVED, EARTH911, INC., a Delaware corporation (the “Company”),
hereby promises to pay to the order of STOCKBRIDGE ENTERPRISES, L.P., a Nevada
limited partnership, or registered assigns (the “Holder”) the amount set out
above as the original principal amount (as reduced pursuant to the terms hereof
pursuant to redemption or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each
case in accordance with the terms hereof) and to pay interest (“Interest”) on
any outstanding Principal at the applicable Interest Rate (as defined herein)
from the date set out above as the issuance date (the “Issuance Date”) until the
same becomes due and payable, whether upon an Interest Date (as defined below),
the Maturity Date or acceleration, redemption or otherwise (in each case in
accordance with the terms hereof). This Senior Secured Convertible Note
(including all senior secured notes issued in exchange, transfer or replacement
hereof, this “Note”) is issued pursuant to the Securities Purchase Agreement, of
even date herewith, by and between the Company and the Holder. Certain
capitalized terms used herein are defined in Section 17.

1. GENERAL TERMS.

(a) Payment of Principal. On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest. The “Maturity Date” shall be March 22, 2013, as may be extended
at the option of the Holder (i) in the event that, and for so long as, an Event
of Default (as defined below) shall have occurred and be continuing on the
Maturity Date (as may be extended pursuant to this Section 1) or any event shall
have occurred and be continuing on the Maturity Date (as may be extended
pursuant to this Section 1) that with the passage of time and the failure to
cure would result in an Event of Default. Other than as specifically permitted
by this Note, the Company may not prepay or redeem any portion of the
outstanding Principal without the prior written consent of the Holder.

 

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(b) Interest. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to six percent (6%) (“Interest Rate”). Interest shall be
calculated on the basis of a 365-day year and the actual number of days elapsed,
to the extent permitted by applicable law. Interest hereunder shall be paid in
cash in arrears on each Interest Payment Date (as defined herein) and on the
Maturity Date (or sooner as provided herein) to the Holder or its assignee in
whose name this Note is registered on the records of the Company regarding
registration and transfers of Notes.

(c) Default Rate of Interest. If any principal of or interest on the Notes is
not paid when due or there exists any other Default or Event of Default, the
Notes shall bear interest thereafter at the rate of three percent (3%) per annum
in excess of the rate specified in Section 1.(b) until the Interest Payment Date
next following, as applicable, either the date on which such overdue principal
or interest is paid in full or the date on which such other Default or Event of
Default is cured. If any principal of the Notes remains outstanding on the six
(6) month anniversary of the Maturity Date, the Notes shall bear interest at the
rate of six percent (6%) per annum in excess of the rate specified in
Section 1.(b) with such rate increasing by three percent (3%) per annum for each
subsequent six (6) month anniversary of the Maturity Date.

(d) Security. The obligations of the Company hereunder are (i) guaranteed by
each subsidiary of the Company pursuant to a Guaranty Agreement dated the date
hereof (the “Guaranty”), (ii) secured by a pledge of the Pledged Property (as
defined in the Security Agreement (the “Security Agreement”) among the Holder,
the Company, and each subsidiary of the Company, and (iii) further secured by a
pledge of the Patent Collateral (as defined in the Patent Security Agreement
(the “Patent Security Agreement”) among the Holder, the Company, and each
subsidiary of the Company.

2. EVENTS OF DEFAULT.

(a) An “Event of Default,” wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):

(i) The Company’s failure to pay to the Holder any amount of Principal,
Interest, or other amounts when and as due under this Note (including, without
limitation, the Company’s failure to pay any redemption payments or amounts
hereunder) or under any other Transaction Document (as defined herein);

(ii) The Company or any subsidiary of the Company shall commence, or there shall
be commenced against the Company or any subsidiary of the Company under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Company or any subsidiary of the Company commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of one hundred eighty (180) days; or the
Company or any subsidiary of the Company is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary of the Company suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of one hundred eighty (180) days; or the Company or any subsidiary of the
Company makes a general assignment for the benefit of creditors; or the Company
or any subsidiary of the Company shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they become
due; or the Company or any subsidiary of the Company shall call a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring of
its debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;

 

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(iii) The Company or any subsidiary of the Company shall default in any of its
obligations under any other debenture or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding $50,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;

(iv) The Company or any subsidiary of the Company shall be a party to any Change
of Control Transaction (as defined in Section 6) unless in connection with such
Change of Control Transaction this Note is retired;

(v) The Company shall fail for any reason to deliver the payment in cash
pursuant to a Buy-In (as defined herein) within three (3) Business Days (as
defined herein) after such payment is due;

(vi) The Company shall fail to observe or perform any other covenant, agreement
or warranty contained in, or otherwise commit any breach or default of any
provision of this Note (except as may be covered by Section 2(a)(i) through
2(a)(v) hereof) or any Transaction Document, which failure is not cured within
the time prescribed.

(b) During the time that any portion of this Note is outstanding, if any Event
of Default has occurred, the full unpaid Principal amount of this Note, together
with interest and other amounts owing in respect thereof, to the date of
acceleration shall become at the Holder’s election, immediately due and payable
in cash. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.

3. COMPANY REDEMPTION.

(a) Company Cash Redemption. The Company at its option shall have the right to
redeem (“Optional Redemption”) a portion or all amounts outstanding under this
Note prior to the Maturity Date, without premium or penalty, by delivering a
written notice to the Holder of its intention to make a redemption (the
“Redemption Notice”) setting forth the amount of Principal it desires to redeem
with accrued Interest thereon (collectively, the “Redemption Amount”),
confirming that the conditions to such redemption have been satisfied, and
setting forth the date the Optional Redemption is to be made (the “Redemption
Date”). Once a Redemption Notice is delivered to the Holder, the Note (or
portion thereof) called for redemption shall become irrevocably due and payable
on the applicable Redemption Date and at the applicable Redemption Amount. If
the Company plans to repay the outstanding Principal, the Company shall provide
Buyer with ten (10) days prior written notice of such and provide proof of
sufficient funds in escrow to satisfy the Redemption Amount.

 

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(b) Mandatory Redemption. The Company shall be required to redeem all
outstanding amounts of Principal and accrued Interest upon the occurrence of an
Event of Default. In the event of the closing of any financing transaction or
funding of the Company or any of its other subsidiaries or affiliated companies,
the proceeds of the financing transaction or funding shall be applied to redeem
the outstanding amounts of Principal as follows: (i) the Company shall not be
obligated to use any proceeds towards repayment of the outstanding amounts of
Principal with respect to the first $100,000 raised; (ii) at the election of the
Buyer, twenty-five percent (25%) of the next $100,000 raised shall be applied to
redeeming the outstanding amounts of Principal; and (iii) at the election of the
Buyer, fifty percent (50%) of any proceeds raised in excess of $200,000 shall be
applied to redeeming the outstanding amounts of Principal. The Company will
notify Buyer within five (5) days of such financing transaction or funding.

4. CONVERSION OF NOTE. This Note shall be convertible into shares of the
Company’s Common Stock (as defined herein), on the terms and conditions set
forth in this Section 4.

(a) Conversion Right at the Maturity Date. At any time that any amount of
Principal and accrued Interest is outstanding prior to the Maturity Date and for
a period of five (5) years thereafter, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in accordance with
Section 4(b), at the Conversion Rate (as defined below). The number of shares of
Common Stock issuable upon conversion of any Conversion Amount pursuant to this
Section 4(a) shall be determined by dividing (x) such Conversion Amount by
(y) the Conversion Price (the “Conversion Rate”). The Company shall not issue
any fraction of a share of Common Stock upon any conversion. If the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up to the nearest
whole share. The Company shall pay any and all transfer, stamp and similar taxes
that may be payable with respect to the issuance and delivery of Common Stock
upon conversion of any Conversion Amount. If the Company plans to repay the
outstanding Principal after the Maturity Date, the Company shall provide Buyer
with ten (10) days prior written notice of such.

(i) “Conversion Amount” means the portion of the Principal and accrued Interest
outstanding at the Maturity Date that is to be converted, redeemed or otherwise
with respect to which this determination is being made.

(ii) “Conversion Price” means, as of any Conversion Date (as defined below)
before the occurrence of any Triggering Event, if prior to the Maturity Date,
$1.00, or if after the Maturity Date, $0.50, subject to adjustment as provided
herein (the “Fixed Conversion Price”), and as of any Conversion Date following
the occurrence of any Triggering Event, the lower of (a) the Fixed Conversion
Price or (b) the average Closing Bid Price during the ten (10) Trading Days
immediately preceding the Conversion Date (the “Market Conversion Price”).

(b) Mechanics of Conversion.

(i) Optional Conversion. To convert any Conversion Amount into shares of Common
Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York Time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if
required by Section 4(c)(iv), surrender this Note to a nationally recognized
overnight delivery service for delivery to the Company (or an indemnification
undertaking reasonably satisfactory to the Company with respect to this Note in
the case of its loss, theft or destruction). On or before the third Business Day
following the date of receipt of a Conversion Notice (the “Share Delivery
Date”), the Company shall issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder shall be
entitled which certificates shall not bear any restrictive legends unless
required pursuant to Section 2.1(g) of the Securities Purchase Agreement. If
this Note is physically surrendered for conversion and the outstanding Principal
of this Note is greater than the Principal portion of the Conversion Amount
being converted, then the Company shall as soon as practicable and in no event
later than three (3) Business Days after receipt of this Note and at its own
expense, issue and deliver to the Holder a new Note representing the outstanding
Principal not converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record Holder or Holders of such shares of Common Stock upon the
transmission of a Conversion Notice.

 

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(ii) Company’s Failure to Timely Convert. The Company understands that a delay
in the delivery of the certificates representing the Common Stock issuable upon
conversion of this Note could result in economic loss to the Holder. If after
the third Trading Day after the Company’s receipt of a facsimile copy of a
Conversation Notice (“Share Delivery Due Date”) the Company has failed to issue
and deliver a certificate to the Holder upon such Holder’s conversion of any
Conversion Amount (a “Conversion Failure”), and if on or after such Trading Day
the Holder purchases (in an open market transaction or otherwise) Common Stock
to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company (a
“Buy-In”), then the Company shall, within three (3) Business Days after the
Holder’s request and in the Holder’s discretion, either (i) pay cash to the
Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other out of pocket expenses, if any) for the shares
of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing Bid
Price on the Conversion Date.

(iii) Book-Entry. Notwithstanding anything to the contrary set forth herein,
upon conversion of any portion of this Note in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Note to the
Company unless (A) the full Conversion Amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Note upon physical surrender of this Note. The Holder and the Company shall
maintain records showing the Principal and Interest converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon conversion.

(c) Other Provisions.

(i) The Company shall at all times reserve and keep available out of its
authorized Common Stock the full number of shares of Common Stock issuable upon
conversion of all outstanding amounts under this Note; and within fifteen
(15) Business Days following the receipt by the Company of a Holder’s notice
that such minimum number of Underlying Shares (as defined herein) is not so
reserved, the Company shall promptly take such actions as required in order to
reserve a sufficient number of shares of Common Stock to comply with such
requirement.

(ii) All calculations under this Section 4 shall be rounded to the nearest
$0.0001 or whole share.

 

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(iii) The Company covenants that it will at all times reserve and keep available
out of its authorized and unissued shares of Common Stock solely for the purpose
of issuance upon conversion of this Note and payment of interest on this Note,
each as herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder, not less than such
number of shares of the Common Stock as shall (subject to any additional
requirements of the Company as to reservation of such shares set forth in this
Note or in the Transaction Documents) be issuable (taking into account the
adjustments and restrictions set forth herein) upon the conversion of the
outstanding principal amount of this Note and payment of interest hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.

(iv) Nothing herein shall limit a Holder’s right to pursue actual damages or
declare an Event of Default pursuant to Section 2 herein for the Company‘s
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.

5. ADJUSTMENTS TO CONVERSION PRICE

(a) Adjustment of Conversion Price upon Issuance of Common Stock. If the
Company, at any time while this Note is outstanding, issues or sells, or in
accordance with this Section 5(a) is deemed to have issued or sold, any shares
of Common Stock, excluding shares of Common Stock, Convertible Securities or
Options deemed to have been issued or sold by the Company in connection with any
Excluded Securities, for a consideration per share (the “New Issuance Price”)
less than a price equal to the Conversion Price in effect immediately prior to
such issue or sale (such price the “Applicable Price”) (the foregoing a
“Dilutive Issuance”), then immediately after such Dilutive Issuance the
Conversion Price then in effect shall be reduced to an amount equal to the
product of (X) the Conversion Price in effect immediately prior to such Dilutive
Issuance and (Y) the quotient determined by dividing (1) the sum of (i) the
product derived by multiplying the Conversion Price in effect immediately prior
to such Dilutive Issuance and the number of shares of Common Stock deemed
outstanding immediately prior to such Dilutive Issuance plus (ii) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (i) the Conversion Price in effect
immediately prior to such Dilutive Issuance by (ii) the number of shares of
Common Stock deemed outstanding immediately after such Dilutive Issuance. For
purposes of determining the adjusted Conversion Price under this Section 5(a),
the following shall be applicable:

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

 

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

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

(iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for the difference of (X) the aggregate fair market value of
such Options and other securities issued or sold in such integrated transaction,
less (Y) the fair market value of the securities other than such Option, issued
or sold in such transaction and the other securities issued or sold in such
integrated transaction will be deemed to have been issued or sold for the
balance of the consideration received by the Company. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the gross amount raised by the Company; provided, however, that such gross
amount is not greater than 110% of the net amount received by the Company
therefor. If any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Closing Bid Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the Holder. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the “Valuation Event”), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the Holder. The determination of such appraiser shall be deemed
binding upon all parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.

 

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

(b) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company, at any time while this Note is outstanding, shall (i) pay
a stock dividend or otherwise make a distribution or distributions on shares of
its Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a
larger number of shares, (iii) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.

(c) Purchase Rights. If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.

(d) Other Events. If any event occurs of the type contemplated by the provisions
of this Section 5 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company’s Board of
Directors will make an appropriate adjustment in the Conversion Price so as to
protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 5.

 

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

Whenever the Conversion Price is adjusted pursuant to Section 5 hereof, the
Company shall promptly mail to the Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.

(f) Rights Upon Fundamental Transaction. Notwithstanding the provisions of
Section 5(a), if at any time while this Note is outstanding, (i) the Company
effects any statutory reorganization, merger or consolidation of the Company or
any subsidiary of the Company with or into another Person where the Company
either is or is not the surviving party other than a change of domicile merger,
(ii) the Company or any subsidiary of the Company effects any sale of more than
one-half of the assets of the Company in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property or (iv) the Company effects any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property
(collectively, a “Fundamental Transaction”), the Holder shall have the right, at
its election, to (1) require the redemption of all amounts owed under this Note,
including Principal, accrued and unpaid Interest, and any other charges,
(2) convert the aggregate amount of this Note then outstanding into the shares
of stock and other securities, cash and property receivable upon or deemed to be
held by holders of Common Stock following such Fundamental Transaction, and such
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the shares of Common Stock into
which such aggregate amount of this Note could have been converted immediately
prior to such Fundamental Transaction would have been entitled, or (3) in the
case of a statutory reorganization, merger or consolidation, require the
surviving entity to issue to the Holder a convertible Note with a principal
amount equal to the aggregate principal amount of this Note then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Note shall have terms identical (including
with respect to conversion) to the terms of this Note, and shall be entitled to
all of the rights and privileges of the Holder of this Note set forth herein and
the agreements pursuant to which this Note was issued. In the case of clause
(3), the conversion price applicable for the newly issued convertible note shall
be based upon the amount of securities, cash and property that each share of
Common Stock would receive in such transaction and the Conversion Price in
effect immediately prior to the effectiveness or closing date for such
transaction. The terms of any Fundamental Transaction shall include such terms
so as to continue to give the Holder the right to receive the securities, cash
and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to such successive
events. In the event that the Holder chooses to convert the Note pursuant to
clause (2) of this section and the valuation of the Company for the purposes of
the Fundamental Transaction is less than, if prior to the Maturity Date, $1.00
per share, or if after the Maturity Date, $0.50 per share, then the Conversion
Price of the Note shall be adjusted downward to a price equal to the per share
valuation of the Fundamental Transaction. Nothing in this Section 5 shall
prohibit the Company from exercising its right to prepay the principal amount
outstanding under the Notes, in whole or in part, together with the accrued and
unpaid interest owing, if any, prior to or in connection with any such
Fundamental Transaction, as permitted by and in compliance with Section 3.

 

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6. REISSUANCE OF THIS NOTE.

(a) Transfer. If this Note is to be transferred, the Holder shall surrender this
Note to the Company, whereupon the Company will, subject to the satisfaction of
the transfer provisions of the Securities Purchase Agreement, forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with
Section 6(d)), registered in the name of the registered transferee or assignee,
representing the outstanding Principal being transferred by the Holder and, if
less than the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 6(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of
Section 4(b)(iii) following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.

(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 6(d)) representing the outstanding Principal.

(c) Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in accordance with Section 6(d)) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

(d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 6(a) or Section 6(c), the Principal designated by the Holder
which, when added to the principal represented by the other new Notes issued in
connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest from the Issuance Date.

 

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7. MISCELLANEOUS.

(a) Any notices, consents, waivers or other communications required or permitted
to be given under the terms hereof must be in writing and will be deemed to have
been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
when sent by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) Trading Day after deposit with a nationally recognized overnight delivery
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, to:    Earth911, Inc.       1375 N. Scottsdale Rd., Suite 140
      Scottsdale, AZ 85257       Attention:    Chief Executive Officer      
Telephone:    (480) 337-3024       Facsimile:    (480) 348-0422    With a copy
to:    Greenberg Traurig, LLP       2375 E. Camelback Road, Suite 700      
Phoenix, AZ 85016       Attention:    Robert Kant       Telephone:    (602)
445-8301       Facsimile:    (602) 445-8100    If to the Holder:    Stockbridge
Enterprises, LP       7377 E. Doubletree Ranch Road, Suite 200       Scottsdale,
AZ 85258       Attention:    Mitchell Saltz      

Telephone:

Facsimile:

  

(602) 885-7854

(602) 907-1613

   With a copy to:    Jeffrey R. Perry Law Firm, P.C.       7119 E. Shea Blvd.,
Suite 109-111       Scottsdale, AZ 85254-6107       Attention:    Jeffrey Perry,
Esq.       Telephone:    (480) 368-5441       Facsimile: (866) 288-4877   

or at 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 three (3) Business Days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) 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 (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

(b) Except as expressly provided herein, no provision of this Note shall alter
or impair the obligations of the Company, which are absolute and unconditional,
to pay the principal of, interest and other charges (if any) on, this Note at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Note is a direct obligation of the Company. As long as this Note is outstanding,
the Company shall not and shall cause their subsidiaries not to, without the
consent of the Holder, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the Holder;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares
of its Common Stock or other equity securities other than as to the Underlying
Shares to the extent permitted or required under the Transaction Documents; or
(iii) enter into any agreement with respect to any of the foregoing.

 

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(c) This Note shall not entitle the Holder to any of the rights of a stockholder
of the Company, including without limitation, the right to vote, to receive
dividends and other distributions, unless and to the extent converted into
shares of Common Stock in accordance with the terms hereof.

(d) This Note shall be governed by and construed in accordance with the laws of
the State of Arizona, without giving effect to conflicts of laws thereof. Each
of the parties consents to the jurisdiction of the Superior Courts of the State
of Arizona sitting in Maricopa County, Arizona and the U.S. District Court for
the District of Arizona sitting in Phoenix, Arizona in connection with any
dispute arising under this Note and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens to the bringing of any such proceeding in such jurisdictions.

(e) If the Company fails to strictly comply with the terms of this Note, then
the Company shall reimburse the Holder promptly for all fees, costs and
expenses, including, without limitation, attorneys’ fees and expenses incurred
by the Holder in any action in connection with this Note, including, without
limitation, those incurred: (i) during any workout, attempted workout, and/or in
connection with the rendering of legal advice as to the Holder’s rights,
remedies and obligations, (ii) collecting any sums which become due to the
Holder, (iii) defending or prosecuting any proceeding or any counterclaim to any
proceeding or appeal; or (iv) the protection, preservation or enforcement of any
rights or remedies of the Holder.

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

(g) If any provision of this Note is invalid, illegal or unenforceable, the
balance of this Note shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances. If it shall be found that any
interest or other amount deemed interest due hereunder shall violate applicable
laws governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of interest. The
Company covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Note as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such law as though no such law has been enacted.

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

(i) THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT
ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

 

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8. CERTAIN DEFINITIONS For purposes of this Note, the following terms shall have
the following meanings:

“Approved Stock Plan” means a stock option plan that has been approved by the
Board of Directors of the Company.

“Bloomberg” means Bloomberg Financial Markets.

“Business Day” means any day except Saturday, Sunday and any day which shall be
a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.

“Change of Control Transaction” means the occurrence of (a) an acquisition after
the date hereof by an individual or legal entity or “group” (as described in
Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Company (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Company which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), or (c) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (a) or (b).

“Closing Bid Price” means the price per share in the last reported trade of the
Common Stock on a Primary Market or on the exchange which the Common Stock is
then listed as quoted by Bloomberg.

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

“Common Stock” means the common stock, par value $0.0001, of the Company and
stock of any other class into which such shares may hereafter be changed or
reclassified including securities received in a Corporate Event or Fundamental
Transaction.

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

“Excluded Securities” means, (a) shares or options issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan (b) shares of Common
Stock issued or deemed to be issued by the Company upon the conversion, exchange
or exercise of any right, option, obligation or security outstanding on the date
prior to the date of the Securities Purchase Agreement, provided that the terms
of such right, option, obligation or security are not amended or otherwise
modified on or after the date of the Securities Purchase Agreement, and provided
that the conversion price, exchange price, exercise price or other purchase
price is not reduced, adjusted or otherwise modified and the number of shares of
Common Stock issued or issuable is not increased (whether by operation of, or in
accordance with, the relevant governing documents or otherwise) on or after the
date of the Securities Purchase Agreement, (c) shares issued in connection with
any acquisition by the Company, whether through an acquisition of stock or a
merger of any business, assets or technologies, leasing arrangement or any other
transaction the primary purpose of which is not to raise equity capital, and
(d) the shares of Common Stock issued or deemed to be issued by the Company upon
conversion of this Note.

 

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“Interest Payment Date” shall mean the first day of each calendar month
beginning on May 1, 2012.

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

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

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Securities Purchase Agreement” means the Securities Purchase Agreement dated
March 22, 2012 by and among the Company and the Buyer.

“Trading Day” means a day on which the shares of Common Stock are quoted on the
OTCBB or quoted or traded on such Primary Market on which the shares of Common
Stock are then quoted or listed; provided, that in the event that the shares of
Common Stock are not listed or quoted, then Trading Day shall mean a Business
Day.

“Transaction Documents” means the Securities Purchase Agreement or any other
agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Documents and the Warrants.

“Triggering Event” means the occurrence of a Corporate Event or Fundamental
Transaction whereby the Common Stock is listed or quoted for trading on any of
(1) the American Stock Exchange, (2) New York Stock Exchange, (3) the Nasdaq
Global Market, (4) the Nasdaq Capital Market, or (5) the Nasdaq OTC Bulletin
Board.

“Underlying Shares” means the shares of Common Stock issuable upon conversion of
this Note.

“Volume Weighted Average Price” means, for any security as of any date, the
daily dollar volume-weighted average price for such security on the Primary
Market as reported by Bloomberg through its “Historical Prices – Px Table with
Average Daily Volume” functions, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg, the average of the highest closing
bid price and the lowest closing ask price of any of the market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC.

 

Form of Senior Secured Convertible Note

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“Warrants” has the meaning ascribed to such term in the Securities Purchase
Agreement, and shall include all warrants issued in exchange therefore or
replacement thereof.

[Signature Page Follows]

 

Form of Senior Secured Convertible Note

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IN WITNESS WHEREOF, the Company has caused this Senior Secured Convertible Note
to be duly executed by a duly authorized officer as of the date set forth above.

 

COMPANY: EARTH911, INC. By: /s/ Barry
Monheit                                         Name: Barry Monheit Title: CEO

 

Form of Senior Secured Convertible Note

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EXHIBIT I

CONVERSION NOTICE

(To be executed by the Holder in order to Convert the Note)

TO:

The undersigned hereby irrevocably elects to convert $                     of
the principal amount of Note No.EARTH911, INC.-1-1 into shares of Common Stock
of EARTH911, INC., according to the conditions stated therein, as of the
Conversion Date written below.

 

Conversion Date:   

 

Conversion Amount to be converted:    $                             
                                         
                                                    Conversion Price:   
$                                                                       
                                                    Number of shares of Common
Stock to be issued:   

 

Amount of Note Unconverted:    $ Please issue the shares of Common Stock in the
following name and to the following address: Issue to:    Authorized Signature:
  

 

Name:   

 

Title:   

 

Account Number:   

 

Form of Senior Secured Convertible Note

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WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.

EARTH911, INC.

Warrant To Purchase Common Stock

 

Warrant No.: EARTH911, INC.-1-1    Number of Shares:    1,000,000    Warrant
Exercise Price:    $1.00    Expiration Date:    March 22, 2017      

Date of Issuance: March 22, 2012

EARTH911, INC., a Delaware corporation (the “Company”), hereby certifies that,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, STOCKBRIDGE ENTERPRISES, L.P., a Nevada limited
partnership, the registered holder (the “Holder”) hereof or its permitted
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the
date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as
defined herein) 1,000,000 fully paid and nonassessable shares of Common Stock
(as defined herein) of the Company (the “Warrant Shares”) at the exercise price
per share provided in Section 1(b) below or as subsequently adjusted. This
Warrant is issued pursuant to the Securities Purchase Agreement, dated March 22,
2012, by and between the Company and the Holder (the “Agreement”).

1. Definitions.

(a) This Warrant is issued pursuant to the Securities Purchase Agreement
(“Securities Purchase Agreement”), dated March 22, 2012, between the Company and
the Holder or issued in exchange or substitution thereafter or replacement
thereof. Each Capitalized term used, and not otherwise defined herein, shall
have the meaning ascribed thereto in the Securities Purchase Agreement.

(b) The following words and terms as used in this Warrant shall have the
following meanings:

“Approved Stock Plan” means a stock option plan that has been approved by the
Board of Directors of the Company.

 

Form of Initial Warrant

Page 1 of 16

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“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in the City of Phoenix, Arizona are authorized or required by
law to remain closed.

“Closing Bid Price” means the closing bid price of Common Stock as quoted on the
Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”)
through its “Volume at Price” function).

“Common Stock” means (i) the Company’s common stock, par value $0.0001 per
share, and (ii) any capital stock into which such Common Stock shall have been
changed or any capital stock resulting from a reclassification of such Common
Stock.

“Notes” means the Senior Secured Convertible Notes issued pursuant to the
Securities Purchase Agreement.

“Excluded Securities” means, (a) shares issued or deemed to have been issued by
the Company pursuant to an Approved Stock Plan, (b) shares of Common Stock
issued or deemed to be issued by the Company upon the conversion, exchange or
exercise of any right, option, obligation or security outstanding on the date
prior to the date of the Securities Purchase Agreement, provided that the terms
of such right, option, obligation or security are not amended or otherwise
modified on or after the date of the Securities Purchase Agreement, and provided
that the conversion price, exchange price, exercise price or other purchase
price is not reduced, adjusted or otherwise modified and the number of shares of
Common Stock issued or issuable is not increased (whether by operation of, or in
accordance with, the relevant governing documents or otherwise) on or after the
date of the Securities Purchase Agreement, and (c) the shares of Common Stock
issued or deemed to be issued by the Company upon conversion of the Convertible
Notes or exercise of the Warrants.

“Expiration Date” means March 22, 2017.

“Issuance Date” means the date hereof.

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock and which are not Excluded Securities.

“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.

“Primary Market” means on any of (a) the American Stock Exchange, (b) New York
Stock Exchange, (c) the Nasdaq Global Select Market, (d) the Nasdaq Global
Market, (e) the Nasdaq Capital Market, or (e) the Over-the-Counter Bulletin
Board (“OTCBB”)

“Securities Act” means the Securities Act of 1933, as amended.

“Warrant” means this Warrant and all Warrants issued in exchange, transfer or
replacement thereof.

“Warrant Exercise Price” shall be, as of any exercise date before the occurrence
of any Triggering Event, $1.00 (the “Fixed Exercise Price”), and, as of any
exercise date following the occurrence of any Triggering Event, the lower of
(a) the Fixed Exercise Price or (b) the average Closing Bid Price during the ten
(10) Trading Days immediately preceding the exercise date, or as subsequently
adjusted as provided in Section 8 hereof.

 

Form of Initial Warrant

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Other Definitional Provisions.

Except as otherwise specified herein, all references herein (i) to the Company
shall be deemed to include the Company’s successors and (ii) to any applicable
law defined or referred to herein shall be deemed references to such applicable
law as the same may have been or may be amended or supplemented from time to
time.

When used in this Warrant, the words “herein,” “hereof,” and “hereunder” and
words of similar import, shall refer to this Warrant as a whole and not to any
provision of this Warrant, and the words “Section,” “Schedule,” and “Exhibit”
shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless
otherwise specified.

Whenever the context so requires, the neuter gender includes the masculine or
feminine, and the singular number includes the plural, and vice versa.

2. Exercise of Warrant.

(a) Subject to the terms and conditions hereof, this Warrant may be exercised by
the Holder hereof then registered on the books of the Company, in whole or in
part, at any time on any Business Day on or after the opening of business on
such Business Day, commencing with the first day after the date hereof, and
prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a
written notice, in the form of the subscription notice attached as Exhibit A
hereto (the “Exercise Notice”), of such Holder’s election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, payment to the Company of an amount equal to the Warrant Exercise
Price(s) applicable to the Warrant Shares being purchased, multiplied by the
number of Warrant Shares (at the applicable Warrant Exercise Price) as to which
this Warrant is being exercised (plus any applicable issue or transfer taxes)
(the “Aggregate Exercise Price”) in cash or wire transfer of immediately
available funds and the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date (“Cash Basis”) or (ii) if at the time of
exercise, the Warrant Shares are not subject to an effective registration
statement by delivering an Exercise Notice and in lieu of making payment of the
Aggregate Exercise Price in cash or wire transfer, elect instead to receive upon
such exercise the “Net Number” of shares of Common Stock determined according to
the following formula (the “Cashless Exercise”):

Net Number = (A x B) – (A x C)

                                              B

For purposes of the foregoing formula:

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

B = the Closing Bid Price of the Common Stock on the date of exercise of the
Warrant.

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

 

Form of Initial Warrant

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(b) In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2, the Company shall on or before the fifth (5th)
Business Day following the date of receipt of the Exercise Notice, the Aggregate
Exercise Price and this Warrant (or an indemnification undertaking with respect
to this Warrant in the case of its loss, theft or destruction) and the receipt
of the representations of the Holder specified in Section 6 hereof, if requested
by the Company (the “Exercise Delivery Documents”), and if the Common Stock is
The Depository Trust Company (“DTC”) eligible, credit such aggregate number of
shares of Common Stock to which the Holder shall be entitled to the Holder’s or
its designee’s balance account with DTC; provided, however, if the Holder who
submitted the Exercise Notice requested physical delivery of any or all of the
Warrant Shares, or, if the Common Stock is not DTC eligible then the Company
shall, on or before the fifth (5th) Business Day following receipt of the
Exercise Delivery Documents, issue and surrender to a common carrier for
overnight delivery to the address specified in the Exercise Notice, a
certificate, registered in the name of the Holder, for the number of shares of
Common Stock to which the Holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (i) or (ii) above the Holder of this Warrant shall be deemed for all
corporate purposes to have become the Holder of record of the Warrant Shares
with respect to which this Warrant has been exercised. In the case of a dispute
as to the determination of the Warrant Exercise Price, the Closing Bid Price or
the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the Holder the number of Warrant Shares that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the Holder via
facsimile within one (1) Business Day of receipt of the Holder’s Exercise
Notice.

(c) If the Holder and the Company are unable to agree upon the determination of
the Warrant Exercise Price or arithmetic calculation of the Warrant Shares
within one (1) day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall immediately submit via
facsimile (i) the disputed determination of the Warrant Exercise Price or the
Closing Bid Price to an independent, reputable investment banking firm or
(ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant. The Company shall cause the investment banking
firm or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm’s or accountant’s determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.

(d) Unless the rights represented by this Warrant shall have expired or shall
have been fully exercised, the Company shall, as soon as practicable and in no
event later than five (5) Business Days after any partial exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.

(e) No fractional Warrant Shares are to be issued upon any pro rata exercise of
this Warrant, but rather the number of Warrant Shares issued upon such exercise
of this Warrant shall be rounded up or down to the nearest whole number.

(f) If the Company or its Transfer Agent shall fail for any reason or for no
reason to issue to the Holder within ten (10) days of receipt of the Exercise
Delivery Documents, a certificate for the number of Warrant Shares to which the
Holder is entitled or to credit the holder’s balance account with DTC for such
number of Warrant Shares to which the Holder is entitled upon the holder’s
exercise of this Warrant, the Company shall, in addition to any other remedies
under this Warrant or otherwise available to such holder, pay as additional
damages in cash to such Holder on each day the issuance of such certificate for
Warrant Shares is not timely effected an amount equal to 0.025% of the product
of (a) the sum of the number of Warrant Shares not issued to the Holder on a
timely basis and to which the Holder is entitled, and (b) the Closing Bid Price
of the Common Stock for the trading day immediately preceding the last possible
date which the Company could have issued such Common Stock to the Holder without
violating this Section 2.

 

Form of Initial Warrant

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(g) If within ten (10) days after the Company’s receipt of the Exercise Delivery
Documents, the Company fails to deliver a new Warrant to the Holder for the
number of Warrant Shares to which such Holder is entitled pursuant to Section 2
hereof, then, in addition to any other available remedies under this Warrant, or
otherwise available to such holder, the Company shall pay as additional damages
in cash to such Holder on each day after such tenth (10th) day that such
delivery of such new Warrant is not timely effected in an amount equal to 0.25%
of the product of (A) the number of Warrant Shares represented by the portion of
this Warrant which is not being exercised and (B) the Closing Bid Price of the
Common Stock for the trading day immediately preceding the last possible date
which the Company could have issued such Warrant to the Holder without violating
this Section 2.

3. Covenants as to Common Stock. The Company hereby covenants and agrees as
follows:

(a) This Warrant is, and any Warrants issued in substitution for or replacement
of this Warrant will upon issuance be, duly authorized and validly issued.

(b) All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.

(c) During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved at least
one hundred percent (100%) of the number of shares of Common Stock needed to
provide for the exercise of the rights then represented by this Warrant and the
par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price. If at any time the Company does not have a
sufficient number of shares of Common Stock authorized and available then, the
Company shall call and hold a special meeting of the stockholders, within thirty
(30) days of that time to increase the number of authorized shares of Common
Stock.

(d) If at any time after the date hereof the Company shall file a registration
statement, the Company shall include the Warrant Shares issuable to the Holder,
pursuant to the terms of this Warrant and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Warrant Shares
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system. Notwithstanding the
foregoing, if Holder can rely on Rule 144 to sell the Warrant Shares Holder is
issued as a result of any Cashless Exercise hereunder without complying with the
manner of sale provisions of Rule 144, the Company shall have no obligation to
register such Warrant Shares.

(e) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.

 

Form of Initial Warrant

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(f) This Warrant will be binding upon any entity succeeding to the Company by
merger, consolidation or acquisition of all or substantially all of the
Company’s assets.

4. Taxes. The Company shall pay any and all taxes, except any applicable
withholding, which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends or be deemed the Holder of shares of capital stock of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive dividends or
subscription rights, or otherwise, prior to the issuance to the Holder of this
Warrant of the Warrant Shares which he or she is then entitled to receive upon
the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on such Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the Holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.

6. Representations of Holder. The Holder of this Warrant, by the acceptance
hereof, represents that it is acquiring this Warrant and the Warrant Shares for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution of this Warrant or the
Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the Holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The Holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such Holder is an “accredited investor” as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an “Accredited Investor”). Upon exercise of
this Warrant the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder’s own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale
and that such Holder is an Accredited Investor. If such Holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder’s exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.

 

Form of Initial Warrant

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7. Ownership and Transfer. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the Holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and Holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.

8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Warrant shall be adjusted from time to time as follows:

(a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever on or after the Issuance Date of this Warrant, the
Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (other than Excluded Securities) for a consideration per share less
than a price (the “Applicable Price”) equal to the Warrant Exercise Price in
effect immediately prior to such issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance the Warrant Exercise
Price then in effect shall be reduced to an amount equal to the product of
(X) the Warrant Exercise Price in effect immediately prior to such Dilutive
Issuance and (Y) the quotient determined by dividing (1) the sum of (i) the
product derived by multiplying the Warrant Exercise Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common Stock deemed
outstanding immediately prior to such Dilutive Issuance plus (ii) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (i) the Warrant Exercise Price in effect
immediately prior to such Dilutive issuance by (ii) the number of shares of
Common Stock deemed outstanding immediately after such Dilutive Issuance.

(b) Effect on Warrant Exercise Price of Certain Events. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:

(i) Issuance of Options. If after the date hereof, the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any convertible securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the lowest price per share for which one share
of Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option or upon conversion or exchange of any
convertible security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such convertible securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such convertible securities.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any convertible securities which are not Excluded Securities and the
lowest price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such convertible
securities for such price per share. For the purposes of this Section 8(b)(ii),
the lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the convertible security and
upon conversion or exchange of such convertible security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such convertible securities, and if
any such issue or sale of such convertible securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale.

 

Form of Initial Warrant

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(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion or exchange of any convertible securities, or the rate at
which any convertible securities are convertible into or exchangeable for Common
Stock changes at any time, the Warrant Exercise Price in effect at the time of
such change shall be adjusted to the Warrant Exercise Price which would have
been in effect at such time had such Options or convertible securities provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold and the
number of Warrant Shares issuable upon exercise of this Warrant shall be
correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms
of any Option or convertible security that was outstanding as of the Issuance
Date of this Warrant are changed in the manner described in the immediately
preceding sentence, then such Option or convertible security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment pursuant
to this Section 8(b) shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.

(iv) Calculation of Consideration Received. If any Common Stock, Options or
convertible securities which are not Excluded Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefore will be deemed to be the net amount received by the Company therefore.
If any Common Stock, Options or convertible securities which are not Excluded
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the market price of such securities on the date of receipt of such
securities. If any Common Stock, Options or convertible securities which are not
Excluded Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefore will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or convertible securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of the Warrants
representing at least two-thirds of the Warrant Shares issuable upon exercise of
the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing at least two-thirds of the Warrant Shares
issuable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne jointly by the Company and the holders
of Warrants.

(v) Integrated Transactions. In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been issued
for a consideration of $.01.

 

Form of Initial Warrant

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(vi) Treasury Shares. The number of shares of Common Stock outstanding at any
given time does not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held will be considered
an issue or sale of Common Stock.

(vii) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in convertible securities or
(2) to subscribe for or purchase Common Stock, Options or convertible
securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

(c) Adjustment of Warrant Exercise Price upon Subdivision or Combination of
Common Stock. If the Company at any time after the date of issuance of this
Warrant subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, any Warrant Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, any
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased. Any adjustment under
this Section 8(c) shall become effective at the close of business on the date
the subdivision or combination becomes effective.

(d) Distribution of Assets. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:

(i) any Warrant Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a price determined by multiplying such
Warrant Exercise Price by a fraction of which (A) the numerator shall be the
Closing Sale Price of the Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (B) the denominator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date; and

(ii) either (A) the number of Warrant Shares obtainable upon exercise of this
Warrant shall be increased to a number of shares equal to the number of shares
of Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution multiplied by the reciprocal of the fraction set forth
in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on a
national securities exchange or a national automated quotation system, then the
Holder of this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the amount of the assets that would
have been payable to the Holder of this Warrant pursuant to the Distribution had
the Holder exercised this Warrant immediately prior to such record date and with
an exercise price equal to the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding clause (i).

 

Form of Initial Warrant

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(e) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Warrant Exercise
Price and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Warrants; provided,
except as set forth in section 8(c),that no such adjustment pursuant to this
Section 8(e) will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.

(f) Voluntary Adjustments By Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.

(g) Adjustment Upon Fundamental Transaction. If, at any time while this Warrant
is outstanding, (A) the Company effects any statutory reorganization, merger or
consolidation of the Company with or into another Person where the Company
either is or is not the surviving entity, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such
case, a “Fundamental Transaction”), then upon any subsequent exercises of this
Warrant, the Holder shall have the right, at its election, to receive, for each
Warrant Share that would have been issuable upon such exercise absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the Holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the
Warrant Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Warrant Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any conversion of this Warrant
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall assume the obligations under this Warrant.

(h) Adjustment Upon Fundamental Transaction. In the event that the Holder
requires the Company to redeem the Notes pursuant to a Fundamental Change (as
set forth in Section 5(g) of the Notes) than the Warrant Exercise Price shall be
adjusted (if applicable) in accordance with the terms of Section 5(g) of the
Notes.

 

Form of Initial Warrant

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9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or
Sale.

(a) In addition to any adjustments pursuant to Section 8 above, if at any time
the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the “Purchase Rights”), then the
Holder of this Warrant will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

(b) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company’s assets to another
Person or other transaction in each case which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an “Organic Change.” Prior to
the consummation of any (i) sale of all or substantially all of the Company’s
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the “Acquiring Entity”) a written agreement (in form and substance
satisfactory to the holders of Warrants representing at least two-thirds of the
Warrant Shares issuable upon exercise of the Warrants then outstanding) to
deliver to each Holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder’s Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder’s Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).

10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company shall promptly, on receipt of an
indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.

 

Form of Initial Warrant

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11. Notice. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Warrant 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
receipt is received by the sending party transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
Business Day after deposit with a nationally recognized overnight delivery
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 Holder:    Stockbridge Enterprises, L.P.       7377 East Doubletree Ranch
Road, Suite 200       Scottsdale, AZ 85258       Attention:    Mitch Saltz      
Telephone:    (602) 885-7854       Facsimile:    (602) 907-1613    With Copy to:
   Jeffrey R. Perry Law Firm, P.C.       7119 E. Shea Blvd., Suite 109-111      
Scottsdale, AZ 85254-6107       Attention:    Jeffrey Perry, Esq.      
Telephone:    (480) 368-5441       Facsimile:    (866) 288-4877   
If to the Company, to:    Earth911, Inc.       1375 N. Scottsdale Rd., Suite 140
      Scottsdale, AZ 85257       Attention:    Chief Executive Officer      
Telephone:    (480) 337-3025       Facsimile:    (480) 348-0422    With a copy
to:    Greenberg Traurig, LLP       2375 E. Camelback Road, Suite 700      
Phoenix, AZ 85016       Attention:    Robert Kant       Telephone:    (602)
445-8301       Facsimile:    (602) 445-8100   

If to a Holder of this Warrant, to it at the address and facsimile number set
forth in this Section 11, or at such other address and facsimile as shall be
delivered to the Company upon the issuance or transfer of this Warrant. Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt
(A) given by the recipient of such notice, consent, facsimile, waiver or other
communication, or (B) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

12. Date. The date of this Warrant is set forth on page 1 hereof. This Warrant,
in all events, shall be wholly void and of no effect after the close of business
on the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 8(b) shall continue in full force and effect after
such date as to any Warrant Shares or other securities issued upon the exercise
of this Warrant.

 

Form of Initial Warrant

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13. Amendment and Waiver. Except as otherwise provided herein, the provisions of
the Warrants may be amended by the Company and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided, that except for
Section 8(d), no such action may increase the Warrant Exercise Price or decrease
the number of shares or class of stock obtainable upon exercise of any Warrant
without the written consent of the Holder of such Warrant.

14. Descriptive Headings; Governing Law. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. The corporate laws of the state of
Arizonashall govern all issues concerning the relative rights of the Company and
its stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the state of Arizona, without giving effect to any choice of
law or conflict of law provision or rule (whether of the state of Arizona or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the state of Arizona. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Maricopa County, Arizona and the United States District Court for the District
of Arizona, for the adjudication of any dispute hereunder or in connection
herewith or therewith, 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.

15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO
ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

[SIGNATURE PAGE FOLLOWS]

 

Form of Initial Warrant

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the
date first set forth above.

 

EARTH911, INC. By:  

/s/ Barry Monheit

Name:   Barry Monheit Title:   CEO

 

Form of Initial Warrant

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

EARTH911, INC.

The undersigned holder hereby exercises the right to purchase              of
the shares of Common Stock (“Warrant Shares”) of Earth911 Inc., a Delaware
corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

Specify Method of exercise by check mark:

 

  1.         Cash Exercise

 

  (a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate
Exercise Price of $             to the Company in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
             Warrant Shares in accordance with the terms of the Warrant.

 

  2.         Cashless Exercise

 

  (a) Payment of Warrant Exercise Price. In lieu of making payment of the
Aggregate Exercise Price, the holder elects to receive upon such exercise the
Net Number of shares of Common Stock determined in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
             Warrant Shares in accordance with the terms of the Warrant.

 

Date:                         ,             Name of Registered Holder By:  

 

Name:  

 

Title:  

 

 

Form of Initial Warrant

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EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
            , Federal Identification No.             , a warrant to purchase
            shares of the capital stock of Earth011, Inc., a Delaware
corporation, represented by warrant certificate no.             , standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint             , attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.

 

Dated:  

 

   

 

      By:  

 

      Name:  

 

      Title:  

 

 

Form of Initial Warrant

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WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.

EARTH911, INC.

Warrant To Purchase Common Stock

 

Warrant No.: EARTH911, INC.-1-2    Number of Shares:    250,000    Warrant
Exercise Price:    $.50    Expiration Date:    March 22, 2017

Date of Issuance: March 22, 2012

EARTH911, INC., a Delaware corporation (the “Company”), hereby certifies that,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, STOCKBRIDGE ENTERPRISES, L.P., a Nevada limited
partnership, the registered holder (the “Holder”) hereof or its permitted
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the
date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as
defined herein) 250,000 fully paid and nonassessable shares of Common Stock (as
defined herein) of the Company (the “Warrant Shares”) at the exercise price per
share provided in Section 1(b) below or as subsequently adjusted. This Warrant
is issued pursuant to the Securities Purchase Agreement, dated March 22, 2012,
by and between the Company and the Holder (the “Agreement”).

1. Definitions.

(a) This Warrant is issued pursuant to the Securities Purchase Agreement
(“Securities Purchase Agreement”), dated March 22, 2012, between the Company and
the Holder or issued in exchange or substitution thereafter or replacement
thereof. Each Capitalized term used, and not otherwise defined herein, shall
have the meaning ascribed thereto in the Securities Purchase Agreement.

(b) The following words and terms as used in this Warrant shall have the
following meanings:

“Approved Stock Plan” means a stock option plan that has been approved by the
Board of Directors of the Company.

 

Form of Twelve Month Warrant

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“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in the City of Phoenix, Arizona are authorized or required by
law to remain closed.

“Closing Bid Price” means the closing bid price of Common Stock as quoted on the
Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”)
through its “Volume at Price” function).

“Common Stock” means (i) the Company’s common stock, par value $0.0001 per
share, and (ii) any capital stock into which such Common Stock shall have been
changed or any capital stock resulting from a reclassification of such Common
Stock.

“Notes” means the Senior Secured Convertible Notes issued pursuant to the
Securities Purchase Agreement.

“Excluded Securities” means, (a) shares issued or deemed to have been issued by
the Company pursuant to an Approved Stock Plan, (b) shares of Common Stock
issued or deemed to be issued by the Company upon the conversion, exchange or
exercise of any right, option, obligation or security outstanding on the date
prior to the date of the Securities Purchase Agreement, provided that the terms
of such right, option, obligation or security are not amended or otherwise
modified on or after the date of the Securities Purchase Agreement, and provided
that the conversion price, exchange price, exercise price or other purchase
price is not reduced, adjusted or otherwise modified and the number of shares of
Common Stock issued or issuable is not increased (whether by operation of, or in
accordance with, the relevant governing documents or otherwise) on or after the
date of the Securities Purchase Agreement, and (c) the shares of Common Stock
issued or deemed to be issued by the Company upon conversion of the Convertible
Notes or exercise of the Warrants.

“Expiration Date” means March 22, 2017.

“Issuance Date” means the date hereof.

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock and which are not Excluded Securities.

“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.

“Primary Market” means on any of (a) the American Stock Exchange, (b) New York
Stock Exchange, (c) the Nasdaq Global Select Market, (d) the Nasdaq Global
Market, (e) the Nasdaq Capital Market, or (e) the Over-the-Counter Bulletin
Board (“OTCBB”)

“Securities Act” means the Securities Act of 1933, as amended.

“Warrant” means this Warrant and all Warrants issued in exchange, transfer or
replacement thereof.

“Warrant Exercise Price” shall be, as of any exercise date before the occurrence
of any Triggering Event, $.50 (the “Fixed Exercise Price”), and, as of any
exercise date following the occurrence of any Triggering Event, the lower of
(a) the Fixed Exercise Price or (b) the average Closing Bid Price during the ten
(10) Trading Days immediately preceding the exercise date, or as subsequently
adjusted as provided in Section 8 hereof.

 

Form of Twelve Month Warrant

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Other Definitional Provisions.

Except as otherwise specified herein, all references herein (i) to the Company
shall be deemed to include the Company’s successors and (ii) to any applicable
law defined or referred to herein shall be deemed references to such applicable
law as the same may have been or may be amended or supplemented from time to
time.

When used in this Warrant, the words “herein,” “hereof,” and “hereunder” and
words of similar import, shall refer to this Warrant as a whole and not to any
provision of this Warrant, and the words “Section,” “Schedule,” and “Exhibit”
shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless
otherwise specified.

Whenever the context so requires, the neuter gender includes the masculine or
feminine, and the singular number includes the plural, and vice versa.

2. Exercise of Warrant.

(a) Subject to the terms and conditions hereof, this Warrant may be exercised by
the Holder hereof then registered on the books of the Company, in whole or in
part, at any time on any Business Day on or after the opening of business on
such Business Day, commencing with the first day after the date hereof, and
prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a
written notice, in the form of the subscription notice attached as Exhibit A
hereto (the “Exercise Notice”), of such Holder’s election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, payment to the Company of an amount equal to the Warrant Exercise
Price(s) applicable to the Warrant Shares being purchased, multiplied by the
number of Warrant Shares (at the applicable Warrant Exercise Price) as to which
this Warrant is being exercised (plus any applicable issue or transfer taxes)
(the “Aggregate Exercise Price”) in cash or wire transfer of immediately
available funds and the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date (“Cash Basis”) or (ii) if at the time of
exercise, the Warrant Shares are not subject to an effective registration
statement by delivering an Exercise Notice and in lieu of making payment of the
Aggregate Exercise Price in cash or wire transfer, elect instead to receive upon
such exercise the “Net Number” of shares of Common Stock determined according to
the following formula (the “Cashless Exercise”):

Net Number = (A x B) – (A x C)

                             B

For purposes of the foregoing formula:

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

B = the Closing Bid Price of the Common Stock on the date of exercise of the
Warrant.

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

 

Form of Twelve Month Warrant

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(b) In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2, the Company shall on or before the fifth (5th)
Business Day following the date of receipt of the Exercise Notice, the Aggregate
Exercise Price and this Warrant (or an indemnification undertaking with respect
to this Warrant in the case of its loss, theft or destruction) and the receipt
of the representations of the Holder specified in Section 6 hereof, if requested
by the Company (the “Exercise Delivery Documents”), and if the Common Stock is
The Depository Trust Company (“DTC”) eligible, credit such aggregate number of
shares of Common Stock to which the Holder shall be entitled to the Holder’s or
its designee’s balance account with DTC; provided, however, if the Holder who
submitted the Exercise Notice requested physical delivery of any or all of the
Warrant Shares, or, if the Common Stock is not DTC eligible then the Company
shall, on or before the fifth (5th) Business Day following receipt of the
Exercise Delivery Documents, issue and surrender to a common carrier for
overnight delivery to the address specified in the Exercise Notice, a
certificate, registered in the name of the Holder, for the number of shares of
Common Stock to which the Holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (i) or (ii) above the Holder of this Warrant shall be deemed for all
corporate purposes to have become the Holder of record of the Warrant Shares
with respect to which this Warrant has been exercised. In the case of a dispute
as to the determination of the Warrant Exercise Price, the Closing Bid Price or
the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the Holder the number of Warrant Shares that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the Holder via
facsimile within one (1) Business Day of receipt of the Holder’s Exercise
Notice.

(c) If the Holder and the Company are unable to agree upon the determination of
the Warrant Exercise Price or arithmetic calculation of the Warrant Shares
within one (1) day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall immediately submit via
facsimile (i) the disputed determination of the Warrant Exercise Price or the
Closing Bid Price to an independent, reputable investment banking firm or
(ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant. The Company shall cause the investment banking
firm or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm’s or accountant’s determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.

(d) Unless the rights represented by this Warrant shall have expired or shall
have been fully exercised, the Company shall, as soon as practicable and in no
event later than five (5) Business Days after any partial exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.

(e) No fractional Warrant Shares are to be issued upon any pro rata exercise of
this Warrant, but rather the number of Warrant Shares issued upon such exercise
of this Warrant shall be rounded up or down to the nearest whole number.

(f) If the Company or its Transfer Agent shall fail for any reason or for no
reason to issue to the Holder within ten (10) days of receipt of the Exercise
Delivery Documents, a certificate for the number of Warrant Shares to which the
Holder is entitled or to credit the holder’s balance account with DTC for such
number of Warrant Shares to which the Holder is entitled upon the holder’s
exercise of this Warrant, the Company shall, in addition to any other remedies
under this Warrant or otherwise available to such holder, pay as additional
damages in cash to such Holder on each day the issuance of such certificate for
Warrant Shares is not timely effected an amount equal to 0.025% of the product
of (a) the sum of the number of Warrant Shares not issued to the Holder on a
timely basis and to which the Holder is entitled, and (b) the Closing Bid Price
of the Common Stock for the trading day immediately preceding the last possible
date which the Company could have issued such Common Stock to the Holder without
violating this Section 2.

 

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(g) If within ten (10) days after the Company’s receipt of the Exercise Delivery
Documents, the Company fails to deliver a new Warrant to the Holder for the
number of Warrant Shares to which such Holder is entitled pursuant to Section 2
hereof, then, in addition to any other available remedies under this Warrant, or
otherwise available to such holder, the Company shall pay as additional damages
in cash to such Holder on each day after such tenth (10th) day that such
delivery of such new Warrant is not timely effected in an amount equal to 0.25%
of the product of (A) the number of Warrant Shares represented by the portion of
this Warrant which is not being exercised and (B) the Closing Bid Price of the
Common Stock for the trading day immediately preceding the last possible date
which the Company could have issued such Warrant to the Holder without violating
this Section 2.

3. Covenants as to Common Stock. The Company hereby covenants and agrees as
follows:

(a) This Warrant is, and any Warrants issued in substitution for or replacement
of this Warrant will upon issuance be, duly authorized and validly issued.

(b) All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.

(c) During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved at least
one hundred percent (100%) of the number of shares of Common Stock needed to
provide for the exercise of the rights then represented by this Warrant and the
par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price. If at any time the Company does not have a
sufficient number of shares of Common Stock authorized and available then, the
Company shall call and hold a special meeting of the stockholders, within thirty
(30) days of that time to increase the number of authorized shares of Common
Stock.

(d) If at any time after the date hereof the Company shall file a registration
statement, the Company shall include the Warrant Shares issuable to the Holder,
pursuant to the terms of this Warrant and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Warrant Shares
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system. Notwithstanding the
foregoing, if Holder can rely on Rule 144 to sell the Warrant Shares Holder is
issued as a result of any Cashless Exercise hereunder without complying with the
manner of sale provisions of Rule 144, the Company shall have no obligation to
register such Warrant Shares.

(e) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.

 

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(f) This Warrant will be binding upon any entity succeeding to the Company by
merger, consolidation or acquisition of all or substantially all of the
Company’s assets.

4. Taxes. The Company shall pay any and all taxes, except any applicable
withholding, which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends or be deemed the Holder of shares of capital stock of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive dividends or
subscription rights, or otherwise, prior to the issuance to the Holder of this
Warrant of the Warrant Shares which he or she is then entitled to receive upon
the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on such Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the Holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.

6. Representations of Holder. The Holder of this Warrant, by the acceptance
hereof, represents that it is acquiring this Warrant and the Warrant Shares for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution of this Warrant or the
Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the Holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The Holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such Holder is an “accredited investor” as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an “Accredited Investor”). Upon exercise of
this Warrant the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder’s own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale
and that such Holder is an Accredited Investor. If such Holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder’s exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.

 

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7. Ownership and Transfer. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the Holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and Holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.

8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Warrant shall be adjusted from time to time as follows:

(a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever on or after the Issuance Date of this Warrant, the
Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (other than Excluded Securities) for a consideration per share less
than a price (the “Applicable Price”) equal to the Warrant Exercise Price in
effect immediately prior to such issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance the Warrant Exercise
Price then in effect shall be reduced to an amount equal to the product of
(X) the Warrant Exercise Price in effect immediately prior to such Dilutive
Issuance and (Y) the quotient determined by dividing (1) the sum of (i) the
product derived by multiplying the Warrant Exercise Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common Stock deemed
outstanding immediately prior to such Dilutive Issuance plus (ii) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (i) the Warrant Exercise Price in effect
immediately prior to such Dilutive issuance by (ii) the number of shares of
Common Stock deemed outstanding immediately after such Dilutive Issuance.

(b) Effect on Warrant Exercise Price of Certain Events. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:

(i) Issuance of Options. If after the date hereof, the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any convertible securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the lowest price per share for which one share
of Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option or upon conversion or exchange of any
convertible security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such convertible securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such convertible securities.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any convertible securities which are not Excluded Securities and the
lowest price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such convertible
securities for such price per share. For the purposes of this Section 8(b)(ii),
the lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the convertible security and
upon conversion or exchange of such convertible security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such convertible securities, and if
any such issue or sale of such convertible securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale.

 

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(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion or exchange of any convertible securities, or the rate at
which any convertible securities are convertible into or exchangeable for Common
Stock changes at any time, the Warrant Exercise Price in effect at the time of
such change shall be adjusted to the Warrant Exercise Price which would have
been in effect at such time had such Options or convertible securities provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold and the
number of Warrant Shares issuable upon exercise of this Warrant shall be
correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms
of any Option or convertible security that was outstanding as of the Issuance
Date of this Warrant are changed in the manner described in the immediately
preceding sentence, then such Option or convertible security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment pursuant
to this Section 8(b) shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.

(iv) Calculation of Consideration Received. If any Common Stock, Options or
convertible securities which are not Excluded Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefore will be deemed to be the net amount received by the Company therefore.
If any Common Stock, Options or convertible securities which are not Excluded
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the market price of such securities on the date of receipt of such
securities. If any Common Stock, Options or convertible securities which are not
Excluded Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefore will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or convertible securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of the Warrants
representing at least two-thirds of the Warrant Shares issuable upon exercise of
the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing at least two-thirds of the Warrant Shares
issuable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne jointly by the Company and the holders
of Warrants.

(v) Integrated Transactions. In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been issued
for a consideration of $.01.

 

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(vi) Treasury Shares. The number of shares of Common Stock outstanding at any
given time does not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held will be considered
an issue or sale of Common Stock.

(vii) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in convertible securities or
(2) to subscribe for or purchase Common Stock, Options or convertible
securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

(c) Adjustment of Warrant Exercise Price upon Subdivision or Combination of
Common Stock. If the Company at any time after the date of issuance of this
Warrant subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, any Warrant Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, any
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased. Any adjustment under
this Section 8(c) shall become effective at the close of business on the date
the subdivision or combination becomes effective.

(d) Distribution of Assets. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:

(i) any Warrant Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a price determined by multiplying such
Warrant Exercise Price by a fraction of which (A) the numerator shall be the
Closing Sale Price of the Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (B) the denominator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date; and

(ii) either (A) the number of Warrant Shares obtainable upon exercise of this
Warrant shall be increased to a number of shares equal to the number of shares
of Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution multiplied by the reciprocal of the fraction set forth
in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on a
national securities exchange or a national automated quotation system, then the
Holder of this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the amount of the assets that would
have been payable to the Holder of this Warrant pursuant to the Distribution had
the Holder exercised this Warrant immediately prior to such record date and with
an exercise price equal to the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding clause (i).

 

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(e) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Warrant Exercise
Price and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Warrants; provided,
except as set forth in section 8(c),that no such adjustment pursuant to this
Section 8(e) will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.

(f) Voluntary Adjustments By Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.

(g) Adjustment Upon Fundamental Transaction. If, at any time while this Warrant
is outstanding, (A) the Company effects any statutory reorganization, merger or
consolidation of the Company with or into another Person where the Company
either is or is not the surviving entity, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such
case, a “Fundamental Transaction”), then upon any subsequent exercises of this
Warrant, the Holder shall have the right, at its election, to receive, for each
Warrant Share that would have been issuable upon such exercise absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the Holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the
Warrant Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Warrant Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any conversion of this Warrant
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall assume the obligations under this Warrant.

(h) Adjustment Upon Fundamental Transaction. In the event that the Holder
requires the Company to redeem the Notes pursuant to a Fundamental Change (as
set forth in Section 5(g) of the Notes) than the Warrant Exercise Price shall be
adjusted (if applicable) in accordance with the terms of Section 5(g) of the
Notes.

 

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9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or
Sale.

(a) In addition to any adjustments pursuant to Section 8 above, if at any time
the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the “Purchase Rights”), then the
Holder of this Warrant will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

(b) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company’s assets to another
Person or other transaction in each case which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an “Organic Change.” Prior to
the consummation of any (i) sale of all or substantially all of the Company’s
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the “Acquiring Entity”) a written agreement (in form and substance
satisfactory to the holders of Warrants representing at least two-thirds of the
Warrant Shares issuable upon exercise of the Warrants then outstanding) to
deliver to each Holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder’s Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder’s Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).

10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company shall promptly, on receipt of an
indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.

11. Notice. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Warrant 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
receipt is received by the sending party transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
Business Day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

 

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If to Holder:    Stockbridge Enterprises, L.P.    7377 East Doubletree Ranch
Road, Suite 200    Scottsdale, AZ 85258    Attention:    Mitch Saltz   
Telephone:    (602) 885-7854    Facsimile:    (602) 907-1613 With Copy to:   
Jeffrey R. Perry Law Firm, P.C.    7119 E. Shea Blvd., Suite 109-111   
Scottsdale, AZ 85254-6107    Attention:    Jeffrey Perry, Esq.    Telephone:   
(480) 368-5441    Facsimile:    (866) 288-4877 If to the Company, to:   
Earth911, Inc.    1375 N. Scottsdale Rd., Suite 140    Scottsdale, AZ 85257   
Attention:    Chief Executive Officer    Telephone:    (480) 337-3025   
Facsimile:    (480) 348-0422 With a copy to:    Greenberg Traurig, LLP    2375
E. Camelback Road, Suite 700    Phoenix, AZ 85016    Attention:    Robert Kant
   Telephone:    (602) 445-8301    Facsimile:    (602) 445-8100

If to a Holder of this Warrant, to it at the address and facsimile number set
forth in this Section 11, or at such other address and facsimile as shall be
delivered to the Company upon the issuance or transfer of this Warrant. Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt
(A) given by the recipient of such notice, consent, facsimile, waiver or other
communication, or (B) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

12. Date. The date of this Warrant is set forth on page 1 hereof. This Warrant,
in all events, shall be wholly void and of no effect after the close of business
on the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 8(b) shall continue in full force and effect after
such date as to any Warrant Shares or other securities issued upon the exercise
of this Warrant.

 

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13. Amendment and Waiver. Except as otherwise provided herein, the provisions of
the Warrants may be amended by the Company and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided, that except for
Section 8(d), no such action may increase the Warrant Exercise Price or decrease
the number of shares or class of stock obtainable upon exercise of any Warrant
without the written consent of the Holder of such Warrant.

14. Descriptive Headings; Governing Law. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. The corporate laws of the state of
Arizonashall govern all issues concerning the relative rights of the Company and
its stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the state of Arizona, without giving effect to any choice of
law or conflict of law provision or rule (whether of the state of Arizona or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the state of Arizona. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Maricopa County, Arizona and the United States District Court for the District
of Arizona, for the adjudication of any dispute hereunder or in connection
herewith or therewith, 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.

15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO
ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the
date first set forth above.

 

EARTH911, INC. By:   /s/ Barry Monheit Name:   Barry Monheit Title:   CEO

 

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

EARTH911, INC.

The undersigned holder hereby exercises the right to purchase             of the
shares of Common Stock (“Warrant Shares”) of Earth911 Inc., a Delaware
corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

Specify Method of exercise by check mark:

 

  1.         Cash Exercise

 

  (a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate
Exercise Price of $            to the Company in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
            Warrant Shares in accordance with the terms of the Warrant.

 

  2.         Cashless Exercise

 

  (a) Payment of Warrant Exercise Price. In lieu of making payment of the
Aggregate Exercise Price, the holder elects to receive upon such exercise the
Net Number of shares of Common Stock determined in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
            Warrant Shares in accordance with the terms of the Warrant.

 

Date:                          ,             

Name of Registered Holder

By:

   

Name:

   

Title:

   

 

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EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
            , Federal Identification No.             , a warrant to purchase
            shares of the capital stock of Earth011, Inc., a Delaware
corporation, represented by warrant certificate no.             , standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint             , attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.

 

Dated:

       

 

      By:           Name:           Title:    

 

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WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.

EARTH911, INC.

Warrant To Purchase Common Stock

 

Warrant No.: EARTH911, INC.-1-3      Number of Shares:    250,000      Warrant
Exercise Price:    $.50      Expiration Date:    March 22, 2017 Date of
Issuance: March 22, 2012        

EARTH911, INC., a Delaware corporation (the “Company”), hereby certifies that,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, STOCKBRIDGE ENTERPRISES, L.P., a Nevada limited
partnership, the registered holder (the “Holder”) hereof or its permitted
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the
date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as
defined herein) 250,000 fully paid and nonassessable shares of Common Stock (as
defined herein) of the Company (the “Warrant Shares”) at the exercise price per
share provided in Section 1(b) below or as subsequently adjusted. This Warrant
is issued pursuant to the Securities Purchase Agreement, dated March 22, 2012,
by and between the Company and the Holder (the “Agreement”).

1. Definitions.

(a) This Warrant is issued pursuant to the Securities Purchase Agreement
(“Securities Purchase Agreement”), dated March 22, 2012, between the Company and
the Holder or issued in exchange or substitution thereafter or replacement
thereof. Each Capitalized term used, and not otherwise defined herein, shall
have the meaning ascribed thereto in the Securities Purchase Agreement.

(b) The following words and terms as used in this Warrant shall have the
following meanings:

“Approved Stock Plan” means a stock option plan that has been approved by the
Board of Directors of the Company.

 

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“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in the City of Phoenix, Arizona are authorized or required by
law to remain closed.

“Closing Bid Price” means the closing bid price of Common Stock as quoted on the
Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”)
through its “Volume at Price” function).

“Common Stock” means (i) the Company’s common stock, par value $0.0001 per
share, and (ii) any capital stock into which such Common Stock shall have been
changed or any capital stock resulting from a reclassification of such Common
Stock.

“Notes” means the Senior Secured Convertible Notes issued pursuant to the
Securities Purchase Agreement.

“Excluded Securities” means, (a) shares issued or deemed to have been issued by
the Company pursuant to an Approved Stock Plan, (b) shares of Common Stock
issued or deemed to be issued by the Company upon the conversion, exchange or
exercise of any right, option, obligation or security outstanding on the date
prior to the date of the Securities Purchase Agreement, provided that the terms
of such right, option, obligation or security are not amended or otherwise
modified on or after the date of the Securities Purchase Agreement, and provided
that the conversion price, exchange price, exercise price or other purchase
price is not reduced, adjusted or otherwise modified and the number of shares of
Common Stock issued or issuable is not increased (whether by operation of, or in
accordance with, the relevant governing documents or otherwise) on or after the
date of the Securities Purchase Agreement, and (c) the shares of Common Stock
issued or deemed to be issued by the Company upon conversion of the Convertible
Notes or exercise of the Warrants.

“Expiration Date” means March 22, 2017.

“Issuance Date” means the date hereof.

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock and which are not Excluded Securities.

“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.

“Primary Market” means on any of (a) the American Stock Exchange, (b) New York
Stock Exchange, (c) the Nasdaq Global Select Market, (d) the Nasdaq Global
Market, (e) the Nasdaq Capital Market, or (e) the Over-the-Counter Bulletin
Board (“OTCBB”)

“Securities Act” means the Securities Act of 1933, as amended.

“Warrant” means this Warrant and all Warrants issued in exchange, transfer or
replacement thereof.

“Warrant Exercise Price” shall be, as of any exercise date before the occurrence
of any Triggering Event, $.50 (the “Fixed Exercise Price”), and, as of any
exercise date following the occurrence of any Triggering Event, the lower of
(a) the Fixed Exercise Price or (b) the average Closing Bid Price during the ten
(10) Trading Days immediately preceding the exercise date, or as subsequently
adjusted as provided in Section 8 hereof.

 

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Other Definitional Provisions.

Except as otherwise specified herein, all references herein (i) to the Company
shall be deemed to include the Company’s successors and (ii) to any applicable
law defined or referred to herein shall be deemed references to such applicable
law as the same may have been or may be amended or supplemented from time to
time.

When used in this Warrant, the words “herein,” “hereof,” and “hereunder” and
words of similar import, shall refer to this Warrant as a whole and not to any
provision of this Warrant, and the words “Section,” “Schedule,” and “Exhibit”
shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless
otherwise specified.

Whenever the context so requires, the neuter gender includes the masculine or
feminine, and the singular number includes the plural, and vice versa.

2. Exercise of Warrant.

(a) Subject to the terms and conditions hereof, this Warrant may be exercised by
the Holder hereof then registered on the books of the Company, in whole or in
part, at any time on any Business Day on or after the opening of business on
such Business Day, commencing with the first day after the date hereof, and
prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a
written notice, in the form of the subscription notice attached as Exhibit A
hereto (the “Exercise Notice”), of such Holder’s election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, payment to the Company of an amount equal to the Warrant Exercise
Price(s) applicable to the Warrant Shares being purchased, multiplied by the
number of Warrant Shares (at the applicable Warrant Exercise Price) as to which
this Warrant is being exercised (plus any applicable issue or transfer taxes)
(the “Aggregate Exercise Price”) in cash or wire transfer of immediately
available funds and the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date (“Cash Basis”) or (ii) if at the time of
exercise, the Warrant Shares are not subject to an effective registration
statement by delivering an Exercise Notice and in lieu of making payment of the
Aggregate Exercise Price in cash or wire transfer, elect instead to receive upon
such exercise the “Net Number” of shares of Common Stock determined according to
the following formula (the “Cashless Exercise”):

Net Number = (A x B) – (A x C)

B

For purposes of the foregoing formula:

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

B = the Closing Bid Price of the Common Stock on the date of exercise of the
Warrant.

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

 

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(b) In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2, the Company shall on or before the fifth (5th)
Business Day following the date of receipt of the Exercise Notice, the Aggregate
Exercise Price and this Warrant (or an indemnification undertaking with respect
to this Warrant in the case of its loss, theft or destruction) and the receipt
of the representations of the Holder specified in Section 6 hereof, if requested
by the Company (the “Exercise Delivery Documents”), and if the Common Stock is
The Depository Trust Company (“DTC”) eligible, credit such aggregate number of
shares of Common Stock to which the Holder shall be entitled to the Holder’s or
its designee’s balance account with DTC; provided, however, if the Holder who
submitted the Exercise Notice requested physical delivery of any or all of the
Warrant Shares, or, if the Common Stock is not DTC eligible then the Company
shall, on or before the fifth (5th) Business Day following receipt of the
Exercise Delivery Documents, issue and surrender to a common carrier for
overnight delivery to the address specified in the Exercise Notice, a
certificate, registered in the name of the Holder, for the number of shares of
Common Stock to which the Holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (i) or (ii) above the Holder of this Warrant shall be deemed for all
corporate purposes to have become the Holder of record of the Warrant Shares
with respect to which this Warrant has been exercised. In the case of a dispute
as to the determination of the Warrant Exercise Price, the Closing Bid Price or
the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the Holder the number of Warrant Shares that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the Holder via
facsimile within one (1) Business Day of receipt of the Holder’s Exercise
Notice.

(c) If the Holder and the Company are unable to agree upon the determination of
the Warrant Exercise Price or arithmetic calculation of the Warrant Shares
within one (1) day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall immediately submit via
facsimile (i) the disputed determination of the Warrant Exercise Price or the
Closing Bid Price to an independent, reputable investment banking firm or
(ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant. The Company shall cause the investment banking
firm or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm’s or accountant’s determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.

(d) Unless the rights represented by this Warrant shall have expired or shall
have been fully exercised, the Company shall, as soon as practicable and in no
event later than five (5) Business Days after any partial exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.

(e) No fractional Warrant Shares are to be issued upon any pro rata exercise of
this Warrant, but rather the number of Warrant Shares issued upon such exercise
of this Warrant shall be rounded up or down to the nearest whole number.

(f) If the Company or its Transfer Agent shall fail for any reason or for no
reason to issue to the Holder within ten (10) days of receipt of the Exercise
Delivery Documents, a certificate for the number of Warrant Shares to which the
Holder is entitled or to credit the holder’s balance account with DTC for such
number of Warrant Shares to which the Holder is entitled upon the holder’s
exercise of this Warrant, the Company shall, in addition to any other remedies
under this Warrant or otherwise available to such holder, pay as additional
damages in cash to such Holder on each day the issuance of such certificate for
Warrant Shares is not timely effected an amount equal to 0.025% of the product
of (a) the sum of the number of Warrant Shares not issued to the Holder on a
timely basis and to which the Holder is entitled, and (b) the Closing Bid Price
of the Common Stock for the trading day immediately preceding the last possible
date which the Company could have issued such Common Stock to the Holder without
violating this Section 2.

 

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(g) If within ten (10) days after the Company’s receipt of the Exercise Delivery
Documents, the Company fails to deliver a new Warrant to the Holder for the
number of Warrant Shares to which such Holder is entitled pursuant to Section 2
hereof, then, in addition to any other available remedies under this Warrant, or
otherwise available to such holder, the Company shall pay as additional damages
in cash to such Holder on each day after such tenth (10th) day that such
delivery of such new Warrant is not timely effected in an amount equal to 0.25%
of the product of (A) the number of Warrant Shares represented by the portion of
this Warrant which is not being exercised and (B) the Closing Bid Price of the
Common Stock for the trading day immediately preceding the last possible date
which the Company could have issued such Warrant to the Holder without violating
this Section 2.

3. Covenants as to Common Stock. The Company hereby covenants and agrees as
follows:

(a) This Warrant is, and any Warrants issued in substitution for or replacement
of this Warrant will upon issuance be, duly authorized and validly issued.

(b) All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.

(c) During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved at least
one hundred percent (100%) of the number of shares of Common Stock needed to
provide for the exercise of the rights then represented by this Warrant and the
par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price. If at any time the Company does not have a
sufficient number of shares of Common Stock authorized and available then, the
Company shall call and hold a special meeting of the stockholders, within thirty
(30) days of that time to increase the number of authorized shares of Common
Stock.

(d) If at any time after the date hereof the Company shall file a registration
statement, the Company shall include the Warrant Shares issuable to the Holder,
pursuant to the terms of this Warrant and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Warrant Shares
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system. Notwithstanding the
foregoing, if Holder can rely on Rule 144 to sell the Warrant Shares Holder is
issued as a result of any Cashless Exercise hereunder without complying with the
manner of sale provisions of Rule 144, the Company shall have no obligation to
register such Warrant Shares.

(e) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.

 

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(f) This Warrant will be binding upon any entity succeeding to the Company by
merger, consolidation or acquisition of all or substantially all of the
Company’s assets.

4. Taxes. The Company shall pay any and all taxes, except any applicable
withholding, which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends or be deemed the Holder of shares of capital stock of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive dividends or
subscription rights, or otherwise, prior to the issuance to the Holder of this
Warrant of the Warrant Shares which he or she is then entitled to receive upon
the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on such Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the Holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.

6. Representations of Holder. The Holder of this Warrant, by the acceptance
hereof, represents that it is acquiring this Warrant and the Warrant Shares for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution of this Warrant or the
Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the Holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The Holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such Holder is an “accredited investor” as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an “Accredited Investor”). Upon exercise of
this Warrant the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder’s own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale
and that such Holder is an Accredited Investor. If such Holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder’s exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.

 

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7. Ownership and Transfer. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the Holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and Holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.

8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Warrant shall be adjusted from time to time as follows:

(a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever on or after the Issuance Date of this Warrant, the
Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (other than Excluded Securities) for a consideration per share less
than a price (the “Applicable Price”) equal to the Warrant Exercise Price in
effect immediately prior to such issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance the Warrant Exercise
Price then in effect shall be reduced to an amount equal to the product of
(X) the Warrant Exercise Price in effect immediately prior to such Dilutive
Issuance and (Y) the quotient determined by dividing (1) the sum of (i) the
product derived by multiplying the Warrant Exercise Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common Stock deemed
outstanding immediately prior to such Dilutive Issuance plus (ii) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (i) the Warrant Exercise Price in effect
immediately prior to such Dilutive issuance by (ii) the number of shares of
Common Stock deemed outstanding immediately after such Dilutive Issuance.

(b) Effect on Warrant Exercise Price of Certain Events. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:

(i) Issuance of Options. If after the date hereof, the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any convertible securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the lowest price per share for which one share
of Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option or upon conversion or exchange of any
convertible security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such convertible securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such convertible securities.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any convertible securities which are not Excluded Securities and the
lowest price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such convertible
securities for such price per share. For the purposes of this Section 8(b)(ii),
the lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the convertible security and
upon conversion or exchange of such convertible security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such convertible securities, and if
any such issue or sale of such convertible securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale.

 

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(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion or exchange of any convertible securities, or the rate at
which any convertible securities are convertible into or exchangeable for Common
Stock changes at any time, the Warrant Exercise Price in effect at the time of
such change shall be adjusted to the Warrant Exercise Price which would have
been in effect at such time had such Options or convertible securities provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold and the
number of Warrant Shares issuable upon exercise of this Warrant shall be
correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms
of any Option or convertible security that was outstanding as of the Issuance
Date of this Warrant are changed in the manner described in the immediately
preceding sentence, then such Option or convertible security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment pursuant
to this Section 8(b) shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.

(iv) Calculation of Consideration Received. If any Common Stock, Options or
convertible securities which are not Excluded Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefore will be deemed to be the net amount received by the Company therefore.
If any Common Stock, Options or convertible securities which are not Excluded
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the market price of such securities on the date of receipt of such
securities. If any Common Stock, Options or convertible securities which are not
Excluded Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefore will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or convertible securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of the Warrants
representing at least two-thirds of the Warrant Shares issuable upon exercise of
the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing at least two-thirds of the Warrant Shares
issuable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne jointly by the Company and the holders
of Warrants.

(v) Integrated Transactions. In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been issued
for a consideration of $.01.

 

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(vi) Treasury Shares. The number of shares of Common Stock outstanding at any
given time does not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held will be considered
an issue or sale of Common Stock.

(vii) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in convertible securities or
(2) to subscribe for or purchase Common Stock, Options or convertible
securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

(c) Adjustment of Warrant Exercise Price upon Subdivision or Combination of
Common Stock. If the Company at any time after the date of issuance of this
Warrant subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, any Warrant Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, any
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased. Any adjustment under
this Section 8(c) shall become effective at the close of business on the date
the subdivision or combination becomes effective.

(d) Distribution of Assets. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:

(i) any Warrant Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a price determined by multiplying such
Warrant Exercise Price by a fraction of which (A) the numerator shall be the
Closing Sale Price of the Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (B) the denominator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date; and

(ii) either (A) the number of Warrant Shares obtainable upon exercise of this
Warrant shall be increased to a number of shares equal to the number of shares
of Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution multiplied by the reciprocal of the fraction set forth
in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on a
national securities exchange or a national automated quotation system, then the
Holder of this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the amount of the assets that would
have been payable to the Holder of this Warrant pursuant to the Distribution had
the Holder exercised this Warrant immediately prior to such record date and with
an exercise price equal to the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding clause (i).

 

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(e) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Warrant Exercise
Price and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Warrants; provided,
except as set forth in section 8(c),that no such adjustment pursuant to this
Section 8(e) will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.

(f) Voluntary Adjustments By Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.

(g) Adjustment Upon Fundamental Transaction. If, at any time while this Warrant
is outstanding, (A) the Company effects any statutory reorganization, merger or
consolidation of the Company with or into another Person where the Company
either is or is not the surviving entity, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such
case, a “Fundamental Transaction”), then upon any subsequent exercises of this
Warrant, the Holder shall have the right, at its election, to receive, for each
Warrant Share that would have been issuable upon such exercise absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the Holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the
Warrant Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Warrant Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any conversion of this Warrant
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall assume the obligations under this Warrant.

(h) Adjustment Upon Fundamental Transaction. In the event that the Holder
requires the Company to redeem the Notes pursuant to a Fundamental Change (as
set forth in Section 5(g) of the Notes) than the Warrant Exercise Price shall be
adjusted (if applicable) in accordance with the terms of Section 5(g) of the
Notes.

 

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9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or
Sale.

(a) In addition to any adjustments pursuant to Section 8 above, if at any time
the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the “Purchase Rights”), then the
Holder of this Warrant will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

(b) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company’s assets to another
Person or other transaction in each case which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an “Organic Change.” Prior to
the consummation of any (i) sale of all or substantially all of the Company’s
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the “Acquiring Entity”) a written agreement (in form and substance
satisfactory to the holders of Warrants representing at least two-thirds of the
Warrant Shares issuable upon exercise of the Warrants then outstanding) to
deliver to each Holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder’s Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder’s Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).

10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company shall promptly, on receipt of an
indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.

11. Notice. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Warrant 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
receipt is received by the sending party transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
Business Day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

 

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If to Holder:    Stockbridge Enterprises, L.P.       7377 East Doubletree Ranch
Road, Suite 200       Scottsdale, AZ 85258       Attention:    Mitch Saltz      
Telephone:    (602) 885-7854       Facsimile:    (602) 907-1613    With Copy to:
   Jeffrey R. Perry Law Firm, P.C.       7119 E. Shea Blvd., Suite 109-111      
Scottsdale, AZ 85254-6107       Attention:    Jeffrey Perry, Esq.      
Telephone:    (480) 368-5441       Facsimile:    (866) 288-4877   
If to the Company, to:    Earth911, Inc.       1375 N. Scottsdale Rd., Suite 140
      Scottsdale, AZ 85257       Attention:    Chief Executive Officer      
Telephone:    (480) 337-3025       Facsimile:    (480) 348-0422    With a copy
to:    Greenberg Traurig, LLP       2375 E. Camelback Road, Suite 700      
Phoenix, AZ 85016       Attention:    Robert Kant       Telephone:    (602)
445-8301       Facsimile:    (602) 445-8100   

If to a Holder of this Warrant, to it at the address and facsimile number set
forth in this Section 11, or at such other address and facsimile as shall be
delivered to the Company upon the issuance or transfer of this Warrant. Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt
(A) given by the recipient of such notice, consent, facsimile, waiver or other
communication, or (B) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

12. Date. The date of this Warrant is set forth on page 1 hereof. This Warrant,
in all events, shall be wholly void and of no effect after the close of business
on the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 8(b) shall continue in full force and effect after
such date as to any Warrant Shares or other securities issued upon the exercise
of this Warrant.

 

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13. Amendment and Waiver. Except as otherwise provided herein, the provisions of
the Warrants may be amended by the Company and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided, that except for
Section 8(d), no such action may increase the Warrant Exercise Price or decrease
the number of shares or class of stock obtainable upon exercise of any Warrant
without the written consent of the Holder of such Warrant.

14. Descriptive Headings; Governing Law. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. The corporate laws of the state of
Arizona shall govern all issues concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the state of Arizona, without giving effect to any choice of
law or conflict of law provision or rule (whether of the state of Arizona or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the state of Arizona. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Maricopa County, Arizona and the United States District Court for the District
of Arizona, for the adjudication of any dispute hereunder or in connection
herewith or therewith, 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.

15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO
ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the
date first set forth above.

 

EARTH911, INC. By: /s/ Barry Monheit                                        
     Name: Barry Monheit Title: CEO

 

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

EARTH911, INC.

The undersigned holder hereby exercises the right to purchase              of
the shares of Common Stock (“Warrant Shares”) of Earth911 Inc., a Delaware
corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

Specify Method of exercise by check mark:

 

  1.          Cash Exercise

 

  (a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate
Exercise Price of $             to the Company in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
             Warrant Shares in accordance with the terms of the Warrant.

 

  2.          Cashless Exercise

 

  (a) Payment of Warrant Exercise Price. In lieu of making payment of the
Aggregate Exercise Price, the holder elects to receive upon such exercise the
Net Number of shares of Common Stock determined in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
             Warrant Shares in accordance with the terms of the Warrant.

 

Date:                          ,              Name of Registered Holder
By:                                                                       
                     Name:                             
                                                        
Title:                                                                      
                  

 

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EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
            , Federal Identification No.             , a warrant to purchase
            shares of the capital stock of Earth011, Inc., a Delaware
corporation, represented by warrant certificate no.             , standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint             , attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.

 

Dated:                                                                    
                                        

 

      By:  

 

      Name:  

 

      Title:  

 

 

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WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.

EARTH911, INC.

Warrant To Purchase Common Stock

 

Warrant No.: EARTH911, INC.-1-4    Number of Shares:    500,000      Warrant
Exercise Price:    $.50      Expiration Date:    March 22, 2017 Date of
Issuance: March 22, 2012      

EARTH911, INC., a Delaware corporation (the “Company”), hereby certifies that,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, STOCKBRIDGE ENTERPRISES, L.P., a Nevada limited
partnership, the registered holder (the “Holder”) hereof or its permitted
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the
date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as
defined herein) 500,000 fully paid and nonassessable shares of Common Stock (as
defined herein) of the Company (the “Warrant Shares”) at the exercise price per
share provided in Section 1(b) below or as subsequently adjusted. This Warrant
is issued pursuant to the Securities Purchase Agreement, dated March 22, 2012,
by and between the Company and the Holder (the “Agreement”).

1. Definitions.

(a) This Warrant is issued pursuant to the Securities Purchase Agreement
(“Securities Purchase Agreement”), dated March 22, 2012, between the Company and
the Holder or issued in exchange or substitution thereafter or replacement
thereof. Each Capitalized term used, and not otherwise defined herein, shall
have the meaning ascribed thereto in the Securities Purchase Agreement.

(b) The following words and terms as used in this Warrant shall have the
following meanings:

“Approved Stock Plan” means a stock option plan that has been approved by the
Board of Directors of the Company.

“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in the City of Phoenix, Arizona are authorized or required by
law to remain closed.

 

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“Closing Bid Price” means the closing bid price of Common Stock as quoted on the
Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”)
through its “Volume at Price” function).

“Common Stock” means (i) the Company’s common stock, par value $0.0001 per
share, and (ii) any capital stock into which such Common Stock shall have been
changed or any capital stock resulting from a reclassification of such Common
Stock.

“Notes” means the Senior Secured Convertible Notes issued pursuant to the
Securities Purchase Agreement.

“Excluded Securities” means, (a) shares issued or deemed to have been issued by
the Company pursuant to an Approved Stock Plan, (b) shares of Common Stock
issued or deemed to be issued by the Company upon the conversion, exchange or
exercise of any right, option, obligation or security outstanding on the date
prior to the date of the Securities Purchase Agreement, provided that the terms
of such right, option, obligation or security are not amended or otherwise
modified on or after the date of the Securities Purchase Agreement, and provided
that the conversion price, exchange price, exercise price or other purchase
price is not reduced, adjusted or otherwise modified and the number of shares of
Common Stock issued or issuable is not increased (whether by operation of, or in
accordance with, the relevant governing documents or otherwise) on or after the
date of the Securities Purchase Agreement, and (c) the shares of Common Stock
issued or deemed to be issued by the Company upon conversion of the Convertible
Notes or exercise of the Warrants.

“Expiration Date” means March 22, 2017.

“Issuance Date” means the date hereof.

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock and which are not Excluded Securities.

“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.

“Primary Market” means on any of (a) the American Stock Exchange, (b) New York
Stock Exchange, (c) the Nasdaq Global Select Market, (d) the Nasdaq Global
Market, (e) the Nasdaq Capital Market, or (e) the Over-the-Counter Bulletin
Board (“OTCBB”)

“Securities Act” means the Securities Act of 1933, as amended.

“Warrant” means this Warrant and all Warrants issued in exchange, transfer or
replacement thereof.

“Warrant Exercise Price” shall be, as of any exercise date before the occurrence
of any Triggering Event, $.50 (the “Fixed Exercise Price”), and, as of any
exercise date following the occurrence of any Triggering Event, the lower of
(a) the Fixed Exercise Price or (b) the average Closing Bid Price during the ten
(10) Trading Days immediately preceding the exercise date, or as subsequently
adjusted as provided in Section 8 hereof.

Other Definitional Provisions.

 

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Except as otherwise specified herein, all references herein (i) to the Company
shall be deemed to include the Company’s successors and (ii) to any applicable
law defined or referred to herein shall be deemed references to such applicable
law as the same may have been or may be amended or supplemented from time to
time.

When used in this Warrant, the words “herein,” “hereof,” and “hereunder” and
words of similar import, shall refer to this Warrant as a whole and not to any
provision of this Warrant, and the words “Section,” “Schedule,” and “Exhibit”
shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless
otherwise specified.

Whenever the context so requires, the neuter gender includes the masculine or
feminine, and the singular number includes the plural, and vice versa.

2. Exercise of Warrant.

(a) Subject to the terms and conditions hereof, this Warrant may be exercised by
the Holder hereof then registered on the books of the Company, in whole or in
part, at any time on any Business Day on or after the opening of business on
such Business Day, commencing with the first day after the date hereof, and
prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a
written notice, in the form of the subscription notice attached as Exhibit A
hereto (the “Exercise Notice”), of such Holder’s election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, payment to the Company of an amount equal to the Warrant Exercise
Price(s) applicable to the Warrant Shares being purchased, multiplied by the
number of Warrant Shares (at the applicable Warrant Exercise Price) as to which
this Warrant is being exercised (plus any applicable issue or transfer taxes)
(the “Aggregate Exercise Price”) in cash or wire transfer of immediately
available funds and the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date (“Cash Basis”) or (ii) if at the time of
exercise, the Warrant Shares are not subject to an effective registration
statement by delivering an Exercise Notice and in lieu of making payment of the
Aggregate Exercise Price in cash or wire transfer, elect instead to receive upon
such exercise the “Net Number” of shares of Common Stock determined according to
the following formula (the “Cashless Exercise”):

Net Number = (A x B) – (A x C)

                B

For purposes of the foregoing formula:

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

B = the Closing Bid Price of the Common Stock on the date of exercise of the
Warrant.

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

 

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(b) In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2, the Company shall on or before the fifth (5th)
Business Day following the date of receipt of the Exercise Notice, the Aggregate
Exercise Price and this Warrant (or an indemnification undertaking with respect
to this Warrant in the case of its loss, theft or destruction) and the receipt
of the representations of the Holder specified in Section 6 hereof, if requested
by the Company (the “Exercise Delivery Documents”), and if the Common Stock is
The Depository Trust Company (“DTC”) eligible, credit such aggregate number of
shares of Common Stock to which the Holder shall be entitled to the Holder’s or
its designee’s balance account with DTC; provided, however, if the Holder who
submitted the Exercise Notice requested physical delivery of any or all of the
Warrant Shares, or, if the Common Stock is not DTC eligible then the Company
shall, on or before the fifth (5th) Business Day following receipt of the
Exercise Delivery Documents, issue and surrender to a common carrier for
overnight delivery to the address specified in the Exercise Notice, a
certificate, registered in the name of the Holder, for the number of shares of
Common Stock to which the Holder shall be entitled pursuant to such request.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in
clause (i) or (ii) above the Holder of this Warrant shall be deemed for all
corporate purposes to have become the Holder of record of the Warrant Shares
with respect to which this Warrant has been exercised. In the case of a dispute
as to the determination of the Warrant Exercise Price, the Closing Bid Price or
the arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the Holder the number of Warrant Shares that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the Holder via
facsimile within one (1) Business Day of receipt of the Holder’s Exercise
Notice.

(c) If the Holder and the Company are unable to agree upon the determination of
the Warrant Exercise Price or arithmetic calculation of the Warrant Shares
within one (1) day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall immediately submit via
facsimile (i) the disputed determination of the Warrant Exercise Price or the
Closing Bid Price to an independent, reputable investment banking firm or
(ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant. The Company shall cause the investment banking
firm or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm’s or accountant’s determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.

(d) Unless the rights represented by this Warrant shall have expired or shall
have been fully exercised, the Company shall, as soon as practicable and in no
event later than five (5) Business Days after any partial exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.

(e) No fractional Warrant Shares are to be issued upon any pro rata exercise of
this Warrant, but rather the number of Warrant Shares issued upon such exercise
of this Warrant shall be rounded up or down to the nearest whole number.

(f) If the Company or its Transfer Agent shall fail for any reason or for no
reason to issue to the Holder within ten (10) days of receipt of the Exercise
Delivery Documents, a certificate for the number of Warrant Shares to which the
Holder is entitled or to credit the holder’s balance account with DTC for such
number of Warrant Shares to which the Holder is entitled upon the holder’s
exercise of this Warrant, the Company shall, in addition to any other remedies
under this Warrant or otherwise available to such holder, pay as additional
damages in cash to such Holder on each day the issuance of such certificate for
Warrant Shares is not timely effected an amount equal to 0.025% of the product
of (a) the sum of the number of Warrant Shares not issued to the Holder on a
timely basis and to which the Holder is entitled, and (b) the Closing Bid Price
of the Common Stock for the trading day immediately preceding the last possible
date which the Company could have issued such Common Stock to the Holder without
violating this Section 2.

 

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(g) If within ten (10) days after the Company’s receipt of the Exercise Delivery
Documents, the Company fails to deliver a new Warrant to the Holder for the
number of Warrant Shares to which such Holder is entitled pursuant to Section 2
hereof, then, in addition to any other available remedies under this Warrant, or
otherwise available to such holder, the Company shall pay as additional damages
in cash to such Holder on each day after such tenth (10th) day that such
delivery of such new Warrant is not timely effected in an amount equal to 0.25%
of the product of (A) the number of Warrant Shares represented by the portion of
this Warrant which is not being exercised and (B) the Closing Bid Price of the
Common Stock for the trading day immediately preceding the last possible date
which the Company could have issued such Warrant to the Holder without violating
this Section 2.

3. Covenants as to Common Stock. The Company hereby covenants and agrees as
follows:

(a) This Warrant is, and any Warrants issued in substitution for or replacement
of this Warrant will upon issuance be, duly authorized and validly issued.

(b) All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.

(c) During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved at least
one hundred percent (100%) of the number of shares of Common Stock needed to
provide for the exercise of the rights then represented by this Warrant and the
par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price. If at any time the Company does not have a
sufficient number of shares of Common Stock authorized and available then, the
Company shall call and hold a special meeting of the stockholders, within thirty
(30) days of that time to increase the number of authorized shares of Common
Stock.

(d) If at any time after the date hereof the Company shall file a registration
statement, the Company shall include the Warrant Shares issuable to the Holder,
pursuant to the terms of this Warrant and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Warrant Shares
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system. Notwithstanding the
foregoing, if Holder can rely on Rule 144 to sell the Warrant Shares Holder is
issued as a result of any Cashless Exercise hereunder without complying with the
manner of sale provisions of Rule 144, the Company shall have no obligation to
register such Warrant Shares.

(e) The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.

(f) This Warrant will be binding upon any entity succeeding to the Company by
merger, consolidation or acquisition of all or substantially all of the
Company’s assets.

 

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4. Taxes. The Company shall pay any and all taxes, except any applicable
withholding, which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends or be deemed the Holder of shares of capital stock of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive dividends or
subscription rights, or otherwise, prior to the issuance to the Holder of this
Warrant of the Warrant Shares which he or she is then entitled to receive upon
the due exercise of this Warrant. In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on such Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the Holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.

6. Representations of Holder. The Holder of this Warrant, by the acceptance
hereof, represents that it is acquiring this Warrant and the Warrant Shares for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution of this Warrant or the
Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the Holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The Holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such Holder is an “accredited investor” as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an “Accredited Investor”). Upon exercise of
this Warrant the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder’s own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale
and that such Holder is an Accredited Investor. If such Holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder’s exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.

7. Ownership and Transfer. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the Holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and Holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.

 

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8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Warrant shall be adjusted from time to time as follows:

(a) Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever on or after the Issuance Date of this Warrant, the
Company issues or sells, or is deemed to have issued or sold, any shares of
Common Stock (other than Excluded Securities) for a consideration per share less
than a price (the “Applicable Price”) equal to the Warrant Exercise Price in
effect immediately prior to such issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance the Warrant Exercise
Price then in effect shall be reduced to an amount equal to the product of
(X) the Warrant Exercise Price in effect immediately prior to such Dilutive
Issuance and (Y) the quotient determined by dividing (1) the sum of (i) the
product derived by multiplying the Warrant Exercise Price in effect immediately
prior to such Dilutive Issuance and the number of shares of Common Stock deemed
outstanding immediately prior to such Dilutive Issuance plus (ii) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (i) the Warrant Exercise Price in effect
immediately prior to such Dilutive issuance by (ii) the number of shares of
Common Stock deemed outstanding immediately after such Dilutive Issuance.

(b) Effect on Warrant Exercise Price of Certain Events. For purposes of
determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:

(i) Issuance of Options. If after the date hereof, the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any convertible securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the lowest price per share for which one share
of Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option or upon conversion or exchange of any
convertible security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such convertible securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such convertible securities.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any convertible securities which are not Excluded Securities and the
lowest price per share for which one share of Common Stock is issuable upon the
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such convertible
securities for such price per share. For the purposes of this Section 8(b)(ii),
the lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the convertible security and
upon conversion or exchange of such convertible security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such convertible securities, and if
any such issue or sale of such convertible securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale.

 

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(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion or exchange of any convertible securities, or the rate at
which any convertible securities are convertible into or exchangeable for Common
Stock changes at any time, the Warrant Exercise Price in effect at the time of
such change shall be adjusted to the Warrant Exercise Price which would have
been in effect at such time had such Options or convertible securities provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold and the
number of Warrant Shares issuable upon exercise of this Warrant shall be
correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms
of any Option or convertible security that was outstanding as of the Issuance
Date of this Warrant are changed in the manner described in the immediately
preceding sentence, then such Option or convertible security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment pursuant
to this Section 8(b) shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.

(iv) Calculation of Consideration Received. If any Common Stock, Options or
convertible securities which are not Excluded Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefore will be deemed to be the net amount received by the Company therefore.
If any Common Stock, Options or convertible securities which are not Excluded
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the market price of such securities on the date of receipt of such
securities. If any Common Stock, Options or convertible securities which are not
Excluded Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefore will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or convertible securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of the Warrants
representing at least two-thirds of the Warrant Shares issuable upon exercise of
the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing at least two-thirds of the Warrant Shares
issuable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne jointly by the Company and the holders
of Warrants.

(v) Integrated Transactions. In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been issued
for a consideration of $.01.

(vi) Treasury Shares. The number of shares of Common Stock outstanding at any
given time does not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held will be considered
an issue or sale of Common Stock.

(vii) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in convertible securities or
(2) to subscribe for or purchase Common Stock, Options or convertible
securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

 

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(c) Adjustment of Warrant Exercise Price upon Subdivision or Combination of
Common Stock. If the Company at any time after the date of issuance of this
Warrant subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, any Warrant Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, any
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased. Any adjustment under
this Section 8(c) shall become effective at the close of business on the date
the subdivision or combination becomes effective.

(d) Distribution of Assets. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:

(i) any Warrant Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a price determined by multiplying such
Warrant Exercise Price by a fraction of which (A) the numerator shall be the
Closing Sale Price of the Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company’s Board of Directors) applicable to one share of Common
Stock, and (B) the denominator shall be the Closing Sale Price of the Common
Stock on the trading day immediately preceding such record date; and

(ii) either (A) the number of Warrant Shares obtainable upon exercise of this
Warrant shall be increased to a number of shares equal to the number of shares
of Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of Common Stock entitled to
receive the Distribution multiplied by the reciprocal of the fraction set forth
in the immediately preceding clause (i), or (B) in the event that the
Distribution is of common stock of a company whose common stock is traded on a
national securities exchange or a national automated quotation system, then the
Holder of this Warrant shall receive an additional warrant to purchase Common
Stock, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the amount of the assets that would
have been payable to the Holder of this Warrant pursuant to the Distribution had
the Holder exercised this Warrant immediately prior to such record date and with
an exercise price equal to the amount by which the exercise price of this
Warrant was decreased with respect to the Distribution pursuant to the terms of
the immediately preceding clause (i).

(e) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors will make an appropriate adjustment in the Warrant Exercise
Price and the number of shares of Common Stock obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Warrants; provided,
except as set forth in section 8(c),that no such adjustment pursuant to this
Section 8(e) will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.

 

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(f) Voluntary Adjustments By Company. The Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.

(g) Adjustment Upon Fundamental Transaction. If, at any time while this Warrant
is outstanding, (A) the Company effects any statutory reorganization, merger or
consolidation of the Company with or into another Person where the Company
either is or is not the surviving entity, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such
case, a “Fundamental Transaction”), then upon any subsequent exercises of this
Warrant, the Holder shall have the right, at its election, to receive, for each
Warrant Share that would have been issuable upon such exercise absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the Holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the
Warrant Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Warrant Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any conversion of this Warrant
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall assume the obligations under this Warrant.

(h) Adjustment Upon Fundamental Transaction. In the event that the Holder
requires the Company to redeem the Notes pursuant to a Fundamental Change (as
set forth in Section 5(g) of the Notes) than the Warrant Exercise Price shall be
adjusted (if applicable) in accordance with the terms of Section 5(g) of the
Notes.

9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or
Sale.

(a) In addition to any adjustments pursuant to Section 8 above, if at any time
the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the “Purchase Rights”), then the
Holder of this Warrant will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

 

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(b) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company’s assets to another
Person or other transaction in each case which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an “Organic Change.” Prior to
the consummation of any (i) sale of all or substantially all of the Company’s
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the “Acquiring Entity”) a written agreement (in form and substance
satisfactory to the holders of Warrants representing at least two-thirds of the
Warrant Shares issuable upon exercise of the Warrants then outstanding) to
deliver to each Holder of Warrants in exchange for such Warrants, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder’s Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder’s Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).

10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company shall promptly, on receipt of an
indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.

11. Notice. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Warrant 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
receipt is received by the sending party transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
Business Day after deposit with a nationally recognized overnight delivery
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 Holder:    Stockbridge Enterprises, L.P.       7377 East Doubletree Ranch
Road, Suite 200       Scottsdale, AZ 85258       Attention:    Mitch Saltz      
Telephone:    (602) 885-7854       Facsimile:    (602) 907-1613    With Copy to:
   Jeffrey R. Perry Law Firm, P.C.       7119 E. Shea Blvd., Suite 109-111      
Scottsdale, AZ 85254-6107       Attention:    Jeffrey Perry, Esq.      
Telephone:    (480) 368-5441       Facsimile:    (866) 288-4877    If to the
Company, to:    Earth911, Inc.       1375 N. Scottsdale Rd., Suite 140      
Scottsdale, AZ 85257       Attention:    Chief Executive Officer      
Telephone:    (480) 337-3025       Facsimile:    (480) 348-0422    With a copy
to:    Greenberg Traurig, LLP       2375 E. Camelback Road, Suite 700      
Phoenix, AZ 85016       Attention:    Robert Kant       Telephone:    (602)
445-830       Facsimile:    (602) 445-8100   

 

Form of Eighteen Month Warrant

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If to a Holder of this Warrant, to it at the address and facsimile number set
forth in this Section 11, or at such other address and facsimile as shall be
delivered to the Company upon the issuance or transfer of this Warrant. Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt
(A) given by the recipient of such notice, consent, facsimile, waiver or other
communication, or (B) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

12. Date. The date of this Warrant is set forth on page 1 hereof. This Warrant,
in all events, shall be wholly void and of no effect after the close of business
on the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 8(b) shall continue in full force and effect after
such date as to any Warrant Shares or other securities issued upon the exercise
of this Warrant.

13. Amendment and Waiver. Except as otherwise provided herein, the provisions of
the Warrants may be amended by the Company and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided, that except for
Section 8(d), no such action may increase the Warrant Exercise Price or decrease
the number of shares or class of stock obtainable upon exercise of any Warrant
without the written consent of the Holder of such Warrant.

14. Descriptive Headings; Governing Law. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. The corporate laws of the state of
Arizonashall govern all issues concerning the relative rights of the Company and
its stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the state of Arizona, without giving effect to any choice of
law or conflict of law provision or rule (whether of the state of Arizona or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the state of Arizona. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Maricopa County, Arizona and the United States District Court for the District
of Arizona, for the adjudication of any dispute hereunder or in connection
herewith or therewith, 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.

 

Form of Eighteen Month Warrant

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15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO
ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

[SIGNATURE PAGE FOLLOWS]

 

Form of Eighteen Month Warrant

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the
date first set forth above.

 

EARTH911, INC. By:   /s/ Barry Monheit Name:   Barry Monheit Title:   CEO

 

 

Form of Eighteen Month Warrant

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EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED

BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

EARTH911, INC.

The undersigned holder hereby exercises the right to purchase             of the
shares of Common Stock (“Warrant Shares”) of Earth911 Inc., a Delaware
corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

Specify Method of exercise by check mark:

 

  1.         Cash Exercise

 

  (a) Payment of Warrant Exercise Price. The holder shall pay the Aggregate
Exercise Price of $            to the Company in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
            Warrant Shares in accordance with the terms of the Warrant.

 

  2.         Cashless Exercise

 

  (a) Payment of Warrant Exercise Price. In lieu of making payment of the
Aggregate Exercise Price, the holder elects to receive upon such exercise the
Net Number of shares of Common Stock determined in accordance with the terms of
the Warrant.

 

  (b) Delivery of Warrant Shares. The Company shall deliver to the holder
            Warrant Shares in accordance with the terms of the Warrant.

 

Date:                                  ,             Name of Registered Holder
By:                                          
                                                  Name:
                                         
                                            Title:
                                         
                                              

 

Form of Eighteen Month Warrant

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EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
            , Federal Identification No.             , a warrant to purchase
            shares of the capital stock of Earth011, Inc., a Delaware
corporation, represented by warrant certificate no.             , standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint             , attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.

 

Dated:

       

 

      By:           Name:           Title:    

 

Form of Eighteen Month Warrant

Page 16 of 16

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Exhibit 3.16(d)

to

Securities Purchase Agreement

FORM OF NOTICE OF DRAW

Reference is made to that certain Securities Purchase Agreement dated as of
March 22, 2012 by and between the Buyer and Company. Capitalized terms used
herein without definition are so used as defined in the Securities Purchase
Agreement.

The Company hereby gives irrevocable notice, pursuant to Section 3.16 (d) of the
Securities Purchase Agreement, of its request for a draw to be made in the
aggregate amount of $            to be made on             ,             .

The Company hereby (i) represents and warrants that all of the conditions
contained in Section 2.2 and 3.16, as applicable of the Securities Purchase
Agreement have been satisfied on and as of the date hereof, and will continue to
be satisfied on and as of the date of the draw (s) requested hereby, before and
after giving effect thereto and to the applications of the proceeds therefrom;
and (ii) reaffirm the guaranty provisions set forth in the Guaranty Agreement.

IN WITNESS WHEREOF, the Company has caused this Notice of Draw of the Proceeds
of the Note to be executed and delivered by its duly authorized officer as of
the date first set forth above.

 

Earth911, Inc. By:     Title:    

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SECURITY AGREEMENT

This Security Agreement (this “Agreement”), is entered into and made effective
as of March 22, 2012, by and between Earth911, Inc., a Delaware corporation with
its principal place of business located at 1375 N. Scottsdale Rd, Suite 140,
Scottsdale, AZ 85257 (the “Company”), and the undersigned subsidiaries of the
Company (each a “Guarantor,” and collectively together with the Company, the
“Grantors”), in favor of Stockbridge Enterprises, L.P., a Nevada limited
partnership (the “Secured Party”).

RECITALS

A. In connection with the Securities Purchase Agreement by and among the Company
and the Secured Party of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue to the Secured Party
(i) $1,000,000.00 of senior secured bridge notes (the “Notes”), which shall be
convertible into shares of the Company’s Common Stock (the “Conversion Shares”);
and (ii) warrants (the “Warrants”) to be exercisable to acquire additional
shares of Common Stock (the “Warrants Shares”) initially in that number of
shares of Common Stock set forth in the Securities Purchase Agreement;

B. Each of the Guarantors (other than the Company) has executed and delivered a
Guaranty dated the date hereof (the “Guaranty”) in favor of the Secured Party,
with respect to the Company’s obligations under the Securities Purchase
Agreement, the Notes, and the Transaction Documents (as defined below); and

C. Each of the Guarantors shall receive a direct benefit from the Secured Party
entering into the Securities Purchase Agreement, the Notes, and the Transaction;
and

D. It is a condition precedent to the Secured Party purchasing the Notes and
Warrants pursuant to the Securities Purchase Agreement that the Grantors shall
have executed and delivered to the Secured Party this Agreement providing for
the grant to the Secured Party of a security interest in all personal property
of each Grantor to secure all of the Company’s obligations under the
“Transaction Documents” (as defined in the Securities Purchase Agreement) (the
“Transaction Documents”) and the Guarantors’ obligations under the Guaranty;

AGREEMENT

NOW, THEREFORE, for and in consideration of the premises, the promises and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

SECTION 1

Definitions and Interpretations

1.1 Recitals. The above recitals are true and correct and are incorporated
herein, in their entirety, by this reference.

1.2 Interpretations. Nothing herein expressed or implied is intended or shall be
construed to confer upon any person other than the Secured Party any right,
remedy or claim under or by reason hereof.

 

Security Agreement

Page 1 of 21

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1.3 Definitions. Reference is hereby made to the Securities Purchase Agreement
and the Notes for a statement of the terms thereof. All capitalized terms used
in this Agreement and the recitals hereto and not defined herein shall have the
meanings set forth in the Securities Purchase Agreement, the Notes, or in
Articles 8 or 9 of the Uniform Commercial Code as in effect from time to time in
the State of Arizona (the “Code”).

1.4 Other Definitions. As used in this Agreement, the following terms shall have
the respective meanings indicated below, such meanings to be applicable equally
to both the singular and plural forms of such terms:

“Event of Default” shall be deemed to have occurred under this Agreement upon an
Event of Default under and as defined in the Notes.

SECTION 2

Pledged Property

2.1 Grant of Security Interest.

(a) As collateral security for all of the Obligations (as defined in Section 2.2
hereof), each Grantor hereby pledges and assigns to the Secured Party, and
grants to the Secured Party for its benefit, a continuing security interest in
and to all personal property of each Grantor, wherever located and whether now
or hereinafter existing and whether now owned or hereafter acquired, of every
kind and description, tangible or intangible, including without limitation, all
Goods, Inventory, Equipment, Fixtures, Instruments (including promissory notes),
Documents, Accounts (including health-care-insurance receivables, and license
fees), Contracts, Contract Rights, Chattel Paper (whether tangible or
electronic), Deposit Accounts (and in and to any deposits or other sums at any
time credited to each such Deposit Account), Money, Letters of Credit and
Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a
writing), Commercial Tort Claims, Securities and all other Investment Property,
General Intangibles (including payment intangibles and software), Farm Products,
all books and records relating to any of the foregoing, and all supporting
obligations, and any and all proceeds and products of any thereof, including
proceeds of insurance covering any or all of the foregoing, wherever located,
whether now owned, or now due, in which a Grantor has an interest or the power
to transfer rights, or hereafter acquired, arising, or to become due, or in
which a Grantor obtains an interest, or the power to transfer rights, and as
more particularly described on Exhibit A attached hereto (collectively, the
“Pledged Property”). Notwithstanding anything in this Agreement or the other
Transaction Documents to the contrary, the Pledged Property shall not include
any licenses, leases or other contracts to the extent that the granting of a
security interest therein would constitute a breach thereof or is prohibited
thereby and such breach or prohibition is not ineffective under Sections
9-406(d), 9-407, 9-408 or 9-409 of the Code (collectively, the “Excluded Pledged
Property”); provided, however, that the Excluded Pledged Property does not
include (a) any Account arising under such licenses, leases or other contracts
or (b) any payment or other property received or receivable in connection with
any sale or other disposition of such licenses, leases or other contracts.

(b) Simultaneously with the execution and delivery of this Agreement, each
Grantor shall make, execute, acknowledge, file, record and deliver to the
Secured Party such documents, instruments, and agreements, including, without
limitation, financing statements, certificates, affidavits and forms as may, in
the Secured Party’s reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the Secured Party
in the Pledged Property.

 

Security Agreement

Page 2 of 21

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2.2 Security for Obligations. The security interest created hereby in the
Pledged Property constitutes continuing collateral security for all of the
following obligations, whether now existing or hereinafter incurred
(collectively, the “Obligations”):

(a) (i) the payment by the Company, as and when due and payable (by scheduled
maturity, acceleration, demand or otherwise), of all amounts from time to time
owing by it in respect of the Notes or the other Transaction Documents, or
(ii) in the case of any Guarantor, the payment by such Guarantor, as and when
due and payable of all “Guaranteed Obligations” under (and as defined in) the
Guaranty; and

(b) the due performance and observance by each Grantor of all of its other
obligations from time to time existing in respect of any of the Transaction
Documents, including without limitation, with respect to any conversion or
redemption rights of the Secured Party under the Notes.

SECTION 3

Attorney-In-Fact; Performance

3.1 Secured Party Appointed Attorney-In-Fact.

The Grantors hereby appoint the Secured Party as its attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, exercisable after and during the continuance of an Event of
Default, from time to time in the Secured Party’s discretion to take any action
and to execute any instrument which the Secured Party may reasonably deem
necessary to accomplish the purposes of this Agreement, including, without
limitation, to (a) receive and collect all instruments made payable to the
Grantor representing any payments in respect of the Pledged Property or any part
thereof and to give full discharge for the same; (b) demand, collect, receipt
for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged
Property as and when the Secured Party may determine, and (c) to facilitate
collection, the Secured Party may notify account debtors and obligors on any
Pledged Property to make payments directly to the Secured Party. The foregoing
power of attorney is a power coupled with an interest and shall be irrevocable
until all Obligations are paid and performed in full. The Grantors agree that
the powers conferred on the Secured Party hereunder are solely to protect the
Secured Party’s interests in the Pledged Property and shall not impose any duty
upon the Secured Party to exercise any such powers.

3.2 Secured Party May Perform.

If a Grantor fails to perform any agreement contained herein, the Secured Party,
at its option, may itself perform, or cause performance of, such agreement, and
the expenses of the Secured Party incurred in connection therewith shall be
included in the Obligations secured hereby and payable by such Grantor under
Section 8.3.

SECTION 4

Representations and Warranties

4.1 Authorization; Enforceability.

Each of the parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby; and upon execution and delivery, this
Agreement shall constitute a valid and binding obligation of the respective
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors’ rights or by the principles governing the
availability of equitable remedies.

 

Security Agreement

Page 3 of 21

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4.2 Ownership of Pledged Property.

Each Grantor represents and warrants that it is the legal and beneficial owner
of the Pledged Property free and clear of any lien, security interest, option or
other charge or encumbrance (each, a “Lien”) except for the security interest
created by this Agreement and other Permitted Liens. For purposes of this
Agreement, “Permitted Liens” means: (1) the security interest created by this
Agreement, (2) existing Liens which have been disclosed by the Company to the
Secured Party on Schedule 4.2 attached hereto; (3) inchoate Liens for taxes,
assessments or governmental charges or levies not yet due, as to which the grace
period, if any, related thereto has not yet expired, or being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (4) Liens of carriers, materialmen,
warehousemen, mechanics and landlords and other similar Liens which secure
amounts which are not yet overdue or which are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP; (5) licenses, sublicenses, leases or subleases granted to
other Persons not materially interfering with the conduct of the business of the
Company; (6) Liens securing capitalized lease obligations and purchase money
indebtedness incurred solely for the purpose of financing an acquisition or
lease; (7) easements, rights-of-way, restrictions, encroachments, municipal
zoning ordinances and other similar charges or encumbrances, and minor title
deficiencies, in each case not securing debt and not materially interfering with
the conduct of the business of the Company and not materially detracting from
the value of the property subject thereto; (8) Liens arising out of the
existence of judgments or awards which judgments or awards do not constitute an
Event of Default; (9) Liens incurred in the ordinary course of business in
connection with workers compensation claims, unemployment insurance, pension
liabilities and social security benefits and Liens securing the performance of
bids, tenders, leases and contracts in the ordinary course of business,
statutory obligations, surety bonds, performance bonds and other obligations of
a like nature (other than appeal bonds) incurred in the ordinary course of
business (exclusive of obligations in respect of the payment for borrowed
money); (10) Liens in favor of a banking institution arising by operation of law
encumbering deposits (including the right of set-off) and contractual set-off
rights held by such banking institution and which are within the general
parameters customary in the banking industry and only burdening deposit accounts
or other funds maintained with a creditor depository institution; (11) usual and
customary set-off rights in leases and other contracts; (12) escrows in
connection with acquisitions and dispositions; and (13) Liens on accounts that
are discounted, factored, sold or otherwise transferred in connection with the
indebtedness described in Section 7.3(vii).

 

Security Agreement

Page 4 of 21

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4.3 Location of Pledged Property.

The Pledged Property is or will be kept at the address(es) of each Grantor set
forth on the signature pages hereof, or such other locations as the Grantors
have given the Secured Party written notice prior to the date hereof, and,
unless otherwise provided herein, the Grantors will not remove any Pledged
Property from such locations without the prior written consent of the Secured
Party which consent shall not be unreasonably withheld; provided, however, that
nothing in this Section 4.3 or any other provision of this Agreement shall
prohibit any Grantor from shipping inventory in the ordinary course of business
and further provided that any Grantor may store inventory with warehousemen.

4.4 Location, Jurisdiction of Organization and Name of Grantors.

Each Grantor’s principal place of business, jurisdiction of organization,
organization identification number, and exact legal name is as set forth on each
such Grantor’s signature page to this Agreement.

4.5 Priority of Security Interest.

The security interest granted to the Secured Party hereunder shall be a first
priority security interest subject to no other Liens. Except for the Permitted
Liens, no financing statement covering any of the Pledged Property or any
proceeds thereof is on file in any public office.

SECTION 5

Default; Remedies

5.1 Method of Realizing Upon the Pledged Property: Other Remedies.

If any Event of Default shall have occurred and be continuing:

(a) The Secured Party may exercise in respect of the Pledged Property, in
addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under the Code (whether or not the Code applies to the affected Pledged
Property), and also may (i) take absolute control of the Pledged Property,
including, without limitation, transfer into the Secured Party’s name or into
the name of its nominee or nominees (to the extent the Secured Party has not
theretofore done so) and thereafter receive, for the benefit of the Secured
Party, all payments made thereon, give all consents, waivers and ratifications
in respect thereof and otherwise act with respect thereto as though it were the
outright owner thereof, (ii) require each Grantor to assemble all or part of the
Pledged Property as directed by the Secured Party and make it available to the
Secured Party at a place or places to be designated by the Secured Party that is
reasonably convenient to both parties, and the Secured Party may enter into and
occupy any premises owned or leased by a Grantor where the Pledged Property or
any part thereof is located or assembled for a reasonable period in order to
effectuate the Secured Party’s rights and remedies hereunder or under law,
without obligation to the Grantor in respect of such occupation, and
(iii) without notice except as specified below and without any obligation to
prepare or process the Pledged Property for sale, (A) sell the Pledged Property
or any part thereof in one or more parcels at public or private sale, at any of
the Secured Party’s offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Secured
Party may deem commercially reasonable and/or (B) lease, license or dispose of
the Pledged Property or any part thereof upon such terms as the Secured Party
may deem commercially reasonable. Each Grantor agrees that, to the extent notice
of sale or any other disposition of the Pledged Property shall be required by
law, at least ten (10) days’ notice to the Grantor of the time and place of any
public sale or the time after which any private sale or other disposition of the
Pledged Property is to be made shall constitute reasonable notification. The
Secured Party shall not be obligated to make any sale or other disposition of
any Pledged Property regardless of notice of sale having been given. The Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefore, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. Each Grantor
hereby waives any claims against the Secured Party arising by reason of the fact
that the price at which the Pledged Property may have been sold at a private
sale was less than the price which might have been obtained at a public sale or
was less than the aggregate amount of the Obligations, even if the Secured Party
accepts the first offer received and does not offer such Pledged Property to
more than one offeree, and waives all rights that the Grantor may have to
require that all or any part of such Pledged Property be marshaled upon any sale
(public or private) thereof. Each Grantor hereby acknowledges that (i) any such
sale of the Pledged Property by the Secured Party may be made without warranty,
(ii) the Secured Party may specifically disclaim any warranties of title,
possession, quiet enjoyment or the like, and (iii) such actions set forth in
clauses (i) and (ii) above shall not adversely affect the commercial
reasonableness of any such sale of Pledged Property.

 

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(b) Any cash held by the Secured Party as Pledged Property and all cash proceeds
received by the Secured Party in respect of any sale of or collection from, or
other realization upon, all or any part of the Pledged Property shall be applied
(after payment of any amounts payable to the Secured Party pursuant to
Section 8.3 hereof) by the Secured Party against, all or any part of the
Obligations in such order as the Secured Party shall elect, consistent with the
provisions of the Securities Purchase Agreement. Any surplus of such cash or
cash proceeds held by the Secured Party and remaining after the indefeasible
payment in full in cash of all of the Obligations shall be paid over to
whomsoever shall be lawfully entitled to receive the same or as a court of
competent jurisdiction shall direct.

(c) In the event that the proceeds of any such sale, collection or realization
are insufficient to pay all amounts to which the Secured Party is legally
entitled, each Grantor shall be liable for the deficiency, together with
interest thereon at the rate specified in the Notes for interest on overdue
principal thereof or such other rate as shall be fixed by applicable law,
together with the costs of collection and the reasonable fees, costs, expenses
and other client charges of any attorneys employed by the Secured Party to
collect such deficiency.

(d) Each Grantor hereby acknowledges that if the Secured Party complies with any
applicable state, provincial, or federal law requirements in connection with a
disposition of the Pledged Property, such compliance will not adversely affect
the commercial reasonableness of any sale or other disposition of the Pledged
Property.

(e) The Secured Party shall not be required to marshal any present or future
collateral security (including, but not limited to, this Agreement and the
Pledged Property) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of the Secured Party’s rights hereunder and in
respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To
the extent that the Grantor lawfully may, each Grantor hereby agrees that it
will not invoke any law relating to the marshaling of collateral which might
cause delay in or impede the enforcement of the Secured Party’s rights under
this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, the Company hereby irrevocably waives the
benefits of all such laws.

 

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5.2 Duties Regarding Pledged Property.

The Secured Party shall have no duty as to the collection or protection of the
Pledged Property or any income thereon or as to the preservation of any rights
pertaining thereto, beyond (i) the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party’s possession, or (ii) any
other obligations or duties imposed by the Code.

SECTION 6

Affirmative Covenants

So long as any of the Obligations shall remain outstanding (other than inchoate
indemnification obligations), unless the Secured Party shall otherwise consent
in writing:

6.1 Existence, Properties, Etc.

(a) Each Grantor shall do, or cause to be done, all things, or proceed with due
diligence with any actions or courses of action, that may be reasonably
necessary (i) to maintain Grantor’s due organization, valid existence and good
standing under the laws of its country or state of incorporation or
organization, and (ii) to preserve and keep in full force and effect all
qualifications, licenses and registrations in those jurisdictions in which the
failure to do so could have a Material Adverse Effect (as defined below); and
(b) each Grantor shall not do, or cause to be done, any act impairing the
Grantor’s corporate power or authority (i) to carry on the Grantor’s business as
now conducted, and (ii) to execute or deliver this Agreement or any other
document delivered in connection herewith, including, without limitation, any
UCC-1 Financing Statements required by the Secured Party (which other loan
instruments collectively shall be referred to as the “Loan Instruments”) to
which it is or will be a party, or perform any of its obligations hereunder or
thereunder. For purpose of this Agreement, the term “Material Adverse Effect”
shall mean any material and adverse affect as determined by Secured Party in its
reasonable discretion, whether individually or in the aggregate, upon (a) the
Grantors’ assets, business, operations, properties or condition, financial or
otherwise; (b) the Grantors’ ability to make payment as and when due of all or
any part of the Obligations; or (c) the Pledged Property.

6.2 Financial Statements and Reports.

Each Grantor shall furnish to the Secured Party within a reasonable time such
financial data as the Secured Party may reasonably request.

6.3 Accounts and Reports.

Each Grantor shall maintain a standard system of accounting in accordance with
generally accepted accounting principles consistently applied (“GAAP”) and
provide, at its sole expense, to the Secured Party as soon as available, a copy
of any notice or other communication alleging any nonpayment or other material
breach or default, or any foreclosure or other action respecting any material
portion of its assets and properties, received respecting any of the
indebtedness of the Grantor in excess of $50,000 (other than the Obligations).

 

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6.4 Maintenance of Books and Records; Inspection.

Each Grantor shall maintain its books, accounts and records in accordance with
GAAP, and permit the Secured Party, its officers and employees and any
professionals designated by the Secured Party in writing, at any time during
normal business hours and upon reasonable notice to visit and inspect any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and
financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof (it being agreed that, unless an Event of
Default shall have occurred and be continuing, there shall be no more than two
(2) such visits and inspections in any Fiscal Year).

6.5 Maintenance and Insurance.

(a) Each Grantor shall maintain or cause to be maintained, at its own expense,
all of its material assets and properties in good working order and condition,
ordinary wear and tear excepted, making all necessary repairs thereto and
renewals and replacements thereof.

(b) Each Grantor shall maintain or cause to be maintained, at its own expense,
insurance in form, substance and amounts (including deductibles), which the
Grantor deems reasonably necessary to the Company’s business, (i) adequate to
insure all assets and properties of the Grantor of a character usually insured
by persons engaged in the same or similar business against loss or damage
resulting from fire or other risks included in an extended coverage policy;
(ii) against public liability and other tort claims that may be incurred by the
Grantor; (iii) as may be required by the Transaction Documents and/or applicable
law and (iv) as may be reasonably requested by Secured Party, all with
financially sound and reputable insurers.

6.6 Contracts and Other Collateral.

Each Grantor shall perform all of its obligations under or with respect to each
instrument, receivable, contract and other intangible included in the Pledged
Property to which the Grantor is now or hereafter will be party on a timely
basis and in the manner therein required, including, without limitation, this
Agreement, except to the extent the failure to so perform such obligations would
not reasonably be expected to have a Material Adverse Effect.

6.7 Defense of Collateral, Etc.

Each Grantor shall defend and enforce its right, title and interest in and to
any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss would reasonably be
expected to have a Material Adverse Effect, each against all manner of claims
and demands on a timely basis to the full extent permitted by applicable law
(other than any such claims and demands by holders of Permitted Liens).

6.8 Taxes and Assessments.

Each Grantor shall (a) file all material tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency (taking into account any extensions of the original due date),
(b) pay and discharge all material taxes, assessments and governmental charges
or levies imposed upon the Grantor, upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
and (c) pay all material taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Grantor in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses
(b) and (c) so long as appropriate reserves are maintained with respect thereto
if and to the extent required by GAAP.

 

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6.9 Compliance with Law and Other Agreements.

Each Grantor shall maintain its business operations and property owned or used
in connection therewith in compliance with (a) all applicable federal, state and
local laws, regulations and ordinances governing such business operations and
the use and ownership of such property, and (b) all agreements, licenses,
franchises, indentures and mortgages to which the Grantor is a party or by which
the Grantor or any of its properties is bound, except where the failure to so
comply would not reasonably be expected to have a Material Adverse Effect.

6.10 Notice of Default.

The Grantors will immediately notify the Secured Party of any event causing a
substantial loss or diminution in the value of all or any material part of the
Pledged Property and the amount or an estimate of the amount of such loss or
diminution. The Grantors shall promptly notify the Secured Party of any
condition or event which constitutes, or would constitute with the passage of
time or giving of notice or both, an Event of Default, and promptly inform the
Secured Party of any events or changes in the financial condition of any Grantor
occurring since the date of the last financial statement of such Grantor
delivered to the Secured Party, which individually or cumulatively when viewed
in light of prior financial statements, which might reasonably be expected to
have a Material Adverse Effect on the business operations or financial condition
of the Grantor.

6.11 Notice of Litigation.

Each Grantor shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Grantor, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen
(15) days of the commencement thereof, between the Grantor on the one hand and
any governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Grantor.

6.12 Future Subsidiaries.

If any Grantor shall hereafter create or acquire any subsidiary, simultaneously
with the creation or acquisition of such subsidiary, such Grantor shall cause
such subsidiary to become a party to this Agreement as an additional “Grantor”
hereunder, and to duly execute and deliver a guaranty of the Obligations in
favor of the Secured Party in form and substance reasonably acceptable to the
Secured Party, and to duly execute and/or deliver such opinions of counsel and
other documents, in form and substance reasonably acceptable to the Secured
Party, as the Secured Party shall reasonably request with respect thereto.

 

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6.13 Changes to Identity.

Each Grantor will (a) give the Secured Party at least 30 days’ prior written
notice of any change in such Grantor’s name, identity or organizational
structure, (b) maintain its jurisdiction of incorporation, organization or
formation as set forth on its respective signature page attached hereto,
(C) immediately notify the Secured Party upon obtaining an organizational
identification number, if on the date hereof such Grantor did not have such
identification number.

6.14 Perfection of Security Interests.

(a) Financing Statements. The Grantors hereby irrevocably authorize the Secured
Party, at the sole cost and expense of the Grantors, at any time and from time
to time to file in any filing office in any jurisdiction any initial financing
statements and amendments thereto that (a) indicate the Pledged Property (i) as
all assets of Grantors or words of similar effect, regardless of whether any
particular asset comprised in the Pledged Property falls within the scope of
Article 9 of the Code of such jurisdiction, or (ii) as being of an equal or
lesser scope or with greater detail, and (b) contain any other information
required by Part 5 of Article 9 of the Code for the sufficiency or filing office
acceptance of any financing statement or amendment, including (i) whether such
Grantor is an organization, the type of organization and any organization
identification number issued to such Grantor, and (ii) in the case of a
financing statement filed as a fixture filing, a sufficient description of real
property to which the Pledged Property relates. Grantors agree to furnish any
such information to the Secured Party promptly upon request. Grantors also
ratify their authorization for the Secured Party to have filed in any
jurisdiction any initial financing statements or amendments thereto if filed
prior to the date hereof. The Grantors acknowledge that they are not authorized
to file any financing statement or amendment or termination statement with
respect to any financing statement without the prior written consent of the
Secured Party and agree that they will not do so without the prior written
consent of the Secured Party. The Grantors acknowledge and agree that this
Agreement constitutes an authenticated record.

(b) Possession. The Grantors (i) shall have possession of the Pledged Property,
except where expressly otherwise provided in this Agreement or where the Secured
Party chooses to perfect its security interest by possession in addition to the
filing of a financing statement; and (ii) will, where Pledged Property is in the
possession of a third party, join with the Secured Party in notifying the third
party of the Secured Party’s security interest and obtaining an acknowledgment
from the third party that it is holding the Pledged Property for the benefit of
the Secured Party.

(c) Control. In addition to the provisions set forth in Section 6.15 above, the
Grantors will cooperate with the Secured Party in obtaining control with respect
to the Pledged Property consisting of (i) Investment Property, (ii) Letters of
Credit and Letter-of-Credit Rights, and (iii) electronic Chattel Paper.

(d) Chattel Paper. The Grantors will not create any Chattel Paper without
placing a legend on the Chattel Paper acceptable to the Secured Party indicating
that the Secured Party has a security interest in the Chattel Paper.

6.16 Notice of Commercial Tort Claims. If any Grantor shall at any time acquire
a Commercial Tort Claim, such Grantor shall immediately notify the Secured Party
in a writing signed by such Grantor which shall (a) provide brief details of
said claim and (b) grant to the Secured Party a security interest in said claim
and in the proceeds thereof, all upon the terms of this Agreement, in such form
and substance satisfactory to the Secured Party.

 

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SECTION 7

Negative Covenants

So long as any of the Obligations shall remain outstanding (other than inchoate
indemnification obligations), unless the Secured Party shall otherwise consent
in writing each Grantor covenants and agrees that it shall not:

7.1 Transfers, Liens and Encumbrances.

(a) Sell, assign (by operation of law or otherwise), lease, license, exchange or
otherwise transfer or dispose of any of the Pledged Property, except Grantor may
(i) sell or dispose of Inventory in the ordinary course of business, and
(ii) sell or dispose of assets the Grantor has determined, in good faith, not to
be useful in the conduct of its business, (iii) sell or dispose of accounts in
the course of collection in the ordinary course of business consistent with past
practice; and (iv) discount, factor, sell or otherwise transfer accounts in
connection with Permitted Indebtedness (as defined below) described in
Section 7.3(viii).

(b) Directly or indirectly make, create, incur, assume or permit to exist any
Lien in, to or against any part of the Pledged Property other than Permitted
Liens.

7.2 Restriction on Redemption and Cash Dividends.

Directly or indirectly, redeem, repurchase or declare or pay any cash dividend
or distribution on its capital stock without the prior express written consent
of the Secured Party.

7.3 Incurrence of Indebtedness.

Directly or indirectly, incur or guarantee, assume or suffer to exist any
indebtedness, other than the indebtedness evidenced by the Notes and other
Permitted Indebtedness. “Permitted Indebtedness” means: (i) indebtedness
evidenced by Notes; (ii) indebtedness existing on the date hereof and described
on Schedule 7.3 attached hereto; (iii) indebtedness incurred solely for the
purpose of financing the acquisition or lease of any equipment by the Company,
including capital lease obligations with no recourse other than to such
equipment; (iv) indebtedness (A) the repayment of which has been subordinated to
the payment of the Notes on terms and conditions acceptable to the Secured
Party, including with regard to interest payments and repayment of principal,
(B) which does not mature or otherwise require or permit redemption or repayment
prior to or on the 91st day after the maturity date of any Notes then
outstanding; and (C) which is not secured by any assets of the Company;
(v) indebtedness solely between the Grantor and/or one of its domestic
subsidiaries, on the one hand, and the Grantor and/or one of its domestic
subsidiaries, on the other which indebtedness is not secured by any assets of
the Grantor or any of its subsidiaries, provided that (x) in each case a
majority of the equity of any such domestic subsidiary is directly or indirectly
owned by the Grantor, such domestic subsidiary is controlled by the Grantor and
such domestic subsidiary has executed a security agreement in the form of this
Agreement and (y) any such loan shall be evidenced by an intercompany note that
is pledged by the Grantor or its subsidiary, as applicable, as collateral
pursuant to this Agreement; (vi) reimbursement obligations in respect of letters
of credit issued for the account of the Grantor or any of its subsidiaries for
the purpose of securing performance obligations of the Grantor or its
subsidiaries incurred in the ordinary course of business so long as the
aggregate face amount of all such letters of credit does not exceed $100,000 at
any one time; (vii) provided that there is not an Event of Default when
incurred, additional indebtedness incurred that at any one time does not exceed
$200,000 individually or in the aggregate, which indebtedness may include,
without limitation, indebtedness consisting of the discounting, factoring, sale
or other transfer of accounts; and (viii) renewals, extensions and refinancing
of any indebtedness described in clauses (i) or (vii) of this subsection.

 

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7.4 Places of Business.

Change the location of its chief place of business, chief executive office or
any place of business disclosed to the Secured Party, unless such change in
location is to a different location within the United States and the Grantor
provides notice to the Secured Party of the new location within ten (10) days’
of such change in location.

SECTION 8

Indemnification, Affirmation and Waiver

8.1 In consideration of the Secured Party’s execution and delivery of this
Agreement and acquiring the Notes, the Conversion Shares, the Warrants and the
Warrant Shares pursuant to the terms of the Securities Purchase Agreement, and
in addition to all of the Company’s other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Secured Party and
all of its officers, directors, employees and agents (including, without
limitation, Mitchell Saltz, Southwest Capital Partners, LLC and those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the “Secured Party 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 indemnified party is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”), incurred by the Secured Party
Indemnitees or any of them 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 this Agreement or the other 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 this
Agreement, or the other 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 Secured Party Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the parties hereto. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities, which is permissible under applicable law.

8.2 In consideration of the Company’s execution and delivery of this Agreement,
and in addition to all of the Secured Party’s other obligations under this
Agreement, the Secured Party shall defend, protect, indemnify and hold harmless
the Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Company Indemnitees”) from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Secured Party in this Agreement or any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby executed by
the Secured Party, (b) any breach of any covenant, agreement or obligation of
the Secured Party contained in this Agreement or the other Transaction Documents
or any other certificate, instrument or document contemplated hereby or thereby
executed by the Secured Party, or (c) any cause of action, suit or claim brought
or made against such Company Indemnitee based on material misrepresentations or
due to a material breach and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement, the Transaction
Documents or any other instrument, document or agreement executed pursuant
hereto by any of the parties hereto. To the extent that the foregoing
undertaking by the Secured Party may be unenforceable for any reason, the
Secured Party shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.

 

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8.3 In consideration of the Secured Party’s execution and delivery of this
Agreement, and in addition to all of the Company’s other obligations under this
Agreement, the Company reaffirms its knowledge of the ownership interest of
Mitchell Saltz in the Secured Party and Southwest Capital Partners, LLC and
shall waive and fully release, and will hold harmless and forever discharge
Mitchell Saltz, including his agents, employees, consultants, related companies,
subsidiaries and attorneys from and against any and all liabilities, claims,
demands, administrative complaints, causes of action and suits that it may have,
or may hereafter acquire, of whatever kind and nature, known or unknown,
presently existing or hereafter arising in the future, including, but not
limited to, any claims and causes of action that arise from or relate to the
ownership interest of Mitchell Saltz in the Secured Party and Southwest Capital
Partners, LLC, acquiring the Notes, the Conversion Shares, the Warrants and the
Warrant Shares, or any dealings between the parties thereby.

SECTION 9

Miscellaneous

9.1 Notices.

All notices or other communications required or permitted to be given pursuant
to this Agreement shall be in writing and shall be considered as duly given on:
(a) the date of delivery, if delivered in person or by nationally recognized
overnight delivery service or (b) five (5) days after mailing if mailed from
within the continental United States by certified mail, return receipt requested
to the party entitled to receive the same:

 

If to the Secured Party:    Stockbridge Enterprises, L.P.       7377 East
Doubletree Ranch Road, Suite 200       Scottsdale, AZ 85258       Attention:   
Mitch Saltz       Telephone:    (602) 885-7854       Facsimile:    (602)
907-1613    With a copy to:    Jeffrey R. Perry Law Firm, P.C.       7119 E.
Shea Blvd., Suite 109-111       Scottsdale, AZ 85254-6107       Attention:   
Jeffrey Perry, Esq.       Telephone:    (480) 368-5441       Facsimile:   (866)
288-4877    If to the Company:    Earth911, Inc.       1375 N. Scottsdale Rd.,
Suite 140       Scottsdale, AZ 85257       Attention:    Chief Executive Officer
      Telephone:    (480) 337-3025       Facsimile:    (480) 348-0422    With a
copy to:    Greenberg Traurig, LLP       2375 E. Camelback Road, Suite 700      
Phoenix, AZ 85016       Attention:    Robert Kant       Telephone:    (602)
445-8301       Facsimile:    (602) 445-8100    If to any other Grantor    To the
address listed on the respective signature pages attached hereto

 

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Any party may change its address by giving notice to the other party stating its
new address. Commencing on the tenth (10th) day after the giving of such notice,
such newly designated address shall be such party’s address for the purpose of
all notices or other communications required or permitted to be given pursuant
to this Agreement.

9.2 Severability.

If any provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.

9.3 Expenses.

In the event of an Event of Default, the Company will pay to the Secured Party
the amount of any and all reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its counsel, which the Secured Party may incur
in connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Grantor to perform or observe any of the provisions hereof.

9.4 Waivers, Amendments, Etc.

The Secured Party’s delay or failure at any time or times hereafter to require
strict performance by Grantor of any undertakings, agreements or covenants shall
not waive, affect, or diminish any right of the Secured Party under this
Agreement to demand strict compliance and performance herewith. Any waiver by
the Secured Party of any Event of Default shall not waive or affect any other
Event of Default, whether such Event of Default is prior or subsequent thereto
and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Grantor contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party in the case of any such waiver, and signed by the Secured Party
and the Grantor in the case of any such amendment, change or modification.
Further, no such document, instrument, and/or agreement purported to be executed
on behalf of the Secured Party shall be binding upon the Secured Party unless
executed by a duly authorized representative of the Secured Party.

 

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9.5 Continuing Security Interest.

This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect so long as any of the
Obligations shall remain outstanding; (ii) be binding upon each Grantor and its
successors and assigns; and (iii) inure to the benefit of the Secured Party and
its successors and assigns. Upon the payment or satisfaction in full of the
Obligations, this Agreement and the security interest created hereby shall
terminate, and, in connection therewith, each Grantor shall be entitled to the
return, at its expense, of such of the Pledged Property as shall not have been
sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the
terms hereof and the Secured Party shall deliver to the Grantor such documents
as the Grantor shall reasonably request to evidence such termination.

9.6 Independent Representation.

Each party hereto acknowledges and agrees that it has received or has had the
opportunity to receive independent legal counsel of its own choice and that it
has been sufficiently apprised of its rights and responsibilities with regard to
the substance of this Agreement.

9.7 Applicable Law: Jurisdiction.

This Agreement shall be governed by and interpreted in accordance with the laws
of the State of Arizona without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard in
Maricopa County, Arizona, and expressly consent to the jurisdiction and venue of
the Superior Court of Arizona, sitting in Maricopa County and the United States
District Court for the District of Arizona sitting in Phoenix, Arizona for the
adjudication of any civil action asserted pursuant to this Section 8.7,
provided, however, that nothing herein shall prevent the Secured Party from
enforcing its rights and remedies (including, without limitation, by filing a
civil action) with respect to the Pledged Property and/or the Grantors in any
other jurisdiction in which the Pledged Property and/or the Grantors may be
located.

9.8 Waiver of Jury Trial.

AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND
TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

 

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9.9 Right of Set Off.

The Grantors each hereby grant to the Secured Party, a lien, security interest
and right of setoff as security for the Obligations, upon and against all
deposits, credits, collateral and property, now or hereafter in the possession,
custody, safekeeping or control of the Secured Party or any of its affiliates,
or any entity under the control of the Secured Party, or in transit to any of
them. Upon an Event of Default, the Secured Party may set off the same or any
part thereof and apply the same to any of the Obligations even though unmatured
and regardless of the adequacy of any other collateral securing the Obligations.
ANY AND ALL RIGHTS TO REQUIRE THE SECURED PARTY TO EXERCISE ITS RIGHTS OR
REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS,
PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS
OR OTHER PROPERTY OF THE GRANTORS, ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED.

9.10 Entire Agreement.

This Agreement constitutes the entire agreement among the parties and supersedes
any prior agreement or understanding among them with respect to the subject
matter hereof.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as
of the date first above written.

 

COMPANY: EARTH911, INC. By: /s/ Barry
Monheit                                          Name: Barry Monheit Title: CEO

Jurisdiction of Organization: Delaware

 

Organization ID:

GUARANTOR: By: /s/ Corey Lambrecht                                     Name:
Corey Lambrecht Title: President, COO

Address for Notices:

 

Jurisdiction of Organization:

 

Organization ID:

SECURED PARTY: STOCKBRIDGE ENTERPRISES, L.P. By: /s/ Mitchell
Saltz                                          Name: Mitchell Saltz Title:
Manager

 

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Exhibit A

Definition of Pledged Property

For the purpose of securing prompt and complete payment and performance by the
Grantor of all of the Obligations, the Grantors each unconditionally and
irrevocably hereby grant to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of each Grantor (all
capitalized terms used herein shall have the respective meanings ascribed
thereto in the Code):

All personal property of each Grantor, wherever located and whether now or
hereinafter existing and whether now owned or hereafter acquired, of every kind
and description, tangible or intangible, including without limitation, all:

1. Goods;

2. Inventory, including, without limitation, all goods, merchandise and other
personal property now owned or hereafter acquired by any Grantor which are held
for sale or lease, or are furnished or to be furnished under any contract of
service or are raw materials, work-in-process, supplies or materials used or
consumed in such Grantor’s business, and all products thereof, and all
substitutions. replacements, additions or accessions therefore and thereto; and
any cash or non-cash Proceeds of all of the foregoing;

3. Equipment, including, without limitation, all machinery, equipment,
furniture, parts, tools and dies, of every kind and description, of any Grantor
(including automotive equipment and motor vehicles, now owned or hereafter
acquired by any Grantor, and used or acquired for use in the business of such
Grantor, together with all accessions thereto and all substitutions and
replacements thereof and parts therefore and all cash or non-cash Proceeds of
the foregoing;

4. Fixtures, including, without limitation, all goods which are so related to
particular real estate that an interest in them arises under real estate law and
all accessions thereto, replacements thereof and substitutions therefore,
including, but not limited to, plumbing, heating and lighting apparatus,
mantels, floor coverings, furniture, furnishings, draperies, screens, storm
windows and doors, awnings, shrubbery, plants, boilers, tanks, machinery,
stoves, gas and electric ranges, wall cabinets, appliances, furnaces, dynamos,
motors, elevators and elevator machinery, radiators, blinds and all laundry,
refrigerating, gas, electric, ventilating, air-refrigerating, air-conditioning,
incinerating and sprinkling and other fire prevention or extinguishing equipment
of whatsoever kind and nature and any replacements, accessions and additions
thereto, Proceeds thereof and substitutions therefore;

5. Instruments (including promissory notes);

6. Documents;

7. Accounts, including, without limitation, all Contract Rights and accounts
receivable, health-care-insurance receivables, and license fees; any other
obligations or indebtedness owed to any Grantor from whatever source arising;
all rights of any Grantor to receive any payments in money or kind; all
guarantees of Accounts and security therefore; all cash or non-cash Proceeds of
all of the foregoing; all of the right, title and interest of any Grantor in and
with respect to the goods, services or other property which gave rise to or
which secure any of the accounts and insurance policies and proceeds relating
thereto, and all of the rights of any Grantor as an unpaid seller of goods or
services, including, without limitation the rights of stoppage in transit,
replevin, reclamation and resale and all of the foregoing, whether now existing
or hereafter created or acquired;

 

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8. Contracts and Contract Rights, including, to the extent not included in the
definition of Accounts, all rights to payment or performance under a contract
not yet earned by performance and not evidenced by an Instrument or Chattel
Paper;

9. Chattel Paper (whether tangible or electronic);

10. Deposit Accounts (and in and to any deposits or other sums at any time
credited to each such Deposit Account);

11. Money, cash and cash equivalents;

12. Letters of Credit and Letter-of-Credit Rights (whether or not the Letter of
Credit is evidenced by a writing);

13. Commercial Tort Claims;

14. Securities Accounts, Security Entitlements, Securities, Financial Assets and
all other Investment Property, including, without limitation, all ownership or
membership interests in any subsidiaries or affiliates (whether or not
controlled by any Grantor) including the Company’s interest in Quest Recycling
Services, LLC;

15. General Intangibles, including, without limitation, all payment intangibles,
tax refunds and other claims of any Grantor against any governmental authority,
and all choses in action, insurance proceeds, goodwill, patents, copyrights,
trademarks, tradenames, customer lists, formulae, inventions, discoveries,
medical device designs or developments, works of authorship, proprietary
information, trade secrets, licenses, permits, franchises, designs, computer
software, research and literary rights now owned or hereafter acquired;

16. Farm Products;

17. All books and records (including all ledger sheets, files, computer
programs, tapes and related data processing software) evidencing an interest in
or relating to any of the foregoing; and

18. To the extent not already included above, all supporting obligations, and
any and all cash and non-cash Proceeds, products, accessions, and/or
replacements of any of the foregoing, including proceeds of insurance covering
any or all of the foregoing. Upon the occurrence of a Default or Event of
Default under the Transaction Documents, the Company will assign its right to
all future distributions from Quest Recycling Services, LLC and the proceeds
received from any sale of Quest Recycling Services, LLC until either the Default
or Event of Default is cured or waived in writing by the Secured Party, or the
Notes have been repaid in full.

 

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DISCLOSURE SCHEDULE

Schedule 4.2 – Existing Liens

Disclosure Schedules have been omitted pursuant to Regulation S-K Item
601(b)(2), and Infinity agrees to furnish a supplemental copy of such exhibits
or schedules upon request of the SEC.

 

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Schedule 7.3 – Existing Indebtedness

Disclosure Schedules have been omitted pursuant to Regulation S-K Item
601(b)(2), and Infinity agrees to furnish a supplemental copy of such exhibits
or schedules upon request of the SEC.

 

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SECURITY AGREEMENT

(Patent)

This Security Agreement (Patent) (this “Agreement”), is entered into and made
effective as of March 22, 2012, by and between Earth911, Inc., a Delaware
corporation with its principal place of business located at 1375 N. Scottsdale
Rd, Suite 140, Scottsdale, AZ 85257 (the “Parent”), and each subsidiary of the
Parent listed on Schedule I attached hereto (each a “Subsidiary,” and
collectively and together with the Parent, the “Company”), in favor of
Stockbridge Enterprises, L.P., a Nevada limited partnership (the “Secured
Party”).

RECITALS

A. In connection with the Securities Purchase Agreement by and among the Parent
and the Secured Party of even date herewith (the “Securities Purchase
Agreement”), the Parent has agreed, upon the terms and subject to the conditions
of the Securities Purchase Agreement, to issue to the Secured Party
(i) $1,000,000.00 of senior secured bridge notes (the “Notes”), which shall be
convertible into shares of the Parent’s Common Stock (the “Conversion Shares”);
and (ii) warrants (the “Warrants”) to be exercisable to acquire additional
shares of Common Stock (the “Warrants Shares”) initially in that number of
shares of Common Stock set forth in the Securities Purchase Agreement;

B. To induce the Secured Party to purchase the Notes and enter into the
Securities Purchase Agreement and the documents entered into in connection
therewith, (collectively referred to as the “Transaction Documents”), each
Company hereby grants to the Secured Party a security interest, in and to the
Patent Collateral (as defined below) to secure all of the Obligations (as
defined below).

C. In connection with the Securities Purchase Agreement, each Company has agreed
to provide the Secured Party a general security interest in the Pledged Property
(as this term is defined in the Security Agreement by and between each Company
and the Secured Party, of even date herewith (together with all amendments,
supplements, restatements and other modifications, if any, from time to time
made thereto, the “Security Agreement”);

D. Each Company has duly authorized the execution, delivery and performance of
this Agreement;

AGREEMENT

NOW THEREFORE, for and in consideration of the premises, the promises and mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company agrees as
follows:

1. Definitions. Unless otherwise defined herein otherwise requires, terms used
in this Agreement, including its preamble and recitals, have the meanings
provided in the Securities Purchase Agreement.

(a) “Obligations” shall have the meaning assigned to it in the Security
Agreement.

 

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2. Grant of Security Interest. For good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, to secure the payment and
performance of all of the Obligations of the Company, the Company does hereby
mortgage, pledge and hypothecate to the Secured Party and grant to the Secured
Party a security interest in all of the following property (the “Patent
Collateral”), now owned and existing:

(a) all letters patent and applications for letters patent throughout the world,
including all patent applications in preparation for filing anywhere in the
world and including each patent and patent application referred to in Schedule A
hereto;

(b) all reissues, divisions, continuations, continuations-in-part, extensions,
renewals and reexaminations of any of the items described in clause (a);

(c) all patent licenses and other agreements providing the Company with the
right to use any of the items of the type referred to in clauses (a) and (b),
including each patent license referred to in Schedule A hereto;

(d) the right to sue third parties for past, present or future infringements of
any Patent Collateral described in clauses (a) and (b) and, to the extent
applicable, clause (c); and

(e) all proceeds of, and rights associated with, the foregoing, (including
license royalties and proceeds of infringement suits), and all rights
corresponding thereto throughout the world.

3. Security Agreement. This Agreement has been executed and delivered by each
Company for the purpose of recording the security interest of the Secured Party
in the Patent Collateral relating to patents referred to in Schedule A with the
United States Patent and Trade Marks Office, to the extent it may be so
registered therein. The security interest granted hereby has been granted as a
supplement to, and not in limitation of, the security interest granted to the
Secured Party under the Security Agreement. The Security Agreement (and all
rights and remedies of the Secured Party thereunder) shall remain in full force
and effect in accordance with its terms.

4. Release of Security Interest. Upon payment in full of all Obligations (other
than inchoate indemnity obligations) the Secured Party shall, at the Company’s
expense, execute and deliver to the Company all instruments and other documents
as may be necessary or proper to release the lien on any security interest in
the Patent Collateral which has been granted hereunder.

5. Acknowledgement. The Company does hereby further acknowledge and affirm that
the rights and remedies of the Secured Party with respect to the security
interest in the Patent Collateral granted hereby are more fully set forth in the
Security Agreement, the terms and provisions of which (including the remedies
provided for therein) are incorporated by references herein as if fully set
forth herein.

6. Securities Purchase Agreement. Notwithstanding any other term or provision
hereof, in the event that any provisions hereof contradict and are incapable of
being construed in conjunction with the provisions of the Securities Purchase
Agreement, the provisions of the Securities Purchase Agreement shall take
precedence over those contained herein and, in particular, if any act of the
Company is expressly permitted under the Securities Purchase Agreement but is
prohibited hereunder, any such act shall be permitted hereunder and any
encumbrance expressly permitted under the Securities Purchase Agreement to exist
or to remain outstanding shall be permitted hereunder and thereunder. This
instrument, document or agreement may be sold, assigned or transferred by the
Agent in accordance with the terms of the Securities Purchase Agreement.

 

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7. Indemnification, Affirmation and Waiver. In consideration of the Secured
Party’s execution and delivery of this Agreement and acquiring the Notes, the
Conversion Shares, the Warrants and the Warrant Shares hereunder, and in
addition to all of the Company’s other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Secured Party and
all of its officers, directors, employees and agents (including, without
limitation, Mitchell Saltz, Southwest Capital Partners, LLC and those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the “Secured Party 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 indemnified party is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”), incurred by the Secured Party
Indemnitees or any of them 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 this Agreement or the other 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 this
Agreement or the other 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 Secured Party Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the parties hereto. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities, which is permissible under applicable law.

In consideration of the Company’s execution and delivery of this Agreement, and
in addition to all of the Secured Party’s other obligations under this
Agreement, the Secured Party shall defend, protect, indemnify and hold harmless
the Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Company Indemnitees”) from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Secured Party in this Agreement or any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby executed by
the Secured Party, (b) any breach of any covenant, agreement or obligation of
the Secured Party contained in this Agreement, or the other Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby executed by the Secured Party, or (c) any cause of action, suit or
claim brought or made against such Company Indemnitee based on material
misrepresentations or due to a material breach and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement, the
Transaction Documents or any other instrument, document or agreement executed
pursuant hereto by any of the parties hereto. To the extent that the foregoing
undertaking by the Secured Party may be unenforceable for any reason, the
Secured Party shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.

 

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In consideration of the Secured Party’s execution and delivery of this
Agreement, and in addition to all of the Company’s other obligations under this
Agreement, the Company reaffirms its knowledge of the ownership interest of
Mitchell Saltz in the Secured Party and Southwest Capital Partners, LLC and
shall waive and fully release, and will hold harmless and forever discharge
Mitchell Saltz, including his agents, employees, consultants, related companies,
subsidiaries and attorneys from and against any and all liabilities, claims,
demands, administrative complaints, causes of action and suits that it may have,
or may hereafter acquire, of whatever kind and nature, known or unknown,
presently existing or hereafter arising in the future, including, but not
limited to, any claims and causes of action that arise from or relate to the
ownership interest of Mitchell Saltz in the Secured Party and Southwest Capital
Partners, LLC, acquiring the Notes, the Conversion Shares, the Warrants and the
Warrant Shares, or any dealings between the parties thereby.

8. Counterparts. This Agreement may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same agreement.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties have executed this Security Agreement (Patent)
as of the date first above written

 

EARTH911, INC. By: /s/ Barry Monheit                                         
Name: Barry Monheit Title: CEO

 

STATE OF ARIZONA    )             ) SS:          COUNTY OF MARICOPA    )      
  

BEFORE ME, a Notary Public in and for said County and State, personally appeared
the above-named Barry Monheit, the CEO of Earth911, Inc. who acknowledged that
he/she did sign the foregoing agreement and that the same is his/her free act
and deed.

IN TESTIMONY WHEREOF, I have hereunto set my hand an official seal at Maricopa
County, Arizona, this 23rd day of March, 2012.

 

/s/ Jody J. Kramer

Notary Public

 

My Commission Expires: November 20th 2015

 

GUARANTOR By: /s/ Corey Lambrecht                                          Name:
Corey Lambrecht Title: President—COO

 

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STATE OF ARIZONA    )             ) SS:          COUNTY OF MARICOPA    )      
  

BEFORE ME, a Notary Public in and for said County and State, personally appeared
the above-named Corey Lambrecht, the 23rd of [ March ] who acknowledged that
he/she did sign the foregoing agreement and that the same is his/her free act
and deed.

IN TESTIMONY WHEREOF, I have hereunto set my hand an official seal at Maricopa
County, Arizona, this 23rd day of March, 2012.

 

/s/ Jody J. Kramer

Notary Public

My Commission Expires:

November 20th 2015

 

SECURED PARTY: STOCKBRIDGE ENTERPRISES, L.P. By: /s/ Mitchell
Saltz                                     Name: Mitchell Saltz Title: Manager

 

STATE OF ARIZONA    )             ) SS:          COUNTY OF MARICOPA    )      
  

BEFORE ME, a Notary Public in and for said County and State, personally appeared
the above-named Mitchell Saltz, the Manager of Stockbridge Enterprises, L.P. who
acknowledged that he/she did sign the foregoing agreement and that the same is
his/her free act and deed.

IN TESTIMONY WHEREOF, I have hereunto set my hand an official seal at Maricopa
County, Arizona , this 23rd day of March, 2012.

 

/s/ Jody J. Kramer

Notary Public

 

My Commission Expires: November 20th 2015

 

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SCHEDULE I

Legal Names; Organizational Identification Numbers; Jurisdiction of Organization

 

Company’s Name

 

Jurisdiction of

Organization

 

Employer ID

 

Organizational ID

Quest Recycling Services, LLC

     

 

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SCHEDULE A

Patents and Applications

 

Patent/Application No.

 

Title

 

Filing/Grant Date

   Country

 

 

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GUARANTY

This Guaranty Agreement (this “Guaranty”), dated as of March 22, 2012 is made by
each of the undersigned (each a “Guarantor”, and collectively, the
“Guarantors”), in favor of Stockbridge Enterprises, L.P., a Nevada limited
partnership (the “Secured Party”).

RECITALS

A. In connection with the Securities Purchase Agreement by and among Earth911,
Inc., a Delaware corporation (the “Company”) and the Secured Party of even date
herewith (the “Securities Purchase Agreement”), the Company has agreed, upon the
terms and subject to the conditions of the Securities Purchase Agreement, to
issue to the Secured Party (i) $1,000,000.00 of senior secured bridge notes (the
“Notes”), which shall be convertible into shares of the Company’s Common Stock
(the “Conversion Shares”); and (ii) warrants (the “Warrants”) to be exercisable
to acquire additional shares of Common Stock (the “Warrants Shares”) initially
in that number of shares of Common Stock set forth in the Securities Purchase
Agreement;

B. Each of the Guarantors is executing and delivering a Security Agreement dated
the date hereof (the “Security Agreement”) granting a lien in all of the Pledged
Property (as defined in the Security Agreement) to the Secured Party;

C. It is a condition precedent to the Secured Party purchasing the Notes and
Warrants pursuant to the Securities Purchase Agreement that the Guarantors shall
have executed and delivered to the Secured Party this Agreement guaranteeing all
of the obligations of the Company under the Transaction Documents (as defined in
the Securities Purchase Agreement, the “Transaction Documents”); and

D. Each Guarantor has determined that the execution, delivery and performance of
this Guaranty directly benefits, and is in the best interest of, such Guarantor.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the agreements herein and
in order to induce the Secured Party to perform under the Securities Purchase
Agreement, each Guarantor hereby agrees with the Secured Party as follows:

1. Definitions. Reference is hereby made to the Securities Purchase Agreement
and the Notes issued pursuant thereto for a statement of the terms thereof. All
terms used in this Guaranty, which are defined in the Securities Purchase
Agreement or the Notes and not otherwise defined herein, shall have the same
meanings herein as set forth therein.

2. Guaranty. The Guarantors, jointly and severally, hereby unconditionally and
irrevocably, guaranty the punctual payment, as and when due and payable, by
stated maturity or otherwise, of all Obligations (as defined in the Security
Agreement) of the Company from time to time owing by it to the Secured Party
(such obligations, to the extent not paid by the Company, being the “Guaranteed
Obligations”), and agrees to pay any and all expenses (including reasonable
counsel fees and expenses) reasonably incurred by the Secured Party in enforcing
any rights under this Guaranty. Without limiting the generality of the
foregoing, each Guarantor’s liability hereunder shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by the Company
to the Secured Party but for the fact that they are unenforceable or not
allowable due to the existence of an insolvency proceeding involving any
Guarantor or the Company (each, a “Transaction Party”).

 

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3. Guaranty Absolute; Continuing Guaranty; Assignments.

a. The Guarantors, jointly and severally, guarantee that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the
Transaction Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Secured Party with respect thereto. The obligations of each
Guarantor under this Guaranty are independent of the Guaranteed Obligations, and
a separate action or actions may be brought and prosecuted against any Guarantor
to enforce such obligations, irrespective of whether any action is brought
against any Transaction Party or whether any Transaction Party is joined in any
such action or actions. The liability of any Guarantor under this Guaranty shall
be irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives, to the extent permitted by law, any defenses it may
now or hereafter have in any way relating to, any or all of the following:

i. any lack of validity or enforceability of any Transaction Document or any
agreement or instrument relating thereto;

ii. any change in the time, manner or place of payment of, or in any other term
of, all or any of the Guaranteed Obligations, or any other amendment or waiver
of or any consent to departure from any Transaction Document, including, without
limitation, any increase in the Guaranteed Obligations resulting from the
extension of additional credit to any Transaction Party or otherwise;

iii. any taking, exchange, release or non-perfection of any Pledged Property (as
defined in the Security Documents), or any taking, release or amendment or
waiver of or consent to departure from any other guaranty, for all or any of the
Guaranteed Obligations;

iv. any change, restructuring or termination of the corporate, limited liability
company or partnership structure or existence of any Transaction Party; or

v. any other circumstance (including any statute of limitations) or any
existence of or reliance on any representation by the Secured Party that might
otherwise constitute a defense available to, or a discharge of, any Transaction
Party or any other guarantor or surety.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Secured Party or any other Person upon the
insolvency, bankruptcy or reorganization of any Transaction Party or otherwise,
all as though such payment had not been made.

b. This Guaranty is a continuing guaranty and shall (i) remain in full force and
effect until the indefeasible cash payment in full of the Guaranteed Obligations
(other than inchoate indemnity obligations) and (ii) be binding upon each
Guarantor and its respective successors and assigns. This Guaranty shall inure
to the benefit of and be enforceable by the Secured Party and its successors,
and permitted pledgees, transferees and assigns. Without limiting the generality
of the foregoing sentence, the Secured Party may pledge, assign or otherwise
transfer all or any portion of its rights and obligations under and subject to
the terms of any Transaction Document to any other Person, and such other Person
shall thereupon become vested with all the benefits in respect thereof granted
to the Secured Party herein or otherwise, in each case as provided in the
Securities Purchase Agreement or such Transaction Document.

 

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4. Waivers. To the extent permitted by applicable law, each Guarantor hereby
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Guaranteed Obligations and this Guaranty and any
requirement that the Secured Party exhaust any right or take any action against
any Transaction Party or any other Person or any Pledged Property. The Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated herein and that the waiver set forth in this
Section 4 is knowingly made in contemplation of such benefits. The Guarantors
hereby waive any right to revoke this Guaranty, and acknowledges that this
Guaranty is continuing in nature and applies to all Guaranteed Obligations,
whether existing now or in the future.

5. Subrogation. No Guarantor may exercise any rights that it may now or
hereafter acquire against any Transaction Party or any other Guarantor that
arise from the existence, payment, performance or enforcement of any Guarantor’s
obligations under this Guaranty, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and any
right to participate in any claim or remedy of the Secured Party against any
Transaction Party or any other guarantor or any Pledged Property, whether or not
such claim, remedy or right arises in equity or under contract, statute or
common law, including, without limitation, the right to take or receive from any
Transaction Party or any other guarantor, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security solely
on account of such claim, remedy or right, unless and until all of the
Guaranteed Obligations (other than inchoate indemnity obligations) and all other
amounts payable under this Guaranty (other than inchoate indemnity obligations)
shall have indefeasibly been paid in full in cash. If any amount shall be paid
to the Guarantor in violation of the immediately preceding sentence at any time
prior to the later of the payment in full in cash of the Guaranteed Obligations
and all other amounts payable under this Guaranty, such amount shall be held in
trust for the benefit of the Secured Party and shall forthwith be paid to the
Secured Party to be credited and applied to the Guaranteed Obligations and all
other amounts payable under this Guaranty, whether matured or unmatured, in
accordance with the terms of the Transaction Document, or to be held as Pledged
Property for any Guaranteed Obligations or other amounts payable under this
Guaranty thereafter arising. If (i) any Guarantor shall make payment to the
Secured Party of all or any part of the Guaranteed Obligations, and (ii) all of
the Guaranteed Obligations (other than inchoate indemnity obligations) and all
other amounts payable under this Guaranty (other than inchoate indemnity
obligations) shall indefeasibly be paid in full in cash, the Secured Party will,
at such Guarantor’s request and expense, execute and deliver to such Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to such Guarantor of an
interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.

6. Representations, Warranties and Covenants.

(a) Each Guarantor hereby represents and warrants as of the date first written
above as follows:

(i) The Guarantor (A) is a corporation, limited liability company or limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, (B) has all corporate, limited
liability company or limited partnership power and authority to conduct its
business as now conducted and as presently contemplated and to execute and
deliver this Guaranty and each other Transaction Document to which the Guarantor
is a party, and to consummate the transactions contemplated hereby and thereby
and (C) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary
except where the failure to be so qualified would not result in a Material
Adverse Effect.

 

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(ii) The execution, delivery and performance by the Guarantor of this Guaranty
and each other Transaction Document to which the Guarantor is a party (A) have
been duly authorized by all necessary corporate, limited liability company or
limited partnership action, (B) do not and will not contravene its charter or
by-laws, its limited liability company or operating agreement or its certificate
of partnership or partnership agreement, as applicable, or any applicable law or
any contractual restriction binding on the Guarantor or its properties (except
where the contravention of such contractual restriction would not result in a
Material Adverse Effect), (C) do not and will not result in or require the
creation of any lien (other than pursuant to any Transaction Document) upon or
with respect to any of its properties, and (D) do not and will not result in any
default, noncompliance, suspension, revocation, impairment, forfeiture or
nonrenewal of any material permit, license, authorization or approval applicable
to it or its operations or any of its properties.

(iii) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority is required in connection with the due
execution, delivery and performance by the Guarantor of this Guaranty or any of
the other Transaction Documents to which the Guarantor is a party (other than
expressly provided for in any of the Transaction Documents).

(iv) Each of this Guaranty and the other Transaction Documents to which the
Guarantor is or will be a party, when delivered, will be, a legal, valid and
binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, suretyship or
other similar laws and equitable principles (regardless of whether enforcement
is sought in equity or at law).

(v) There is no pending or, to the knowledge of the Guarantor, threatened
action, suit or proceeding against the Guarantor or to which any of the
properties of the Guarantor is subject, before any court or other governmental
authority or any arbitrator that (A) if adversely determined, could reasonably
be expected to have a Material Adverse Effect or (B) relates to this Guaranty or
any of the other Transaction Documents to which the Guarantor is a party or any
transaction contemplated hereby or thereby.

(vi) The Guarantor (A) has read and understands the terms and conditions of the
Securities Purchase Agreement and the other Transaction Documents, and (B) now
has and will continue to have independent means of obtaining information
concerning the affairs, financial condition and business of the Company and the
other Transaction Parties, and has no need of, or right to obtain from the
Secured Party, any credit or other information concerning the affairs, financial
condition or business of the Company or the other Transaction Parties that may
come under the control of the Secured Party.

 

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7. Right of Set-off. Upon the occurrence and during the continuance of any Event
of Default, the Secured Party may, and is hereby authorized to, at any time and
from time to time, without notice to the Guarantors (any such notice being
expressly waived by each Guarantor) and to the fullest extent permitted by law,
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Secured Party to or for the credit or the account of any Guarantor
against any and all obligations of the Guarantors now or hereafter existing
under this Guaranty or any other Transaction Document, irrespective of whether
or not the Secured Party shall have made any demand under this Guaranty or any
other Transaction Document and although such obligations may be contingent or
unmatured. The Secured Party agrees to notify the relevant Guarantor promptly
after any such set-off and application made by the Secured Party, provided that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of the Secured Party under this Section 7 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Secured Party may have under this Guaranty or any
other Transaction Document in law or otherwise.

8. Notices, Etc. All notices and other communications provided for hereunder
shall be in writing and shall be mailed, telecopied or delivered, if to any
Guarantor, to it at its address set forth on the signature page hereto, or if to
the Secured Party, to it at its respective address set forth in the Securities
Purchase Agreement; or as to either such Person at such other address as shall
be designated by such Person in a written notice to such other Person complying
as to delivery with the terms of this Section 8. All such notices and other
communications shall be effective (i) if mailed (by certified mail, postage
prepaid and return receipt requested), when received or three Business Days
after deposited in the mails, whichever occurs first; (ii) if telecopied, when
transmitted and confirmation is received, provided same is on a Business Day
and, if not, on the next Business Day; or (iii) if delivered by hand, upon
delivery, provided same is on a Business Day and, if not, on the next Business
Day.

9. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Arizona without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Maricopa County, Arizona, and expressly consent
to the jurisdiction and venue of the Superior Court of Arizona, sitting in
Maricopa County and the United States District Court for the District of Arizona
sitting in Phoenix, Arizona for the adjudication of any civil action asserted
pursuant to this Paragraph.

10. WAIVER OF JURY TRIAL, ETC. EACH GUARANTOR HEREBY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER
THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, OR UNDER ANY AMENDMENT,
WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN
THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM
ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY OR THE
OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH GUARANTOR
CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE SECURED
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE SECURED PARTY WOULD NOT,
IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE
FOREGOING WAIVERS. EACH GUARANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE SECURED PARTY ENTERING INTO THIS AGREEMENT.

 

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11. Indemnification, Affirmation and Waiver. In consideration of the Secured
Party’s execution and delivery of this Agreement and acquiring the Notes, the
Conversion Shares, the Warrants and the Warrant Shares pursuant to the terms of
the Securities Purchase Agreement and in addition to all of the Company’s other
obligations under this Agreement, the Company shall defend, protect, indemnify
and hold harmless Secured Party and all of its officers, directors, employees
and agents (including, without limitation, Mitchell Saltz, Southwest Capital
Partners, LLC and those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Secured Party 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 indemnified party is a party to the
action for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by
the Secured Party Indemnitees or any of them 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 this Agreement or the other 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 this Agreement, or the other 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 Secured
Party Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the parties hereto to the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.

In consideration of the Guarantor’s execution and delivery of this Agreement,
and in addition to all of the Secured Party’s other obligations under this
Agreement, the Secured Party shall defend, protect, indemnify and hold harmless
the Guarantors and all of their officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “ Guarantor
Indemnitees”) from and against any and all Indemnified Liabilities incurred by
the Indemnitees or any of them as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Secured Party in this Agreement or any other Transaction Document or any
other certificate, instrument or document contemplated hereby or thereby
executed by the Secured Party, (b) any breach of any covenant, agreement or
obligation of the Secured Party contained in this Agreement, or the other
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby executed by theSecured Party, or (c) any cause of
action, suit or claim brought or made against such Guarantor Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Transaction Documents or any other instrument, document or
agreement executed pursuant hereto by any of the parties hereto. To the extent
that the foregoing undertaking by the Secured Party may be unenforceable for any
reason, the Scured Party shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.

In consideration of the Secured Party“s execution and delivery of this
Agreement, and in addition to all of the Company’s other obligations under this
Agreement, the Company reaffirms its knowledge of the ownership interest of
Mitchell Saltz in the Secured Party and Southwest Capital Partners, LLC and
shall waive and fully release, and will hold harmless and forever discharge
Mitchell Saltz, including his agents, employees, consultants, related companies,
subsidiaries and attorneys from and against any and all liabilities, claims,
demands, administrative complaints, causes of action and suits that it may have,
or may hereafter acquire, of whatever kind and nature, known or unknown,
presently existing or hereafter arising in the future, including, but not
limited to, any claims and causes of action that arise from or relate to the
ownership interest of Mitchell Saltz in the Secured Party and Southwest Capital
Partners, LLC , acquiring the Notes, the Conversion Shares, the Warrants and the
Warrant Shares, or any dealings between the parties thereby.

 

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12. Miscellaneous.

a. Each Guarantor will make each payment hereunder in lawful money of the United
States of America and in immediately available funds to the Secured Party, at
such address specified by the Secured Party from time to time by notice to the
Guarantors.

b. No amendment or waiver of any provision of this Guaranty and no consent to
any departure by any Guarantor therefrom shall in any event be effective unless
the same shall be in writing and signed by each Guarantor and the Secured Party,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

c. No failure on the part of the Secured Party to exercise, and no delay in
exercising, any right hereunder or under any other Transaction Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder or under any Transaction Document preclude any other or further
exercise thereof or the exercise of any other right. The rights and remedies of
the Secured Party provided herein and in the other Transaction Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law. The rights of the Secured Party under any Transaction Document
against any party thereto are not conditional or contingent on any attempt by
the Secured Party to exercise any of their respective rights under any other
Transaction Document against such party or against any other Person.

d. Any provision of this Guaranty that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.

e. This Guaranty shall (i) be binding on each Guarantor and its respective
successors and assigns, and (ii) inure, together with all rights and remedies of
the Secured Party hereunder, to the benefit of the Secured Party and their
respective successors, transferees and assigns. Without limiting the generality
of clause (iii) of the immediately preceding sentence, the Secured Party may
assign or otherwise transfer its rights and obligations under the Securities
Purchase Agreement or any other Transaction Document to any other Person in
accordance with the terms thereof, and such other Person shall thereupon become
vested with all of the benefits in respect thereof granted to the Secured Party,
as the case may be, herein or otherwise. None of the rights or obligations of
any Guarantor hereunder may be assigned or otherwise transferred without the
prior written consent of Secured Party.

f. This Guaranty reflects the entire understanding of the transaction
contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, entered into before the date hereof.

g. Section headings herein are included for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed by
its respective duly authorized officer, as of the date first above written.

 

GLOBAL ALERTS, LLC By:   /s/ Corey Lambrecht Name:   Corey Lambrecht Title:  
President/COO Address:

 

STATE OF ARIZONA  

)

   

)

 

SS:

COUNTY OF MARICOPA  

)

 

BEFORE ME, a Notary Public in and for said County and State, personally appeared
the above-named Corey Lambrecht, the 23 of [ March ] who acknowledged that
he/she did sign the foregoing agreement and that the same is his/her free act
and deed.

IN TESTIMONY WHEREOF, I have hereunto set my hand an official seal at Maricopa
County, Arizona, this 23rd day of March, 2012.

 

/s/ Jody J. Kramer Notary Public

My Commission Expires:

November 20th 2015

 

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