Exhibit 10.1

RECAPITALIZATION AGREEMENT

This RECAPITALIZATION AGREEMENT, dated March     , 2008 (this “Agreement) is an
amendment to the Securities Purchase Agreement, dated as of October 31, 2005, as
amended prior to the date hereof (as amended, the “SPA”), among SendTec
Acquisition Corp., a Delaware corporation (“STAC”), SendTec, Inc. (formerly
known as RelationServe Media, Inc.), a Delaware corporation (the “Company”),
each Holder identified on the signature pages hereto (each, including its
successors and assigns, a “Holder” and collectively the “Holders”), and
Christiana Corporate Services, Inc., a Delaware corporation, in its capacity as
administrative agent for the Holders (together with its successors and assigns
in such capacity, the “Agent”).

WHEREAS, the parties hereto desire to enter into this Agreement in order to
provide for the exchange of the Original Debentures (as defined herein) into
Series B Preferred (as defined herein) of the Company, subject to the terms and
conditions set forth in this Agreement and for certain rights and obligations of
the parties from and after the date hereof.

WHEREAS, the Holders have agreed that the Original Debentures shall be exchanged
for a combination of Series B Preferred, Debentures (as defined herein) and
Residual Debentures (as defined herein), subject to the terms and conditions set
forth in this Agreement and for certain rights and obligations of the parties
from and after the date hereof, and that the Debentures and Residual Debentures
shall not bear interest.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Original Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(h).

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144. With respect to
a Holder, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Holder will be deemed
to be an Affiliate of such Holder.

“Bloomberg” means Bloomberg Financial L.P. or any successor thereto, or, if it
is not then reporting such prices, by a comparable reporting service of national
reputation selected by the Company.

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“Certificate of Amendment” means the Certificate of Amendment of the Certificate
of Incorporation of the Company, as amended to date providing for the changes
set forth in Section 4.1 hereof.

“Certificate of Designation” means the Certificate of Designation for the Series
B Preferred, a copy of which is attached as Exhibit B hereto.

“Commission” means the Securities and Exchange Commission.

“Common Stock Equivalents” means any securities of a Person that would entitle
the holder thereof to acquire at any time common stock of such Person,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, common
stock.

“Common Stock” means the common stock, par value $0.001 per share, of the
Company and any other class of securities into which such securities may
hereafter have been reclassified or changed into.

“Company Counsel” means Holland & Knight LLP.

“Concurrent Offering” means the sale of shares of Common Stock at the Concurrent
Offering Price per share, or if Series B Preferred, on such terms as specified
in the Concurrent Purchase Agreements and Certificate of Designation, in an
aggregate amount of up to $7,000,000, pursuant to one or more Concurrent
Purchase Agreements, which shares may be acquired in one or more transactions as
contemplated herein, during the period terminating one (1) year after the
earlier to occur of either of the following: (a) the Second Closing Date; or
(b) 150 days after the date of the First Closing.

“Concurrent Offering Price” means a price of: (a) $0.12 per share for Concurrent
Offering sales made no later than three (3) months after the Second Closing
Date; and (b) the greater of $0.12 per share or that price per share equal to a
35% discount to market (i.e., the 5-day VWAP as reported by Bloomberg
immediately preceding the date of issuance) for Concurrent Offering sales made
after three (3) months after the Second Closing Date.

“Concurrent Offering Target” means at least $5,000,000 in aggregate gross
proceeds raised by the Company in the Concurrent Offering.

“Concurrent Purchase Agreements” means one or more Subscription Agreements for
Common Stock or Series B Preferred, between the Company and the investors
identified therein (each, a “New Holder” and collectively, the “New Holders”) in
connection with the Concurrent Offering.

“Concurrent Shares” means the shares of Common Stock or Series B Preferred being
issued in the Concurrent Offering.

 

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“Conversion Price” means $0.17 per share, as such price may be adjusted pursuant
to the Debentures or the Certificate of Designation, as applicable.

“Debentures” means the Amended and Restated Senior Secured Convertible
Debentures issued by STAC to the Holders at the First Closing pursuant to
Section 2.1(a)(iii), in substantially the form of the attached Exhibit C hereto.

“Disclosure Schedule” has the meaning ascribed to such term in Section 3.1.

“Discussion Time” shall have the meaning set forth in Section 3.2(f).

“Effective Date” means the date that the Registration Statement filed by Company
pursuant to Section 4.17 and the Registration Rights Agreement to register the
full initial Required Minimum of Underlying Shares and Warrant Shares is first
declared effective by the Commission.

“Evaluation Date” has the meaning ascribed to such term in Section 3.2(k).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) the Concurrent Shares, (b) shares of
Common Stock or options to employees, consultants, officers or directors of the
Company pursuant to any stock or option plan duly adopted by a majority of the
independent directors of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; provided that the number of shares directly or upon exercise of options
to be issued to consultants shall not exceed 100,000 in the aggregate;
(c) securities upon the exercise or exchange of or conversion of any Securities
issued hereunder and/or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
this Agreement; provided, that such securities have not been amended since the
date of this Agreement to increase the number of such securities or to decrease
the exercise, exchange or conversion price of any such securities;
(d) securities issued pursuant to acquisitions of other companies; provided,
that any such issuance (1) shall only be to a Person that is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives substantial benefits
in addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities,
(2) shall only be to a Person that is not an Affiliate of the Company or its
Subsidiaries and (3) has been approved by a majority of the independent
directors of the Company; and (e) securities issued at any time pursuant to the
Sunrise Settlement. For purposes hereof, the independence of directors is
determined by the rules of the Commission.

“Existing Registration Statement” means the Registration Statement on Form SB-2
(File No. 333-132586) pursuant to which an aggregate of 38,487,272 shares of
Common Stock issuable upon conversion of the Original Debentures or exercise of
the Warrants (as originally issued pursuant to the SPA) are registered.

 

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“First Closing” means the transactions occurring simultaneously herewith as set
forth in Section 2.1.

“GAAP” has the meaning ascribed to such term in Section 3.2(b).

“Guarantors Ratification” means the Guarantors’ Ratification and Amendment to
Guarantor Security Agreement between certain of the Subsidiaries and the Agent
dated the date hereof.

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in
excess of $75,000 (other than trade accounts payable, accrued liabilities and
deferred revenues incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in a
Person’s balance sheet (or the notes thereto), except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any lease payments
in excess of $75,000 due under leases required to be capitalized in accordance
with GAAP.

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.2(h).

“Legend Removal Date” shall have the meaning ascribed to such term in
Section 4.2(d).

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

“Material Adverse Effect” shall have the meaning ascribed to such term in
Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in
Section 3.2(f).

“Morrison” means Morrison & Foerster LLP with offices at 1290 Avenue of the
Americas, New York, New York 10104-0050.

“Original Debentures” means the Senior Secured Convertible Debentures due
March 31, 2008, issued by STAC to the Holders pursuant to the SPA, in the
current outstanding principal amount of $32,730,000.

“Permitted Indebtedness” shall mean (i) a working capital credit facility, term
loan, or a combination thereof, up to an aggregate amount of $2,000,000, which
may have a second priority security interest in the accounts receivable of the
Company of the Company and its Subsidiaries (subordinate, for so long as any
Debentures or Residual Debentures remain outstanding, to the security interest
of the Holders in such assets), (ii) trade payables and indebtedness consisting
of capitalized lease obligations and purchase money indebtedness incurred in
connection with acquisition of capital assets and obligations under
sale-leaseback arrangements with respect to newly acquired or leased assets
(including, but not limited to equipment financing transactions), (iii) deferred
revenues and (iv) accrued liabilities.

 

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“Permitted Liens” means the following Liens: (i) Liens for taxes, assessments or
other governmental charges or levies not yet due or that are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
made; (ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen, repairmen and other Liens imposed by law for amounts not
yet due; (iii) Liens incurred or deposits made in the ordinary course of
business in connection with worker’s compensation, unemployment insurance or
other types of social security; (iv) non-monetary Liens that do not impair the
marketability of the property subject thereto in any material respect; and
(v) Liens pursuant to the Security Documents.

“Person” means an individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition).

“Registration Rights Agreement” means the Registration Rights Agreement dated
February 3, 2006 among the Company and the Holders.

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale of, among
other securities, the Transaction Shares by each Holder as provided for in the
Registration Rights Agreement.

“Required Holders” means the holders of 75% of the principal amount then
outstanding of the Debentures or Residual Debentures, as applicable, or the then
outstanding shares of Series B Preferred (excluding any shares of Series B
Preferred that may be issued to a New Holder) ; provided, however, that so long
as LB I Group Inc. or any of its Affiliates own any Debentures, Residual
Debentures, or Series B Preferred, such holders must include LB I Group Inc. and
such Affiliates.

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable as Underlying Shares
issuable upon conversion in full of all then outstanding Debentures, Residual
Debentures, or shares of Series B Preferred, and any Warrant Shares issuable
upon exercise in full of the Warrants, ignoring any conversion or exercise
limits set forth therein, and assuming that the Conversion Price or Exercise
Price (as defined in the Warrants), as applicable, is at all times on and after
the date of determination 90% of the then applicable Conversion Price on the
Trading Day immediately prior to the date of determination.

“Residual Debentures” means the Residual Senior Secured Convertible Debentures
issued by STAC to the Holders at the Second Closing pursuant to Section 2.2(b)
if the Concurrent Offering gross proceeds to the Company by the Second Closing
Date are not at least $5,000,000, in substantially the form of the attached
Exhibit K hereto.

 

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“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“Second Closing Date” means the third Trading Day following the satisfaction or
waiver of all other conditions to the obligations of the parties set forth in
Section 2.3 or such other time or on such other date or at such other place as
the parties may mutually agree upon in writing.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(q).

“Securities” means the Debentures, the Residual Debentures, the Series B
Preferred, and the Underlying Shares.

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

“Security Agreement Amendments” means an Amendment to STAC Security Agreement
and an Amendment to IP Security Agreement between certain of the Subsidiaries
and the Agent dated the date hereof.

“Security Documents” shall mean the Security Agreement, the Transaction
Guaranty, the Guarantor Security Agreement (each as defined in the SPA),
Guarantors Ratification, the Security Agreement Amendments, stock certificates
and any other documents and filings required thereunder in order to grant the
Holders a security interest in all of the assets of the Company and its
Subsidiaries, including all UCC-1 filing receipts and medallion guaranteed stock
powers as to any pledged securities.

“Series B Preferred” means the Series B preferred stock, par value $0.001 per
share, of the Company with the designations, terms and rights as set forth in
the Certificate of Designation.

“Short Sales” shall include all “short sales” of the Common Stock as defined in
Rule 200 of Regulation SHO under the Exchange Act.

“Special Meeting” means the special meeting of the stockholders of the Company
to be called as provided in Section 4.1.

“Stockholder Matters” means the proposals to be presented to the stockholders of
the Company at the Special Meeting as provided in Section 4.1.

“Subsidiary” means any subsidiary of the Company as set forth on
Schedule 3.1(a).

 

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“Sunrise Settlement” means the proposed Settlement Agreement between the Company
and Sunrise Equity Partners, L.P.

“Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq
Capital Market, the American Stock Exchange, the New York Stock Exchange, the
Nasdaq Global Market or the OTC Bulletin Board.

“Transaction Documents” means this Agreement, the Certificate of Designation,
the SPA, the Debentures, the Residual Debentures, the Security Agreement
Amendments, the Guarantors Ratification, the Registration Rights Agreement (as
amended hereby), the Concurrent Purchase Agreement and any other agreements or
documents executed in connection with the transactions contemplated hereunder.

“Transaction Shares” means, collectively, the shares of Series B Preferred and
the Underlying Shares.

“Underlying Shares” means the shares of Common Stock issuable upon conversion of
any outstanding Debentures, Residual Debentures, and/or of the Series B
Preferred.

“Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.22.

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the primary Trading Market on which
the Common Stock is then listed or quoted as reported by Bloomberg (based on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m., Eastern Time) using the
VAP function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the “Pink
Sheets” published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by Holders holding a
majority of the principal amount of Debentures or Residual Debentures then
outstanding.

“Warrants” means, collectively, the Common Stock purchase warrants issued on
February 3, 2007 in connection with the issuance of the Original Debentures of
which warrants to purchase 3,230,730 shares are still outstanding.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants, excluding all shares of Common Stock issued upon exercise of the
Warrants prior to the date hereof.

 

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ARTICLE II

EXCHANGE OF DEBENTURES INTO SERIES B PREFERRED

2.1 Initial Exchange of Debentures; First Closing. Simultaneously with the
execution and delivery hereof and the transactions set forth below in this
Section 2.1 (collectively, the “First Closing”), each of the Holders is
exchanging the principal amount of Original Debentures set forth opposite its
name in Schedule I, Column A hereto and will receive upon such exchange the
number of shares of Series B Preferred set forth under Schedule I, Column B
hereto. In addition to the execution and delivery of this Agreement by the
parties hereto, the following documents and instruments are being executed and
delivered and transactions being effected:

(a) Each Holder shall receive

(i) Payment by wire transfer to the account designated by the Holder on the
signature page hereto of all accrued and unpaid interest through November 16,
2007 on the full outstanding principal amount of its respective Original
Debentures as set forth under the column entitled “Aggregate Principal Amount of
Original Debentures” on Schedule I hereto;

(ii) a certificate and/or certificates representing the number of shares of
Series B Preferred being issued to such Holder upon partial exchange of the
Original Debentures;

(iii) upon delivery to the Agent of the Holder’s Original Debenture, an amended
and restated Debenture in the form of Exhibit C hereto with a principal amount
equal to the principal amount set forth opposite such Holder’s name in Schedule
I, Column C hereto, which amount is equal to the amount of such Holder’s
Original Debenture remaining outstanding after issuance of Series B Preferred to
such Holder at the First Closing;

(iv) a legal opinion of Company Counsel, in the form of Exhibit D hereto, with
respect to certain corporate matters and with respect to Rule 144;

(v) evidence that the wire transfer of the purchase price payable pursuant to
any Concurrent Purchase Agreements entered into in satisfaction of the
conditions set forth in Section 2.1(e) has been received by the Company and that
the Company has issued certificates for the shares of Common Stock being
purchased thereunder;

(vi) a copy of the executed employment agreement between the Company and Paul
Soltoff in the form of Exhibit E hereto;

(vii) a certificate of the Secretary of STAC with respect to customary matters
including resolutions approving and authorizing this Agreement, the Debentures
and the Residual Debentures (and all other Transaction Documents to which STAC
is a party), and a certificate of the Company with respect to customary matters
including resolutions approving and authorizing: (1) this

 

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Agreement, (2) the Concurrent Offering and related Concurrent Purchase
Agreements, (3) the issuance of the Series B Preferred and the filing of the
Certificate of Designation, (4) setting a record date and holding the Special
Meeting for the purpose of approving the Stockholder Matters, (5) the filing of
any additional Registration Statement to register additional Underlying Shares,
(6) approval of the new employment agreement with Paul Soltoff in the form of
Exhibit E hereto, (7) approval of the engagement of a restructuring consultant,
as provided in Section 2.1(a)(ix), (8) the appointment of new directors pursuant
to Section 2.1(f) and the acceptance of the resignation of any applicable
directors pursuant to Section 2.1(f) and (9) certain other matters related to
this Agreement;

(viii) an executed copy of the voting agreement in the form of Exhibit F hereto;

(ix) a copy of the executed engagement letter with between the Company and
Marotta Gund Budd & Dzera, LLC (the “CRO”);

(x) a copies of the amendments to security agreements in the form of Exhibit L
hereto; and

(xi) a copy of the guarantor ratification and amendment in the form of Exhibit M
hereto.

(b) The Company shall pay the fees and expenses identified on Exhibit G hereto
by wire transfer of immediately available funds to the persons entitled thereto.

(c) INTENTIONALLY OMITTED.

(d) The Certificate of Designation shall have been filed with the Delaware
Secretary of State.

(e) The Company shall have received or shall receive concurrently therewith at
least $1,000,000 of gross proceeds pursuant to the Concurrent Offering;
provided, however, that in connection with the Concurrent Offering:
(i) executive management of the Company shall purchase a minimum of $500,000 in
the aggregate of Common Stock toward the fulfillment of this condition; and
(ii) Paul Soltoff shall individually purchase at least $300,000 of such $500,000
amount.

(f) The Company’s board of directors shall consist of the following: (i) Paul
Soltoff; (ii) Vincent Addonisio; (iii) Anthony Abate; (iv) Paul Dzera; and
(v) Steve Marotta.

(g) The Company shall have paid to the Agent the fees payable pursuant to the
Transaction Documents through December 31, 2008.

2.2 Second Exchange of Debentures; Second Closing. Upon satisfaction of all
conditions to the Second Closing as set forth in Section 2.3, on the Second
Closing Date, each Holder shall exchange the entire remaining principal amount
of Debentures then owned by it

 

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into the number of shares of Series B Preferred set forth in Schedule I, Column
C, and a cash settlement for any fractional shares in the amount set forth in
Schedule II. Notwithstanding the foregoing, if all conditions to the Second
Closing as set forth in Section 2.3 are satisfied but the Concurrent Offering
Target has not been satisfied, then on the Second Closing Date each Holder shall
exchange only the principal amount of Debentures set forth opposite its name in
Schedule I, Column E hereto, and shall receive a combination of Series B
Preferred and a Residual Debenture as provided in Section 2.2(a), and a cash
settlement for any fractional shares in the amount set forth in Schedule II; and
in such case the aggregate principal amount of Debentures so exchanged shall
equal $3,370,000 and the aggregate amount of Residual Debentures issued by STAC
shall equal $11,000,000. At the Second Closing, the following documents and
instruments will also be executed and delivered or transactions will be
effected:

(a) Each Holder shall receive

(i) INTENTIONALLY LEFT BLANK.

(ii) a certificate or certificates representing the number of shares of Series B
Preferred being issued to such Holder upon exchange of the Debentures and set
forth in Schedule I Column D or F, as applicable;

(iii) a “bring down” legal opinion of Company Counsel, in the form of Exhibit D
hereto;

(iv) a “bring down” certificate of the Secretary of the Company with respect to
customary matters, including the resolutions referenced in Section 2.1(a)(vii);

(v) a certificate of the Chief Executive Officer and Chief Financial Officer of
each of the Company and STAC certifying to the satisfaction of the closing
conditions set forth in clauses (i) through (iii) of Section 2.3(b); and

(vi) if the Concurrent Offering Target is not satisfied at the Second Closing
Date, a Residual Debenture with a principal amount equal to the residual amount
set forth opposite its name in Schedule I, Column G hereto.

(b) Any Residual Debentures issued at the Second Closing shall be in
substantially the form of the attached Exhibit K hereto and shall: (i) have a
term of three (3) years from the Second Closing Date, (ii) not bear interest,
(iii) convert into Common Stock at the Conversion Price per share, (iv) contain
no financial covenants, (v) be a senior and secured obligation of the Company,
(vi) have pari-passu antidilution protection to the Series B Preferred and
(viii) automatically convert into Series B Preferred when and if the Concurrent
Offering Target is satisfied, subject to and all as more specifically set forth
in the Residual Debentures.

2.3 Conditions to Second Closing.

(a) Company Conditions. The obligations of the Company hereunder in connection
with the Second Closing are subject to the following conditions being met:

(i) The approval by the stockholders of the Company of the Stockholder Matters,
and the filing of the Certificate of Amendment with the Delaware Secretary of
State;

 

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(ii) the accuracy in all material respects (except for those representations and
warranties that are qualified by materiality, which shall be true and correct in
all respects) when made and on the Second Closing Date of the representations
and warranties of the Holders contained herein; and

(iii) all obligations, covenants and agreements of the Holders required to be
performed at or prior to the Second Closing Date as set forth in this Agreement
shall have been performed.

(b) Holder Conditions. The respective obligations of the Holders hereunder in
connection with the Second Closing are subject to the following conditions being
met:

(i) The approval by the stockholders of the Company of the Stockholder Matters
and the filing of the Certificate of Amendment with the Delaware Secretary of
State;

(ii) the accuracy in all material respects (except for those representations and
warranties that are qualified by materiality, which shall be true and correct in
all respects) on the Second Closing Date of the representations and warranties
of the Company and STAC contained herein;

(iii) all obligations, covenants and agreements of the Company and STAC required
to be performed at or prior to the Second Closing Date as set forth in this
Agreement shall have been performed; and

(iv) the delivery by the Company and STAC of the items required to be delivered
by it pursuant to Section 2.2.

ARTICLE III

REPRESENTATIONS, WARRANTIES AND COVENANTS

3.1 Representations, Warranties and Covenants of the Company. Except as set
forth under the corresponding section of the disclosure schedules delivered to
the Holders concurrently herewith (collectively, the “Disclosure Schedule”),
which Disclosure Schedule shall be deemed a part hereof, the Company makes the
representations, warranties and covenants set forth below to each Holder as of
the date hereof and as of the Second Closing Date.

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), the
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.

 

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(b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not have (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material adverse
effect on the results of operations, assets, business, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) a material adverse effect on the Company’s and the Subsidiaries’
respective abilities to perform in any material respect on a timely basis their
respective obligations under any Transaction Document (any of (i), (ii) or
(iii), a “Material Adverse Effect”), and no Proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.

(c) Authorization; Enforcement. (1) The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of each of the Transaction Documents by the Company to which it is
a party and the consummation by it of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, its board of directors or
stockholders in connection therewith other than in connection with the Required
Approvals (as defined in Section 3.1(e)). Each Transaction Document to which the
Company is a party has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against it in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

(2) Each Subsidiary has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by each of the Transaction
Documents to which it is a party and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction
Documents by the Company to which it is a party and the consummation by it of
the transactions contemplated thereby have been duly authorized by all necessary
action on the part of such Subsidiary and no further action is required by such
Subsidiary, its board of directors (or other managing body) or stockholders (or
other equity holders) in

 

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connection therewith other than in connection with the Required Approvals. Each
Transaction Document to which such Subsidiary is a party has been (or upon
delivery will be) duly executed by such Subsidiary and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of such Subsidiary enforceable against it in accordance with
its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and certain of its Subsidiaries to which it is a party
and the consummation by the Company and such Subsidiaries of the other
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, except for any such conflict, default, of
creation of a lien or rights of termination, amendment, acceleration or
cancellation as could not cause a Material Adverse Effect, and except for
certain customer agreements entered in the ordinary course of business regarding
change of control, or (iii) subject to the Required Approvals, result in a
material violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected.

(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company or any Subsidiary of the
Transaction Documents, other than (i) filings required pursuant to Section 4.6,
(ii) the filing with the Delaware Secretary of State of (A) the Certificate of
Designation prior to or on the date hereof and (b) assuming approval of the
Stockholder Matters by the stockholders of the Company, on or prior to the
Second Closing Date, the Certificate of Amendment, (iii) the filing of the Proxy
Statement (as defined in Section 4.1) with the Commission, (iv) the filing with
the Commission pursuant to the Registration Rights Agreement of one or more
Registration Statements with respect to Underlying Shares that are not currently
registered pursuant to an effective Registration Statement, (v) the notice
and/or application(s) to each applicable Trading Market for the listing of the
Underlying Shares for trading thereon in the time

 

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and manner required thereby, and (vi) the approval by the Company’s and the
Subsidiaries’ boards of directors, which have been received (collectively, the
“Required Approvals”).

(f) Issuance of the Securities. (A) All shares of Series B Preferred issuable
pursuant to this Agreement, the Underlying Shares related to the shares of
Series B Preferred issuable at the First Closing, and the Warrant Shares are
duly authorized and, when issued in accordance with this Agreement, the
Certificate of Designation or the Warrant will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company and
will have been issued in compliance with all federal and state securities laws.
Subject to (i) approval of the Stockholder Matters by the stockholders of the
Company as provided in Section 4.1 and the filing of the Certificate of
Amendment with the Delaware Secretary of State, the Underlying Shares in respect
of the shares of Series B Preferred issuable on the Second Closing Date will be
duly authorized and, when issued in accordance with this Agreement and the
Certificate of Designation will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company and will have
been issued in compliance with all federal and state securities laws. The
Company has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Warrant Shares and of the Underlying Shares
with respect to the shares of Series B Preferred being issued on the date hereof
at the First Closing. On or prior to the Second Closing Date, the Company shall
have reserved from its duly authorized capital stock a number of shares of
Common Stock equal to at least the Required Minimum. As of the date hereof,
38,487,272 of the Underlying Shares are registered for resale pursuant to
Existing Registration Statement, which are effective within the meaning of the
rules and regulations of the Commission.

(B) The Debentures and the Residual Debentures have been duly authorized by STAC
and when duly executed and delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of STAC enforceable against it in
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

(g) Capitalization Matters. The capitalization of the Company is as set forth on
Schedule 3.1(g). Except with respect to the Concurrent Offering and any Exempt
Issuance: (a) the Company has not issued any capital stock since September 30,
2007, other than pursuant to the exercise of employee stock options under the
Company’s stock option plans and pursuant to the conversion or exercise of
outstanding Common Stock Equivalents; and (b) no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as set forth on Schedule 3.1(g), other than the Securities and pursuant
to the Concurrent Offering or any Exempt Issuance, there are no outstanding
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or

 

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exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Holders) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. Except as set forth on Schedule 3.1(g), there are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

(h) Litigation. Except as set forth in Schedule 3.1(h), there is no Proceeding
or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”) that (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or
(ii) would, if there were an unfavorable decision, result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act. Neither the Company
nor, to the Company’s knowledge, any executive officer, director, or Affiliate
of any of them has been contacted in writing or orally by the Federal Bureau of
Investigation for any reason whatsoever since February 3, 2006.

(i) Certain Fees. Other than an aggregate fee of $450,000 to Burnham Hill
Partners, and any fees payable to the CRO, no brokerage or finder’s fees or
commissions are or will be payable by the Company or any Subsidiary to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other person with respect to the transactions contemplated by
the Transaction Documents. The Holders shall have no obligation with respect to
any fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection with
the transactions contemplated by the Transaction Documents. The Company has
delivered to the Holders a copy of a letter from Burnham Hill Partners
confirming the nature and amounts of all fees and other payments due to it in
connection with the transactions contemplated by this Agreement and the
Concurrent Purchase Agreements.

 

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(j) Private Placement. Assuming the accuracy of the Holders’ representations and
warranties set forth in Section 3.2, no registration under the Securities Act is
or will be required for the issuance of the Series B Preferred or the related
Underlying Shares by the Company to the Holders as contemplated hereby or for
the issuance and sale of the Concurrent Shares pursuant to the Concurrent
Offering. The issuance and sale of the Concurrent Shares pursuant to the
Concurrent Purchase Agreements does not contravene the rules and regulations of
the Trading Market.

(k) Registration Rights. Except as set forth in Schedule 3.1(k), other than each
of the Holders, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company or any
Subsidiary.

(l) Disclosure. The Company confirms that neither it nor, to its knowledge, any
other Person acting on its behalf has provided any of the Holders or their
agents or counsel or any of the New Holders pursuant to the Concurrent Offering,
with any information that will constitute material, nonpublic information
following the issuance of the press release and the filing of the Current Report
on Form 8-K as contemplated in accordance with Section 4.7. The Company
understands and confirms that the Holders will rely on the foregoing
representations and covenants in effecting transactions in securities of the
Company. All disclosure provided to the Holders by the Company or, to the
Company’s knowledge, Burnham Hill Partners, regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure Schedules and
Exhibits to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and correct
in all material respects (except for those representations and warranties that
are qualified by materiality, which shall be true and correct in all respects)
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Holder makes or has made any representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2.

(m) No Integrated Offering. Assuming the accuracy of the Holders’
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause the
issuance of the Securities pursuant to this Agreement to fail to be entitled to
the exemptions afforded by Regulation D under, or Section 4(2) of, the
Securities Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any Trading Market on
which any of the securities of the Company are listed or designated, if any.

(n) No General Solicitation. Neither the Company nor any person acting on behalf
of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for
sale only to the Holders.

 

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(o) Acknowledgement Regarding Holders’ Trading Activity. The Company
acknowledges and agrees that (i) except for a Holder’s representation and
warranty in Section 3.2(f) and its covenant in Section 4.12, such Holder is not
making any representation, warranty or covenant with respect to purchasing or
selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) that past or future open market or other
transactions by any Holder, including Short Sales, and specifically including,
without limitation, Short Sales or “derivative” transactions, before or after
the closing of this or future private placement transactions, may negatively
impact the market price of the Company’s publicly-traded securities; (iii) that
any Holder, and counter parties in “derivative” transactions to which any such
Holder is a party, directly or indirectly, presently may have a “short” position
in the Common Stock; and (iv) that each Holder 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 Holders may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Transaction Shares deliverable with
respect to Securities are being determined and (b) such hedging activities (if
any) could reduce the value of the existing stockholders’ equity interests in
the Company at and after the time that the hedging activities are being
conducted. The Company acknowledges that such aforementioned hedging activities
do not constitute a breach of any of the Transaction Documents.

(p) Manipulation of Price. Neither the Company nor to the Company’s knowledge,
anyone 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 or (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities.

(q) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein filed on or after December 31, 2005 being
collectively referred to herein as the “SEC Reports”). As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles

 

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applied on a consistent basis during the periods involved (“GAAP”), except as
may be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

(r) Material Changes. Since December 31, 2006, except as specifically disclosed
in the SEC Reports, (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse
Effect; (ii) the Company and its Subsidiaries have not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s consolidated
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission; (iii) the Company has not altered its method of
accounting; (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreement to purchase or redeem any shares of its capital
stock; and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.

(s) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is threatened with respect to any of the employees of the Company
or any Subsidiary which would reasonably be expected to result in a Material
Adverse Effect.

(t) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received written
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business, except in each case as could not have a Material
Adverse Effect.

(u) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company nor any
Subsidiary has received any written notice of proceedings relating to the
revocation or modification of any Material Permit.

 

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(v) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries and good and marketable title in
all personal property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and clear of all Liens, except
for Permitted Liens. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in material
compliance.

(w) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights of others.

(x) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, adequate directors
and officers insurance coverage. To the Company’s knowledge, such insurance
contracts and policies are accurate and complete. To the Company’s knowledge,
neither the Company nor any Subsidiary will be unable 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
without a significant increase in cost, where such failure to renew could have a
Material Adverse Effect.

(y) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company or holders, directly
or indirectly, of 5% or more of Common Stock and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $60,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company,
(iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company, and (iv) for the Debentures or Residual
Debentures to the extent any holder thereof is also the holder, directly or
indirectly, of 5% or more of Common Stock.

 

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(z) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 that are
applicable to it as of December 31, 2006. The Company and the 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
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and
(iv) the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company’s most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in
Item 307(b) of Regulation S-K under the Exchange Act) or, to the knowledge of
the Company, in other factors that could significantly affect the Company’s
internal controls.

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

(bb) Listing and Maintenance Requirements. The Company files reports pursuant to
Section 15(d) of the Exchange Act. The Company has not taken and will not take
any action designed to, or which, to its knowledge, is likely to have the effect
of, terminating the Company’s reporting requirement pursuant to Section 15(d).
Since February 3, 2006, the Company has not received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

(cc) Application of Takeover Protections. 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 Company’s

 

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certificate of incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Holders as a
result of the Holders and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Securities and the Holders’ ownership of
the Securities.

(dd) Tax Status. Except for matters that would not, individually or in the
aggregate, have or could reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns required to be filed by it and has
paid or accrued all taxes shown as due thereon, other than those being contested
in good faith and for which adequate reserves have been provided, and the
Company has no knowledge of a tax deficiency which has been asserted or
threatened against the Company or any Subsidiary. Since December 31, 2006, the
Company has not received written notice of any claim made by an authority in a
jurisdiction where the Company, does not file tax returns, that the Company is
or may be subject to taxation by that jurisdiction. The Company has not waived
any statute of limitations in any jurisdiction in respect of taxes or tax
returns or agreed to any extension of time with respect to a tax assessment or
deficiency. No federal, state, local or foreign audit, examination or other
administrative proceeding is pending or, to the knowledge of the Company,
threatened in writing with regard to any taxes or tax returns of the Company.
There is no dispute or claim concerning any tax liability of the Company either
claimed or raised by any taxing authority in writing.

(ee) Foreign Corrupt Practices. Neither the Company or any Subsidiary, nor to
the knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.

(ff) Accountants. To the Company’s knowledge, Marcus and Kliegman LLP, who
expressed their opinion with respect to the Company’s financial statements
included in the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2006 and Gregory, Sharer & Stuart, who have been engaged by the
Company and who the Company expects will express their opinion with respect to
the financial statements to be included in the Company’s Annual Report on Form
10-KSB for the year ending December 31, 2007, are independent registered public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable published rules and regulations thereunder adopted by the
Commission and the Public Company Accounting Oversight Board (United States).

(gg) Indebtedness; Seniority. Except as provided in Section 4.18 and in the
Certificate of Designation, no Indebtedness or other equity security or other
security of

 

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the Company or any Subsidiary is or will be senior to the Debentures, Residual
Debentures, or the Series B Preferred in right of payment, whether with respect
to interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is senior only
as to underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).

(hh) Solvency. After giving effect to the receipt by the Company of the proceeds
from the sale of the Concurrent Shares and exchange in full of the Debentures
for Series B Preferred as provided in Article II, to the Company’s knowledge:
(i) the fair value of the Company’s property will be greater than the amount of
its liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of
Section 101(32) of the Bankruptcy Code and, in the alternative, for purposes of
applicable state law; (ii) the present fair saleable value of the Company’s
property will not be less than the amount that will be required to pay its
probable liability on its debts as they become absolute and matured; (iii) the
Company’s assets will not be inadequate, and will not constitute unreasonably
small capital, to carry on its business for the current fiscal year as now
conducted and as proposed to be conducted including its capital needs taking
into account the particular capital requirements of the business conducted by
it, and projected capital requirements and capital availability therefor;
(iv) the Company will be able to realize upon its property and pay its debts and
other liabilities (including disputed, contingent and unliquidated liabilities)
as they mature in the normal course of business; and (v) the current cash flow
of the Company together with the proceeds it would receive were it to liquidate
all of its assets, after taking into account all anticipated uses of the cash,
would be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. Following the receipt by the Company of the
proceeds from the sale of the Concurrent Shares and exchange in full of the
Debentures for Series B Preferred as provided in Article II, the Company does
not intend to, nor does it believe that it will, incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). The Company does not have any
knowledge of any facts or circumstances that leads it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the date hereof.

(ii) Agent. The Company has retained the services of the Agent for a period that
will extend at least through the Second Closing Date to provide the services set
forth in the SPA and this Agreement, and all fees and expenses due and owing to
the Agent through December 31, 2008 have been paid in full.

(jj) Arms’ Length Transaction. Each of the Company and STAC acknowledges and
agrees that each of the Holders is acting solely in the capacity of any arm’s
length Holder with respect to this Agreement and the transactions contemplated
hereby. Each of the Company and STAC further acknowledges and each other Holder
acknowledges that no Holder is acting as a financial advisor or fiduciary of the
Company or STAC or any other Holder (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any advice given by
any Holder or any of

 

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their respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to the Holder’s
participation in the transactions contemplated by the Transaction Documents.

3.2 Representations and Warranties of the Holders. Each Holder, hereby, for
itself and for no other Holder, represents and warrants as of the date hereof to
the Company, and the other Holders follows:

(a) Organization; Authority. It is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by this Agreement and otherwise to
carry out its obligations hereunder. The execution, delivery and performance by
it of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate or similar action on its part. This Agreement has
been duly executed and delivered by it and constitutes the valid and legally
binding obligation of it, enforceable against it in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

(b) Own Account. The Holder understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law. The Holder is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state securities law, has no present intention of distributing
any of such Securities in violation of the Securities Act or any applicable
state securities law and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this representation and
warranty not limiting the Holder’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. The Holder is acquiring the Securities hereunder in the
ordinary course of its business. The Holder does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.

(c) Holder Status. At the date hereof it is, and on each date on which it
exchanges any Debentures or Residual Debentures, or converts any Series B
Preferred, it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act. The Holder is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.

(d) Experience of the Holder. The Holder, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and

 

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financial matters so as to be capable of evaluating the merits and risks of its
continuing investment in the Securities, and has so evaluated the merits and
risks of such investment. The Holder is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment. The Holder acknowledges that there will be no
interest payable on any of the Debentures or Residual Debentures that may be
issued pursuant to this Agreement.

(e) General Solicitation. The Holder is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, the Holder has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with the
Holder, executed any disposition, including Short Sales (but not including the
location and/or reservation of borrowable shares of Common Stock), in the
securities of the Company during the period commencing from the time that the
Holder first received a term sheet from the Company or any other Person setting
forth the material terms of the transactions contemplated hereunder until the
date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a
Holder that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of the Holder’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of the Holder’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, such Holder has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).

(g) Access to Information. The Holder and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and its Subsidiaries that have been requested by such Holder.
Such Holder and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its Subsidiaries. Neither such inquiries nor any
other due diligence investigations conducted by such Holder or its advisors, if
any, or its representatives shall modify, amend or affect such Holder’s right to
rely on the Company’s representations and warranties contained herein.

(h) Sale of Shares of Common Stock. Solely to determine the number of Underlying
Shares and Warrant Shares that the Company is required to register pursuant
hereto, except as set forth on Schedule 3.2(h), if prior to the date hereof, the
Holder has exercised any Warrants or converted any Original Debentures, except
as expressly described in writing by or on behalf of the Holder to the Company,
the Holder has sold the shares of Common Stock issued upon such exercise or
conversion, as applicable, and such shares of Common Stock do not need to be
registered for resale.

 

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ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1 Special Meeting and Proxy Statement.

(a) The Company shall promptly file a preliminary proxy statement (the “Proxy
Statement”) with the Commission in accordance with applicable federal securities
laws and the General Corporation Law of the State of Delaware, for a special
meeting of stockholders to seek approval to increase the authorized Common Stock
of the Company to 500,000,000 shares (the “Stockholder Matters”). The Company
has set a record date and meeting date for the special meeting (the “Special
Meeting”) as set forth in the resolutions delivered to the Holders pursuant to
Section 2.1(a)(vi). To the extent that any Holder is entitled to vote on such
Stockholder Matters, such Holder shall vote in favor of the Stockholder Matters.
The Company shall use its best efforts to respond promptly to any comments on
the Proxy Statement from the Commission and to cause the Special Meeting to be
held on the date set forth in such resolutions or as soon thereafter as
possible.

(b) To the extent that at any time after approval of the Stockholder Matters,
and for so long as Underlying Shares are potentially issuable, in the event that
the Company does not have sufficient authorized Common Stock of the Company to
issue all of the potential Underlying Shares, then the Company shall promptly,
and no later than 60 days after such occurrence, file a subsequent proxy
statement to seek stockholder approval to further increase the number of
authorized shares to an amount sufficient to permit compliance with any issuance
obligations regarding all of the remaining Underlying Shares not yet converted.

4.2 Transfer Restrictions.

(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, or to the Company
or to an affiliate of a Holder or in connection with a pledge as contemplated in
Section 4.2(c), the Company may require the transferor thereof to provide to it
an opinion of counsel selected by the transferor and reasonably acceptable to
the Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of a Holder under this
Agreement and the Registration Rights Agreement.

(b) The Holders agree to the imprinting, so long as is required by this
Section 4.2, of a legend on any of the Securities in substantially the following
form:

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF

 

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1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE AS MAY BE SATISFACTORY TO
THE COMPANY TO THE EFFECT THAT SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OR
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

(c) The Company and STAC acknowledge and agree that a Holder may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” (as defined in Rule
501(a) under the Securities Act) and who agrees to be bound by the provisions of
this Agreement and the Registration Rights Agreement and, if required under the
terms of such arrangement, such Holder may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
appropriate Holder’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
“selling stockholders” thereunder.

(d) Certificates evidencing the Transaction Shares shall not contain any legend
(including the legend set forth in Section 4.2(b)): (i) while a registration
statement (including the Registration Statement) covering the resale of such
security is effective under the Securities Act, (ii) following any sale of such
Transaction Shares pursuant to Rule 144, or (iii) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly if required by the Company’s transfer agent to effect
the removal of the legend hereunder. In connection with the issuance of such
opinion, the Company may request a certificate from the Holder containing
customary representations that such Holder has or will meet the applicable
requirements, if any, necessary to effect a resale under Rule 144. If all or any
portion of any Debenture, Residual Debenture, any shares of Series B Preferred
or any portion of a Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement to cover the resale of the
Underlying Shares or Warrant Shares, or if such Underlying Shares or Warrant
Shares may be sold under Rule 144 or if such legend is not otherwise required
under applicable requirements of the Securities Act (including judicial

 

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interpretations thereof), then such Underlying Shares or Warrant Shares shall be
issued free of all legends. The Company and STAC agree that following the
Effective Date or at such time as such legend is no longer required under this
Section 4.2(d), it will, no later than five (5) Trading Days following the
delivery by a Holder to the Company or the Company’s transfer agent of a
certificate representing Transaction Shares issued with a restrictive legend
(such fifth Trading Day, the “Legend Removal Date”), deliver or cause to be
delivered to such Holder a certificate representing such shares that is free
from all restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of such securities that
enlarge the restrictions on transfer set forth in this Section. If then
applicable, certificates for Transaction Shares subject to legend removal
hereunder shall be transmitted by the transfer agent to the Holders by crediting
the account of the Holder’s prime broker with the Depository Trust Company
System.

(e) In addition to such Holder’s other available remedies, the Company shall pay
to a Holder, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the
date such Securities are submitted to the transfer agent) delivered for removal
of the restrictive legend and subject to Section 4.2(d), $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such damages have
begun to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit such
Holder’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Holder shall have the right to pursue all remedies available
to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.

(f) Each Holder, severally and not jointly with the other Holders, agrees that
the removal of the restrictive legend from certificates representing Securities
as set forth in this Section 4.2 is predicated upon the Company’s reliance that
the Holder will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

4.3 Acknowledgment of Dilution. The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligations under the Transaction Documents,
including without limitation its obligation to issue the Underlying Shares and
Warrant Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against any Holder and regardless of the dilutive effect that
such issuance may have on the ownership of the other stockholders of the
Company.

4.4 Exchange Act Registration; Furnishing of Information. As long as any Holder
owns Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by a Company with a class of securities registered under
Section 15(d) of the Exchange Act, whether or not the

 

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Company is otherwise required to do so by law. As long as any Holder owns
Securities, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Holders and make publicly
available in accordance with Rule 144(c) such information as is required for the
Holders to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.

4.5 Integration. The Company shall not take any intentional action or steps that
would cause the offering of the Securities under this Agreement to fail to be
entitled to the exemptions from integration afforded by Regulation D under or
Section 4(2) of, the Securities Act.

4.6 Conversion and Exercise Procedures.

(a) The form of Notice of Exercise included in the Warrants and the form of
Notice of Conversion included in the Series B Preferred set forth the totality
of the procedures required of the Holders in order to exercise the Warrants or
convert the Series B Preferred. No additional legal opinion or other information
or instructions shall be required of the Holders to exercise their Warrants or
convert their Series B Preferred Shares. The Company shall honor exercises of
the Warrants and conversions of the Series B Preferred Shares and shall deliver
Underlying Shares or Warrant Shares, as applicable, in accordance with the
terms, conditions and time periods set forth in the Transaction Documents.

(b) Each Holder agrees that notwithstanding the conversion terms set forth in
the Debentures, no Holder will exercise any such conversion rights prior to the
Second Closing.

4.7 Securities Laws Disclosure; Publicity. The Company shall issue and file the
following, as applicable, by 8:30 a.m. Eastern time on the respective dates:
(a) on the Trading Day following the date hereof, issue a press release
substantially in the form attached hereto as Exhibit J, and by the third Trading
Day following the date hereof, file a Current Report on Form 8-K; (b) on the
Trading Day following the Second Closing Date, issue a press release, and by the
third Trading Day following such date file a Current Report on Form 8-K; and
(c) on the Trading Day following the date following closing with respect to the
Concurrent Offering Target, issue a press release, and by the third Trading Day
following such date file a Current Report on Form 8-K; in each case disclosing
the material terms of such respective transactions, and shall attach such
Transaction Documents thereto as may be required by applicable regulations. The
Company and each Holder shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and none of the
Company or any Holder shall issue any such press release or otherwise make any
such public statement without the prior consent of the Company, with respect to
any press release of any Holder, or without the prior consent of each Holder,
with respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Holder, or include the
name of any Holder in any filing

 

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with the Commission or any regulatory agency or Trading Market, without the
prior written consent of such Holder, except (i) as required by federal
securities law, including, without limitation, in connection with the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Holders with prior
notice of such disclosure permitted under subclause (i) or (ii).

4.8 Non-Public Information. The Company covenants and agrees that neither it nor
any other Person acting on its behalf will provide any Holder or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Holder shall have executed a
written agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Holder shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.

4.9 INTENTIONALLY LEFT BLANK.

4.10 Indemnification of Holders.

(a) Subject to the provisions of this Section 4.10, the Company indemnifies and
holds the Holders and the Agent and each of their directors, officers,
shareholders, members, partners, employees and agents (each, a “Holder Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Holder Party may suffer or incur as a result of or
relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by STAC, the Company or any other Subsidiary in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Holder Party, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Holder, with respect
to any of the transactions contemplated by the Transaction Documents (unless
such action is based upon a breach of such Holder’s representations, warranties
or covenants under the Transaction Documents or any agreements or understandings
such Holder may have with any such stockholder or any violations by the Holder
of state or federal securities laws or any conduct by such Holder that
constitutes fraud, gross negligence, willful misconduct or malfeasance).

(b) If any action shall be brought against any Holder Party in respect of which
indemnity may be sought pursuant to this Agreement, such Holder Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Holder Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Holder Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such
defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Holder Party.
The

 

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Company will not be liable to any Holder Party under this Agreement (i) for any
consent settlement by a Holder Party effected without the Company’s prior
written consent, which shall not be unreasonably withheld or delayed; or (ii) to
the extent, but only to the extent that a loss, liability, obligation, claim,
contingency, damage, cost or expense is attributable to (A) any Holder Party’s
breach of any of the representations, warranties, covenants or agreements made
by the Holders in this Agreement or in the other Transaction Documents, or
(B) any violation by the Holder of state or federal securities laws or any
conduct by such Holder that constitutes fraud, gross negligence, willful
misconduct or malfeasance. The indemnification obligations under this
Section 4.10 are in addition to any liability that the Company may otherwise
have, including but not limited to any other indemnification liability under any
other Transaction Document.

4.11 Reservation and Listing of Securities.

(a) The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction
Documents.

(b) If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors of the Company shall use commercially
reasonable efforts to amend the Company’s certificate or articles of
incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in
any event not later than the 90th day after such date.

4.12 Short Sales and Confidentiality After The Date Hereof. Each Holder
severally and not jointly with the other Holders covenants that neither it nor
any Affiliates acting on its behalf or pursuant to any understanding with it
(i) will execute any Short Sales during the period after the Discussion Time and
ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.7 and (ii) thereafter so long
as any Debentures, Residual Debentures, or Series B Preferred remain
outstanding, will not execute any Short Sales in Common Stock in an amount
greater than the number of shares of Common Stock that such Holder owns or that
such Holder reasonably expects it could receive upon conversion of the
Debentures, Residual Debentures, Series B Preferred and Warrants and any other
convertible securities of the Company then owned by it. Each Holder, severally
and not jointly with the other Holders, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.7 such Holder will maintain, the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each Holder
understands and acknowledges, severally and not jointly with any other Holder,
that the Commission currently takes the position that coverage of short sales of
shares of the Common Stock “against the box” prior to the Effective Date of the
Registration Statement is a violation of Section 5 of the Securities Act, as set
forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, in the
case of a Holder that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Holder’s assets and the
portfolio managers have no direct

 

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knowledge of the investment decisions made by the portfolio managers managing
other portions of such Holder’s assets, the covenant set forth above shall only
apply with respect to the portion of assets managed by the portfolio manager
that made the investment decision to purchase the Securities covered by this
Agreement.

4.13 Agent for the Holders. So long as any Debentures or Residual Debentures
remain outstanding and unpaid, the Company, STAC, the Agent and the Holders
acknowledge and agree that the rights and obligations set forth in Section 4.20
of the SPA of the Agent and the Holders (referred to therein as the
“Purchasers”), remain in full force and effect and are incorporated herein by
reference as if set forth in full herein. The Company and STAC agree to timely
pay all fees, costs and expenses owed by either of them to the Agent to the
extent the Agent has performed its obligations and there is no good faith
dispute among such parties.

4.14 Release of Security Interests. Upon the exchange of (a) the remaining
principal amount of Debentures for shares of Series B Preferred and, if
applicable, Residual Debentures at the Second Closing only with respect to the
principal amount of Debentures exchanged into Series B Preferred, and (b) the
principal amount of Residual Debentures into Series B Preferred, and in any
event once no Debentures or Residual Debentures are remaining outstanding, the
Company and the Holders shall execute such security termination letters and
other termination documents reasonably requested by the Company and/or the Agent
in order to terminate the Security Documents, and shall deliver such documents
to the Agent; and the Agent shall, subject to receipt of any fees and expenses
then due to it, file those security termination documents that are required to
be filed with governmental authorities and return all security for the
Debentures and Residual Debentures then held by it to the Company or its
Subsidiaries as applicable.

4.15 Certain Covenants. Through the Second Closing Date, and if applicable,
payment of any Residual Debentures, the Company shall comply with the covenants
set forth in this Section 4.15. The financial covenants of the Company set forth
in Section 4.21 of the SPA, as such covenants may have been amended prior to the
date hereof, are hereby terminated and of no further force and effect.

(a) Payment of Obligations. The Company and its Subsidiaries will pay and
discharge, as the same shall become due and payable, all lawful taxes,
assessments and charges or levies made upon it or its property or assets, by any
governmental body, agency or official except where any of such items may be
diligently contested in good faith by appropriate proceedings, and the Company
and each of its Subsidiaries shall have set aside on its respective books, if
required under GAAP, reserves for the liabilities related to such items.

(b) Affiliate Transactions. The Company will not, and will not permit any of its
Subsidiaries to, authorize, permit or suffer to occur any transactions,
contracts or other arrangements by the Company or any of its Subsidiaries with
any Affiliate of the Company or any of its Subsidiaries other than in the
ordinary course of business and on terms that are no less favorable to the
Company than those that could have been obtained in a comparable transaction on
an arm’s-length basis.

 

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(c) Restricted Payments, etc. Except with respect to Exempt Issuances, Permitted
Indebtedness and the Concurrent Offering, the Company will not, and will not
permit any of its non-wholly owned Subsidiaries to, declare, pay or make any
dividend or distribution (in cash, property or obligations) on any shares of any
class of its stock or on any warrants, options or other rights in respect of any
class of its stock without the approval of the Required Holders. The Company
will not, and will not permit any of its Subsidiaries to apply any of its funds,
property or assets to the purchase, redemption, sinking fund or other retirement
of any shares of any class of stock of the Company or any non-wholly owned
Subsidiary, or make any deposit for any of the foregoing.

(d) No Investment Company. The Company shall conduct its business in a manner so
that it will not become subject to the Investment Company Act.

4.16 Restructuring Consultant. The Company shall cooperate fully with the CRO in
its review of the Company’s business lines and financial operations with the
goal of having the CRO present its findings and recommendations to the Company’s
Board of Directors within 60 days of engagement. The CRO shall be given full
access to the Company’s books and records and management during regular business
hours.

4.17 Amendment to the Registration Rights Agreement. The provisions of this
Section 4.17 amends the Registration Rights Agreement as follows:

(a) Within 90 days of the First Closing, in accordance with the terms and
conditions of the Registration Rights Agreement, the Company shall file a
registration statement (the “New Registration Statement”) on the appropriate
form covering all Underlying Shares not registered under the Existing
Registration Statement plus such additional amount as will cause the aggregate
amount of Underlying Shares and Warrant Shares registered with the Commission
pursuant to the Existing Registration Statement or any other registration
statement filed pursuant to this Agreement to equal to the Required Minimum with
the Commission. The Company shall use its best efforts to have the New
Registration Statement declared effective by 150 days of the date of the First
Closing. The Concurrent Shares may be included in the New Registration
Statement.

(b) The Company may, at its option, also file one or more post-effective
amendments to the Existing Registration Statement which may, to the extent
consistent with the rules and regulations of the Commission, cause some or all
of the Underlying Shares of the Series B Shares issued at the First Closing and
the Second Closing to be included in such registration statement.

(c) If the New Registration Statement has not been declared effective by the
150th day after the date hereof, the Company shall pay to the Holders liquidated
damages in a per diem amount equal to: (i) one thirtieth of 1.5% of the
principal value of the Debentures set forth in the first Column of Schedule I
hereto, “Aggregate Principal Amount of Original Debentures Outstanding,” less
the Stated Value of the issued and outstanding shares of Series B Preferred with
respect to which the Underlying Shares are subject to an effective registration
statement (collectively, the “Aggregate Amount”) for such number of days during
the first 30-day period that the New Registration Statement

 

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has not been declared effective; and (ii) one thirtieth of 1.0% of such amount
for such number of days during each subsequent 30-day period that the New
Registration Statement has not been declared effective; which amounts shall be
pro-rated to the extent any such period is less than 30 days; provided, however,
that liquidated damages shall (A) be pro-rated only for that portion of the
Underlying Shares, if any, not registered by such 150th day; and (B) shall not
in the aggregate exceed 18.0% of the Aggregate Amount. Such payments shall be
made within five (5) Trading Days following the end of the applicable 30-day
period.

(d) The term “Registrable Securities,” as defined in the Registration Rights
Agreement, shall also include Common Stock issued or issuable upon conversion of
the shares of Series B Preferred.

(e) In all other respects, the Registration Rights Agreement shall remain in
full force and effect.

4.18 Incurrence of Indebtedness. From the date hereof through the Second Closing
Date, and for so long as (i) shares of Series B Preferred with an aggregate
liquidation preference of at least $8,182,500 remain outstanding, or (ii) any
Debentures or Residual Debentures remain outstanding, except for Permitted
Indebtedness, securities issued pursuant to the Concurrent Offering, and Exempt
Issuances, the Company shall not issue any securities or financial instruments
that rank senior or pari passu to the Series B Preferred or, if outstanding, the
Debentures or the Residual Debentures without the consent of the Required
Holders.

4.19 SPA. (A) Effective at the Second Closing, subject to Section 4.13, the SPA
shall terminate and be of no further force and effect except that Section 4.20
of the SPA shall survive in accordance with its terms. Each Holder, severally
and not jointly: (a) agrees that the execution and performance of this
Agreement, and all actions taken in furtherance thereof by the Company and its
Affiliates shall not constitute a breach or default of the SPA, the Original
Debentures or any other document, agreement or instrument related thereto (the
“SPA Documents”); (b) hereby forever waives any and all breaches, defaults or
Events of Default under the SPA Documents arising or existing on or before the
date hereof except for such provisions of the SPA that expressly survive the
termination thereof, and (c) hereby releases and discharges the Company, the
Subsidiaries and their respective officers, directors, employees,
representatives, agents, affiliates, successors and assigns, as the case may be,
from and against any and all rights and claims related thereto, any and all
obligations, liabilities (including, but not limited to, any liability for any
breach or default by any of them of the terms or provisions of the SPA
Documents), actions, causes of action, suits, debts, dues, sums of money,
accounts reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever, known or unknown, fixed, conditional
or contingent in law or in equity (collectively, “Claims”), that the Holder ever
had, now has or hereafter can, shall or may have, against any of them for, upon
or by reason of any matter, cause or thing arising out of or based on the SPA
Documents from the beginning of time to the date hereof; provided, that nothing
herein shall release or discharge any Claim arising out of the Company’s or the
Subsidiaries’ willful misrepresentation or fraud.

 

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(B) The Company and the Subsidiaries, on the other hand (each, a “Releasor”),
jointly and severally hereby release and discharge each Holder and purchaser
under the SPA and the Agent (each, in such capacity, a “Releasee”), and each of
the Releasee’s officers, directors, employees, representatives, agents,
affiliates, subsidiaries, predecessors, successors and assigns, as the case may
be, from any and all Claims, which such Releasor ever had, now has or hereafter
can, shall or may have, against such Releasee or such other persons, for, upon
or by reason of any matter, cause or thing arising out of or based on the SPA
Documents from the beginning of time to the date hereof; provided, however, that
nothing herein shall operate to release or discharge any Claim arising out of a
Releasee’s or any such other person’s willful misrepresentation or fraud.

4.20 Concurrent Offering. The Company will use commercially reasonable efforts
to complete the Concurrent Offering and to execute and deliver the Concurrent
Purchase Agreement in substantially the form previously delivered to the
Holders. The Company shall apply the proceeds of the Concurrent Offering as
follows: (a) to pay interest on the Original Debentures accrued through
November 16, 2007; (b) costs and expenses arising in connection with or
otherwise related to the Transaction Documents, the Concurrent Offering, the
First Closing and the Second Closing; and (c) working capital purposes. The
Concurrent Offering will terminate no later than one (1) year from the Second
Closing Date. Sales of Common Stock made in connection with the Concurrent
Offering shall be at the Concurrent Offering Price.

4.21 New Financing. For a period of twelve (12) months following the Second
Closing Date, if the Company completes a subsequent equity or equity linked
financing that does not constitute Permitted Indebtedness, the Concurrent
Offering or an Exempt Issuance (a “New Financing”), the Holders of any Residual
Debentures may exchange such securities at 100% of their face value for
securities offered in such New Financing.

4.22 Variable Rate Transactions. For so long as any Debentures or Residual
Debentures remain outstanding and unpaid, except for transactions provided for
pursuant to this Agreement, the Company and its Subsidiaries shall be prohibited
from effecting or entering into an agreement to effect any offering of its
securities, including any firm commitment underwritten public offering,
involving a “Variable Rate Transaction”. The term “Variable Rate Transaction”
shall mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities or
(B) with a conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity security
or upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or
(ii) enters into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined price.

4.23 Board Composition. For such period and as otherwise specified in the voting
agreement in the form of Exhibit F hereto, the Company and the Holders shall
nominate designees for election to the Company’s board of directors for election
by the Company’s stockholders as set forth in such voting agreement and
consistent with the terms of Section 2.1(f) hereof.

 

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ARTICLE V

MISCELLANEOUS

5.1 Termination. This Agreement may be terminated by the Company or by any
Holder, as to such Holder’s obligations hereunder only and without any effect
whatsoever on the obligations among the Company, STAC and the other Holders, by
written notice to the other parties, if the Second Closing has not been
consummated on or before the date that is 150 days after the date of the First
Closing; provided, however, that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).

5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. Notwithstanding the foregoing, the
Company shall reimburse the Holders for their reasonable out-of-pocket expenses
incurred in connection with the transactions contemplated by the Transaction
Documents, including reasonable legal fees and disbursements and business
diligence expenses, in an aggregate amount up to $50,000 (excluding the Agent’s
fees and expenses) promptly upon receiving reasonable documentation of such
expenses by the Holders. The Company shall pay all transfer agent fees, stamp
taxes and other taxes and duties levied in connection with the delivery of any
Securities.

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

5.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via confirmed facsimile at the facsimile
number set forth on the signature pages attached hereto prior to 5:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company, STAC, the Required Holders and, if the Agent could be adversely
affected in any way by any such amendment, by the Agent or, in the case of a
waiver, by the party against whom

 

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enforcement of any such waiver is sought and the Company shall cause
Relationserve Access, Inc., and Friendsand, Inc. to acknowledge in writing each
amendment or waiver agreed to by the Company and/or STAC. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right. Copies
of waivers and amendments shall be delivered by the parties executing such
instruments to the Agent if the Agent is not a party. Any material consideration
provided by the Company to any Holder in exchange for such Holder’s consent to a
waiver, modification or amendment to any material term or condition of any of
the Transaction Documents will also be offered by the Company to the other
existing Holders on a pro rata basis based on ownership of applicable
securities. No amendment or modification of any Transaction Document may
disproportionately affect the equity or debt interests owned by any Holder of
applicable securities without the written consent of such Holder.

5.6 Headings. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. Neither
the Company nor STAC may assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Required Holders. Any Holder
may assign any or all of its rights under this Agreement to any Person to whom
such Holder assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the “Holders”.

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.12.

5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party 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 (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is

 

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improper or inconvenient venue for such proceeding. 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 via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

5.10 Survival. The representations and warranties contained herein shall survive
the Closing and the delivery, exercise and/or conversion of the Securities, as
applicable for two years after the Consolidation Date or the applicable statue
of limitations.

5.11 Counterparts. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

5.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

5.13 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

5.14 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Holders and
the Agent (acting upon the instructions of the Required Holders), on the one
hand, and the Company and STAC, on the other hand, will be entitled to specific
performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any
breach of obligations described in the foregoing sentence and hereby agrees to
waive in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

 

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5.15 Payment Set Aside. To the extent that the Company or STAC makes a payment
or payments to any Holder or the Agent pursuant to any Transaction Document or a
Holder enforces or exercises its rights 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 or STAC, a trustee, receiver or any other person under
any law (including, without limitation, any bankruptcy law, 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.

5.16 Independent Nature of Holders’ Obligations and Rights. The obligations of
each Holder under any Transaction Document are several and not joint with the
obligations of any other Holder, and no Holder shall be responsible in any way
for the performance of the obligations of any other Holder under any Transaction
Document. Nothing contained herein or in any Transaction Document, and no action
taken by any Holder pursuant thereto, shall be deemed to constitute the Holders
as a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Holders are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Except as set forth in Section 4.20 of the SPA, each
Holder shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Holder to be joined as an additional party in any proceeding for such purpose.
Each Holder has been represented by its own separate legal counsel in its review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Holders and their respective counsel have chosen to
communicate with the Company through Morrison. Morrison does not represent all
of the Holders but only Lehman Brothers Inc. and its affiliates. The Company and
STAC have elected to provide all Holders with the same terms and Transaction
Documents for the convenience of the Company and not because it was required or
requested to do so by the Holders.

5.17 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

5.18 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

 

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5.19 Further Assurances. Each party agrees (a) to furnish upon request to each
other party such further information, (b) to execute and deliver to each other
party such other documents, and (c) to do such other acts and things, all as
another party may reasonably request for the purpose of carrying out the intent
of this Agreement and the transactions contemplated by this Agreement.

[SIGNATURE PAGE FOLLOWS]

 

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

 

      Address for Notice SENDTEC ACQUISITION CORP.     By:  

 

    877 Executive Center Drive West   Paul Soltoff, President     Suite 300    
  St. Petersburg, FL 33702       Fax: 727-576-7790 SENDTEC, INC.     By:  

 

    877 Executive Center Drive West   Paul Soltoff, Chief Executive Officer    
Suite 300       St. Petersburg, FL 33702       Fax: 727-576-7790 With a copy to
(which shall not constitute notice):     Holland & Knight, LLP       100 North
Tampa Street       Tampa, FL 33609       Fax: 813-229-0134       ATT: Robert J.
Grammig, Esq.

Each of RelationServe Access, Inc. and Friendsand, Inc. hereby (1) acknowledges,
consents and agrees to the terms of this Recapitalization Agreement, the
Debentures, the Residual Debentures, and all related documents and agreements;
(2) ratifies, restates and confirms the Security Documents to which it is a
party; (3) agrees that the Debentures and Residual Debentures constitute
Guarantied Obligations and Secured Obligations (as defined in the Security
Documents); and (4) agree and intend that this ratification and agreement shall
not constitute a novation.

 

RELATIONSERVE ACCESS, INC.     By:  

 

    877 Executive Center Drive West   Paul Soltoff, President     Suite 300    
  St. Petersburg, FL 33702       Fax: 727-576-7790 FRIENDSAND, INC.     By:  

 

    877 Executive Center Drive West   Paul Soltoff, President     Suite 300    
  St. Petersburg, FL 33702       Fax: 727-576-7790

 

Recapitalization Agreement