EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
     SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of July 14, 2009,
by and among Stinger Systems, Inc., a Nevada corporation, with headquarters
located at 5505 Johns Road, Suite 702, Tampa, Florida 33634 (the “Company”), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
“Buyer” and collectively, the “Buyers”).
     WHEREAS:
     A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.
     B. The Company has authorized a new series of senior secured convertible
notes of the Company which notes shall be convertible into the Company’s common
stock, par value $0.001 per share (the “Common Stock”), in accordance with the
terms of the New Notes (as defined below).
     C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of senior secured convertible notes, in substantially the form attached
hereto as Exhibit A (together with any convertible notes issued in replacement
or exchange thereof in accordance with the terms thereof, the “New Notes”, as
converted, collectively, the “New Conversion Shares”), set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers attached hereto (which
aggregate amount for all Buyers shall be $650,000), and (ii) warrants, in
substantially the form attached hereto as Exhibit B (the “Warrants”), to acquire
up to that number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (4) of the Schedule of Buyers (as exercised,
collectively, the “Warrant Shares”).
     D. The Company and Castlerigg Master Investments, Ltd., a company organized
under the laws of the British Virgin Islands (“Castlerigg”), entered into
(i) that certain Securities Purchase Agreement, dated as of August 2, 2007 (as
amended from time to time in accordance with its terms, the “August 2007
Securities Purchase Agreement”), whereby the Company, among other things, issued
to Castlerigg, at the Closing (as defined in the August 2007 Securities Purchase
Agreement), senior secured convertible notes (the “August 2007 Notes”) and
warrants (the “August 2007 Warrants”) to acquire shares of Common Stock and
(ii) that certain Securities Purchase Agreement, dated as of February 29, 2008
(as amended from time to time in accordance with its terms, the “February 2008
Securities Purchase Agreement”), whereby the Company, among other things, issued
to Castlerigg at the Closing (as defined in the February 2008 Securities
Purchase Agreement), senior secured convertible notes (the “February 2008
Notes”) and warrants (as such warrants have been amended and amended and
restated from time to time, the “ February 2008 Warrants”) to acquire shares of
Common Stock.
     E. The Company and the Buyers entered into that certain Securities Purchase
Agreement, dated as of September 12, 2008 (as amended form time to time in
accordance with

 

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its terms, the “September 2008 Securities Purchase Agreement”), whereby the
Company, among other things, issued Senior Secured Convertible Notes in the
principal amount of $3,000,000 (the “Vicis Notes”) and warrants (the
“September 2008 Warrants”) currently held by Vicis Capital Master Fund.
     F. Contemporaneously with the consummation of the transactions contemplated
by the August 2007 Securities Purchase Agreement, the Company entered into a
Security Agreement, dated as of August 3, 2007, by the Company in favor of
Castlerigg, in its capacity as collateral agent for the Buyers (as defined in
the August 2007 Securities Purchase Agreement), and, contemporaneously with the
consummation of the transactions contemplated by the February 2008 Securities
Purchase Agreement, the Company amended and restated the Security Agreement (the
“Castlerigg Amended and Restated Security Agreement”).
     G. Contemporaneously with the consummation of the transactions contemplated
by the September 2008 Securities Purchase Agreement, the Company entered into a
Security Agreement, dated as of September 12, 2008, by the Company in favor of
Debt Opportunity Fund, LLLP (“DOF”), in its capacity as collateral agent for the
Buyers (as defined in the September 2008 Securities Purchase Agreement) (the
“DOF Security Agreement”).
     H. The Company and Castlerigg entered into that certain Amendment and
Exchange Agreement, dated as of September 12, 2008 (as amended from time to time
in accordance with its terms, the “Exchange Agreement”), whereby the Company,
among other things, (i) amended and restated the August 2007 Notes and exchanged
them for senior secured convertible notes in the principal amount of $2,741,200
(the “Exchanged 2007 Notes”) and (ii) amended and restated the February 2008
Notes and exchanged them for senior secured convertible notes in the principal
amount of $2,150,000 (the “Exchanged 2008 Notes”, together with the Exchanged
2007 Notes and the Vicis Notes, the “Exchanged Notes”).
     I. The Company and the Buyers desire to amend and restate as of the Closing
(as defined below), upon the terms and conditions stated in this Agreement,
(i) the Exchanged 2007 Notes in the principal amount of $2,799,450.50 (which
shall include as principal, the accrued and unpaid interest as of the Closing
Date (as defined below) on such notes) (the “Amended and Restated Exchanged 2007
Notes”), (ii) the Exchanged 2008 Notes in the principal amount of $2,150,000.00
(which shall include as principal, the accrued and unpaid interest as of the
Closing Date on such notes) (the “Amended and Restated Exchanged 2008 Notes”)
and (iii) the Vicis Notes in the principal amount of $3,075,000.00 (which shall
include as principal, the accrued and unpaid interest as of the Closing Date on
such notes) (the “Amended and Restated Vicis Notes”), in the form attached
hereto as Exhibit C (together with any convertible note issued in replacement or
exchange thereof in accordance with the terms thereof, the “Amended and Restated
Exchanged Notes”, and the Amended and Restated Exchanged Notes together with the
New Notes, the “Notes”) (as converted, collectively, the “Amended and Restated
Conversion Shares”, and the Amended and Restated Conversion Shares together with
the New Conversion Shares, the “Conversion Shares”).
     J. The Notes bear interest, which at the option of the Company, subject to
certain conditions, may be paid in shares of Common Stock (the “Interest
Shares”).

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     K. The issuance of the Amended and Restated Exchanged Notes pursuant to
this Agreement in exchange for the surrender (and cancellation) of the Exchanged
Notes and the Vicis Notes is being made in reliance upon the exemption from
registration provided by Section 3(a)(9) of the 1933 Act.
     L. The Notes, the Conversion Shares, the Interest Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the “Securities”.
     M. The Notes will rank senior to all outstanding and future indebtedness of
the Company and will be secured by a first priority, perfected security interest
in all of the assets of the Company and the stock and assets of each of the
Company’s subsidiaries and in connection therewith (i) the Castlerigg Amended
and Restated Security Agreement will be amended and restated in the form
attached hereto as Exhibit D (the “Second Amended and Restated Security
Agreement”) and (ii) the DOF Security Agreement will be amended and restated in
the form attached hereto as Exhibit I (the “First Amended and Restated Security
Agreement”, and together with the Second Amended and Restated Security
Agreement, the “Security Agreements”). All payments due under the New Notes and
the Amended and Restated Exchanged Notes shall rank pari passu.
     NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
     1. AMENDED AND RESTATED EXCHANGED NOTES, PURCHASE AND SALE OF NEW NOTES AND
WARRANTS.
          (a) Amended and Restated Exchanged Notes, Purchase of New Notes and
Warrants. Subject to the satisfaction (or waiver) of the conditions set forth in
Sections 6(a) and 7(a) below, (i) the Company shall issue and sell to each
Buyer, and each Buyer severally, but not jointly, agrees to purchase from the
Company on the Closing Date (as defined below), (A) a principal amount of New
Notes as is set forth opposite such Buyer’s name in column (3) on the Schedule
of Buyers, and (B) Warrants to acquire that number of Warrant Shares as is set
forth opposite such Buyer’s name in column (4) on the Schedule of Buyers, and
(ii) the Company shall issue and deliver to each Buyer a principal amount of
Amended and Restated Exchanged Notes (A) for the Exchanged 2007 Notes, as is set
forth opposite such Buyer’s name in column (5) on the Schedule of Buyers,
(B) for the Exchanged 2008 Notes, as is set forth opposite such Buyer’s name in
column (6) on the Schedule of Buyers and (C) for the Vicis Notes, as set forth
opposite such Buyer’s name in Column (7) on the Schedule of Buyers and each
Buyer shall surrender to the Company for cancellation each such Exchanged Notes
(the “Closing”).
          (b) Closing. The Closing shall occur on the Closing Date at the
offices of Nixon Peabody LLP, 437 Madison Avenue, New York, New York 10022.
          (c) [Intentionally left blank.]
          (d) Purchase Price. The Amended and Restated Exchanged Notes shall be
issued to each Buyer and the Exchanged Notes shall be cancelled without the
payment of any additional consideration. The purchase price for each Buyer of
the New Notes and the Warrants to be purchased by each such Buyer at the Closing
shall be the amount set forth opposite such Buyer’s name in column (7) of the
Schedule of Buyers (the “Purchase Price”). Each Buyer shall

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pay $0.98 for each $1.00 of principal amount of New Notes and the related
Warrants to be purchased at the Closing. The Buyers and the Company agree that
the New Notes and the Warrants constitute an “investment unit” for purposes of
Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended (the
“Code”). The Buyers and the Company mutually agree that the allocation of the
issue price of such investment unit between the New Notes and the Warrants in
accordance with Section 1273(c)(2) of the Code and Treasury
Regulation Section 1.1273-2(h) shall be an aggregate amount of $99,125 allocated
to the Warrants and the balance of the Purchase Price allocated to the New
Notes, and neither the Buyers nor the Company shall take any position
inconsistent with such allocation in any tax return or in any judicial or
administrative proceeding in respect of taxes.
          (e) Closing Date. The date and time of the Closing (the “Closing
Date”) shall be 10:00 a.m., New York City Time, on the date hereof after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6(a) and 7(a) below (or such later date as is mutually agreed
to by the Company and each Buyer).
          (f) Form of Payment. On the Closing Date, (i) (A) each Buyer shall
deliver, or cause to be delivered, for cancellation, a principal amount of
Exchanged Notes as is set forth opposite such Buyer’s name in columns (5) and
(6) of the Schedule of Buyers to the Company, and (B) each Buyer shall pay its
Purchase Price to the Company for the New Notes and the Warrants to be issued
and sold to such Buyer at the Closing less, in the case of Castlerigg, the
amounts withheld pursuant to Section 4(f), by wire transfer of immediately
available funds in accordance with the Company’s written wire instructions, and
(ii) the Company shall deliver to each Buyer (A) the New Notes (in the principal
amounts as such Buyer shall request) which such Buyer is purchasing, (B) the
Warrants (allocated in the amounts as such Buyer shall request) to acquire up to
an aggregate number of Warrant Shares which such Buyer is purchasing, and (C) a
principal amount of Amended and Restated Exchanged Notes (in the principal
amounts as such Buyer shall request) which such Buyer is exchanging, in each
case duly executed on behalf of the Company and registered in the name of such
Buyer or its designee. Notwithstanding anything herein to the contrary, the
parties hereto acknowledge and agree that (i) on the date hereof, each of
Castlerigg and DOF shall pay $150,000 to the Company towards the Purchase Price
for the New Notes and the Warrants by wire transfer of immediately available
funds in accordance with the Company’s written wire instructions and (ii) each
of Castlerigg and DOF shall pay the remainder of its respective Purchase Price
to the Comapany for the New Notes and the Warrants by wire transfer of
immediately available funds in accordance with the Comapny’s written wire
instructions no later than 12:00 p.m., New York City time, on July 15, 2009;
provided, however, that Castlerigg is not obligated to pay the remainder of its
respective Purchase Price pursuant to this clause (ii) unless and until DOF pays
the remainder of its respective Purchase Price pursuant to this clause (ii).
          (g) Holding Period. For the purposes of Rule 144 (as defined in
Section 2(f)), the Company acknowledges that the Buyers may tack the holding
period of (i) the August 2007 Notes held by the Buyers to the holding period of
the Amended and Restated Exchanged 2007 Notes (such that the holding period for
the Amended and Restated Exchanged 2007 Notes for purposes of Rule 144 shall
commence from the date of issuance of the August 2007 Notes), (ii) the
February 2008 Notes held by the Buyers to the holding period of the Amended and
Restated Exchanged 2008 Notes (such that the holding period for the Amended and
Restated Exchanged 2008 Notes for purposes of Rule 144 shall commence from the
date of issuance of the February 2008 Notes) and (iii) the Vicis Notes held by
Vicis Capital Master Fund to the holding period of the Amended and Restated
Vicis Notes (such that the holding period for the Amended and Restated Vicis
Notes for purposes of Rule 144 shall commence from the date of issuance of the
Vicis Notes) and the Company agrees not to take a position contrary to this
Section 1(g),

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including, without limitation, with respect to the application of the terms and
conditions set forth in Section 2(g) below.
          (h) Ratification. The August 2007 Securities Purchase Agreement, the
February 2008 Securities Purchase Agreement, the September 2008 Securities
Purchase Agreement and each other Transaction Document (as defined therein) in
effect in accordance with its terms as of the Closing Date and not otherwise
amended and restated in accordance with the terms of this Agreement, is, and
shall continue to be, in full force and effect and effective as of the Closing,
the August 2007 Securities Purchase Agreement, the February 2008 Securities
Purchase Agreement and each other Transaction Document (as therein) in effect in
accordance with its terms as of the Closing Date and not terminated or amended
and restated in accordance with the terms of this Agreement, is hereby ratified
and confirmed in all respects.
     2. BUYER’S REPRESENTATIONS AND WARRANTIES.
          Each Buyer represents and warrants with respect to only itself that:
          (a) No Public Sale or Distribution. Such Buyer is (i) acquiring the
Notes and the Warrants and (ii) upon conversion of the Notes and exercise of the
Warrants (other than pursuant to a Cashless Exercise (as defined in the
Warrants)) will acquire the Conversion Shares issuable upon conversion of the
Notes and the Warrant Shares issuable upon exercise of the Warrants for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business. Such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
          (b) Accredited Investor Status. Such Buyer is an “accredited investor”
as that term is defined in Rule 501(a) of Regulation D.
          (c) Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
          (d) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s

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right to rely on the Company’s representations and warranties contained herein.
Such Buyer understands that its investment in the Securities involves a high
degree of risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
          (e) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
          (f) Transfer or Resale. Such Buyer understands that except as provided
in Section 4(t) hereof: (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”);
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made) may
be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Securities may be pledged in connection with a bona
fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).
          (g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by Section 4(t) hereof, the stock
certificates representing the New Conversion Shares and the Warrant Shares,
except as set forth below, shall bear any legend as required by the “blue sky”
laws of any state and a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN][THE SECURITIES REPRESENTED

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BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at DTC (as defined below), unless otherwise required by state securities
laws, (i) such Securities are registered for resale under the 1933 Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or
(iii) such holder provides the Company with reasonable assurance that the
Securities can be sold, assigned or transferred pursuant to Rule 144 or
Rule 144A.
          (h) Validity; Enforcement. This Agreement and the Security Agreements
to which such Buyer is a party have been duly and validly authorized, executed
and delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
          (i) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the Security Agreements to which such Buyer is a
party and the consummation by such Buyer of the transactions contemplated hereby
and thereby will not (i) result in a violation of the organizational documents
of such Buyer or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Buyer is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to such Buyer,
except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

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          (j) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.
     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
          The Company represents and warrants to each of the Buyers that:
          (a) Organization and Qualification. Each of the Company and its
“Subsidiaries” (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest) are entities duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. As used in this Agreement, “Material Adverse
Effect” means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no Subsidiaries.
          (b) Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Security Agreements, the Irrevocable Transfer
Agent Instructions (as defined in Section 5(b)), the Warrants, and each of the
other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Notes and the
Warrants, the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion of the Notes, the reservation for issuance and issuance
of Warrant Shares issuable upon exercise of the Warrants, the reservation for
issuance and issuance of Interest Shares, if any, and the granting of a security
interest in the Collateral (as defined in the Security Agreements) have been
duly authorized by the Company’s Board of Directors and (other than (i) the
filing of appropriate UCC financing statements with the appropriate states and
other authorities pursuant to the Security Agreements, and (ii) the filing with
the SEC of one or more registration statements in accordance with the
requirements of Section 4(t) hereof) no further filing, consent, or
authorization is required by the Company, its Board of Directors or its
stockholders. This Agreement and the other Transaction Documents of even date
herewith have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium,

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liquidation or similar laws relating to, or affecting generally, the enforcement
of applicable creditors’ rights and remedies.
          (c) Issuance of Securities. The issuance of the Notes and the Warrants
are duly authorized and are free from all taxes, liens and charges with respect
to the issue thereof. As of the applicable Closing, a number of shares of Common
Stock shall have been duly authorized and reserved for issuance which equals at
least 130% of the sum of the maximum number of shares Common Stock issuable
(i) as Interest Shares pursuant to the terms of the Notes, (ii) upon conversion
of the Notes issued at such Closing and issued at all prior Closings and
(iii) upon exercise of the Warrants. Upon conversion or payment in accordance
with the Notes or exercise in accordance with the Warrants, as the case may be,
the Conversion Shares, the Interest Shares and the Warrant Shares, respectively,
will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of
Common Stock. The offer and issuance by the Company of the Securities is exempt
from registration under the 1933 Act.
          (d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and the Warrants, the granting of a security interest in
the Collateral and reservation for issuance and issuance of the New Conversion
Shares, the Interest Shares and the Warrant Shares) will not (i) result in a
violation of the Articles of Incorporation (as defined in Section 3(r)) of the
Company or any of its Subsidiaries, any capital stock of the Company or Bylaws
(as defined in Section 3(r)) of the Company or any of its Subsidiaries or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the OTC Bulletin Board
(the “Principal Market”)) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected.
          (e) Consents. Neither the Company nor any of its Subsidiaries is
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and the Company and its Subsidiaries
are unaware of any facts or circumstances which might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence. The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts which
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.

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          (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an “affiliate” of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a “beneficial owner” of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the “1934 Act”)). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities. The Company
further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
          (g) No General Solicitation; Placement Agent’s Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney’s fees and out-of-pocket expenses) arising in connection
with any such claim.
          (h) No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
          (i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants, in each case,
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.

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          (j) Application of Takeover Protections; Rights Agreement. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
jurisdiction of its formation which is or could become applicable to any Buyer
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and any Buyer’s
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
          (k) SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(k), during the two (2) years prior to the date hereof, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”). The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the EDGAR system. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
          (l) Absence of Certain Changes. Except as disclosed in Schedule 3(l),
since December 31, 2008, there has been no material adverse change and no
material adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Except as disclosed in Schedule 3(l), since December 31, 2008,
the Company has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in the
aggregate, in excess of $100,000. The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor

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does the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings or any actual knowledge of
any fact which would reasonably lead a creditor to do so. The Company is not as
of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will not be Insolvent (as defined below). For
purposes of this Section 3(l), “Insolvent” means with respect to any Person,
(i) such Person is unable to pay its debts and liabilities, subordinated,
contingent or otherwise (other than the Notes), as such debts and liabilities
become absolute and matured, (ii) the Company intends to incur or believes that
it will incur debts (other than the Notes) that would be beyond its ability to
pay as such debts mature or (iii) such Person has unreasonably small capital
with which to conduct the business in which it is engaged as such business is
now conducted and is proposed to be conducted.
          (m) No Undisclosed Events, Liabilities, Developments or Circumstances.
No event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
          (n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under any
certificate of designations of any outstanding series of preferred stock of the
Company, its Articles of Incorporation or Bylaws or their organizational charter
or certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company is
not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. During the two years prior to the date hereof,
the Common Stock has been designated for quotation on the Principal Market.
During the two years prior to the date hereof, (i) trading in the Common Stock
has not been suspended by the SEC or the Principal Market and (ii) the Company
has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Stock from the
Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
          (o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the

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Company or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
(iii) violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
          (p) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
          (q) Transactions With Affiliates. Except as set on Schedule 3(q), none
of the officers, directors or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
ordinary course services as employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such officer, director or
employee or, to the knowledge of the Company or any of its Subsidiaries, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
          (r) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 150,000,000 shares of Common Stock,
of which as of the date hereof, 4,001,832 are issued and outstanding, 10,000,000
shares are reserved for issuance pursuant to the Company’s stock option and
purchase plans and 10,417,586 shares are reserved for issuance pursuant to
securities (other than the aforementioned options, the New Notes and the
Warrants) exercisable or exchangeable for, or convertible into, shares of Common
Stock. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(r): (i) none of the Company’s capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except pursuant to Section 4(t)

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hereof); (vi) there are no outstanding securities or instruments of the Company
or any of its Subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to redeem a
security of the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities; (viii) the Company does not
have any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company’s or its Subsidiaries’ respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Buyers true, correct and complete
copies of the Company’s Articles of Incorporation, as amended and as in effect
on the date hereof (the “Articles of Incorporation”), and the Company’s Bylaws,
as amended and as in effect on the date hereof (the “Bylaws”), and the terms of
all securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.
          (s) Indebtedness and Other Contracts. Except as disclosed in
Schedule 3(s), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument would result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. Schedule 3(s) provides a detailed description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through

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(G) above; (y) “Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
          (t) Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or
any of the Company’s or its Subsidiaries’ officers or directors in their
capacities as such, except as set forth in Schedule 3(t).
          (u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
          (v) Employee Relations. (i) Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union. The Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer of the Company or any of its
Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the
Company or any such Subsidiary that such officer intends to leave the Company or
otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries, to
the knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.
               (ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

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          (w) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case, except as set forth in Schedule 3(w), free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
          (x) Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
(“Intellectual Property Rights”) necessary to conduct their respective
businesses as now conducted. Except as set forth in Schedule 3(x), none of the
Company’s Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights. The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
          (y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval where, in each of the foregoing clauses (i), (ii) and (iii),
the failure to so comply could be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect. The term “Environmental Laws” means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
          (z) [Intentionally left blank.]

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          (aa) Investment Company Status. The Company is not, and upon
consummation of the sale of the Securities will not be, an “investment company,”
a company controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
are defined in the Investment Company Act of 1940, as amended.
          (bb) Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
          (cc) Internal Accounting and Disclosure Controls. The Company and each
of its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed in to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.
          (dd) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
          (ee) Ranking of Notes. Except as set forth on Schedule (ee), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise. The New Notes and the
Amended and Restated Exchanged Notes shall rank pari passu with each other.

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          (ff) Form S-1 Eligibility. The Company is eligible to register the New
Conversion Shares and the Warrant Shares for resale by the Buyers using Form S-1
promulgated under the 1933 Act.
          (gg) Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to each Buyer
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with.
          (hh) Manipulation of Price. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) other than the Placement Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or
(iii) other than the Placement Agent, paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
          (ii) Acknowledgement Regarding Buyers’ Trading Activity. It is
understood and acknowledged by the Company that, except as provided in
Section 4(r), (i) none of the Buyers have been asked to agree, nor has any Buyer
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) any Buyer, and
counter parties in “derivative” transactions to which any such Buyer is a party,
directly or indirectly, presently may have a “short” position in the Common
Stock, and (iii) each Buyer shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (a) one or more Buyers may
engage in hedging and/or trading activities at various times during the period
that the Securities are outstanding, including, without limitation, during the
periods that the value of the New Conversion Shares, the Warrant Shares and any
Interest Shares deliverable with respect to Securities are being determined and
(b) such hedging and/or trading activities, if any, can reduce the value of the
existing stockholders’ equity interest in the Company both at and after the time
the hedging and/or trading activities are being conducted. The Company
acknowledges that such aforementioned hedging and/or trading activities do not
constitute a breach of this Agreement, the New Notes, the Warrants or any of the
documents executed in connection herewith.
          (jj) U.S. Real Property Holding Corporation. The Company is not, nor
has ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer’s request.
          (kk) Bank Holding Company Act Neither the Company nor any of its
Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the “BHCA”) and to regulation by the Board of Governors of the
Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of
its Subsidiaries or affiliates owns or controls, directly or indirectly, five
percent or more of the outstanding shares of any class of

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voting securities or twenty-five percent or more of the total equity of a bank
or any entity that is subject to the BHCA and to regulation by the Federal
Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises
a controlling influence over the management or policies of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve.
          (ll) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than as set forth in the
following sentence. The Company understands and confirms that each of the Buyers
will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company is true
and correct and does not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each press release issued by the Company during the twelve
(12) months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
     4. COVENANTS.
          (a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
          (b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or “Blue Sky” laws
of the states of the United States following the Closing Date.
          (c) Reporting Status. Until the date on which all of the Buyers and
their permitted assignees (together, the “Investors”) shall have sold all the
New Conversion Shares, Interest Shares and Warrant Shares and none of the Notes
or Warrants is outstanding (the “Reporting Period”), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to

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file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
          (d) Financial Information. The Company agrees to send the following to
each Investor during the Reporting Period (i) unless the following are filed
with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day (as defined below) after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, any interim reports or
any consolidated balance sheets, income statements, stockholders’ equity
statements and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than on Form
S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile or e-mailed copies of all press releases issued by
the Company or any of its Subsidiaries, and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders. As used herein, “Business Day” means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
          (e) Listing. The Company shall, upon request by a Buyer, promptly
secure the listing of all of the Interest Shares, New Conversion Shares and
Warrant Shares (the “Registrable Securities”) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is
then listed (subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents. The Company shall maintain the Common Stocks’
authorization for quotation on the Principal Market. Neither the Company nor any
of its Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
          (f) Fees. The Company shall reimburse Castlerigg or its designee(s)
(in addition to any other expense amounts paid to any Buyer prior to the date of
this Agreement) for all reasonable costs and expenses incurred in connection
with the transactions contemplated by the Transaction Documents (including all
reasonable legal fees and disbursements in connection therewith, documentation
and implementation of the transactions contemplated by the Transaction Documents
and due diligence in connection therewith), which amount shall be withheld by
such Buyer from its Purchase Price at the Closing. The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions (other than for Persons engaged by any Buyer)
relating to or arising out of the transactions contemplated hereby, including,
without limitation, any fees or commissions payable to the Placement Agent. The
Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any claim relating to any
such payment. Except as otherwise set forth in the Transaction Documents, each
party to this Agreement shall bear its own expenses in connection with the sale
of the Securities to the Buyers.
          (g) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or

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other loan or financing arrangement that is secured by the Securities. The
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
          (h) Disclosure of Transactions and Other Material Information. On or
before 5:30 p.m., New York City time, on July 17, 2009, the Company shall file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of the New Notes, the
form of Warrant and the Security Agreements) as exhibits to such filing
(including all attachments, the “8-K Filing”). From and after the filing of the
8-K Filing with the SEC, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of their respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express written consent of such Buyer.
If a Buyer has, or believes it has, received any such material, nonpublic
information regarding the Company or any of its Subsidiaries, it shall provide
the Company with written notice thereof. The Company shall, within two (2)
Trading Days of receipt of such notice, make public disclosure of such material,
nonpublic information. In the event of a breach of the foregoing covenant by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such disclosure. Subject to
the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue
any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Without the
prior written consent of any applicable Buyer, neither the Company nor any of
its Subsidiaries or affiliates shall disclose the name of such Buyer in any
filing, announcement, release or otherwise.

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          (i) Restriction on Redemption and Cash Dividends. So long as any Notes
are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on the Common Stock without the
prior express written consent of the holders of the Notes representing not less
than a majority of the aggregate principal amount of the then outstanding Notes.
          (j) Additional Notes; Variable Securities; Dilutive Issuances. So long
as any Buyer beneficially owns any Securities, the Company will not issue any
Notes other than to the Buyers as contemplated hereby and the Company shall not
issue any other securities that would cause a breach or default under the Notes.
For so long as any Notes or Warrants remain outstanding, the Company shall not,
in any manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to
any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable Conversion Price (as defined in
the Notes) with respect to the Common Stock into which any Note is convertible
or the then applicable Exercise Price (as defined in the Warrants) with respect
to the Common Stock into which any Warrant is exercisable. For so long as any
Notes or Warrants remain outstanding, the Company shall not, in any manner,
enter into or affect any Dilutive Issuance (as defined in the Notes) if the
effect of such Dilutive Issuance is to cause the Company to be required to issue
upon conversion of any Note or exercise of any Warrant any shares of Common
Stock in excess of that number of shares of Common Stock which the Company may
issue upon conversion of the Notes and exercise of the Warrants without
breaching the Company’s obligations under the rules or regulations of the
Principal Market or any applicable Eligible Market. “Eligible Market” means any
of the The New York Stock Exchange, the American Stock Exchange, The NASDAQ
Global Select Market, The NASDAQ Global Market, The NASDAQ Capital Market or OTC
Bulletin Board.
          (k) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.
          (l) Reservation of Shares. So long as any Buyer owns any Securities,
the Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 130% of the sum of the number
of shares of Common Stock issuable (i) as Interest Shares pursuant to the terms
of the Notes, (ii) upon conversion of the Notes, and (iii) upon exercise of the
Warrants then outstanding (without taking into account any limitations on the
conversion of the Notes or exercise of the Warrants set forth in the Notes and
Warrants, respectively).
          (m) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

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          (n) Additional Issuances of Securities.
               (i) For purposes of this Section 4(o), the following definitions
shall apply.
               (1) “Convertible Securities” means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for shares of
Common Stock.
               (2) “Options” means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
               (3) “Common Stock Equivalents” means, collectively, Options and
Convertible Securities.
               (ii) From the date hereof until the date that is 30 Business Days
following the date upon which all Registrable Securities have been registered or
eligible for resale under Rule 144 without the requirement to be in compliance
with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to
Rule 144 (the “Trigger Date”), the Company will not, (i) directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any of
its debt, equity or equity equivalent securities, including without limitation
any debt, preferred stock or other instrument or security that is, at any time
during its life and under any circumstances, convertible into or exchangeable or
exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a
“Subsequent Placement”) or (ii) be party to any solicitations, negotiations or
discussions with regard to the foregoing.
               (iii) From the Trigger Date until the third anniversary of the
Trigger Date, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this
Section 4(o)(iii).
               (1) The Company shall deliver to each Buyer written notice (the
“Offer Notice”) of any proposed or intended issuance or sale or exchange (the
“Offer”) of the securities being offered (the “Offered Securities”) in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or entities
(if known) to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to or exchange with
such Buyers all of the Offered Securities, allocated among such Buyers (a) based
on such Buyer’s pro rata portion of the aggregate principal amount of Notes
purchased hereunder (the “Basic Amount”), and (b) with respect to each Buyer
that elects to purchase its Basic Amount, any additional portion of the Offered
Securities attributable to the Basic Amounts of other Buyers as such Buyer shall
indicate it will purchase or acquire should the other Buyers subscribe for less
than their Basic Amounts (the “Undersubscription Amount”).

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               (2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the tenth (10th)
Business Day after such Buyer’s receipt of the Offer Notice (the “Offer
Period”), setting forth the portion of such Buyer’s Basic Amount that such Buyer
elects to purchase and, if such Buyer shall elect to purchase all of its Basic
Amount, the Undersubscription Amount, if any, that such Buyer elects to purchase
(in either case, the “Notice of Acceptance”). If the Basic Amounts subscribed
for by all Buyers are less than the total of all of the Basic Amounts, then each
Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance
shall be entitled to purchase, in addition to the Basic Amounts subscribed for,
the Undersubscription Amount it has subscribed for; provided, however, that if
the Undersubscription Amounts subscribed for exceed the difference between the
total of all the Basic Amounts and the Basic Amounts subscribed for (the
“Available Undersubscription Amount”), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer bears to
the total Basic Amounts of all Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary.
               (3) The Company shall have five (5) Business Days from the
expiration of the Offer Period above to offer, issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance has not
been given by the Buyers (the “Refused Securities”), but only to the offerees
described in the Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less favorable to
the Company than those set forth in the Offer Notice.
               (4) In the event the Company shall propose to sell less than all
the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4(o)(iii)(3) above), then each Buyer may, at its sole
option and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that such Buyer elected
to purchase pursuant to Section 4(o)(iii)(2) above multiplied by a fraction,
(i) the numerator of which shall be the number or amount of Offered Securities
the Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to Section 4(o)(iii)(3) above
prior to such reduction) and (ii) the denominator of which shall be the original
amount of the Offered Securities. In the event that any Buyer so elects to
reduce the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have
again been offered to the Buyers in accordance with Section 4(o)(iii)(1) above.
               (5) Upon the closing of the issuance, sale or exchange of all or
less than all of the Refused Securities, the Buyers shall acquire from the
Company, and the Company shall issue to the Buyers, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 4(o)(iii)(3) above

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if the Buyers have so elected, upon the terms and conditions specified in the
Offer. The purchase by the Buyers of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and the Buyers
of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Buyers and their respective counsel.
               (6) Any Offered Securities not acquired by the Buyers or other
persons in accordance with Section 4(o)(iii)(3) above may not be issued, sold or
exchanged until they are again offered to the Buyers under the procedures
specified in this Agreement.
               (iv) The restrictions contained in subsections (ii) and (iii) of
this Section 4(o) shall not apply in connection with the issuance of any
Excluded Securities (as defined in the Notes).
          (o) Additional Registration Statements. Until the Trigger Date, the
Company will not file a registration statement under the 1933 Act relating to
securities that are not the Securities or the shares of Common Stock issuable
upon exercise of the Prior Warrants (as defined below), without the prior
written consent of the Buyer.
          (p) Collateral Agents.
               (i) Each Buyer hereby (a) appoints Castlerigg, as the collateral
agent hereunder and under the Second Amended and Restated Security Agreement (in
such capacity, the “Castlerigg Collateral Agent”), (b) appoints DOF, as the
collateral agent hereunder and under the First Amended and Restated Security
Agreement (in such capacity, the “DOF Collateral Agent”, and together with the
Castlerigg Collateral Agent, the “Collateral Agents”) and (c) authorizes the
Collateral Agents (and its officers, directors, employees and agents) to take
such action on such Buyer’s behalf in accordance with the terms hereof and
thereof. The Collateral Agents shall not have, by reason hereof or the Security
Agreements, a fiduciary relationship in respect of any Buyer. Neither the
Collateral Agents nor any of their officers, directors, employees and agents
shall have any liability to any Buyer for any action taken or omitted to be
taken in connection hereof or the Security Agreements except to the extent
caused by their own gross negligence or willful misconduct, and each Buyer
agrees to defend, protect, indemnify and hold harmless the respective Collateral
Agents and all of their officers, directors, employees and agents (collectively,
the “Indemnitees”) from and against any losses, damages, liabilities,
obligations, penalties, actions, judgments, suits, fees, costs and expenses
(including, without limitation, reasonable attorneys’ fees, costs and expenses)
incurred by such Indemnitee, whether direct, indirect or consequential, arising
from or in connection with the performance by such Indemnitee of the duties and
obligations of Collateral Agents pursuant hereto or the Security Agreements.
               (ii) The Collateral Agents shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the other

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Transaction Documents and its duties hereunder or thereunder, upon advice of
counsel selected by it.
               (iii) The Collateral Agents may resign from the performance of
all their functions and duties hereunder and under the New Notes and the
Agreement at any time by giving at least ten (10) Business Days prior written
notice to the Company and each holder of the New Notes. Such resignation shall
take effect upon the acceptance by a successor Collateral Agent of appointment
as provided below. Upon any such notice of resignation, the holders of a
majority of the outstanding principal under the respective New Notes shall
appoint a successor Collateral Agent, respectively. Upon the acceptance of the
appointment as Collateral Agent, such successor Collateral Agent shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Collateral Agent, and the retiring Collateral Agent shall be discharged
from its duties and obligations under this Agreement, the New Notes and the
Security Agreement. After any Collateral Agents’ resignation hereunder, the
provisions of this Section 4(q) shall inure to its benefit. If a successor
Collateral Agent shall not have been so appointed within such ten (10) Business
Day period, the retiring Collateral Agent shall then appoint a successor
Collateral Agent who shall serve until such time, if any, as the holders of a
majority of the outstanding principal under the New Notes appoint a successor
Collateral Agent as provided above.
          (q) Stockholder Approval. If the Common Stock is listed on an Eligible
Market other than the Principal Market (the “New Principal Market”) and the
issuance of the New Conversion Shares, the Interest Shares and Warrant Shares as
contemplated under the Transaction Documents would exceed that number of shares
of Common Stock which the Company may issue without breaching the Company’s
obligations under the rules or regulations of the New Principal Market, then the
Company shall obtain the approval of its stockholders as required by the
applicable rules of the New Principal Market for issuances of the New Conversion
Shares, Warrant Shares and Interest Shares in excess of such amount. At such
time, the Company shall provide each stockholder entitled to vote at a special
or annual meeting of stockholders of the Company (the “Stockholder Meeting”),
which shall be promptly called and held not later than 75 days after the earlier
of (i) the New Principal Market indication of and (ii) the Company becoming
aware of, any limitation imposed by the New Principal Market on the issuance of
New Conversion Shares or Warrant Shares (the “Stockholder Meeting Deadline”), a
proxy statement, substantially in the form which has been previously reviewed by
the Buyers and Nixon Peabody LLP at the expense of the Company, soliciting each
such stockholder’s affirmative vote at the Stockholder Meeting for approval of
resolutions providing for the Company’s issuance of all of the Securities as
described in the Transaction Documents in accordance with applicable law and the
rules and regulations of the New Principal Market and such affirmative approval
being referred to herein as the “Stockholder Approval”), and the Company shall
use its reasonable best efforts to solicit its stockholders’ approval of such
resolutions and to cause the Board of Directors of the Company to recommend to
the stockholders that they approve such resolutions. The Company shall be
obligated to use its reasonable best efforts to obtain the Stockholder Approval
by the Stockholder Meeting Deadline. If, despite the Company’s reasonable best
efforts the Stockholder Approval is not obtained on or prior to the Stockholder
Meeting Deadline, the Company shall cause an additional Stockholder Meeting to
be held every six (6) months thereafter until such Stockholder Approval is
obtained or the New Notes are no longer outstanding.

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          (r) Trading in Common Stock. For the period commencing on the date
hereof and ending on the earlier of (i) the date that the New Conversion Shares
and Warrant Shares (upon cashless exercise) may be resold without restriction
pursuant to Rule 144 without the requirement to be in compliance with
Rule 144(c)(1) and otherwise without restriction or limitation pursuant to
Rule 144, or (ii) a registration statement for the resale of the New Conversion
Shares and Warrant Shares is declared effective by the SEC, each Buyer,
severally and not jointly with the other Buyers, covenants that neither it nor
any affiliate acting on its behalf or pursuant to any understanding with it will
execute any “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act), whether or not against the box, establish any “put equivalent
position” (as defined in Rule 16a-l(h) under the 1934 Act) with respect to the
Common Stock, or grant any other right (including any put or call option) with
respect to the Common Stock or with respect to any security that includes,
relates to or derived any significant part of its value from the Common Stock.
For so long as each Buyer owns any Notes, such Buyer shall not maintain a Net
Short Position. For purposes of this Section, a “Net Short Position” by a person
means a position whereby such person has executed one or more sales of Common
Stock that is marked as a short sale and that is executed at a time when such
Buyer has no equivalent offsetting long position in the Common Stock or contract
for the foregoing. For purposes of determining whether a Buyer has an equivalent
offsetting long position in the Common Stock, all Common Stock (i) that is owned
by such Buyer, (ii) that may be issued as Interest Shares pursuant to the terms
of the Notes to the Buyer, or (iii) that would be issuable upon conversion or
exercise in full of all Securities then held by such Buyer (assuming that such
Securities were then fully convertible or exercisable, notwithstanding any
provisions to the contrary, and giving effect to any conversion or exercise
price adjustments that would take effect given only the passage of time) shall
be deemed to be held long by such Buyer.
          (s) Closing Documents. On or prior to fourteen (14) calendar days
after the Closing Date, the Company agrees to deliver, or cause to be delivered,
to each Buyer and Nixon Peabody LLP executed copies of the Transaction
Documents, Securities and any other document required to be delivered to any
party pursuant to Section 7 hereof.
          (t) Piggy-Back Registrations.
               (i) If at any time the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities (other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee or
director benefit plans), then the Company shall send to each Buyer written
notice of such determination and, if within twenty days after receipt of such
notice, any such Holder shall so request in writing, the Company shall include
in such registration statement all or any part of such Registrable Securities
such holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights on a pro rata basis (along with
other holders of piggyback registration rights with respect to the Company);
provided, that (A) the Company shall not be required to register any Registrable
Securities pursuant to this Section 4(t) that are (I) eligible for resale under
Rule 144 without the requirement to be in compliance with Rule 144(c)(1) and
otherwise without restriction or limitation pursuant to Rule 144, or (II) that
are the

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subject of a then effective registration statement and (B) if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities pursuant to this Section 4(t) in connection
with such registration (but not from its obligation to pay expenses in
accordance with Section 4(t) hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 4(t) for the same period as
the delay in registering such other securities.
               (ii) Registration Expenses. All fees and expenses incident to the
Company’s performance of or compliance with its obligations under this Agreement
(excluding any underwriting discounts and selling commissions and all legal fees
and expenses of legal counsel for any Buyer) shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with any Trading Market on which the Common Stock is then listed for
trading, (B) in compliance with applicable state securities or Blue Sky laws
(including, without limitation, fees and disbursements of counsel for the
Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as requested by
the Holders) and (C) with respect to any filing that may be required to be made
by any broker through which a Holder intends to make sales of Registrable
Securities with the Corporate Financing Department of Financial Industry
Regulatory Authority, Inc. (“FINRA”) pursuant NASD Rule 2710(b)(10)(A)(i), so
long as the broker is receiving no more than a customary brokerage commission in
connection with such sale, (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is reasonably requested by
the Holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company, (v) Securities Act
liability insurance, if the Company so desires such insurance, and (vi) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Section. In addition, the
Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Section (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any broker or
similar commissions of any Holder.
          (u) Public Information. At any time during the period commencing on
the six (6) month anniversary of the Closing Date and ending at such time that
all of the Securities can be sold without the requirement to be in compliance
with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to
Rule 144, if a registration statement is not available for the

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resale of all of the Securities and the Company shall fail for any reason to
satisfy the current public information requirement under Rule 144 (a “Public
Information Failure”) then, as partial relief for the damages to any holder of
Securities by reason of any such delay in or reduction of its ability to sell
the Securities (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each such holder an
amount in cash equal to two percent (2.0%) of the aggregate Purchase Price of
such holder’s Securities on the day of a Public Information Failure and on every
thirtieth day (pro rated for periods totaling less than thirty days) thereafter
until the earlier of (i) the date such Public Information Failure is cured and
(ii) such time that such public information is no longer required pursuant to
Rule 144. The payments to which a holder shall be entitled pursuant to this
Section 4(w) are referred to herein as “Public Information Failure Payments.”
Public Information Failure Payments shall be paid on the earlier of (I) the last
day of the calendar month during which such Public Information Failure Payments
are incurred and (II) the third Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the
Company fails to make Public Information Failure Payments in a timely manner,
such Public Information Failure Payments shall bear interest at the rate of 1.5%
per month (prorated for partial months) until paid in full. Notwithstanding
anything herein to the contrary, no Public Information Failure Payments shall be
due and payable hereunder for any date after the first anniversary of the
Closing Date.
     5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
          (a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes and the Warrants
in which the Company shall record the name and address of the Person in whose
name the Notes and the Warrants have been issued (including the name and address
of each transferee), the principal amount of Notes held by such Person, the
number of Conversion Shares issuable upon conversion of the Notes and Warrant
Shares issuable upon exercise of the Warrants held by such Person. The Company
shall keep the register open and available at all times during business hours
for inspection of any Buyer or its legal representatives.
          (b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”), registered in the name of each Buyer or its
respective nominee(s), for the Interest Shares, the New Conversion Shares and
the Warrant Shares issued at the Closing or upon conversion of the Notes or
exercise of the Warrants in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Notes or exercise of the Warrants in
the form of Exhibit E attached hereto (the “Irrevocable Transfer Agent
Instructions”). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent, and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance

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accounts at DTC in such name and in such denominations as specified by such
Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Interest Shares, New Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
     6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
          (a) Closing Date. The obligation of the Company hereunder to (A) issue
the Amended and Restated Exchanged Notes in exchange for the cancellation of the
Exchanged Notes and (B) issue and sell the New Notes and Warrants to each Buyer
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
               (i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
               (ii) Such Buyer and each other Buyer shall have delivered to the
Company (A) the Exchanged Notes for cancellation and (B) the Purchase Price
less, in the case of Castlerigg, the amounts withheld pursuant to Section 4(f)
for the Notes and the Warrants being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
               (iii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
     7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
          Closing Date. The obligation of each Buyer hereunder to purchase the
New Notes and the related Warrants at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer’s sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
               (i) The Company shall have executed and delivered to such Buyer
(A) each of the Transaction Documents, (B) the New Notes (in such principal
amounts as such

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Buyer shall request) being purchased by such Buyer at the Closing pursuant to
this Agreement, (C) the Amended and Restated Exchanged Notes (in such principal
amounts as such Buyer shall request) being exchanged by such Buyer at the
Closing pursuant to this Agreement and (D) the Warrants (in such amounts as such
Buyer shall request) being purchased by such Buyer at the Closing pursuant to
this Agreement.
               (ii) Such Buyer shall have received the opinions of DLA Piper LLP
(US) and Jones Vargas, the Company’s outside counsel and special Nevada counsel,
respectively, dated as of the Closing Date, in substantially the form of
Exhibit F attached hereto.
               (iii) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form of Exhibit E attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent.
               (iv) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary
of State (or comparable office) of such jurisdiction, as of a date within ten
(10) days of the Closing Date.
               (v) The Company shall have delivered to such Buyer a certificate
evidencing the Company’s qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date within ten
(10) days of the Closing Date.
               (vi) The Company shall have delivered to such Buyer a certified
copy of the Articles of Incorporation as certified by the Secretary of State (or
comparable office) of the State of Nevada within ten (10) days of the Closing
Date.
               (vii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by the Company’s Board of Directors in a form reasonably acceptable to such
Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in
effect at the Closing, in the form attached hereto as Exhibit G.
               (viii) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied in
all respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit H.
               (ix) The Company shall have delivered to such Buyer a letter from
the Company’s transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.

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               (x) The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale of the
Securities.
               (xi) In accordance with the terms of the Security Agreements, the
Company shall have delivered to the Collateral Agents appropriate financing
statements on Form UCC-1 to be duly filed in such office or offices as may be
necessary or, in the opinion of the Collateral Agents, desirable to perfect the
security interests purported to be created by each Security Agreement.
               (xii) Within three (3) Business Days prior to the Closing, the
Company shall have delivered or caused to be delivered to each Buyer
(A) certified copies of UCC search results, listing all effective financing
statements which name as debtor the Company or any of its Subsidiaries filed in
the prior five years to perfect an interest in any assets thereof, together with
copies of such financing statements, none of which, except as otherwise agreed
in writing by the Buyers, shall cover any of the Collateral (as defined in the
Security Agreements) and the results of searches for any tax lien and judgment
lien filed against such Person or its property, which results, except as
otherwise agreed to in writing by the Buyers shall not show any such Liens (as
defined in the Security Agreements); and (B) a perfection certificate, duly
completed and executed by the Company and each of its Subsidiaries, in form and
substance satisfactory to the Buyers.
               (xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request.
     8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business Days from the date hereof due
to the Company’s or such Buyer’s failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party’s failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, this if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse the non-breaching
Buyers for the expenses described in Section 4(g) above.
     9. MISCELLANEOUS.
          (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit,

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action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT
OR ANY TRANSACTION CONTEMPLATED HEREBY.
          (b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
          (c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
          (d) Severability. If any provision of this Agreement is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
          (e) Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to this
Agreement made in conformity with the provisions of this Section 9(e) shall be
binding on

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all Buyers and holders of Securities, as applicable. No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the applicable Securities then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of New Notes or holders of the Warrants, as
the case may be. The Company has not, directly or indirectly, made any
agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company or
otherwise.
          (f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
               If to the Company:
Stinger Systems, Inc.
5505 Johns Road
Suite 702
Tampa, Florida 33634
Telephone:     (410) 281-1061
Facsimile:       (813) 288-9148
Attention:       Chief Financial Officer
               With a copy to:
DLA Piper LLP (US)
6225 Smith Avenue
Baltimore, Maryland 21209-3600
Telephone:     (410) 580-4170
Facsimile:      (410) 580-3170
Attention:       Jason Harmon, Esq.
               If to the Transfer Agent:
Colonial Stock Transfer
66 Exchange Place
Salt Lake City, UT 84111

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Telephone:       (801) 355-5740
Facsimile:       (801) 355-6505
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule
of Buyers,
               with a copy, in the case of Castlerigg (for informational
purposes only) to:
Nixon Peabody LLP
437 Madison Avenue
New York, New York 10022
Telephone:     (212) 212-3773
Facsimile:       (866) 402-1171
Attention:       Bradley Vaiana, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or
(C) provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
          (g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants). A Buyer may assign some or all of its rights hereunder without the
consent of the Company, in which event such assignee shall be deemed to be a
Buyer hereunder with respect to such assigned rights.
          (h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
          (i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
          (j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request

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in order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.
          (k) Indemnification. In consideration of each Buyer’s execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 3(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 10(k) shall be the same
as those set forth in Section 5 of that certain registration rights agreement
entered into in connection with the August 2007 Securities Purchase Agreement.
          (l) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
          (m) Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its

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obligations under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.
          (n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
          (o) Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
          (p) Consent and Waiver. The Buyers hereby (i) waive the first sentence
of Section 4(k) of each of the August 2007 Securities Purchase Agreement, the
February 2008 Securities Purchase Agreement and the September 2008 Securities
Purchase Agreement (collectively, the “Prior Purchase Agreements”) with respect
to the New Notes, the Warrants and the offering of the securities contemplated
by this Agreement, (ii) consent to the issuance of the New Notes and the
Warrants and to the offering of the securities contemplated by this Agreement
and waive Section 4(o) of each of the Prior Purchase Agreements with the effect
that the offering of the securities contemplated by this Agreement shall not
trigger any rights of the Buyers under the Purchase Agreements, (iii) waive any
Default or Event of Default (as defined in the Amended and Restated Exchanged
Notes) that occurred prior to the date hereof and (iv) waive Section 4(i) of the
Prior Purchase Agreements with respect to the offering of the securities
contemplated by this Agreement.
          (q) Warrant Adjustments. The parties hereto acknowledge and agree
that, notwithstanding the anti-dilution provisions set forth in the August 2007
Warrants, the February 2008 Warrants and the September 2008 Warrants
(collectively, the “Prior Warrants”), after giving effect to the transactions
contemplated by this Agreement, the exercise price of the Prior Warrants shall
be reduced to $0.20 per share and the number of shares of Common Stock issuable
upon exercise of such warrants shall be 2,586,207 shares, 3,296,337 shares and
2,586,207 shares, respectively.
[Signature Page Follows]

37

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

            COMPANY:

STINGER SYSTEMS, INC.
      By:   /s/ Robert Gruder         Name:   Robert Gruder        Title:   CEO 
   

 

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

            BUYERS:

CASTLERIGG MASTER INVESTMENTS LTD.
      By:   /s/ Ken Glassman       Name:   Ken Glassman       Title:   Senior
Managing Director    

 

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            DEBT OPPORTUNITY FUND LLP
      By:   /s/ Sean Lyons         Name:   Sean Lyons        Title:   Managing
Member     

 

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          ACKNOWLEDGED AND AGREED:
 
VICIS CAPITAL MASTER FUND LTD.,
As successor in interest to Debt Opportunity
Fund LLP under the Vicis Notes       By:     /s/  Chris Phillips        
Name:   Chris Phillips           Title:     Managing Director, Vicis Capital,
LLC        

Signature Page to Securities Purchase Agreement