Exhibit 10.01
 
SECURITIES PURCHASE AGREEMENT
 
    This Securities Purchase Agreement, together with all schedules and exhibits
(this “Agreement”), is dated as of April 18, 2006, among SAN Holdings, Inc., a
Colorado corporation (the “Company”), and each Purchaser (as defined below)
identified on the signature pages hereto, each a “party” and collectively the
“parties.”
 
WITNESSETH:
 
WHEREAS, pursuant to the Securities Purchase Agreement, dated as of February 28,
2006 (the “Initial Purchase Agreement”), among the Company and each purchaser
identified on the signature pages thereto (each, an “Initial Purchaser”), on
March 2, 2006, in an initial closing (the “Initial Closing”), the Company sold
236.8 Units to the Initial Purchasers, each Unit consisting of (i) one share of
Preferred Stock of the Company initially convertible into 333,333 shares of
Common Stock, with such Preferred Stock having the terms and conditions as
described in the Certificate of Designations, and (ii) a $0.30 Warrant and a
$0.50 Warrant, each of such Warrants initially exercisable into 166,667 shares
of Common Stock, with such Warrants having the terms and conditions described in
Exhibit D and Exhibit E;
 
WHEREAS, Sun Solunet, LLC (“Sun Solunet”), the majority shareholder of the
Company, purchased a total of 176.5 Units from the Company for $8,000,000 in the
Initial Closing;
 
WHEREAS, the number of Units purchased by Sun Solunet at the Initial Closing was
equal to quotient obtained by dividing (i) 8,000,000 by (ii) the Per Unit
Purchase Price applicable to Sun Solunet. The Per Unit Purchase Price applicable
to Sun Solunet equaled the quotient obtained by dividing (a) the aggregate
Subscription Amount from all Initial Purchasers (other than Sun Solunet) less
the aggregate fees payable to Monarch Capital Group LLC by (b) number of Units
purchased by all Initial Purchasers (other than Sun Solunet);
 
WHEREAS, the Initial Purchase Agreement provides that the Company may sell
additional Units which sale is not required to be pursuant to the Initial
Purchase Agreement so long as the Units are sold on the same terms and
conditions as set forth in the Initial Purchase Agreement;
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below), and Rule 506
promulgated thereunder, the Company desires to issue and sell to the Purchasers,
and the Purchasers, severally and not jointly, desire to purchase from the
Company in the aggregate, up to 10.8 Units;
 
WHEREAS, this Agreement is substantially similar to the Initial Purchase
Agreement and the Company desires to grant the Purchasers under this Agreement
the same rights with respect to the Units as those granted to the Initial
Purchasers under the Initial Purchase Agreement and the Company desires to treat
the Purchasers under this Agreement and the Initial Purchasers as a single class
of holders of Units; and
 

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    WHEREAS, subject to the terms and conditions set forth in the Initial
Purchase Agreement, the Company may sell additional Units to Purchasers and or
other Persons (as defined herein) pursuant to the terms set forth in the Initial
Purchase Agreement.
 
    NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
 
ARTICLE I
DEFINITIONS
 
1.1.  Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms have the meanings
indicated in this Section 1.1:
 
“Action” shall have the meaning ascribed to such term in Section 3.1(j).
 
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 144. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.
 
“Business Day” means any day except Saturday, Sunday and any day which shall be
a federal legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.
 
“Certificate of Designations” means the Certificate of Designations, Preferences
and other rights and qualifications of the Series A Preferred Stock
substantially in the form of Exhibit A hereto.
 
“Closing” means the closing of the purchase and sale of the Units pursuant to
Section 2.1. The Closing shall be deemed to be an additional Closing under the
Initial Purchase Agreement. There may be subsequent Closings for the sale of
additional Units pursuant to the Initial Purchase Agreement or on the same terms
and conditions as set forth in the Initial Purchase Agreement.
 
“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to the Purchasers’ obligations to pay the Subscription
Amount and the Company’s obligation to issue the Warrants and the Preferred
Shares have been satisfied or waived.
 
“Commission” means the Securities and Exchange Commission.
 
“Common Stock” means the common stock of the Company, no par value per share,
and any securities into which such common stock may hereafter be reclassified.
 
“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
 
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“Credit Support Termination Agreement” means the termination to the letter
agreement, dated as of March 31, 2003, by and between Sun Capital Partners II,
LP, a Delaware limited partnership (the “Fund”), and the Company, as amended on
November 23, 2005, acknowledged and agreed to by Sun Solunet, substantially in
the form of Exhibit G attached hereto.
 
“Disclosure Schedules” means the Disclosure Schedules attached hereto.
 
“Effective Date” means the date that the Registration Statement is first
declared effective by the Commission.
 
“Escrow Agent” means Wells Fargo Bank, National Association.
 
“Escrow Agreement” shall mean the Escrow Agreement substantially in the form of
Exhibit B hereto, as the same may be amended or supplemented from time to time.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.
 
“Material Adverse Effect” shall have the meaning ascribed to such term in
Section 3.1(b).
 
“Material Permits” shall have the meaning ascribed to such term in Section
3.1(l).
 
“Per Unit Purchase Price” equals $50,000 for all Purchasers other than Sun
Solunet and for Sun Solunet equals the lesser amount set forth in the third
“WHEREAS” clause of this Agreement.
 
“Person” means any legal person, including without limitation, an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
 
“Preferred Shares” means the Series A Preferred Stock issuable pursuant to this
Agreement.
 
“Preferred Stock” mean the Series A Preferred Stock of the Company no par value
per share. Each share of Preferred Stock is convertible into 333,333 shares of
Common Stock.
 
“Purchaser” means each Person signing this Agreement as a Purchaser. Each
Purchaser hereunder shall be deemed to be a Purchaser under the Initial Purchase
Agreement.
 
“Purchaser Questionnaire” means the Purchaser Agreement and Questionnaire,
substantially in the form of Exhibit H attached hereto.
 
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“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and each Purchaser,
substantially in the form of Exhibit C hereto.
 
“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Purchasers of the Shares.
 
“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).
 
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
 
“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).
 
“Securities” means the Preferred Shares, the Shares and the Warrants.
 
“Securities Act” means the Securities Act of 1933, as amended.
 
“Shares” means the shares of Common Stock issuable to each Purchaser pursuant to
the exercise of the Warrants or the conversion of the Preferred Stock.
 
“Subscription Amount” means, as to each Purchaser, the amounts set forth below
such Purchaser’s signature block on the signature page hereto, payable (i) with
respect to Purchasers other than Sun Solunet, in United States dollars and in
immediately available funds and (ii) with respect to Sun Solunet, in the form of
the exchange of debt owed to Sun Solunet in form and substance acceptable to the
Company.
 
“Subsidiary” shall mean the subsidiaries of the Company disclosed in the SEC
Reports.
 
“Sun Solunet” means Sun Solunet, LLC, the majority shareholder of the Company as
of the date of this Agreement.
 
“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, that in the
event that the Common Stock is not listed or quoted as set forth in (i), (ii)
and (iii) hereof, then Trading Day shall mean a Business Day.
 
“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market, the
Nasdaq SmallCap Market or the OTC Bulletin Board.
 
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“Transaction Documents” means this Agreement, the Certificate of Designations,
the Escrow Agreement, the Warrants and the Registration Rights Agreement and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
 
“Units” means the Units being offered pursuant to this Agreement, each Unit
consisting of one share of Preferred Stock, one $0.30 Warrant and one $0.50
Warrant.
 
“$0.30 Warrants” means the Common Stock Purchase Warrants, substantially in the
form of Exhibit D, issuable to the Purchasers at the Closing, which warrants
shall have an exercise price equal to $0.30 per share and be exercisable for a
period of five years. Each $0.30 Warrant is initially exercisable into 166,667
shares of Common Stock.
 
“$0.50 Warrants” means the Common Stock Purchase Warrants, substantially in the
form of Exhibit E, issuable to the Purchasers at the Closing, which warrants
shall have an exercise price equal to $0.50 per share and be exercisable for a
period of five years. Each $0.50 Warrant is initially exercisable into 166,667
shares of Common Stock.
 
“Warrants” means the $0.30 Warrants and $0.50 Warrants, collectively.
 
ARTICLE II
PURCHASE AND SALE
 
2.1.  Closing. At the Closing, each Purchaser shall purchase from the Company,
severally and not jointly with the other Purchasers, and the Company shall issue
and sell to each Purchaser, a number of Units equal to such Purchaser’s
Subscription Amount divided by the Per Unit Purchase Price. Sun Solunet,
employees and executive officers of the Company that are Purchasers (the
“Insider Purchasers”) shall be permitted to invest in less than full Unit
increments, and notwithstanding anything to the contrary set forth herein, any
such Purchasers shall be excluded from the representations and warranties to the
Company set forth in Section 3.2(i) of this Agreement and the covenants to the
Company set forth in Section 4.5 of this Agreement. Purchasers other than the
Inside Purchasers shall also be permitted to invest in less than full Unit
increments, subject to the delivery by such Purchaser of a Purchaser
Questionnaire as set forth in Section 2.2(b)(v). Upon satisfaction of the
conditions set forth in Section 2.2, the Closing shall occur at the offices of
Olshan Grundman Frome Rosenzweig & Wolosky LLP, Park Avenue Tower, 65 East 55th
Street, New York, New York 10022, or such other location as the parties shall
mutually agree.
 
2.2.  Closing Conditions; Deliveries.
 
(a)  At the Closing the Company shall deliver or cause to be delivered to each
Purchaser or in lieu thereof the Placement Agent the following:
 
(i)  this Agreement duly executed by the Company;
 
(ii)  a certificate evidencing a number of Preferred Shares equal to such
Purchaser’s Subscription Amount divided by the Per Unit Purchase Price,
registered in the name of such Purchaser;
 
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(iii)  a copy of a $0.30 Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the initial right to acquire up to
the number of shares of Common Stock equal to 50% of the Shares to be issued to
such Purchaser at the Closing assuming the conversion of all Preferred Stock
into Common Stock of all of the Preferred Stock acquired by the Purchaser;
 
(iv)  a copy of a $0.50 Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the initial right to acquire up to
the number of shares of Common Stock equal to 50% of the Shares to be issued to
such Purchaser at the Closing assuming the conversion of all Preferred Stock
into Common Stock of all of the Preferred Stock acquired by the Purchaser;
 
(v)  the Registration Rights Agreement duly executed by the Company
 
(vi)  Lock-up agreements, substantially in the form of Exhibit F hereto executed
by officers and inside directors of the Company that are employees of the
Company; and
 
(vii)  a Certificate of the President and the Secretary of the Company that the
Certificate of Designations has been adopted and filed
 
(b)  At the Closing each Purchaser shall deliver or cause to be delivered to the
Company the following:
 
(i)  this Agreement duly executed by such Purchaser;
 
(ii)  with respect to the Purchasers other than Sun Solunet, such Purchaser’s
Subscription Amount by wire transfer to the account of the Escrow Agent (such
account as provided to the Purchasers in writing by or on behalf of the Escrow
Agent) prior to the Closing Date;
 
(iii)  with respect to Sun Solunet, their Subscription Amount in the form of
exchange of debt owed by the Company to Sun Solunet in form and substance
reasonably acceptable to the Company on or prior to the initial Closing Date;
 
(iv)  the Registration Rights Agreement duly executed by such Purchaser; and
 
(v)  the Purchaser Questionnaire duly executed by such Purchaser if such
Purchaser is purchasing less than 1 Unit.
 
(c)  All representations and warranties of the other parties contained herein
shall remain true and correct as of the Closing Date.
 
(d)  As of the Closing Date, there shall have been no Material Adverse Effect
with respect to the Company since the date hereof.
 
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(e)  From the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission (except for any suspension of trading
of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Units at the Closing.
 
(f)  After giving effect to (i) the payment by Sun Solunet of its Subscription
Amount for the Units purchased in the Initial Closing in the form of exchange of
debt owed by the Company to Sun Solunet and (ii) the payment by the Company of
some of the outstanding indebtedness owed to Sun Solunet (separate from the
cancellation of debt described in (i)), the total remaining indebtedness of the
Company to Sun Solunet shall be less than or equal to $5,000,000 (in aggregate
principal amount); and
 
(g)  The Credit Support Termination Agreement shall be duly executed by the
parties thereto and shall include an agreement of the parties thereto to amend
the credit facility the Company maintains with Sun Solunet to decrease the
Company’s borrowing availability from $14,000,000 to $5,000,000, to revise the
credit facility from a revolving loan to a term loan and to extend the maturity
date thereof to a date that is three years from the date of the Credit Support
Termination Agreement.
 
2.3.  Satisfied Closing Conditions. The parties hereto agree and acknowledge
that the closing conditions set forth in Section 2.2(a)(vi), Section
2.2(a)(vii), Section 2.2(b)(iii), Section 2.2(f) and Section 2.2(g) were all
satisfied at the Initial Closing and are not closing conditions for purposes of
the Closing pursuant to this Agreement.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
3.1.  Representations and Warranties of the Company. Except as disclosed in the
SEC Reports or as set forth under the corresponding section of the Disclosure
Schedules delivered concurrently herewith, the Company hereby makes the
following representations and warranties as of the date hereof and as of the
Closing Date to each Purchaser:
 
(a)  Subsidiaries. Except as disclosed in the SEC Reports, the Company has no
direct or indirect subsidiaries. Except as disclosed in the SEC Reports, 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. If the
Company has no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.
 
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(b)  Organization and Qualification. The Company is an entity duly incorporated
or otherwise organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. The Company is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or financial condition 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”).
 
(c)  Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary corporate action on the part of the
Company and no further action is required by the Company in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof assuming such Transaction
Documents are duly authorized, executed and delivered by the Purchasers as
applicable, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
 
(d)  No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict in any material respect
with or violate any provision of the Company’s articles of incorporation,
bylaws, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or result in
a violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected, or (iv) conflict with or violate the terms of any
agreement by which the Company or any Subsidiary is bound or to which any
property or asset of the Company or any Subsidiary is bound or affected; except
in the case of each of clauses (ii), (iii) and (iv), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
 
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(e)  Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filing of any reports with the Commission, as mandated by the Exchange
Act or the Securities Act, (ii) the filing with the Commission of the
Registration Statement, (iii) application(s) to each applicable Trading Market
for the listing of the Shares for trading thereon in the time and manner
required thereby, and (iv) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws, with
each of the items listed in clauses (i)-(iv) inclusive being deemed a “Required
Approval”).
 
(f)  Issuance of the Securities. The Preferred Shares and Warrants are duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than as set forth in the
Transaction Documents. The Shares, when issued in accordance with the terms of
the Transaction Documents, will be validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company.
 
(g)  Capitalization. The capitalization of the Company is as described in the
Company’s SEC Reports filed with the Commission. The Company has not issued any
capital stock since the Initial Closing other than pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company’s employee stock
purchase plan and pursuant to the conversion or exercise of outstanding Common
Stock Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock, other than as set forth in the SEC
Reports. The issue and sale of the Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in material
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 with respect to the
approvals and authorizations required to increase the Company’s authorized
capital to permit issuance of the Shares, 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 Preferred Shares or the grant of the Warrants
or the issuance of the Shares upon conversion of the Preferred Stock. With
respect to the Shares issuable upon the exercise of the Warrants, the Company
shall increase its authorized capital in amount sufficient to provide for the
exercise of all outstanding Warrants of the Company. Except as disclosed in the
SEC Reports, 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.
 
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(h)   SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the “SEC Reports”) on a timely
basis or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports, as the same may have been amended, complied
in all material respects at the time of filing with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports except to the
extent amended, updated or superseded by any subsequent filed report, when
furnished or filed, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading in any material respect. The financial statements of the
Company included in the SEC Reports, except to the extent amended, updated or
superseded by any subsequent filed report, whether furnished or filed, at the
time of filing complied in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (“GAAP”), except to the extent
amended, updated or superseded by and subsequent filed report, except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof,
except to the extent amended, updated or superseded by and subsequent filed
report, and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
 
(i)  Material Changes. Since the date of the filing of the latest audited
financial statements included within the SEC Reports, except as disclosed in the
SEC Reports (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities required to
be reflected in the Company’s financial statements pursuant to GAAP or required
to be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property, with or without
consideration, to its stockholders or purchased, redeemed or made any agreements
to purchase or redeem any shares of its capital stock and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. Except as disclosed in the SEC
Reports, the Company does not have pending before the Commission any request for
confidential treatment of information.
 
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(j)  Litigation. Except as disclosed in the SEC Reports, there is no action,
suit, inquiry, notice of violation, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor to the Company’s
knowledge, any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and
to the knowledge of the Company, there is not pending or contemplated, with
respect to the Company, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
 
(k)  Compliance. Except as disclosed in the SEC Reports, neither the Company nor
any Subsidiary (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived) where the effect of such default or violation could be reasonably
expected to be a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is or has been in violation
of any statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
 
(l)  Regulatory Permits. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses as
described in the SEC Reports, except where the failure to possess such permits
could not have or reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and the Company has not received any notice of proceedings
relating to the revocation or modification of any Material Permit.
 
(m)  Sarbanes-Oxley. The Company is in material compliance with all provisions
of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing
Date.
 
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(n)  Certain Fees. Except for fees payable to Monarch Capital Group LLC and
Bathgate Capital Partners LLC, no brokerage or finder’s fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement.
 
(o)  Private Placement. Assuming the accuracy of each of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
 
(p)  Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. Except as disclosed in the SEC
Reports, the Company has not, in the 12 months preceding the date hereof,
received notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market.
 
(q)  Disclosure. The Company understands and confirms that the Purchasers will
rely on the foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, furnished by or on behalf of the
Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
 
(r)  General Solicitation. Neither the Company nor, to the Company’s knowledge,
any person acting on behalf of the Company has offered or sold any of the Units
by any form of general solicitation or general advertising. To the Company’s
knowledge, based upon representations by such Purchasers or other investors, the
Company has offered the Units for sale only to the Purchasers and certain other
“accredited investors” within the meaning of Rule 501 under the Securities Act.
 
3.2.  Representations and Warranties of the Purchasers. The Purchasers
acknowledge that the offering of Securities to the Purchasers is intended to be
exempt from registration under the Securities Act by virtue of Section 4(2) of
the Securities Act and the provisions of Regulation D promulgated thereunder,
which is in part dependent upon the truth, completeness and accuracy of the
representations made by the Purchasers in this Agreement. Each Purchaser hereby,
for itself and for no other Purchaser, represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows:
 
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(a)  No Conflicts. The execution, delivery and performance of this Agreement and
the consummation by the Purchaser of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of such
Purchaser’s charter documents or bylaws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to which
the Purchaser is a party, or conflict with, breach or violate any law applicable
to the Purchaser or its properties (except for such conflicts, defaults and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on such Purchaser). The Purchaser 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 such Purchaser’s obligations under this Agreement or to purchase the
securities from the Company in accordance with the terms hereof, provided that
for purposes of the representation made in this sentence, the Purchaser is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
 
(b)  Organization; Authority. If a Purchaser is an entity, such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary individual, corporate or partnership action on the
part of such Purchaser. Each Transaction Document to which it is party has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
 
(c)  Purchaser’s Intent. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account (this representation and warranty not limiting such
Purchaser’s right to sell the Shares pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws and in
accordance with the Transaction Documents). Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Such Purchaser does
not have any agreement or understanding, directly or indirectly, with any Person
to distribute any of the Securities.
 
(d)  Purchaser Status. At the time such Purchaser was offered the Securities, it
was, and at the date hereof and as of the Closing Date it is an “accredited
investor” as defined in Rule 501(a) under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act. Such Purchaser understands that such Purchaser’s investment in the
Securities being purchased from the Company involve a high degree of risk. Such
Purchaser 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 being purchased by such Purchaser from the
Company. Such Purchaser warrants that such Purchaser is able to bear the
complete loss of such Purchaser’s investment in the securities being purchased
from the Company.
 
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(e)  Experience of Such Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
 
(f)  Full Access. Such Purchaser has been given full access to such records of
the Company and the Subsidiaries and to the officers and directors of the
Company (including the opportunity to ask questions of and receive answers from
such Persons) and the Subsidiaries as it has deemed necessary or appropriate.
 
(g)  General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
 
(h)  Compliance with Patriot Act. The funds utilized by such Purchaser for the
purchase of the Securities do not violate any provisions of the USA Patriot Act
of 2001.
 
(i)  Beneficial Ownership. The Purchaser (other than Sun Solunet) and its
affiliates do not beneficially own more than 4.9% of the Common Stock as of the
date hereof. The Purchaser (other than Sun Solunet) shall not exercise the
Warrants or convert the Preferred Shares to the extent that such exercise or
conversion would result in beneficial ownership by the Purchaser and its
affiliates of more than 4.9% of the then outstanding number of shares of Common
Stock on such date. For the purposes of this subsection, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act, and
Regulation 13d-3 promulgated thereunder. Notwithstanding the foregoing, such
Purchaser, to the extent such purchase of the Securities causes such Purchaser’s
beneficial ownership to exceed 4.9% of the outstanding shares of the Company,
will qualify for filing on a Schedule 13D under the Exchange Act.
 
(j)  Blue Sky Compliance. Such Purchaser shall agree to comply with any state
blue sky limitations on the resale of the Securities, if any.
 
(k)  Certain Fees. Except for fees payable to Monarch Capital Group LLC and
Bathgate Capital Partners LLC, no brokerage or finder’s fees or commissions are
or will be payable by the Purchasers to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement.
 
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(l)  Investment Decision. The Purchaser is making its own investment decision to
invest in the Securities and has not relied on any representation (oral or
written other than as set forth in this Agreement).
 
(m)  Purchaser Questionnaire. All statements made by the Purchaser in the
Purchaser Questionnaire were true and correct as of the date thereof and shall
remain true and correct as of the Closing Date.
 
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
 
4.1.  Transfer Restrictions. The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company, to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(a), the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the applicable terms of this Agreement and shall have the rights of
a Purchaser under this Agreement, the Certificate of Designations and the
Registration Rights Agreement.
 
(a)  The Purchasers agree to the imprinting, so long as is required by this
Section 4.1(a), of a legend on any of the Securities in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.
 
So long as any pledgee, secured party or transferee provides a questionnaire to
the Company demonstrating to the Company that such pledgee or transferee is an
“accredited investor,” the Company acknowledges and agrees that a Purchaser may
from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and, if required under the terms
of such arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) under the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
 
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(b)  Certificates evidencing the Shares shall not contain any legend (including
the legend set forth in Section 4.1(a)), (i) while a registration statement
(including the Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such Shares
pursuant to Rule 144, or (iii) if such Shares are eligible for sale under Rule
144(k) and a request for the removal has been provided in writing by the
Purchasers to the Company, 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 Commission) and a
request for the removal has been provided in writing by the Purchasers to the
Company. The Company shall cause its counsel to issue a legal opinion to the
Company’s transfer agent promptly after the Effective Date if required by the
Company’s transfer agent to effect the removal of the legend hereunder with
respect to the Shares registered thereunder, subject to any state blue sky law
limitations. If any Preferred Shares are converted or if all or any portion of a
Warrant is exercised at a time when there is an effective registration statement
to cover the resale of the Shares for which the Preferred Shares are converted
or the applicable portion of the Warrant has been exercised, such 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
4.1(b), it will, no later than five Trading Days following the delivery by a
Purchaser to the Company or the Company’s transfer agent of a certificate
representing Shares issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that is
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.
 
(c)  Each Purchaser, severally and not jointly with the other Purchasers, agrees
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance that such Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.
 
4.2.  Furnishing of Information. As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144 to the extent
Rule 144 is available for such sale. The Company further covenants that it will
take such further reasonable action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.
 
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4.3.  Integration. The Company shall not sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that (X) would be integrated with the offer or sale of
the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or (Y) that would
be integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless such shareholder
approval is obtained before the closing of such subsequent transaction.
 
4.4.  Shareholders Rights Plan. Except as set forth in the Disclosure Schedule,
no claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that any Purchaser is an “Acquiring Person” under any
shareholders rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company
and the Purchasers.
 
4.5.  Non-Public Information. The Purchasers (other than Sun Solunet) have all
executed a written agreement with the Company regarding the confidentiality and
use of any information provided to the Purchasers (other than Sun Solunet) by
the Company that constitutes material non-public information. Except for the
power-point presentation made to the Purchasers (other than Sun Solunet) by the
Company and any information covered by the aforementioned confidentiality
agreement, each Purchaser (other than Sun Solunet) acknowledges and the Company
confirms that neither the Company nor, to its knowledge, any other person acting
on the Company’s behalf, has provided any of the Purchasers (other than Sun
Solunet) or their agents or counsel with any other information that constitutes
material, non-public information.
 
4.6.  Use of Proceeds. The Company shall use the net proceeds from the sale of
the Securities (excluding amounts paid by the Company for legal and
administrative fees in connection with the sale of the Securities) hereunder for
the paydown or payoff of outstanding debt, including some of the outstanding
amounts owed to Sun Solunet, working capital and general corporate purposes.
 
4.7.  Reimbursement. If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Purchaser to or with any current stockholder), solely as a result of such
Purchaser’s acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this  paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
 
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4.8.  Indemnification of Purchasers. The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to: (a) any misrepresentation, breach
or inaccuracy of any of the representations, warranties, covenants or agreements
made by the Company in this Agreement or in the other Transaction Documents; or
(b) any cause of action, suit or claim brought or made against such Purchaser
Party and arising solely out of or solely resulting from the execution,
delivery, performance or enforcement of this Agreement or any of the other
Transaction Documents and without causation by any other activity, obligation,
condition or liability pertaining to such Purchaser. The Company will reimburse
such Purchaser for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred; provided, however, that
absent an actual conflict of interest with respect to all Purchasers involved in
any such matter for which indemnification claim is made hereunder, the Company
shall pay only one reasonable counsel fee for the representation of all
Purchasers in such matter.
 
4.9.  Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, 50,000,000 shares of Common Stock for the
purpose of enabling the Company to issue Shares. The Company shall increase its
authorized capital in an amount sufficient to provide for the conversion of all
the Preferred Stock and exercise of all of the outstanding Warrants of the
Company. Until such time as the Company has so increased its authorized capital,
each Purchaser shall each be entitled to convert the Preferred Stock and
exercise the Warrants held by them on a pro rata basis with the other
Purchasers, weighted on the basis of the respective Subscription Amounts paid to
the Company by each Purchaser.
 
4.10.  Listing of Common Stock. The Company hereby agrees to use commercially
reasonably efforts to maintain the listing or quotation of the Common Stock on
the Trading Market, and as soon as reasonably practicable following the Closing
(but not later than the earlier of the Effective Date and the first anniversary
of the Closing Date) to list all of the Shares on the Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Shares, and will take such other action as is necessary to cause all of the
Shares to be listed or quoted on such other Trading Market as promptly as
possible. The Company will take all action reasonably necessary to continue the
listing and/or quotation and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
 
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4.11.  Equal Treatment of Purchasers. Following the execution and delivery of
this Agreement by the parties hereto, no consideration shall be offered or paid
to any person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration is also
offered to all of the parties to the Transaction Documents. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
 
4.12.  No Net Short Position. Each Purchaser agrees, severally and not jointly
with any other Purchasers, that they or any Person acting at the request or
direction of Purchaser, nor any Affiliate, will not enter into any Short Sales
(as hereinafter defined) from the period commencing on the Closing Date and
ending on the date that such Purchaser no longer holds any Shares. For purposes
of this Section 4.12, a “Short Sale” by any Purchaser shall mean a sale of
Common Stock by such Purchaser that is marked as a short sale and that is made
at a time when there is no equivalent offsetting long position in Common Stock
held by such Purchaser. For purposes of determining whether there is an
equivalent offsetting long position in Common Stock held by the Purchaser,
Shares that have not yet been converted or exercised pursuant to the Certificate
of Designations or the Warrants shall be deemed to be held long by the
Purchaser, and the amount of shares of Common Stock held in a long position
shall be all Shares held by such Purchaser on such date, plus any shares of
Common Stock otherwise then held by such Purchaser. Additionally, each Purchaser
understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Shares purchased hereunder
is a violation of Section 5 of the Securities Act, as set forth in Item 65,
Section 5 under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance. Accordingly, each Purchaser hereby agrees not
to use any of the Shares to directly cover any short sales made prior to the
Effective Date.
 
4.13.  Corporate Existence; Conflicting Agreements. The Company will take all
steps necessary to preserve and continue the corporate existence of the Company
to the extent that failure to so preserve and continue the corporate existence
of the Company would restrict or impair the right or ability of the Company or
any successor to perform any of its obligations under this Agreement or any of
the other agreements attached as exhibits hereto. The Company shall not enter
into any agreement, the terms of which agreement would restrict or impair the
right or ability of the Company or any successor to perform any of its
obligations under this Agreement or any of the other agreements attached as
exhibits hereto.
 
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4.14.  Lock-Up Agreement. The Company has caused the officers and inside
directors that are employees of the Company to execute a lock-up agreement
hereto restricting such Persons from selling any shares of Common Stock for a
one-year period commencing on the date of the Initial Purchase Agreement.
 
ARTICLE V
MISCELLANEOUS
 
5.1.  Fees and Expenses. Except with respect to the reasonable fees and expenses
of Sun Solunet, which have been paid by the Company, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
sale of the Securities.
 
5.2.  Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede and void all prior agreements
and understandings, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules.
 
5.3.  Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered (receipt confirmed) via facsimile at
the facsimile number set forth on the signature pages attached hereto prior to
6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered (receipt
confirmed) via facsimile at the facsimile number set forth on the signature
pages attached hereto on a day that is not a Trading Day or later than 6:30 p.m.
(New York City time) on any Trading Day, (c) the second Trading Day following
the date of deposit with a carrier or service, if sent by U.S. nationally
recognized overnight carrier or courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
 
5.4.  Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof
(unless it so provides by its terms), nor shall any delay or omission of either
party to exercise any right hereunder in any manner impair the exercise of any
such right.
 
5.5.  Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
 
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5.6.  Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the “Purchasers”.
 
5.7.  No Third-Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person, except as otherwise set forth in Section 4.8.
 
5.8.  Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
New York for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), 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 improper. Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by delivering a copy thereof
via overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto (including its
affiliates, agents, officers, directors and employees) hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such action or proceeding, as determined
by the court hearing such matter, shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
 
5.9.  Survival. The representations and warranties herein shall survive the
Closing and delivery of the Preferred Shares, the Warrants and the Shares.
 
5.10.  Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that all parties need not sign
the same counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
 
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5.11.  Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
5.12.  Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
 
5.13.  Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchasers
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
 
5.14.  Independent Nature of Purchasers’ Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any Transaction Document,
and no action taken by any Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Document. Each Purchaser shall be
entitled independently to protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been or has had the opportunity to be represented by its own
separate legal counsel in its review and negotiation of the Transaction
Documents. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.
 
[Signature Pages Follow]
 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
SAN HOLDINGS, INC.

By:_______________________________________
    Name:
    Title:

Address for Notice:

If to SAN Holdings, Inc.:

9800 Pyramid Court
Suite 130
Englewood, CO 80112
Attention: John Jenkins or Robert Ogden

With a copy to:

Kutak Rock LLP
1801 California Street
Suite 3100
Denver, CO 80202
Facsimile No.: (303) 292-7799
Attention: Joshua Kerstein, Esq.

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
 

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

 

[FORM OF PURCHASER SIGNATURE PAGE;
EXECUTED SIGNATURE PAGES INTENTIONALLY OMITTED]
 
[PURCHASER SIGNATURE PAGES SECURITIES PURCHASE AGREEMENT]
 

 
    IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 

 
Name of Investing Entity:
________________________________________________________
 
Signature of Authorized Signatory of Investing Entity:
_________________________________
 
Name of Authorized Signatory:
____________________________________________________
 
Title of Authorized Signatory:
_____________________________________________________
 
Email Address of Authorized Entity:
________________________________________________
 
Address for Notice of Investing Entity:
 

 
Address for Delivery of Securities for Investing Entity (if not same as above):
 

 
Subscription Amount:
 
Units:
 
Preferred Shares:
 
$0.30 Warrants:
$0.50 Warrants:
 
EIN Number:
 

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

 
DISCLOSURE SCHEDULES
 

 
[Intentionally Omitted]
 

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

 

Exhibit A
 
Form of Certificate of Designations of Series A Preferred Stock
 

 

 
[INTENTIONALLY OMITTED; Incorporated by reference to Exhibit A of Exhibit 10.01
to the Company’s Current Report on Form 8-K filed March 8, 2006]
 

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

 

Exhibit B
 
Form of Escrow Agreement
 

 

 

 
[INTENTIONALLY OMITTED; Incorporated by reference to Exhibit B of Exhibit 10.01
to the Company’s Current Report on Form 8-K filed March 8, 2006]
 

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

 

Exhibit C
 
Form of Registration Rights Agreement
 

 

 
[INTENTIONALLY OMITTED; Incorporated by reference to Exhibit C of Exhibit 10.1
to the Company’s Current Report on Form 8-K filed March 8, 2006 except for the
signature page which follows]
 

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

[PURCHASER’S SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
 
IN WITNESS WHEREOF, the undersigned has executed this Registration Rights
Agreement as of the date first written above in connection with the Securities
Purchase Agreement between the Company and the Purchasers dated as of even date
and, by executing this Registration Rights Agreement, the Purchaser acknowledges
and agrees that the reference to the receipt of funds by the Company in clause
(a) of the definition of “Effectiveness Date” means the date of the receipt of
funds by the Company from the undersigned Purchaser.
 
Name of Investing Entity:
 
______________________________________________________
 
Signature of Authorized Signatory of Investing entity:
 
______________________________________________________
 
Name of Authorized Signatory:
 
______________________________________________________
 
Title of Authorized Signatory:
 
______________________________________________________
 
Date of Execution:
 
______________________________________________________
 

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

Exhibit D
 
Form of $0.30 Warrant
 

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

Warrant Number WA-[A][B]- ____
 
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE 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 AS EVIDENCED, IF REQUESTED, BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER BONA FIDE LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
 
COMMON STOCK PURCHASE WARRANT
 
To Purchase _________________Shares of Common Stock of
 
SAN HOLDINGS, INC.
 
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) CERTIFIES that, for value
received, [______________] (the “Holder”), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date of issuance of this Warrant (the “Initial
Exercise Date”) and on or prior to the five year anniversary of the Initial
Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and
purchase from San Holdings, Inc., a Colorado corporation (the “Company”), up to
[_____________________] shares (the “Warrant Shares”) of Common Stock, no par
value per share, of the Company (the “Common Stock”). The purchase price of one
share of Common Stock (the “Exercise Price”) under this Warrant shall be
[$0.30/$0.50], subject to adjustment hereunder. The Exercise Price and the
number of Warrant Shares for which the Warrant is exercisable shall be subject
to adjustment as provided herein. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the “Purchase Agreement”), dated April 18, 2006, among the
Company and the purchasers signatory thereto.
 
1.  Title to Warrant. Prior to the Termination Date and subject to compliance
with applicable laws and Section 7 of this Warrant, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company by the Holder in person or by duly authorized attorney, upon surrender
of this Warrant together with the Assignment Form annexed hereto properly
endorsed. The transferee shall sign an investment letter in form and substance
reasonably satisfactory to the Company.
 

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2.  Authorization of Shares. The Company covenants that all Warrant Shares which
may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).
 
3.  Exercise of Warrants.
 
(a)  Exercise of the purchase rights represented by this Warrant may be made at
any time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of the Notice of Exercise Form,
surrender of this Warrant and payment of the aggregate Exercise Price (or such
other office or agency of the Company as it may designate by notice in writing
to the registered Holder at the address of such Holder appearing on the books of
the Company). Certificates for shares purchased hereunder shall be delivered to
the Holder within five (5) Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant and payment of the aggregate
Exercise Price as set forth above (“Warrant Share Delivery Date”). This Warrant
shall be deemed to have been exercised on the date the Exercise Price is
received by the Company. The Warrant Shares shall be deemed to have been issued,
and Holder or any other person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the Exercise
Price and all taxes required to be paid by the Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid in full. If the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares or indicating the issuance of such Warrant
Shares on the stock ledger of the Company maintained by the Company or its
transfer agent pursuant to this Section 3(a) by the Warrant Share Delivery Date,
then the Holder will have the right to rescind such exercise.
 
(b)  If this Warrant shall have been exercised in part, the Company shall, at
the time of delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
 
(c)  If at any time after one year from the date of issuance of this Warrant
there is no effective Registration Statement registering the resale of the
Warrant Shares by the Holder, this Warrant may also be exercised at such time by
notice delivered to the Company by means of a “cashless exercise” in which the
Holder shall be entitled to receive a certificate for the number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
 
(A) = the closing price on the Trading Day immediately preceding the date of
such election;
 
(B) = the Exercise Price of this Warrant, as adjusted; and
 
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(X) = the number of Warrant Shares issuable upon exercise of this Warrant in
accordance with the terms of this Warrant by means of a cash exercise rather
than a cashless exercise.
 
(d)  Except with respect to Sun Solunet, LLC, the Holder shall not be entitled
to exercise this Warrant into shares of Common Stock that would result in
beneficial ownership by the Holder and its affiliates of more than 4.9% of the
then outstanding number of shares of Common Stock on such date. For the purposes
of the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 promulgated thereunder.
 
4.  No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.
 
5.  Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto and an investment letter duly executed by the
Holder in form and substance reasonably acceptable to the Company; and the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
 
6.  Closing of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
 
7.  Transfer, Division and Combination.
 
(a)  Subject to compliance with any applicable securities laws and the
conditions set forth in Sections 1 and 7(e) hereof and to the provisions of
Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by the Holder or
its agent or attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.
 
(b)  This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which  new Warrants are
to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
 
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(c)  The Company shall prepare, issue and deliver at its own expense (other than
transfer taxes) the new Warrant or Warrants under this Section 7.
 
(d)  The Company agrees to maintain, at its aforesaid office, books for the
registration and the registration of transfer of the Warrants.
 
(e)  If, at the time of the surrender of this Warrant in connection with any
transfer of this Warrant, the transfer of this Warrant shall not be registered
pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such transfer (i) that the Holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an “accredited investor” as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the
Securities Act or a qualified institutional buyer as defined in Rule 144A(a)
under the Securities Act.
 
8.  No Rights as Shareholder until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price (or by means of a cashless exercise), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder
as the record owner of such shares as of the close of business on the later of
the date of such surrender or payment.
 
9.  Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
 
10.  Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
 
11.  Adjustments of Exercise Price and Number of Warrant Shares, Stock Splits,
etc. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following. In case the Company shall (i) pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock, then the number of Warrant Shares purchasable upon exercise of
this Warrant immediately prior thereto shall be adjusted so that the Holder
shall be entitled to receive the kind and number of Warrant Shares or other
securities of the Company which it would have owned or have been entitled to
receive had such Warrant been exercised in advance thereof. Upon each such
adjustment of the kind and number of Warrant Shares or other securities of the
Company which are purchasable hereunder, the Holder shall thereafter be entitled
to purchase the number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company that are purchasable pursuant hereto immediately after such
adjustment. An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
 
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12.  Reorganization, Reclassification, Merger, Consolidation or Disposition of
Assets. In case the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another corporation (where the Company
is not the surviving corporation or where there is a change in or distribution
with respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of its property, assets or business to another corporation and, pursuant
to the terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation (“Other Property”), are to be received by or distributed to the
holders of Common Stock of the Company, then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the number of shares of
Common Stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a Holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined in good faith by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of Warrant Shares for which this Warrant is exercisable which shall
be as nearly equivalent as practicable to the adjustments provided for in this
Section 12. For purposes of this Section 12, “common stock of the successor or
acquiring corporation” shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other class of stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities which
are convertible into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
 
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13.  Issuance of Additional Stock. If the Company shall, at any time through the
two year anniversary of the date that the Registration Statement is declared
effective by the Commission, issue any rights, warrants, options or other
securities convertible into or exchangeable for Common Stock (collectively,
“Additional Stock”) without consideration or for a consideration per share less
than the Exercise Price (including by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or
otherwise), the Exercise Price in effect immediately prior to each such issuance
shall forthwith be reduced to an amount equal to such lower purchase price for
such Additional Stock (or in the case of options and similar securities, the
consideration received for the option and to be received upon exercise of such
option), or, if for no consideration, $.001; provided, however, that none of the
following shall constitute Additional Stock: (a) shares of Common Stock; (b)
rights, warrants, options or other securities convertible into or exchangeable
for Common Stock, issued or issuable to employees, consultants or directors of
the Company for the primary purpose of soliciting or retaining their employment
or services directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of the Company and (c) shares of Common Stock
of the Company issuable upon exercise of rights, warrants, options or other
securities convertible into or exchangeable for Common Stock outstanding as of
the date hereof.
 
14.  Notice of Adjustment. Whenever the number of Warrant Shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.
 
15.  Notice of Corporate Action. If at any time:
 
(a)  the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution, or any
right to subscribe for or purchase any evidences of its indebtedness, any shares
of stock of any class or any other securities or property, or to receive any
other right, or
 
(b)  there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
 
(c)  there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
 
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then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days’ prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 10
days’ prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 19(d).
 
16.  Authorized Shares. The Company covenants that the Company shall call a
shareholder meeting for purposes of increasing its authorized capital in an
amount sufficient to provide for the exercise of all outstanding Warrants of the
Company. Until such time as the Company has so increased its authorized capital
each Holder shall each be entitled to exercise the Warrants held by them on a
pro rata basis with the other Holders, weighted on the basis of the respective
Subscription Amounts paid to the Company by each Holder. If such increase in
authorized capital is not authorized by the earlier of (i) the date that the
registration statement relating to the Common Stock underlying the Preferred
Stock and the Warrants is effective, or (ii) 150 days from the date the Company
first receives funds from the escrow account established pursuant to the
Purchase Agreement (each an “Event”), then on the date on which such Event
occurs (the “Event Date”), the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to 2.0% of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement,
and on each monthly anniversary of each such Event Date until cured,
provided however, if the Company is otherwise paying liquidated damages pursuant
to that certain Registration Rights Agreement between the Company and the
purchasers signatory thereto, then no liquidated damages shall be due pursuant
to this Paragraph 16. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. Subject to this Paragraph 16, the Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of the Trading Market upon which the Common Stock may be
listed.
 
Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate
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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of  Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
 
7

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Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price,
the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.
 
17.  Registration Rights. The Holder of this Warrant and/or the Warrant Shares
and any transferee hereof and thereof shall be entitled to the benefit of such
registration rights in respect of the Warrant Shares as are set forth in the
Registration Rights Agreement.
 
18.  Redemption.
 
(a)  The Company may redeem all (but not less than all) of this Warrant at any
time, at the price of $.01 per Warrant Share (issuable under this Warrant), upon
notice referred to in Section 18(b), provided that (i) the Warrant Shares have
been registered for resale by means of the Registration Statement as defined in
the Purchase Agreement or any other registration statement; (ii) the
Registration Statement is current and effective at the time the aforementioned
notice is sent and through the redemption period; and (iii) the closing sales
price of the Common Stock has been at least 200% of the then Exercise Price of
the Warrants for 20 consecutive Trading Days ending within two Trading Days of
the notice of redemption as referred to in Section 18(b) below.
 
(b)  In the event the Company shall elect to redeem this Warrant, the Company
shall fix a date for the redemption (the “Redemption Date”) and mail a notice of
redemption by first class mail, postage prepaid, not less than 30 days from the
date fixed for redemption to the Holder of this Warrant at such Holder’s last
address as it appears on the books of the Company. Any notice mailed in the
manner herein provided shall be conclusively presumed to have been duly given
whether or not the registered Holder received such notice. The notice of
redemption shall specify (i) the redemption price, (ii) the date fixed for
redemption, (iii) the place where the Warrant is to be delivered and the
redemption price paid and (iv) that the right to exercise the Warrant shall
terminate at 5:00 P.M. New York City on the Business Day immediately preceding
the Redemption Date. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption except as to a Holder (A) to whom notice was not mailed or (B) whose
notice was defective. An affidavit of the Secretary of the Company that notice
of redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
 
8

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(c)  The Warrant may be exercised in accordance with Section 3 of this Warrant
at any time after notice of redemption shall have been given by the Company
pursuant to Section 18(b) hereof and until the Business Day immediately
preceding the Redemption Date. On and after the Redemption Date, the Holder of
this Warrant shall have no further rights except to receive, upon surrender of
the Warrant, the redemption price.
 
19.  Miscellaneous.
 
(a)  Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
 
(b)  Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon
resale imposed by state and federal securities laws.
 
(c)  Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall
pay to Holder such amounts as shall be sufficient to cover any reasonable
out-of-pocket costs and expenses incurred by Holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.
 
(d)  Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance
with the notice provisions of the Purchase Agreement.
 
(e)  Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
 
(f)  Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
 
(g)  Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
 
9

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(h)  Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.
 
(i)  Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Warrant.
 
(j)  Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
 
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the 2nd
day of March, 2006.
 
SAN HOLDINGS, INC.

By:_____________________________________
      Name:
      Title:
 
 
10

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Exhibit E
 
Form of $0.50 Warrant
 

 
 

 
 
See Exhibit D
 

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Exhibit F
 
Form of Lock-Up Agreements
 

 

 
[INTENTIONALLY OMITTED; Incorporated by reference to Exhibit F of Exhibit 10.01
to the Company’s Current Report on Form 8-K filed March 8, 2006]
 

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Exhibit G 
 
Form of Credit Support Termination Agreement 
 
 
 
[INTENTIONALLY OMITTED; Incorporated by reference to Exhibit G of Exhibit 10.01
to the Company’s Current Report on Form 8-K filed March 8, 2006]
 
 

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Exhibit H 
 
Form of Purchaser Questionnaire
 
 

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PURCHASER AGREEMENT AND QUESTIONNAIRE

SAN Holdings, Inc.
9800 Pyramid Court
Suite 130
Englewood, CO 80112
    
    
 
         Re:       Purchase of Units of San Holdings, Inc.

    
    1.     Purchase of Units. (a)  In accordance with the terms of the
Securities Purchase Agreement, dated April 18, 2006 (the “Securities Purchase
Agreement”), among SAN Holdings, Inc., a Colorado corporation (the “Company”)
and each of the purchasers identified on the signature pages thereto, the
undersigned (the “Prospective Purchaser”) desires to purchase Units (as defined
below) from the Company in the amount and at the price set forth in the
Securities Purchase Agreement. A “Unit” consists of (i) one share of Series A
Preferred Stock of the Company, (ii) one Common Stock Purchase Warrant, which
shall have an exercise price equal to $0.30 per share and shall be exercisable
for a period of five years into 166,667 shares of common stock of the Company,
and (iii) one Common Stock Purchase Warrant, which shall have an exercise price
equal to $0.50 per share and shall be exercisable for a period of five years
into 166,667 shares of common stock of the Company. Capitalized terms not
defined in this Purchaser Agreement and Questionnaire (the “Agreement”) shall
have the meaning assigned to such terms in the Securities Purchase Agreement.
 
(b) The Prospective Purchaser acknowledges that the issuance of Units to the
Prospective Purchaser will be subject to (i) the representations and warranties
of the Prospective Purchaser contained herein and in the Securities Purchase
Agreement and (ii) all information regarding the Prospective Purchaser supplied
to the Company in connection with the purchase of Units being correct and
complete as of the Closing Date. By execution of this Agreement, the Prospective
Purchaser represents and warrants that all information supplied to the Company
in connection with the purchase of Units is correct and complete as of the
Closing Date and that the Company is relying on all of the representations and
warranties of the Prospective Purchaser for purposes of complying with the
securities laws.
 
2. Representations and Warranties. The Prospective Purchaser hereby represents
and warrants to, and agrees with, the Company as follows:
 
(a) The Prospective Purchaser has been provided with and has carefully reviewed
the Securities Purchase Agreement describing the Units and has made such further
investigation of the Company and has been furnished such information with
respect to the Company as the Prospective Purchaser deems necessary to evaluate
the merits and risks involved with an investment in the Units.
 
(b) The Prospective Purchaser has had an opportunity to meet with
representatives of the Company and to ask questions and receive answers
regarding an investment in the Units and has asked any question the Prospective
Purchaser desired to ask and has received answers with respect to such questions
to the full satisfaction of the Prospective Purchaser. To the extent the
Prospective Purchaser deemed it necessary, the Prospective Purchaser has further
consulted the Prospective Purchaser’s own attorney, accountant or other business
or financial advisor regarding legal, business, tax and other issues relating to
the offer of the Units and is not relying on the Company or any of its officers,
directors, employees, agents or lawyers with respect to the legal, business, tax
and other issues related to the tax, economic and related considerations of an
investment in the Units.
 

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(b) The Prospective Purchaser is an “accredited investor” as defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), and has such knowledge and experience in financial and
business matters necessary to be capable of evaluating the merits and the risks
of the investment in the Units. The Prospective Purchaser certifies that the
Prospective Purchaser is an “accredited investor” because the Prospective
Purchaser is (check as many as apply):
 
:__________: A bank as defined in section 3(a)(2) of the Securities Act, or a
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in section 2(a)(13) of the
Securities Act; an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in section 2(a)(48) of
such Act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions or an agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are “accredited investors.”

:__________: A private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;

:__________: An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Units offered,
with total assets in excess of $5,000,000;

:__________: A director or an executive officer of the Company;

:__________: A natural person whose individual net worth as of the date hereof
(including the net worth of the Prospective Purchaser's spouse if the
Prospective Purchaser is married) exceeds $1,000,000;

:__________: A natural person who had an individual income that exceeded
$200,000 or joint income with his or her spouse in excess of $300,000 in each of
the two most recent years and reasonably expects that in the current year his or
her or their income will reach the same level. For purposes of this document,
the term "income" shall mean adjusted gross income reported or to be reported on
a federal income tax return, increased by (i) any deductions for long-term
capital gains (under Section 1202 of the Internal Revenue Code (the "Code"),
(ii) any deductions for depletion (pursuant to Section 601 et seq. of the Code),
(iii) any exclusions of interest (pursuant to Section 103 of the Code) and (iv)
any losses of a partnership allocated to the undersigned as an individual
limited partner (as reported in Schedule E of Form 1040);
 

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:__________: A trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Units offered, whose purchase is directed
by a sophisticated person as described in Section 230.506(b)(2)(ii); and

:__________: An entity in which all of the equity owners are “accredited
investors.”

(c) The Prospective Purchaser has conducted its own due diligence review or
investigation of the Company and the Units prior to making any investment in the
Units and agrees and acknowledges that neither the Company nor the Company’s
attorneys have conducted a due diligence review or investigation independently
verifying any of the representations contained in the Securities Purchase
Agreement or in any other document previously provided to the Prospective
Purchaser.

(d) The Prospective Purchaser has no need for liquidity with respect to the
Units, is able to bear the economic risks of an investment in the Units for an
indefinite period and is able to afford a complete loss of such investment.
 
(e) The Prospective Purchaser recognizes that an investment in the Units
involves significant risks. Prior to investing, potential investors are urged to
review carefully the information contained in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2005 that was filed with the
Securities and Exchange Commission (the “Commission”), including the discussion
of certain of investment risks set forth under “RISK FACTORS.”
 
(f) The Prospective Purchaser understands the following concerning the Units:
 
(i) That the Units have not been registered under the Securities Act or
registered or qualified under any applicable state securities laws and the
Company is not obligated to register or qualify such Units;
 
(ii) That the Units are subject to the transfer restrictions contained in the
Securities Purchase Agreement and may be sold or otherwise transferred only in a
transaction that is in accordance with Rule 144 under the Securities Act or
another exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act;
 
(iii) That the Units have not been approved or disapproved by the Commission or
any state securities commission, nor has the Commission nor any state securities
commission passed upon the accuracy or adequacy of the Securities Purchase
Agreement;
 

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(iv) That any Units will bear a legend in substantially the following form,
except as otherwise specifically provided in the Securities Purchase Agreement:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.
 
(g) The Units are being purchased solely for the Prospective Purchaser’s own
account for investment purposes only and not for the account of any other person
and not for distribution, assignment or resale to others.
 
(h) The sale of the Units is subject to the provisions of and the Prospective
Purchaser is required to execute the Securities Purchase Agreement and this
Agreement in order to make an investment in the Units.
 
(i) The Prospective Purchaser understands that there are substantial
restrictions on transfers of the Units set forth in the Securities Purchase
Agreement and, accordingly, there is no established market for the Units and
that none will develop. Therefore, the Prospective Purchaser understands and
acknowledges that it must bear the economic risk of an investment in the Units
for an indefinite period of time.
 
(j) The Prospective Purchaser understands that the Prospective Purchaser must
comply with all applicable legal requirements relating to an investment in the
Units and is responsible for obtaining all consents, authorizations or other
approvals required for the purchase of the Units. The Company assumes no
responsibility for such compliance.
 
(k) If this Agreement is executed by an entity, the Prospective Purchaser
represents and warrants that this Agreement has been duly authorized by all
necessary corporate action of the Prospective Purchaser and this Agreement will
constitute the valid, binding and enforceable agreement of the Prospective
Purchaser and the execution of this Agreement and a purchase of Units will not
violate any agreement to which the Prospective Purchaser is a party. The
Prospective Purchaser agrees that it will have no right to rescind this
Agreement.
 

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(l) All information which the Prospective Purchaser has provided to the Company
concerning the Prospective Purchaser is correct and complete as of the date set
forth at the end of this Agreement, and if there should be any material adverse
change in such information prior to the Closing Date, the Prospective Purchaser
will immediately provide the Company with such information.
 
3. Indemnification. The Prospective Purchaser agrees to indemnify and hold
harmless the Company and each of its respective agents, officers, directors and
affiliates from and against all damages, losses, costs and expenses (including
reasonable attorneys’ fees) which they or any of them may incur by reason of the
failure of the Prospective Purchaser to fulfill any of the terms and conditions
of this Agreement or the Securities Purchase Agreement, or by reason of any
breach of the representations and warranties made by the Prospective Purchaser
herein or in any other document provided by the Prospective Purchaser to the
Company.
 
4. Miscellaneous. (a)  The Prospective Purchaser agrees not to transfer or
assign this Agreement or any of the Prospective Purchaser’s interest herein
without the prior written consent of the Company. The Prospective Purchaser
agrees that it may not cancel, terminate or revoke this Agreement or any other
agreement of the Prospective Purchaser made hereunder and that this Agreement
shall be binding upon the Prospective Purchaser’s successors and assigns.
 
(b) Notwithstanding any of the representations, warranties, acknowledgments or
agreements made in this Agreement by the Prospective Purchaser, the Prospective
Purchaser does not thereby or in any other manner waive any rights granted to it
under federal or state securities laws.
 
(c) This Agreement constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof and this Agreement may be amended only
in writing and executed by all parties.
 
(d) This Agreement shall be enforced, governed and construed in all respects in
accordance with the laws of the State of New York.
 
(e)  The Prospective Purchaser understands and agrees that the Company reserves
the right to reject the proposed purchase by the Prospective Purchaser for the
Units in its sole and absolute discretion, notwithstanding the deposit of the
purchase price in the Escrow Account.
 
(f) Upon request from the Company, the Prospective Purchaser agrees to promptly
provide such information and to execute and deliver such documents as reasonably
may be necessary to comply with any and all laws and regulations to which the
Company is subject.
 
[The remainder of this page intentionally left blank]
 

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5. Purchaser Information. Please provide the following information regarding the
Prospective Purchaser (please print information exactly as it should appear in
the Company’s records):
 
    a. Name:_________________________________________________________
                b. Taxpayer Identification
Number:_____________________________________
        
c. Address:______________________________________________________
            _______________________________________________________
            _______________________________________________________

d. If Prospective Purchaser is an entity, name and title of contact person:
 
e. Telephone number: (      )__________________________________________
 
f. Facsimile number: (      )____________________________________________

g. E-mail address: _________________________________________________

h. Number of Units being purchased:___________________________________

i. Subscription Amount for Units: $____________________________________

 
Date: ________ __, 2006
 

 
If an Individual, execute this block:
 
PURCHASER
 

By___________________________
PrintName:_____________________
                                                                       
__________________________
 

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If executing this Agreement jointly, execute these
blocks:
 
PURCHASER
 

By_____________________________
PrintName:_______________________
                                                                       
___________________________

                        CO-PURCHASER
 

By_____________________________
Print Name:______________________
                                                                       
___________________________

 
If an entity, execute this block:
 
PURCHASING COMPANY
 

By_____________________________
Name:__________________________
Title:___________________________
Name of Company:_________________
Type of Entity:____________________
Date of Organization:_______________
State of Organization:_______________

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