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Exhibit 10.1
 
 
SECURITIES PURCHASE AGREEMENT
 
LV ADMINISTRATIVE SERVICES, INC.,
as Administrative and Collateral Agent
 
THE PURCHASERS
From Time to Time Party Hereto
 
and
 
GENERAL ENVIRONMENTAL MANAGEMENT, INC.
 
Dated: October 31, 2007
 
 
 

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TABLE OF CONTENTS
 

     
Page
        1.
Agreement to Sell and Purchase
1
     
2.
Fees and Warrant
2
      3.
Closing, Delivery and Payment.
2
 
3.1
Closing
2
 
3.2
Delivery
2
     
 
4.
Representations and Warranties of the Company
3
 
4.1
Organization, Good Standing and Qualification
3
 
4.2
Subsidiaries
4
 
4.3
Capitalization; Voting Rights.
4
 
4.4
Authorization; Binding Obligations
5
 
4.5
Liabilities; Solvency
5
 
4.6
Agreements; Action
6
 
4.7
Obligations to Related Parties
7
 
4.8
Changes
8
 
4.9
Title to Properties and Assets; Liens, Etc
9
 
4.10
Intellectual Property.
10
 
4.11
Compliance with Other Instruments
11
 
4.12
Litigation
11
 
4.13
Tax Returns and Payments
11
 
4.14
Employees
12
 
4.15
Registration Rights and Voting Rights
12
 
4.16
Compliance with Laws; Permits
13
 
4.17
Environmental and Safety Laws
13
 
4.18
Valid Offering
13
 
4.19
Full Disclosure
14
 
4.20
Insurance
14
 
4.21
SEC Reports
14
 
4.22
Listing
14
 
4.23
No Integrated Offering
15
 
4.24
Stop Transfer
15
 
4.25
Dilution
15
 
4.26
Patriot Act
15
 
4.27
ERISA
16
     
 
5.
Representations and Warranties of each Purchaser
16
 
5.1
No Shorting
16
 
5.2
Requisite Power and Authority
16
 
5.3
Investment Representations
16
 
5.4
The Purchaser Bears Economic Risk
17
 
5.5
Acquisition for Own Account
17
 
5.6
The Purchaser Can Protect Its Interest
17
 
5.7
Accredited Investor
17
 
5.8
Legends
17

 
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TABLE OF CONTENTS
 

     
Page
     
 
6.
Covenants of the Company
18
 
6.1
Stop-Orders
18
 
6.2
Listing
18
 
6.3
Market Regulations
19
 
6.4
Reporting Requirements
19
 
6.5
Use of Funds
20
 
6.6
Access to Facilities
21
 
6.7
Taxes.
21
 
6.8
Insurance
23
 
6.9
Intellectual Property
24
 
6.10
Properties
24
 
6.11
Confidentiality
24
 
6.12
Required Approvals
25
 
6.13
Reissuance of Securities
26
 
6.14
Opinion
27
 
6.15
Margin Stock
27
 
6.16
FIRPTA
27
 
6.17
Financing Right of First Refusal.
27
 
6.18
Authorization and Reservation of Shares
28
 
6.19
Maximum Consolidated Leverage Ratio
28
     
 
7.
Covenants of the Purchasers
31
 
7.1
Confidentiality
31
 
7.2
Non-Public Information
32
 
7.3
Limitation on Acquisition of Common Stock of the Company
32
     
8.
Covenants of the Company and the Purchasers Regarding Indemnification.
32
 
8.1
Company Indemnification
32
 
8.2
Purchaser Indemnification
32
       
9.
Conversion of Convertible Note.
33
 
9.1
Mechanics of Conversion
33
     
 
10.
Registration Rights.
34
 
10.1
Registration Rights Granted
34
 
10.2
Offering Restrictions
34
     
 
11.
Miscellaneous.
34
 
11.1
Governing Law, Jurisdiction and Waiver of Jury Trial.
34
 
11.2
Severability
35
 
11.3
Survival
36
 
11.4
Successors.
36
 
11.5
Entire Agreement; Maximum Interest
37
 
11.6
Amendment and Waiver.
37

 
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TABLE OF CONTENTS
 

     
Page
         
11.7
Delays or Omissions
37
 
11.8
Notices
38
 
11.9
Attorneys’ Fees
39
 
11.10
Titles and Subtitles
39
 
11.11
Facsimile Signatures; Counterparts
39
 
11.12
Broker’s Fees
39
 
11.13
Construction
39
 
11.14
Agency
39

 
 
 
 
 
 
 
 
 
 
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LIST OF EXHIBITS
 
Form of Convertible Term Note
Exhibit A
Form of Warrant
Exhibit B
Form of Opinion
Exhibit C
Form of Escrow Agreement
Exhibit D
Form of Compliance Certificate
Exhibit E

 
LIST OF SCHEDULES
 
Schedule 1
Purchaser Commitments
Schedule 2
Warrant Holders and Warrant Shares
Schedule 4.2
Subsidiaries
Schedule 4.3
Capitalization
Schedule 4.6
Extraordinary Agreements
Schedule 4.7
Obligations to Related Parties
Schedule 4.9
Title to Properties; Liens
Schedule 4.10
IP Registration
Schedule 4.12
Litigation
Schedule 4.13
Taxes
Schedule 4.14
Employees
Schedule 4.15
Registration and Voting Rights
Schedule 4.17
Environmental
Schedule 4.21
SEC Reports
Schedule 6.12(e)
Indebtedness
Schedule 11.12
Brokers

 
 
 
 
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SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
as of October 31, 2007, among GENERAL ENVIRONMENTAL MANAGEMENT, INC., a Nevada
corporation (the “Company”), the purchasers from time to time a party hereto
(each a “Purchaser” and collectively, the “Purchasers”), LV Administrative
Services, Inc., a Delaware corporation, as administrative and collateral agent
for each Purchaser, (the “Agent” and together with the Purchasers, the “Creditor
Parties”).
 
RECITALS
 
WHEREAS, the Company has authorized the sale to each Purchaser of a Secured
Convertible Term Note in the form of Exhibit A hereto in the principal amount
set forth opposite such Purchaser’s name on Schedule 1 hereto (each as amended,
restated, modified and/or supplemented from time to time, a “Note” and,
collectively, the “Notes”), which Note is convertible into shares of the
Company’s common stock, $0.001 par value per share (the “Common Stock”) at an
initial fixed conversion price of $2.78 per share of Common Stock (“Fixed
Conversion Price”);
 
WHEREAS, the Company wishes to issue to each Purchaser a warrant in the form of
Exhibit B hereto (each as amended, restated, modified and/or supplemented from
time to time, a “Warrant” and, collectively the “Warrants”) to purchase up to
the number of shares of the Common Stock set forth opposite such Purchaser’s
name on Schedule 2 (subject to adjustment as set forth therein) in connection
with such Purchaser’s purchase of the applicable Note;
 
WHEREAS, each Purchaser desires to purchase the applicable Note and Warrant on
the terms and conditions set forth herein; and
 
WHEREAS, the Company desires to issue and sell the applicable Note and Warrant
to each Purchaser on the terms and conditions set forth herein.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
 
1.           Agreement to Sell and Purchase.  Pursuant to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 3), the Company shall sell to each Purchaser, and each Purchaser shall
purchase from the Company, the applicable Note.  The sale of the Notes on the
Closing Date shall be known as the “Offering.”  The Notes will mature on the
Maturity Date (as defined in the Note).  Collectively, the Notes and Warrants
and Common Stock issuable upon conversion of the Notes and upon exercise of the
Warrants are referred to as the “Securities.”
 
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2.           Fees and Warrant.  On the Closing Date:
 
(a)           The Company will issue and deliver to each Purchaser a Warrant to
purchase up to the number of shares of Common Stock set forth opposite its name
on Schedule 2 (subject to adjustment as set forth therein) in connection with
the Offering pursuant to Section 1 hereof.  All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of each Creditor Party by the Company are hereby also made
and granted for the benefit of the holder of the related Warrant and shares of
the Common Stock issuable upon exercise of such Warrant (the “Warrant Shares”).
 
(b)           Subject to the terms of Section 2(c) below, the Company shall pay
(i) to Valens Capital Management, LLC, the investment manager of the Purchasers
(“VCM”), a non-refundable payment in an amount equal to $5,000; (ii) a
non-refundable payment in an amount equal to (A) $10,400 to Valens U.S. SPV I,
LLC (“Valens U.S.”), and (B) $9,600 to Valens Offshore SPV II, Corp. (“Valens
Offshore”) and (iii) an advance prepayment discount deposit equal to (A) $10,400
to Valens U.S. and (B) $9,600 to Valens Offshore.  Each of the foregoing
payments in clauses (i) and (ii) shall be deemed fully earned on the Closing
Date and shall not be subject to rebate or proration for any reason, except to
the extent a Purchaser fails to deliver, or cause to be delivered, the funds
required of such Purchaser at the Closing notwithstanding the Company’s and its
Subsidiaries’ full compliance with all conditions to funding set forth in this
Agreement or in any of the Related Agreements, including, without limitation,
satisfaction (or waiver by the Agent in its sole discretion) of the items and
matters set forth in the transaction checklist provided by the Agent to the
Company on or prior to the Closing Date.
 
(c)           The payments referred to in the preceding clause (b) shall be paid
at closing out of funds held pursuant to the Escrow Agreement (as defined below)
and a disbursement letter (the “Disbursement Letter”) and shall be in addition
to all deposits previously paid by the Company which the Company hereby
acknowledges have been fully earned by the recipient(s) thereof and are
non-refundable.
 
3.           Closing, Delivery and Payment.
 
3.1           Closing.  Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the “Closing”), shall take place on the
date hereof, at such time or place as the Company and the Agent may mutually
agree (such date is hereinafter referred to as the “Closing Date”).
 
3.2           Delivery.  Pursuant to the Escrow Agreement, at the Closing on the
Closing Date, the Company will deliver to each Purchaser, among other things,
the applicable Note and Warrant and such Purchaser will deliver to the Company,
among other things, the amounts set forth opposite its name in the Disbursement
Letter by certified funds or wire transfer. The Company hereby acknowledges and
agrees that each Purchaser’s obligation to purchase the applicable Note from the
Company on the Closing Date shall be contingent upon the satisfaction (or waiver
by the Agent in its sole discretion) of the items and matters set forth in the
closing checklist provided by the Agent to the Company on or prior to the
Closing Date.
 
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4.           Representations and Warranties of the Company.  The Company hereby
represents and warrants to each Creditor Party as follows:
 
4.1           Organization, Good Standing and Qualification.  The Company and
each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization.  The Company and
each of its Subsidiaries has the corporate, limited liability company or
partnership, as the case may be, power and authority to own and operate its
properties and assets and, insofar as it is or shall be a party thereto, to (1)
execute and deliver (i) this Agreement, (ii) the Notes and the Warrants to be
issued in connection with this Agreement, (iii) the Master Security Agreement
dated as of the date hereof among the Company, certain Subsidiaries of the
Company and the Agent (as amended, restated, modified and/or supplemented from
time to time, the “Master Security Agreement”), (iv) the Registration Rights
Agreements relating to the Securities dated as of the date hereof (as amended,
restated, modified and/or supplemented from time to time, the “Registration
Rights Agreements”), (v) the Subsidiary Guaranty dated as of the date hereof
made by certain Subsidiaries of the Company (as amended, restated, modified
and/or supplemented from time to time, the “Subsidiary Guaranty”), (vi) the
Equity Interest Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company and the Agent (as amended, restated, modified and/or
or supplemented from time to time, the “Stock Pledge Agreement”), (vii) the
Funds Escrow Agreement dated as of the date hereof among the Company, the
Purchasers and the escrow agent referred to therein, substantially in the form
of Exhibit D hereto (as amended, restated, modified and/or supplemented from
time to time, the “Escrow Agreement”), (viii) the Intellectual Property Security
Agreement dated as of the date hereof among the Company and/or certain
Subsidiaries of the Company and the Agent (as amended, restated, modified and/or
supplemented from time to time, the “Intellectual Property Security Agreement”),
(ix) the Deed of Trust, Security Agreement, Assignment Of Rents, And Fixture
Filing dated as of the date hereof from General Environmental Management of
Rancho Cordoba, LLC in favor of the Trustee thereunder for the benefit of the
Agent (as amended, restated, modified and/or supplemented from time to time, the
“Deed of Trust”), and (x) all other documents, instruments and agreements
entered into in connection with the transactions contemplated hereby and thereby
(the preceding clauses (ii) through (x), collectively, the “Related
Agreements”); (2) issue and sell the Notes and the shares of Common Stock
issuable upon conversion of the Note (the “Note Shares”); (3) issue and sell the
Warrants and the Warrant Shares; and (4) carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted.  Each of the Company and each of its Subsidiaries is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be, in
all jurisdictions in which the nature or location of its activities and of its
properties (both owned and leased) makes such qualification necessary, except
for those jurisdictions in which failure to do so has not, or could not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company and its
Subsidiaries, taken individually and as a whole (a “Material Adverse Effect”).
 
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4.2           Subsidiaries.  Each direct and indirect Subsidiary of the Company,
the direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2.  For the purpose of this Agreement, a “Subsidiary” of any
Person means (i) a corporation or other entity or Person whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation or other
entity or Person, or other Persons or entities performing similar functions for
such corporation or other entity or Person, are owned, directly or indirectly,
by such Person or (ii) a corporation or other entity or Person in which such
Person owns, directly or indirectly, more than 50% of the equity interests at
such time.  For the purpose of this Agreement, a “Person” means any individual,
sole proprietorship, partnership, limited liability partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, entity or government (whether
federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof), and shall
include such Person’s successors and assigns.
 
4.3           Capitalization; Voting Rights.
 
(a)           The authorized capital stock of the Company, as of the date hereof
consists of 1,100,000,000 shares, of which 1,000,000,000 are shares of Common
Stock, par value $0.001 per share, 12,403,082 shares of which are issued and
outstanding, and 100,000,000 are shares of preferred stock, par value $0.001 per
share, none of which are issued and outstanding.  The authorized, issued and
outstanding capital stock of each Subsidiary of the Company is set forth on
Schedule 4.3.
 
(b)           Except as disclosed on Schedule 4.3, other than:  (i) the shares
reserved for issuance under the Company’s stock option plans; and (ii) shares
which may be granted pursuant to this Agreement and the Related Agreements,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or arrangements or agreements of any kind for the purchase or acquisition from
the Company of any of its securities.  Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Notes or the Warrants, or the
issuance of any of the Note Shares or Warrant Shares, nor the consummation of
any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
 
(c)           All issued and outstanding shares of the Company’s Common
Stock:  (i) have been duly authorized and validly issued and are fully paid and
non-assessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
 
(d)           The rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Company’s Certificate or Articles of
Incorporation.  The Note Shares and Warrant Shares have been duly and validly
reserved for issuance.  When issued in compliance with the provisions of this
Agreement and the Company’s Certificate or Articles of Incorporation, the
Securities will be validly issued, fully paid and non-assessable, and will be
free of any liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.
 
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4.4           Authorization; Binding Obligations.  All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including their respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Notes and Warrants has been taken or will be
taken prior to the Closing.  This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of the Company and each of its Subsidiaries, enforceable
against each such person or entity in accordance with their terms, except:
 
(a)           as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights; and
 
(b)           general principles of equity that restrict the availability of
equitable or legal remedies.
 
The sale of the Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.  The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
 
4.5           Liabilities; Solvency.
 
(a)           Neither the Company nor any of its Subsidiaries has any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any of the Company’s filings under the
Securities Exchange Act of 1934 (“Exchange Act”) made prior to the date of this
Agreement (collectively, the “Exchange Act Filings”), copies of which have been
provided to the Agent.
 
(b)           Both before and after giving effect to (a) the transactions
contemplated hereby that are to be consummated on the Closing Date, (b) the
disbursement of the proceeds of, or the assumption of the liability in respect
of, the Notes pursuant to the instructions or agreement of the Company and (c)
the payment and accrual of all transaction costs in connection with the
foregoing, the Company and each Subsidiary of the Company, is and will be,
Solvent.  For purposes of this Section 4.5(b), “Solvent” means, with respect to
any Person (as hereinafter defined) on a particular date, that on such date (a)
the fair value of the property of such Person is greater than the total amount
of liabilities, including contingent liabilities, of such Person; (b) the
present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
and unreasonably small capital.  The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
 
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4.6           Agreements; Action.  Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
 
(a)           there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
or any of its Subsidiaries is a party or by which it is bound which may involve:
(i) obligations (contingent or otherwise) of, or payments to, the Company or any
of its Subsidiaries in excess of $75,000 (other than obligations of, or payments
to, the Company or any of its Subsidiaries arising from purchase or sale
agreements entered into in the ordinary course of business); or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from the Company or any of its Subsidiaries (other than licenses
arising from the purchase of “off the shelf” or other standard products); or
(iii) provisions restricting the development, manufacture or distribution of the
Company’s or any of its Subsidiaries products or services; or (iv)
indemnification by the Company or any of its Subsidiaries with respect to
infringements of proprietary rights.
 
(b)           Since June 30, 2007 (the “Balance Sheet Date”), neither the
Company nor any of its Subsidiaries has:  (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than ordinary course obligations) individually in
excess of $50,000 or, in the case of indebtedness and/or liabilities
individually less than $50,000, in excess of $100,000 in the aggregate; (iii)
made any loans or advances to any person or entity not in excess, individually
or in the aggregate, of $100,000, other than ordinary course advances for travel
expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
 
(c)           For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company or any Subsidiary of the Company has reason to believe
are affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
 
(d)           The Company maintains disclosure controls and procedures
(“Disclosure Controls”) designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission (“SEC”).
 
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(e)           The Company makes and keep books, records, and accounts, that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company’s assets.  The Company maintains internal control
over financial reporting (“Financial Reporting Controls”) designed by, or under
the supervision of, the Company’s principal executive and principal financial
officers, and effected by the Company’s board of directors, management, and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles (“GAAP”),
including that:
 
(i)           transactions are executed in accordance with management’s general
or specific authorization;
 
(ii)           unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial statements are
prevented or timely detected;
 
(iii)           transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that the Company’s receipts
and expenditures are being made only in accordance with authorizations of the
Company’s management and board of directors;
 
(iv)           transactions are recorded as necessary to maintain accountability
for assets; and
 
(v)           the recorded accountability for assets is compared with the
existing assets at reasonable intervals, and appropriate action is taken with
respect to any differences.
 
(f)           There is no weakness in any of the Company’s Disclosure Controls
or Financial Reporting Controls that is required to be disclosed in any of the
Exchange Act Filings, except as so disclosed.
 
4.7           Obligations to Related Parties.  Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:
 
(a)           for payment of salary for services rendered and for bonus
payments;
 
(b)           reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
 
(c)           for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company and each
Subsidiary of the Company, as applicable); and
 
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(d)           obligations listed in the Company’s and each of its Subsidiary’s
financial statements or disclosed in any of the Company’s Exchange Act Filings.
 
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company’s knowledge, key employees or
stockholders of the Company or any of its Subsidiaries or any members of their
immediate families, are indebted to the Company or any of its Subsidiaries,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any of its Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries.  Except as described above, no officer, director or stockholder of
the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person.  Except as set forth on Schedule 4.7, neither
the Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.
 
4.8           Changes.  Since the Balance Sheet Date, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
 
(a)           any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the Company or
any of its Subsidiaries, which individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
 
(b)           any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
 
(c)           any material change, except in the ordinary course of business, in
the contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
 
(d)           any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
 
(e)           any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
 
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(f)           any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the Company or
any of its Subsidiaries, other than advances made in the ordinary course of
business;
 
(g)           any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
 
(h)           any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries;
 
(i)           any labor organization activity related to the Company or any of
its Subsidiaries;
 
(j)           any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for immaterial amounts
and for current liabilities incurred in the ordinary course of business;
 
(k)           any sale, assignment, transfer, abandonment or other disposition
of any patents, trademarks, copyrights, trade secrets or other intangible assets
owned by the Company or any of its Subsidiaries;
 
(l)           any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
 
(m)           any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
 
(n)           any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
 
4.9           Title to Properties and Assets; Liens, Etc.  The Company and each
of its Subsidiaries has good and marketable title to its properties and assets,
and good title to its leasehold interests, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge (each for the foregoing, a “Lien”),
other than the following (each a “Permitted Encumbrance”):
 
(a)           those in favor of the Agent, for the ratable benefit of the
Creditor Parties;
 
(b)           those in favor of Laurus Master Fund, Ltd. (“Laurus”);
 
(c)           those resulting from taxes which have not yet become delinquent;
 
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(d)           minor Liens which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company or
any of its Subsidiaries, so long as in each such case, such Liens have no effect
on the Lien priority of the Agent, for the ratable benefit of the Creditor
Parties, in such property;
 
(e)           those that have otherwise arisen in the ordinary course of
business, so long as they have no effect on the Lien priority of the Purchaser
therein;
 
(f)           Purchase Money Liens (as defined in Section 6.12) securing
Purchase Money Indebtedness (as defined in Section 6.12) to the extent permitted
in this Agreement; and
 
(g)           Liens specified on Schedule 4.9.
 
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used.  Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
 
4.10           Intellectual Property.
 
(a)           The Company and each of its Subsidiaries owns or possesses
sufficient legal rights to use all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and other proprietary
rights and processes necessary for its business as now conducted and, to the
Company’s knowledge, as presently proposed to be conducted (the “Intellectual
Property”).  There are no settlements or consents, covenants not to sue,
non-assertion assurances, or releases to which the Company or any of its
Subsidiaries is bound which adversely affects its rights to own or use any
Intellectual Property.
 
(b)           To the Company’s knowledge, the conduct of the Company’s and each
of its Subsidiaries’ business as now conducted, and as presently proposed to be
conducted, does not (and will not) result in any infringement or other violation
of the rights of others.
 
(c)           Schedule 4.10 (as such schedule may be amended or supplemented
from time to time) sets forth a true and complete list of (i) all registrations
and applications for Intellectual Property owned by the Company and each of its
Subsidiaries filed or issued by any Intellectual Property registry and (ii) all
Intellectual Property licenses which are either material to the business of the
Company or relate to any material portion of the Company’s or any of its
Subsidiaries’ inventory, including licenses for standard software having a
replacement value of more than $30,000.  None of such Intellectual Property
licenses are reasonably likely to be construed as an assignment of the licensed
Intellectual Property to the Company or any of its Subsidiaries.
 
(d)           There are no claims pending or, to the best of the Company’s
knowledge, threatened and neither the Company nor any of its Subsidiaries has
received any other communications, alleging that, the Company or any of its
Subsidiaries has infringed, diluted, misappropriated, or otherwise violated any
Intellectual Property of any other person or entity, nor is the Company or any
of its Subsidiaries aware of any basis therefore.
 
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(e)           The Company is not aware of any infringement diluted,
misappropriated, or other violation of its Intellectual Property by any other
person or entity.
 
(f)           Neither the Company nor any of its Subsidiaries utilizes any
inventions, trade secrets or other Intellectual Property of any of its
employees, officers, or contractors) except for inventions, trade secrets or
other Intellectual Property that is owned by the Company or any Subsidiary as a
matter of law or have been rightfully assigned to the Company or any of its
Subsidiaries.
 
4.11           Compliance with Other Instruments.  Neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its articles
or certificate of incorporation, certificate of formation, operating agreement
or bylaws, as applicable, or (y) any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by which it
is bound or of any judgment, decree, order or writ, which violation or default,
in the case of this clause (y), has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.  The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Notes by the Company and the other Securities by the Company each pursuant
hereto and thereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term or provision, or result in the creation
of any Lien upon any of the properties or assets of the Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or
non-renewal of any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
 
4.12           Litigation.  Except as set forth on Schedule 4.12 hereto, there
is no action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing.  Neither the Company nor any of its Subsidiaries is a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.  There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
 
4.13           Tax Returns and Payments.  The Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it.  All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent.  Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
 
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(a)           that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
 
(b)           of any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
 
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
 
4.14           Employees.  Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees.  There is no labor union organizing activity pending
or, to the Company’s knowledge, threatened with respect to the Company or any of
its Subsidiaries.  Except as disclosed in the Exchange Act Filings or on
Schedule 4.14, neither the Company nor any of its Subsidiaries is a party to or
bound by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement.  To the Company’s
knowledge, no employee of the Company or any of its Subsidiaries, nor any
consultant with whom the Company or any of its Subsidiaries has contracted, is
in violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company or any of its Subsidiaries
because of the nature of the business to be conducted by the Company or any of
its Subsidiaries; and to the Company’s knowledge the continued employment by the
Company and its Subsidiaries of their present employees, and the performance of
the Company’s and its Subsidiaries’ contracts with its independent contractors,
will not result in any such violation.  Neither the Company nor any of its
Subsidiaries is aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency that would interfere with their duties to the Company or any of its
Subsidiaries.  Neither the Company nor any of its Subsidiaries has received any
notice alleging that any such violation has occurred.  Except for employees who
have a current effective employment agreement with the Company or any of its
Subsidiaries, no employee of the Company or any of its Subsidiaries has been
granted the right to continued employment by the Company or any of its
Subsidiaries or to any material compensation following termination of employment
with the Company or any of its Subsidiaries.  Except as set forth on Schedule
4.14, the Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company or
any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.
 
4.15           Registration Rights and Voting Rights.  Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company’s or its Subsidiaries’ presently outstanding
securities or any of its securities that may hereafter be issued.  Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company’s knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
 
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4.16           Compliance with Laws; Permits.  Neither the Company nor any of
its Subsidiaries is in violation of any provision of the Sarbanes-Oxley Act of
2002 or any SEC related regulation or rule or any rule of the Principal Market
(as hereafter defined) promulgated thereunder or any other applicable statute,
rule, regulation, order or restriction of any domestic or foreign government or
any instrumentality or agency thereof in respect of the conduct of its business
or the ownership of its properties which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect.  No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement or any other Related Agreement and the issuance of any of the
Securities, except such as have been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner.  The Company and its Subsidiaries has all material franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
 
4.17           Environmental and Safety Laws.  Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation.  Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
its knowledge, by any other Person on any property owned, leased or used by the
Company or any of its Subsidiaries other than in full compliance with all
applicable statute, law and regulation. For the purposes of the preceding
sentence, “Hazardous Materials” shall mean:
 
(a)         materials which are listed or otherwise defined as “hazardous” or
“toxic” under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; and
 
(b)         any petroleum products or nuclear materials.
 
4.18           Valid Offering.  Assuming the accuracy of the representations and
warranties of the Purchasers contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the “Securities Act”), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
 
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4.19           Full Disclosure.  The Company and each of its Subsidiaries has
provided the Purchasers with all information requested by the Purchasers in
connection with the Purchasers’ decision to purchase the Notes and Warrants,
including all information the Company and its Subsidiaries believe is reasonably
necessary to make such investment decision.  Neither this Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto nor any other document
including, without limitation, the responses contained in any questionnaire
provided to the Company by the Agent, delivered by the Company or any of its
Subsidiaries to Purchasers or their attorneys or agents in connection herewith
or therewith or with the transactions contemplated hereby or thereby, contain
any untrue statement of a material fact nor omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they are made, not misleading.  Any financial
projections and other estimates provided to the Purchasers by the Company or any
of its Subsidiaries were based on the Company’s and its Subsidiaries’ experience
in the industry and on assumptions of fact and opinion as to future events which
the Company or any of its Subsidiaries, at the date of the issuance of such
projections or estimates, believed to be reasonable.
 
4.20           Insurance.  The Company and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance policies with
coverages which the Company and each of its Subsidiaries believe are customary
for companies similarly situated to the Company and its Subsidiaries in the same
or similar business.
 
4.21           SEC Reports.  Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Exchange Act.  The Company has furnished the Agent copies
of:  (i) its Annual Reports on Form 10-KSB for its fiscal years ended December
31, 2004, December 31, 2005 and December 31, 2006; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarter ended March 31, 2007 and June 30,
2007, and the Form 8-K filings which it has made during the fiscal year December
31, 2007 to date (collectively, the “SEC Reports”).  Except as set forth on
Schedule 4.21, each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
 
4.22           Listing.  The Common Stock is listed or quoted, as applicable, on
a Principal Market (as hereafter defined) and satisfies and at all times
hereafter will satisfy, all requirements for the continuation of such listing or
quotation, as applicable.  The Company has not received any notice that its
Common Stock will be delisted from, or no longer quoted on, as applicable, the
Principal Market or that its Common Stock does not meet all requirements for
such listing or quotation, as applicable.  For purposes hereof, the term
“Principal Market” means the NASD Over The Counter Bulletin Board, NASDAQ
Capital Market, NASDAQ National Markets System, American Stock Exchange or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).
 
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4.23           No Integrated Offering.  Neither the Company, nor any of its
Subsidiaries or 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 offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
 
4.24           Stop Transfer.  The Securities are restricted securities as of
the date of this Agreement.  Neither the Company nor any of its Subsidiaries
will issue any stop transfer order or other order impeding the sale and delivery
of any of the Securities at such time as the Securities are registered for
public sale or an exemption from registration is available, except as required
by state and federal securities laws.
 
4.25           Dilution.  The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Notes and
exercise of the Warrants is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
 
4.26           Patriot Act.  The Company certifies that, to the best of
Company’s knowledge, neither the Company nor any of its Subsidiaries has been
designated, nor is or shall be owned or controlled, by a “suspected terrorist”
as defined in Executive Order 13224.  The Company hereby acknowledges that each
of the Creditor Parties seeks to comply with all applicable laws concerning
money laundering and related activities.  In furtherance of those efforts, the
Company hereby represents, warrants and covenants that:  (i) none of the cash or
property that the Company or any of its Subsidiaries will pay or will contribute
to any Creditor Party has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Company or any of its Subsidiaries to any
Creditor Party, to the extent that they are within the Company’s and/or its
Subsidiaries’ control shall cause any Creditor Party to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001.  The Company shall promptly
notify the Agent if any of these representations, warranties or covenants ceases
to be true and accurate regarding the Company or any of its Subsidiaries.  The
Company shall provide any Creditor Party all additional information regarding
the Company or any of its Subsidiaries that such Creditor Party deems necessary
or convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities.  The Company understands and agrees that if
at any time it is discovered that any of the foregoing representations,
warranties or covenants are incorrect, or if otherwise required by applicable
law or regulation related to money laundering or similar activities, the
Creditor Parties may undertake appropriate actions to ensure compliance with
applicable law or regulation, including but not limited to segregation and/or
redemption of any Purchaser’s investment in the Company.  The Company further
understands that the Creditor Parties may release confidential information about
the Company and its Subsidiaries and, if applicable, any underlying beneficial
owners, to proper authorities if such Creditor Party, in its sole discretion,
determines that it is in the best interests of such Creditor Party in light of
relevant rules and regulations under the laws set forth in subsection (ii)
above.
 
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4.27           ERISA.  Based upon the Employee Retirement Income Security Act of
1974 (“ERISA”), and the regulations and published interpretations
thereunder:  (i) neither the Company nor any of its Subsidiaries has engaged in
any Prohibited Transactions (as defined in Section 406 of ERISA and Section 4975
of the Internal Revenue Code of 1986, as amended (the “Code”)); (ii) each of the
Company and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
the Company nor any of its Subsidiaries has any knowledge of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than the Company’s or such Subsidiary’s employees; and (v)
neither the Company nor any of its Subsidiaries has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.
 
5.           Representations and Warranties of each Purchaser.  Each Purchaser
hereby represents and warrants, severally and not jointly, to the Company as
follows (such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
 
5.1           No Shorting.  Neither such Purchaser nor any of its affiliates and
investment partners has, nor will cause any person or entity, to directly engage
in “short sales” of the Common Stock as long as any Note shall be outstanding.
 
5.2           Requisite Power and Authority.  Such Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions.  All corporate action on such Purchaser’s part required for the
lawful execution and delivery of this Agreement and the Related Agreements have
been or will be effectively taken prior to the Closing.  Upon their execution
and delivery, this Agreement and the Related Agreements will be valid and
binding obligations of such Purchaser, enforceable in accordance with their
terms, except:
 
(a)           as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights; and
 
(b)           as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
 
5.3           Investment Representations.  Such Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon such Purchaser’s
representations contained in this Agreement, including, without limitation, that
such Purchaser is an “accredited investor” within the meaning of Regulation D
under the Securities Act.  Such Purchaser confirms that it has received or has
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the applicable Note and
Warrant to be purchased by it under this Agreement and the Note Shares and the
Warrant Shares acquired by it upon the conversion of such Note and the exercise
of such Warrant, respectively.  Such Purchaser further confirms that it has had
an opportunity to ask questions and receive answers from the Company regarding
the Company’s and its Subsidiaries’ business, management and financial affairs
and the terms and conditions of the Offering, the Notes, the Warrants and the
Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to such Purchaser or to
which such Purchaser had access.
 
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5.4           The Purchaser Bears Economic Risk.  Such Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests.  Such Purchaser must bear the economic
risk of this investment until the Securities are sold pursuant to: (i) an
effective registration statement under the Securities Act; or (ii) an exemption
from registration is available with respect to such sale.
 
5.5           Acquisition for Own Account.  Such Purchaser is acquiring the
applicable Note and Warrant and the Note Shares and the Warrant Shares for such
Purchaser’s own account for investment only, and not as a nominee or agent and
not with a view towards or for resale in connection with their distribution.
 
5.6           The Purchaser Can Protect Its Interest.  Such Purchaser represents
that by reason of its, or of its management’s, business and financial
experience, such Purchaser has the capacity to evaluate the merits and risks of
its investment in the applicable Note, the Warrant and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement and the Related Agreements.  Further, such Purchaser is aware of
no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.
 
5.7           Accredited Investor.  Such Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
 
5.8           Legends.
 
(a)           The applicable Note shall bear substantially the following legend:
 
“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS.  THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH
SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR (B) AN EXEMPTION
FROM SUCH REGISTRATION.”
 
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(b)           The applicable Note Shares and Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
 
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.  THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR (B) AN EXEMPTION FROM SUCH REGISTRATION.”
 
(c)           The applicable Warrant shall bear substantially the following
legend:
 
“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS.  THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR (B) AN EXEMPTION FROM SUCH REGISTRATION.”
 
6.           Covenants of the Company.  The Company covenants and agrees with
each Creditor Party as follows:
 
6.1           Stop-Orders.  The Company will, by written notice, advise the
Agent, promptly after it receives notice of issuance by the SEC, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
 
6.2           Listing.  The Company shall promptly secure the listing or
quotation, as applicable, of the shares of Common Stock issuable upon conversion
of the Notes and upon the exercise of the Warrants on the Principal Market upon
which shares of Common Stock are listed or quoted for trading, as applicable
(subject to official notice of issuance) and shall maintain such listing or
quotation, as applicable, so long as any other shares of Common Stock shall be
so listed or quoted, as applicable.  The Company will maintain the listing or
quotation, as applicable, of its Common Stock on the Principal Market, and will
comply in all material respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers (“NASD”) and such exchanges, as applicable.
 
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6.3           Market Regulations.  The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the applicable Securities to
each Purchaser and promptly provide copies thereof to such Purchaser.
 
6.4           Reporting Requirements.  The Company will deliver, or cause to be
delivered, to the Agent each of the following, which shall be in form and detail
acceptable to the Agent:
 
(a)           As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company, the Company’s and each of its
Subsidiaries’ audited financial statements with a report of independent
certified public accountants of recognized standing selected by the Company and
acceptable to the Agent (the “Accountants”), which annual financial statements
shall be without qualification and shall include the Company’s and each of its
Subsidiaries’ balance sheet as at the end of such fiscal year and the related
statements of the Company’s and each of its Subsidiaries’ income, retained
earnings and cash flows for the fiscal year then ended, prepared, if the Agent
so requests, on a consolidating and consolidated basis to include the Company,
each Subsidiary of the Company and each of their respective affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with (i) if and
when available, copies of any management letters prepared by the Accountants;
and (ii) a certificate of the Company’s President, Chief Executive Officer or
Chief Financial Officer stating that such financial statements have been
prepared in accordance with GAAP and whether or not such officer has knowledge
of the occurrence of any Event of Default  (as defined in each Note) and, if so,
stating in reasonable detail the facts with respect thereto;
 
(b)           As soon as available and in any event within forty five (45) days
after the end of each fiscal quarter of the Company, an unaudited/internal
balance sheet and statements of income, retained earnings and cash flows of the
Company and each of its Subsidiaries as at the end of and for such quarter and
for the year to date period then ended, prepared, if the Agent so requests, on a
consolidating and consolidated basis to include all the Company, each Subsidiary
of the Company and each of their respective affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Company’s President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Event of Default (as defined in each Note) not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto;
 
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(c)           As soon as available and in any event within twenty (20) days
after the end of each calendar month, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries as at the end of and for such month and for the year to date period
then ended, prepared, on a consolidating and consolidated basis to include the
Company, each Subsidiary of the Company and each of their respective affiliates,
in reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end adjustments and accompanied by a certificate of
the Company’s President, Chief Executive Officer or Chief Financial Officer,
stating (i) that such financial statements have been prepared in accordance with
GAAP, subject to year-end audit adjustments, and (ii) whether or not such
officer has knowledge of the occurrence of any Event of Default (as defined in
each Note) not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
 
(d)           The Company shall timely file with the SEC all reports required to
be filed pursuant to the Exchange Act and refrain from terminating its status as
an issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination.  Promptly after (i) the filing thereof, copies of the Company’s
most recent registration statements and annual, quarterly, monthly or other
regular reports which the Company files with the SEC, and (ii) the issuance
thereof, copies of such financial statements, reports and proxy statements as
the Company shall send to its stockholders;
 
(e)           Together with each delivery of any financial statement pursuant to
Section 6.4(a), 6.4(b) or 6.4(c), a Compliance Certificate, substantially in the
form of Exhibit E hereto, duly executed by the President, Chief Executive
Officer or Chief Financial Officer of the Company that, among other things, (i)
states that such financial statements have been prepared in accordance with
GAAP, subject to year-end audit adjustments, (ii) shows in reasonable detail the
calculations used in determining each financial covenant contained in Section
6.19 and (iii) states that no Event of Default (as defined in each Note) is
continuing as of the date of delivery of such Compliance Certificate or, if an
Event of Default is continuing, states the nature thereof and the action that
the Company proposes to take with respect thereto; and
 
(f)           The Company shall deliver, or cause the applicable Subsidiary of
the Company to deliver, such other information as any Creditor Party shall
reasonably request.
 
6.5           Use of Funds.  The Company shall use the proceeds of the sale of
the Notes and the Warrants to pay off in full certain indebtedness owing from
the Company to Firestone Associates, Inc. and Firestone Environmental Services,
Inc. (in an aggregate amount not to exceed $130,000) and for general working
capital purposes only.
 
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6.6           Access to Facilities.  The Company and each of its Subsidiaries
will permit any representatives designated by the Agent (or any successor of the
Agent), upon reasonable notice and during normal business hours, at the
Company’s expense and accompanied by a representative of the Company or any
Subsidiary (provided that no such prior notice shall be required to be given and
no such representative of the Company or any Subsidiary shall be required to
accompany the Agent in the event the Agent believes such access is necessary to
preserve or protect the Collateral (as defined in the Master Security Agreement)
or following the occurrence and during the continuance of an Event of Default
(as defined in each Note)), to:
 
(a)           visit and inspect any of the properties of the Company or any of
its Subsidiaries;
 
(b)           examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by federal, state
or local law or by contract) and make copies thereof or extracts therefrom; and
 
(c)           discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent accountants of
the Company or any of its Subsidiaries.
 
Notwithstanding the foregoing no Creditor Party shall have the right to review
any of the Company’s (or its Subsidiaries’) material, non-public information,
unless such Creditor Party signs a confidentiality agreement and otherwise
complies with Regulation FD, under the federal securities laws.
 
6.7           Taxes.
 
(a)           The Company and each of its Subsidiaries will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all taxes,
assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company and its Subsidiaries; provided, however,
that any such tax, assessment, charge or levy need not be paid currently if (i)
the validity thereof shall currently and diligently be contested in good faith
by appropriate proceedings, (ii) such tax, assessment, charge or levy shall have
no effect on the lien priority of the Agent in any property of the Company or
any of its Subsidiaries and (iii) if the Company and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto in accordance
with GAAP; and provided, further, that the Company and its Subsidiaries will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor.
 
(b)           All payments made by the Company under this Agreement or any Note
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future Taxes (as defined below) now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority,
other than Excluded Taxes (as defined below).  “Governmental Authority” means
any nation or government, any state or other political subdivision thereof, and
any agency, department or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
 
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(c)           In addition, the Company shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
 
(d)           Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Company, as promptly as possible thereafter the Company shall send to the Agent
for its own account or for the account of the relevant Lender, as the case may
be, a certified copy of an original official receipt received by the Company
showing payment thereof (or such other evidence reasonably satisfactory to the
Agent).  If the Company fails to pay any Non-Excluded Taxes or Other Taxes when
due to the appropriate taxing authority or fails to remit to the Agent the
required receipts or other required documentary evidence, the Company shall
indemnify the Creditor Parties for any incremental taxes, interest or penalties
that may become payable by any Creditor Party as a result of any such failure.
 
(e)           Each Purchaser (or its assignee) that is not a “United States
Person” as defined in Section 7701(a)(30) of the Code (a “Non-U.S. Purchaser”)
shall deliver to the Company and the Agent two completed originals of an
appropriate U.S. Internal Revenue Service Form W-8, as applicable, or any
subsequent versions thereof or successors thereto, properly completed and duly
executed by such Non-U.S. Purchaser.  Such forms shall be delivered by each
Non-U.S. Purchaser on or before the date it becomes a party to this
Agreement.  In addition, each Non-U.S. Purchaser shall deliver such forms
promptly upon the obsolescence or invalidity of any form previously delivered by
such Non-U.S. Purchaser.  Each Non-U.S. Purchaser shall promptly notify the
Company at any time it determines that it is no longer in a position to provide
any previously delivered certificate to the Company (or any other form of
certification adopted by the U.S. taxing authorities for such
purpose).  Notwithstanding any other provision of this paragraph (e), a Non-U.S.
Purchaser shall not be required to deliver any form pursuant to this paragraph
that such Non-U.S. Purchaser is not legally able to deliver.
 
(f)           The agreements in the preceding paragraphs (b), (c), (d), (e) and
this paragraph (f) shall survive the termination of this Agreement and the
payment of the Notes and all other amounts payable hereunder or thereunder or
under any other Related Agreement.
 
As used in this Section 6.7, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
 
“Excluded Taxes” means, with respect to any Creditor Party: (a) taxes imposed on
or measured by its overall net income and franchise taxes imposed on it in lieu
of net income taxes, by the jurisdiction (or any political subdivision thereof)
under the laws of which such Creditor Party is incorporated or organized or by
the jurisdiction (or any political subdivision thereof) in which the principal
place of management or applicable lending office of such Creditor Party is
located; (b) taxes imposed on or measured by its properties; (c) payroll tax or
other similar taxes imposed on or measured by the wages, compensation and fees
paid by it to officers, directors, employees, agents and contractors; (d) taxes
imposed on or measured by purchases made by it, such as sales and use tax; and
(e) any other tax that is directly related to the Creditor Party’s business
operations and unrelated to the transactions contemplated by this Agreement or
is incurred because any assignee or holder of any of the Obligations (as defined
in the Master Security Agreement) at any time is not a “United States Person” as
defined in Section 7701(a)(30) of the Code.
 
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“Non-Excluded Taxes” means all Taxes other than (i) Excluded Taxes and (ii)
Other Taxes.
 
“Other Taxes” means any and all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement or any other Related Agreement.
 
“Taxes” means any and all present or future taxes, duties, levies, imposts,
deductions, assessments, fees, withholdings or similar charges, and all
liabilities with respect thereto.
 
6.8           Insurance.  (i)  The Company shall bear the full risk of loss from
any loss of any nature whatsoever with respect to the Collateral (as defined in
each of the Master Security Agreement, the Stock Pledge Agreement and each other
security agreement entered into by the Company and/or any of its Subsidiaries
for the benefit of the Creditor Parties) and the Company and each of its
Subsidiaries will, jointly and severally, bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the Agent,
for the ratable benefit of the Creditor Parties, as security for the Obligations
(as defined in the Master Security Agreement).  Furthermore, the Company will
insure or cause the Collateral to be insured in the Agent’s name as an
additional insured and lender loss payee, with an appropriate loss payable
endorsement in form and substance satisfactory to the Agent, against loss or
damage by fire, flood, sprinkler leakage, theft, burglary, pilferage, loss in
transit and other risks customarily insured against by companies in similar
business similarly situated as the Company and its Subsidiaries including but
not limited to workers compensation, public and product liability and business
interruption, and such other hazards as the Agent shall specify in amounts and
under insurance policies and bonds by insurers acceptable to the Agent and all
premiums thereon shall be paid by the Company and the policies delivered to the
Agent.  If the Company or any of its Subsidiaries fails to obtain the insurance
and in such amounts of coverage as otherwise required pursuant to this Section
6.8, the Agent may procure such insurance and the cost thereof shall be promptly
reimbursed by the Company and shall constitute Obligations.
 
(ii)           The Company’s insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any of its Subsidiaries and
the insurer will provide the Agent with no less than thirty (30) days notice
prior of cancellation;
 
(iii)           The Agent, in connection with its status as a lender loss payee,
will be assigned at all times to a first lien position until such time as all
the Obligations have been indefeasibly satisfied in full.
 
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6.9           Intellectual Property.
 
(a)           The Company and each of its Subsidiaries shall maintain in full
force and effect its existence, rights and franchises and all licenses and other
rights to own or use Intellectual Property including registrations and
applications therefore, that are necessary to the conduct of its business, as
now conducted or as presently proposed to be conducted, and shall not do any act
or omit to do any act whereby any of such Intellectual Property may lapse, or
become abandoned, dedicated to the public, or unenforceable, or the Lien therein
in favor of the Agent, for the ratable benefit of the Creditor Parties, would be
adversely affected,
 
(b)           The Company shall report to the Agent (i) the filing by the
Company or any of its Subsidiaries of any application to register a Copyright no
later than ten (10) days after such filing occurs (ii) the filing of any
application to register any other Intellectual Property with any other
Intellectual Property registry, and the issuance thereof, no later than thirty
(30) days after such filing or issuance occurs and, in each case, shall,
simultaneously with such report, deliver to the Agent fully-executed documents
required to acknowledge, confirm, register, record or perfect the Lien in such
Intellectual Property.  In addition, the Company and its Subsidiaries hereby
authorize the Agent to modify this Agreement by amending Schedule 4.10 to
include any registrations or applications for Intellectual Property
inadvertently omitted from such Schedule or filed, registered, acquired by the
Company or any of its Subsidiaries after the date hereof and agree to cooperate
with the Agent in effecting any such amendment to include any new item of
Intellectual Property included in the Collateral.
 
(c)           The Company shall, and shall cause each of its Subsidiaries to,
promptly upon the reasonable request of the Agent, execute and deliver to the
Agent any document or instrument required to acknowledge, confirm, register,
record, or perfect the Lien of the Agent in any part of the Intellectual
Property owned by the Company and its Subsidiaries.
 
(d)           The Company shall, and shall cause of each of its Subsidiaries to,
not sell, assign, transfer, license, grant any option, or create or suffer to
exist any Lien upon or with respect to Intellectual Property, except for the
Permitted Encumbrances.
 
6.10           Properties.  The Company and each of its Subsidiaries will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and each of the
Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
 
6.11           Confidentiality.  The Company will not, and will not permit any
of its Subsidiaries to, disclose, and will not include in any public
announcement, the name of any Creditor Party, unless expressly agreed to by such
Creditor Party or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such
requirement.  Notwithstanding the foregoing, (i) the Company may disclose any
Creditor Party’s identity and the terms of this Agreement and the Related
Agreements to its current and prospective debt and equity financing sources, and
(ii) the Company (and each employee, representative, or other agent of the
Company) may disclose to any and all Persons, without limitation of any kind,
the tax treatment and any facts that may be relevant to the tax structure of the
transactions contemplated by this Agreement and the Related Agreements and the
agreements referred to therein; provided, however, that the Company (and no
employee, representative or other agent of the Company) disclose pursuant to
this clause (ii) any other information that is not relevant to understanding the
tax treatment or tax structure of such transactions (including the identity of
any party or any information that could lead another to determine the identity
of any party); and, provided, further, that the Company will not, and will not
permit any of its Subsidiaries to, disclose any information to the extent that
such disclosure could reasonably be expected to result in a violation of any
U.S. federal or state securities law or similar law of another
jurisdiction.  Each Creditor Party shall be permitted to discuss, distribute or
otherwise transfer any non-public information of the Company and its
Subsidiaries in such Creditor Party’s possession now or in the future to
potential or actual (i) direct or indirect investors in such Creditor Party and
(ii) third party assignees or transferees of all or a portion of the obligations
of the Company and/or any of its Subsidiaries hereunder and under the Related
Agreements.
 
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6.12           Required Approvals.  (I) The Company, without the prior written
consent of the Agent, shall not, and shall not permit any of its Subsidiaries
to:
 
(a)           (i) directly or indirectly declare, pay or make any dividends,
other than dividends paid to the Company or any of its wholly-owned
Subsidiaries, (ii) issue any preferred stock or (iii) redeem any of its
preferred stock or other equity interests;
 
(b)           liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company or any of its Subsidiaries
dissolve, liquidate or merge with any other person or entity (unless, in the
case of such a merger, the Company or, in the case of merger not involving the
Company, such Subsidiary, as applicable, is the surviving entity);
 
(c)           become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company’s or any of its
Subsidiaries, right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby;
 
(d)           materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole; or
 
(e)           (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt) whether secured or unsecured other than (x) the
Company’s obligations owed to each Purchaser or Laurus, (y) indebtedness set
forth on Schedule 6.12(e) attached hereto and made a part hereof and any
refinancings or replacements thereof on terms no less favorable to the
Purchasers than the indebtedness being refinanced or replaced, and (z) any
indebtedness (“Purchase Money Indebtedness”) incurred in connection with the
purchase of equipment in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchasers than the
indebtedness being refinanced or replaced, so long as any lien (“Purchase Money
Lien”) relating thereto shall only encumber the fixed assets so purchased and no
other assets of the Company or any of its Subsidiaries; (ii) cancel any
indebtedness owing to it in excess of $50,000 in the aggregate during any twelve
(12) month period; (iii) assume, guarantee, endorse or otherwise become directly
or contingently liable in connection with any obligations of any other person or
entity, except the endorsement of negotiable instruments by the Company or any
Subsidiary thereof for deposit or collection or similar transactions in the
ordinary course of business or guarantees of indebtedness otherwise permitted to
be outstanding pursuant to this clause (e); (iv) make any payment or
distribution in respect of any subordinated indebtedness of the Company or its
Subsidiaries in violation of any subordination or other agreement made in favor
of any Creditor Party; (v) make any optional payment or prepayment on or
redemption (including, without limitation, by making payments to a sinking fund
or analogous fund) or repurchase of any indebtedness for borrowed money other
than indebtedness pursuant to this Agreement; and (vi) purchase or hold
beneficially any stock or other securities or evidences of indebtedness of, make
or permit to exist any loans or advances to, or make any investment or acquire
any interest whatsoever in, any other Person, including any partnership or joint
venture, except (x) travel advances, (y) loans to its and its Subsidiaries’
officers and employees not exceeding at any one time an aggregate of $10,000,
and (z) loans to its existing Subsidiaries so long as such Subsidiaries are
designated as either a co-borrower hereunder or has entered into such guaranty
and security documentation required by the Agent, including, without limitation,
to grant to the Agent a first priority perfected security interest in
substantially all of such Subsidiary’s assets to secure the Obligations (as
defined in the Master Security Agreement); and
 
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(II) The Company, without the prior written consent of the Agent, shall not, and
shall not permit any of its Subsidiaries to, create or acquire any Subsidiary
after the date hereof unless (i) such Subsidiary is a wholly-owned Subsidiary of
the Company and (ii) such Subsidiary becomes a party to (A) the Master Security
Agreement, the Stock Pledge Agreement and the Intellectual Property Security
Agreement (either by executing a counterpart thereof or an assumption or joinder
agreement in respect thereof); (B) a Subsidiary Guaranty in favor of the
Purchasers in form and substance satisfactory to the Agent and (c) to the extent
required by the Agent, satisfies each condition of this Agreement and the
Related Agreements as if such Subsidiary were a Subsidiary on the Closing Date.
 
6.13           Reissuance of Securities.  The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
 
(a)           the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
 
(b)           upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
 
The Company agrees to cooperate with the Purchasers in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the applicable Purchasers and broker,
if any.
 
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6.14           Opinion.  On the Closing Date, the Company will deliver to the
Creditor Parties substantially in the form of Exhibit C hereto an opinion
acceptable to the Agent from the Company’s external legal counsel.  The Company
will provide, at the Company’s expense, such other legal opinions in the future
as are deemed reasonably necessary by the Agent (and acceptable to the Agent) in
connection with the conversion of any Note and exercise of the any Warrant.
 
6.15           Margin Stock.  The Company will not permit any of the proceeds of
the Notes or the Warrants to be used directly or indirectly to “purchase” or
“carry” “margin stock” or to repay indebtedness incurred to “purchase” or
“carry” “margin stock” within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.
 
6.16           FIRPTA.  Neither the Company, nor any of its Subsidiaries, is a
“United States real property holding corporation” as such term is defined in
Section 897(c)(2) of the Code and Treasury Regulation Section 1.897-2
promulgated thereunder and neither the Company nor any of its Subsidiaries shall
at any time take any action or otherwise acquire any interest in any asset or
property to the extent the effect of which shall cause the Company and/or such
Subsidiary, as the case may be, to be a “United States real property holding
corporation” as such term is defined in Section 897(c)(2) of the Code and
Treasury Regulation Section 1.897-2 promulgated thereunder.
 
6.17           Financing Right of First Refusal.
 
(a)           The Company hereby grants to the Purchasers a right of first
refusal to provide any Additional Financing (as defined below) to be issued by
the Company and/or any of its Subsidiaries, subject to the following terms and
conditions.  From and after the date hereof, prior to the incurrence of any
additional indebtedness and/or the sale or issuance of any equity interests of
the Company or any of its Subsidiaries (an “Additional Financing”), the Company
and/or any Subsidiary of the Company, as the case may be, shall notify the Agent
of its intention to enter into such Additional Financing.  For purposes of the
foregoing, “Additional Financing” excludes: (a) the sale or issuance of equity
interests of the Company to officers, directors, employees and consultants
pursuant to the Company’s stock option plans now in effect or adopted in the
future; and (b) the receipt of proceeds from the exercise of options and
warrants outstanding as of the date hereof (or to be issued, as permitted by the
terms hereof and disclosed to Agent).  In connection therewith, the Company
and/or the applicable Subsidiary thereof shall submit a fully executed term
sheet (a “Proposed Term Sheet”) to the Agent setting forth the terms, conditions
and pricing of any such Additional Financing (such financing to be negotiated on
“arm’s length” terms and the terms thereof to be negotiated in good faith)
proposed to be entered into by the Company and/or such Subsidiary.  The Agent
shall have the right, but not the obligation, to deliver its own proposed term
sheet (the “Purchaser Term Sheet”) setting forth the terms and conditions upon
which the Purchasers would be willing to provide such Additional Financing to
the Company and/or such Subsidiary.  The Purchaser Term Sheet shall contain
terms no less favorable to the Company and/or such Subsidiary than those
outlined in Proposed Term Sheet.  The Agent shall deliver such Purchaser Term
Sheet within ten (10) business days of receipt of each such Proposed Term
Sheet.  If the provisions of the Purchaser Term Sheet are at least as favorable
to the Company and/or such Subsidiary, as the case may be, as the provisions of
the Proposed Term Sheet, the Company and/or such Subsidiary shall enter into and
consummate the Additional Financing transaction outlined in the Purchaser Term
Sheet.
 
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(b)           The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchasers to consummate an Additional Financing
with the Company or any of its Subsidiaries.
 
6.18           Authorization and Reservation of Shares.  The Company shall at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the conversion of the Notes and exercise of the Warrants.
 
6.19           Maximum Consolidated Leverage Ratio.  Commencing with the month
ending May 31, 2009, the Company and its Subsidiaries on a Consolidated basis
shall not have, on the last day of each month thereafter, a Consolidated
Leverage Ratio greater than 3.50 to 1.0 (measured on a trailing twelve month
basis).
 
As used in this Section 6.19, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
 
“Capital Lease” means, with respect to any Person, any lease of, or other
arrangement conveying the right to use, any property (whether real, personal or
mixed) by such Person as lessee that has been or should be accounted for as a
capital lease on a balance sheet of such Person prepared in accordance with
GAAP.
 
“Capitalized Lease Obligations” means, at any time, with respect to any Capital
Lease, any lease entered into as part of any sale/leaseback transaction of any
Person or any synthetic lease, the amount of all obligations of such Person that
is (or that would be, if such synthetic lease or other lease were accounted for
as a Capital Lease) capitalized on a balance sheet of such Person prepared in
accordance with GAAP.
 
“Consolidated” means, with respect to any Person, the accounts of such Person
and its Subsidiaries consolidated in accordance with GAAP.
 
“Consolidated EBITDA” means, with respect to any Person for any period, (a) the
Consolidated Net Income of such Person for such period plus (b) the sum of, in
each case to the extent included in the calculation of such Consolidated Net
Income but without duplication, (i) any provision for United States federal
income taxes or other taxes measured by net income, (ii) Consolidated Interest
Expense, amortization of debt discount and commissions and other fees and
charges associated with Indebtedness (except amortization and expenses related
to the consummation of the initial Loans on the Closing Date and the payment of
all fees, costs and expenses associated with the foregoing), (iii) any loss from
extraordinary items, (iv) any depreciation, depletion and amortization expense,
(v) any aggregate net loss on the sale of property (other than Accounts and
Inventory (as defined under the applicable UCC) outside the ordinary course of
business and (vi) any other non-cash expenditure, charge or loss for such period
(other than any non-cash expenditure, charge or loss relating to write-offs,
write-downs or reserves with respect to accounts and inventory), including the
amount of any compensation deduction as the result of any grant of Equity
Interests to employees, officers, directors or consultants and minus (c) the sum
of, in each case to the extent included in the calculation of such Consolidated
Net Income and without duplication, (i) any credit for United States federal
income taxes or other taxes measured by net income, (ii) any interest income,
(iii) any gain from extraordinary items and any other non-recurring gain, (iv)
any aggregate net gain from the sale of property (other than Accounts and
Inventory (as defined in the applicable UCC) out of the ordinary course of
business by such Person, (v) any other non-cash gain, including any reversal of
a charge referred to in clause (b)(vi) above by reason of a decrease in the
value of any Equity Interests, and (vi) any other cash payment in respect of
expenditures, charges and losses that have been added to Consolidated EBITDA of
such Person pursuant to clause (b)(vi) above in any prior period.
 
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“Consolidated Interest Expense” means, for any Person for any period, (a)
Consolidated total interest expense of such Person and its Subsidiaries for such
period and including, in any event, (i) interest capitalized during such period
and net costs under Interest Rate Contracts for such period and (ii) all fees,
charges, commissions, discounts and other similar obligations (other than
reimbursement obligations) with respect to letters of credit, bank guarantees,
banker’s acceptances, surety bonds and performance bonds (whether or not
matured) payable by such Person and its Subsidiaries during such period minus
(b) the sum of (i) Consolidated net gains of such Person and its Subsidiaries
under Interest Rate Contracts for such period and (ii) Consolidated interest
income of such Person and its Subsidiaries for such period.
 
“Consolidated Leverage Ratio” means, with respect to any Person as of any date,
the ratio of (a) Consolidated Total Debt of such Person outstanding as of such
date to (b) Consolidated EBITDA for such Person for the last period of four
consecutive fiscal quarters ending on or before such date.
 
“Consolidated Net Income” means, with respect to any Person, for any period, the
Consolidated net income (or loss) of such Person and its Subsidiaries for such
period; provided, however, that the following shall be excluded:  (a) the net
income of any other Person in which such Person or one of its Subsidiaries has a
joint interest with a third-party (which interest does not cause the net income
of such other Person to be Consolidated into the net income of such Person),
except to the extent of the amount of dividends or distributions paid to such
Person or Subsidiary, (b) the net income of any Subsidiary of such Person that
is, on the last day of such period, subject to any restriction or limitation on
the payment of dividends or the making of other distributions, to the extent of
such restriction or limitation and (c) the net income of any other Person
arising prior to such other Person becoming a Subsidiary of such Person or
merging or consolidating into such Person or its Subsidiaries.
 
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“Consolidated Total Debt” of any Person means all Indebtedness of a type
described in clause (a), (b), (c)(i), (d), (f), (g) or (i) of the definition
thereof, in each case of such Person and its Subsidiaries on a Consolidated
basis.
 
“Contractual Obligation” means, with respect to any Person, any provision of any
indenture, mortgage, deed of trust, contract, undertaking, agreement or other
instrument to which such Person is a party or by which it or any of its property
is bound or to which any of its property is subject.
 
“Equity Interests” shall mean, with respect to any Person, any and all shares,
rights to purchase, options, warrants, general, limited or limited liability
partnership interests, member interests, units, participations or other
equivalents of or interest in (regardless of how designated) equity of such
Person, whether voting or nonvoting, including common stock, preferred stock,
convertible securities or any other “equity security” (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC (or
any successor thereto) under the Exchange Act).
 
“Guaranty Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person for any Indebtedness, lease,
dividend or other obligation (the “primary obligation”) of another Person (the
“primary obligor”), if the purpose or intent of such Person in incurring such
liability, or the economic effect thereof, is to guarantee such primary
obligation or provide support, assurance or comfort to the holder of such
primary obligation or to protect or indemnify such holder against loss with
respect to such primary obligation, including (a) the direct or indirect
guaranty, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of any primary obligation, (b) the incurrence of reimbursement
obligations with respect to any letter of credit or bank guarantee in support of
any primary obligation, (c) the existence of any Lien, or any right, contingent
or otherwise, to receive a Lien, on the property of such Person securing any
part of any primary obligation and (d) any liability of such Person for a
primary obligation through any Contractual Obligation (contingent or otherwise)
or other arrangement (i) to purchase, repurchase or otherwise acquire such
primary obligation or any security therefor or to provide funds for the payment
or discharge of such primary obligation (whether in the form of a loan, advance,
stock purchase, capital contribution or otherwise), (ii) to maintain the
solvency, working capital, equity capital or any balance sheet item, level of
income or cash flow, liquidity or financial condition of any primary obligor,
(iii) to make take-or-pay or similar payments, if required, regardless of
non-performance by any other party to any Contractual Obligation, (iv) to
purchase, sell or lease (as lessor or lessee) any property, or to purchase or
sell services, primarily for the purpose of enabling the primary obligor to
satisfy such primary obligation or to protect the holder of such primary
obligation against loss or (v) to supply funds to or in any other manner invest
in, such primary obligor (including to pay for property or services irrespective
of whether such property is received or such services are rendered); provided,
however, that “Guaranty Obligations” shall not include (x) endorsements for
collection or deposit in the ordinary course of business and (y) product
warranties given in the ordinary course of business.  The outstanding amount of
any Guaranty Obligation shall equal the outstanding amount of the primary
obligation so guaranteed or otherwise supported or, if lower, the stated maximum
amount for which such Person may be liable under such Guaranty Obligation.
 
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“Hedging Agreement” means any Interest Rate Contract, foreign exchange, swap,
option or forward contract, spot, cap, floor or collar transaction, any other
derivative instrument and any other similar speculative transaction and any
other similar agreement or arrangement designed to alter the risks of any Person
arising from fluctuations in any underlying variable.
 
“Indebtedness” of any Person means, without duplication, any of the following,
whether or not matured:  (a) all indebtedness for borrowed money (including,
without limitation, all principal, interest, fees and charges relating thereto),
(b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all reimbursement and all obligations with respect to (i)
letters of credit, bank guarantees or bankers’ acceptances or (ii) surety,
customs, reclamation or performance bonds (in each case not related to judgments
or litigation) other than those entered into in the ordinary course of business,
(d) all obligations to pay the deferred purchase price of property or services,
other than trade payables incurred in the ordinary course of business, (e) all
obligations created or arising under any conditional sale or other title
retention agreement, regardless of whether the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property, (f) all Capitalized Lease Obligations,
(g) all obligations, whether or not contingent, to purchase, redeem, retire,
defease or otherwise acquire for value any of its own Equity Interests (or any
Equity Interests of a direct or indirect parent entity thereof) prior to the
date that is 180 days after the maturity of the Notes, valued at, in the case of
redeemable preferred Equity Interests, the greater of the voluntary liquidation
preference and the involuntary liquidation preference of such Equity Interests
plus accrued and unpaid dividends, (h) all payments that would be required to be
made in respect of any Hedging Agreement in the event of a termination
(including an early termination) on the date of determination and (i) all
Guaranty Obligations for obligations of any other Person constituting
Indebtedness of such other Person; provided, however, that the items in each of
clauses (a) through (i) above shall constitute “Indebtedness” of such Person
solely to the extent, directly or indirectly, (x) such Person is liable for any
part of any such item, (y) any such item is secured by a Lien on such Person’s
property or (z) any other Person has a right, contingent or otherwise, to cause
such Person to become liable for any part of any such item or to grant such a
Lien.
 
“Interest Rate Contracts” means all interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements and interest rate insurance.
 
“UCC” means the Uniform Commercial Code as from time to time in effect in the
specified jurisdiction.
 
7.           Covenants of the Purchasers.  Each Purchaser covenants and agrees
with the Company as follows:
 
7.1           Confidentiality.  No Purchaser will disclose, nor will it include
in any public announcement, the name of the Company, unless expressly agreed to
by the Company in writing or unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.
 
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7.2           Non-Public Information.  No Purchaser will effect any sales in the
shares of the Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.
 
7.3           Limitation on Acquisition of Common Stock of the
Company.  Notwithstanding anything to the contrary contained in this Agreement,
any Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions entered into by a Purchaser and the
Company (and/or Subsidiaries or Affiliates of the Company), such Purchaser
(and/or Subsidiaries or Affiliates of such Purchaser) shall not acquire stock in
the Company (including, without limitation, pursuant to a contract to purchase,
by exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Company, or
otherwise, and such contracts, options, warrants, conversion or other rights
shall not be enforceable or exercisable) to the extent such stock acquisition
would cause any interest (including any original issue discount) payable by the
Company to a Non-U.S. Purchaser not to qualify as “portfolio interest” within
the meaning of Section 871(h)(2) or Section 881(c)(2) of the Code, by reason of
Section 871(h)(3) or Section 881(c)(3)(B) of the Code, as applicable, taking
into account the constructive ownership rules under Section 871(h)(3)(C) of the
Code (the “Stock Acquisition Limitation”).  The Stock Acquisition Limitation
shall automatically become null and void without any notice to the Company upon
the earlier to occur of either (a) the Company’s delivery to the Purchaser of a
Notice of Redemption (as defined in the applicable Note) or (b) the existence of
an Event of Default (as defined in the Note) at a time when the average closing
price of the Company’s common stock as reported by Bloomberg, L.P. on the
Principal Market for the immediately preceding five trading days is greater than
or equal to 150% of the Fixed Conversion Price (as defined in the applicable
Note).
 
8.           Covenants of the Company and the Purchasers Regarding
Indemnification.
 
8.1           Company Indemnification.  The Company agrees to indemnify, hold
harmless, reimburse and defend each Creditor Party, each of such Creditor
Party’s officers, directors, agents, affiliates, control persons, and principal
shareholders, against all claims, costs, expenses, liabilities, obligations,
losses or damages (including reasonable legal fees) of any nature, incurred by
or imposed upon such Creditor Party which result, arise out of or are based
upon: (i) any misrepresentation by the Company or any of its Subsidiaries or
breach of any warranty by the Company or any of its Subsidiaries in this
Agreement, any other Related Agreement or in any exhibits or schedules attached
hereto or thereto; or (ii) any breach or default in performance by Company or
any of its Subsidiaries of any covenant or undertaking to be performed by
Company or any of its Subsidiaries hereunder, under any other Related Agreement
or any other agreement entered into by the Company and/or any of its
Subsidiaries and such Creditor Party relating hereto or thereto.
 
8.2           Purchaser Indemnification.  Each Purchaser Party agrees to
indemnify, hold harmless, reimburse and defend the Company and each of the
Company’s officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which result, arise out of or are based
upon:  (i) any misrepresentation by such Purchaser or breach of any warranty by
such Purchaser in this Agreement or in any exhibits or schedules attached hereto
or any Related Agreement; or (ii) any breach or default in performance by such
Purchaser of any covenant or undertaking to be performed by such Purchaser
hereunder, or any other agreement entered into by the Company and such Purchaser
relating hereto.
 
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9.           Conversion of Convertible Note.
 
9.1           Mechanics of Conversion.  In the case of any Purchaser:
 
(a)           Provided such Purchaser has notified the Company of such
Purchaser’s intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from registration
when sold:  (i) upon the conversion of the applicable Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel reasonably acceptable to such Purchaser
following a request by such Purchaser) to assure that the Company’s transfer
agent shall issue shares of the Common Stock in the name of such Purchaser (or
its nominee) or such other Persons as designated by such Purchaser in accordance
with Section 9.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
the Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Common Stock and that after
the Effectiveness Date (as defined in the Registration Rights Agreements) the
applicable Note Shares issued will be freely transferable subject to the
prospectus delivery requirements of the Securities Act and the provisions of
this Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.
 
(b)           Such Purchaser will give notice of its decision to exercise its
right to convert the applicable Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the “Notice of Conversion”).  Such Purchaser will not
be required to surrender the applicable Note until such Purchaser receives a
credit to the account of such Purchaser’s prime broker through the DWAC system
(as defined below), representing the Note Shares or until the applicable Note
has been fully satisfied.  Each date on which a Notice of Conversion is
telecopied or delivered to the Company in accordance with the provisions hereof
shall be deemed a “Conversion Date.”  Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer agent
accompanied by an opinion of counsel within two (2) business day of the date of
the delivery to the Company of the  Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the Conversion Shares
to the Holder by crediting the account of such Purchaser’s prime broker with the
Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission
(“DWAC”) system within four (4) business days after receipt by the Company of
the Notice of Conversion (the “Delivery Date”).
 
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(c)           The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the Delivery
Date could result in economic loss to such Purchaser.  In the event that the
Company fails to direct its transfer agent to deliver the applicable Note Shares
to such Purchaser via the DWAC system within the time frame set forth in Section
9.1(b) above and the applicable Note Shares are not delivered to such Purchaser
by the Delivery Date, as compensation to such Purchaser for such loss, the
Company agrees to pay late payments to such Purchaser for late issuance of the
applicable Note Shares in the form required pursuant to Section 9 hereof upon
conversion of the applicable Note in the amount equal to the greater of:  (i)
$250 per business day after the Delivery Date; or (ii) such Purchaser’s actual
damages from such delayed delivery.  The Company shall pay any payments incurred
under this Section in immediately available funds upon demand and, in the case
of actual damages, accompanied by reasonable documentation of the amount of such
damages.  Such documentation shall show the number of shares of Common Stock
such Purchaser is forced to purchase (in an open market transaction) which such
Purchaser anticipated receiving upon such conversion, and shall be calculated as
the amount by which (A) such Purchaser’s total purchase price (including
customary brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the
applicable Note, for which such Conversion Notice was not timely honored.
 
10.           Registration Rights.
 
10.1           Registration Rights Granted.  The Company hereby grants
registration rights to each Purchaser pursuant to the Registration Rights
Agreements.
 
10.2           Offering Restrictions.  Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the “Excepted Issuances”), neither the Company nor any of its Subsidiaries
will, prior to the full exercise by the Purchasers of the Warrants, (x) enter
into any equity line of credit agreement or similar agreement or (y) issue, or
enter into any agreement to issue, any securities with a variable/floating
conversion and/or pricing feature which are or could be (by conversion or
registration) free-trading securities (i.e.  common stock subject to a
registration statement).
 
11.           Miscellaneous.
 
11.1           Governing Law, Jurisdiction and Waiver of Jury Trial.
 
(a)           THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
 
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(b)           THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY,
ON THE ONE HAND, AND ANY CREDITOR PARTY, ON THE OTHER HAND, PERTAINING TO THIS
AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT
EACH CREDITOR PARTY AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW
YORK, STATE OF NEW YORK; AND FURTHERPROVIDED, THAT, TO THE EXTENT NECESSARY TO
EXERCISE ANY RIGHTS OR REMEDIES THAT ANY CREDITOR PARTY HAS WITH RESPECT TO
COLLATERAL LOCATED IN ANOTHER JURISDICTION, THAT, NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO PRECLUDE ANY CREDITOR PARTY FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY SUCH OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER SECURITY
AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER
SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
ANY CREDITOR PARTY.  THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE
COMPANY HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.  THE COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT
THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
 
(c)           THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF
THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN ANY
CREDITOR PARTY AND/OR THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR
THERETO.
 
11.2           Severability.  Wherever possible each provision of this Agreement
and the Related Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any Related Agreement shall be prohibited by or invalid or illegal under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity or illegality, without invalidating the remainder of
such provision or the remaining provisions thereof which shall not in any way be
affected or impaired thereby.
 
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11.3           Survival.  The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Creditor
Party and the closing of the transactions contemplated hereby to the extent
provided therein.  All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.  All indemnities set forth herein
shall survive the execution, delivery and termination of this Agreement and the
Notes and the making and repayment of the obligations arising hereunder, under
the Notes and under the other Related Agreements.
 
11.4           Successors.
 
(a)           Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person or entity which shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by any Purchaser pursuant to Rule 144 or an effective
registration statement.  Each Purchaser may assign any or all of the Obligations
to any Person and, subject to acceptance and recordation thereof by the Agent
pursuant to Section 11.4(b) and receipt by the Agent of a copy of the agreement
or instrument pursuant to which such assignment is made (each such agreement or
instrument, an “Assignment Agreement”), any such assignee shall succeed to all
of such Purchaser’s rights with respect thereto; provided that no Purchaser
shall be permitted to assign its rights hereunder or under any Related Agreement
to a competitor of the Company unless an Event of Default (as defined in each
Note) has occurred and is continuing.  Upon such assignment, such Purchaser
shall be released from all responsibility for the Collateral (as defined in the
Master Security Agreement, the Stock Pledge Agreement and each other security
agreement, mortgage, cash collateral deposit letter, pledge and other agreements
which are executed by the Company or any of its Subsidiaries in favor of any
Creditor Party) to the extent same is assigned to any transferee.  Each
Purchaser may from time to time sell or otherwise grant participations in any of
the Obligations (as defined in the Master Security Agreement) and the holder of
any such participation shall, subject to the terms of any agreement between such
Purchaser and such holder, be entitled to the same benefits as such Purchaser
with respect to any security for the Obligations (as defined in the Master
Security Agreement) in which such holder is a participant.  The Company agrees
that each such holder may exercise any and all rights of banker’s lien, set-off
and counterclaim with respect to its participation in the Obligations (as
defined in the Master Security Agreement) as fully as though the Company were
directly indebted to such holder in the amount of such participation.  The
Company may not assign any of its rights or obligations hereunder without the
prior written consent of the Agent.  All of the terms, conditions, promises,
covenants, provisions and warranties of this Agreement shall inure to the
benefit of each of the undersigned, and shall bind the representatives,
successors and permitted assigns of the Company.
 
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(b)           The Agent shall maintain, or cause to be maintained, for this
purpose only as agent of the Company, (i) a copy of each Assignment Agreement
delivered to it and (ii) a book entry system, within the meaning of U.S.
Treasury Regulation Sections 15f.103-1(c) and 1.871-14(c) (the “Register”), in
which it will register the name and address of each Purchase and the name and
address of each assignee of each Purchaser under this Agreement, and the
principal amount of, and stated interest on, the Notes owing to each such
Purchaser and assignee pursuant to the terms hereof and each Assignment
Agreement.  The right, title and interest of the Purchasers and their assignees
in and to such Notes shall be transferable only upon notation of such transfer
in the Register, and no assignment thereof shall be effective until recorded
therein.  The Company and each Creditor Party shall treat each Person whose name
is recorded in the Register as a Purchaser pursuant to the terms hereof as a
Purchaser and owner of an interest in the Obligations hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary or any notation of
ownership or other writing or any Note.  The Register shall be available for
inspection by the Company or any Purchaser, at any reasonable time and from time
to time, upon reasonable prior notice.
 
11.5           Entire Agreement; Maximum Interest.  This Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.  Nothing contained in this Agreement, any Related
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law.  In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Purchasers and thus refunded to the Company.
 
11.6           Amendment and Waiver.
 
(a)           This Agreement may be amended or modified only upon the written
consent of the Company and the Agent.
 
(b)           The obligations of the Company and the rights of the Creditor
Parties under this Agreement may be waived only with the written consent of the
Agent.
 
(c)           The obligations of the Creditor Parties and the rights of the
Company under this Agreement may be waived only with the written consent of the
Company.
 
11.7           Delays or Omissions.  It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring.  All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
 
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11.8           Notices.  All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
 
(a)           upon personal delivery to the party to be notified;
 
(b)           when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
 
(c)           three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
 
(d)           one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
 
All communications shall be sent as follows:
 
If to the Company, to:
General Environmental Management, Inc.
3191 Temple Ave., Suite 250
Pomona, CA 91768
Attention:  Chief Financial Officer
Facsimile No.:  909-444-9900
   
with a copy to:
de Castro, P.C.
309 Laurel Street
San Diego, CA 92101
Attention:  Stanley Moskowitz
Facsimile No.:  619-702-9401
   
If to the Agent, to:
LV Administrative Services, Inc.
c/o Laurus Capital Management, LLC
335 Madison Avenue, 10th Floor
New York, NY 10017
Facsimile No.:                                212-581-5037
   
with a copy to:
Loeb & Loeb, LLP
345 Park Avenue
New York, NY 10154
Attention:                      Scott J. Giordano, Esq.
Facsimile No.:                                212-407-4990
   
If to a Purchaser:
To the address indicated under its signature on the signature pages hereto

 
or at such other address as the Company or the applicable Creditor Party may
designate by written notice to the other parties hereto given in accordance
herewith.
 
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11.9           Attorneys’ Fees.  In the event that any suit or action is
instituted to enforce any provision in this Agreement or any Related Agreement,
the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement and/or such Related
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
 
11.10          Titles and Subtitles.  The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
 
11.11          Facsimile Signatures; Counterparts.  This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
agreement.
 
11.12          Broker’s Fees.  Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker’s or finder’s fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein.  Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
 
11.13          Construction.  Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement or any Related Agreement to favor any party
against the other.
 
11.14          Agency.  Each Purchaser has pursuant to an Administrative and
Collateral Agency Agreement designated and appointed the Agent as the
administrative and collateral agent of such Purchaser under this Agreement and
the Related Agreements.
 
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
 
 
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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
 
COMPANY:
 
PURCHASERS:
           
GENERAL ENVIRONMENTAL MANAGEMENT, INC. 
 
VALENS U.S. SPV I, LLC 
                    By: 
VALENS CAPITAL MANAGEMENT, LLC,
its investment manager
              By:
 
  By:
 
   
Name:
   
Name:
   
Title:
   
Title: Authorized Signatory
 

 
 
AGENT:
 
VALENS OFFSHORE SPV II, CORP.
             
LV ADMINISTRATIVE SERVICES, INC.,
as Agent 
  By:   
VALENS CAPITAL MANAGEMENT, LLC,
its investment manager
              By:
 
  By:
 
   
Name:
   
Name:
   
Title:
   
Title: Authorized Signatory
 

 
 
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EXHIBIT A
 
FORM OF CONVERTIBLE TERM NOTE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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EXHIBIT B
 
FORM OF WARRANT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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EXHIBIT C
 
FORM OF OPINION
 
1.           The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
 
2.           The Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements.  All corporate action on the
part of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for:  (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements.  The Note Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and the Related
Agreements and upon delivery shall be validly issued and outstanding, fully paid
and non assessable.
 
3.           The execution, delivery and performance by the Company and each of
its Subsidiaries of the Agreement and the Related Agreements (to which it is a
party) and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:
 
(a)           Violate the provisions of their respective Charter or bylaws; or
 
(b)           Violate any judgment, decree, order or award of any court binding
upon the Company or any of its Subsidiaries; or
 
(c)           Violate any [insert jurisdictions in which counsel is qualified]
or federal law
 
4.           The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of the Company and each of its Subsidiaries (to the
extent such entity is a party thereto), and are enforceable against the Company
and each of its Subsidiaries party thereto in accordance with their respective
terms, except:
 
(a)           as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights; and
 
(b)           general principles of equity that restrict the availability of
equitable or legal remedies.
 
5.           To such counsel’s knowledge, the sale of each Note and the
subsequent conversion of such Note into Note Shares are not subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with.  To such counsel’s knowledge, the sale of the Warrants and the
subsequent exercise of the Warrants for Warrant Shares are not subject to any
preemptive rights or, to such counsel’s knowledge, rights of first refusal that
have not been properly waived or complied with.
 
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6.           Assuming the accuracy of the representations and warranties of each
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act.  To such counsel’s knowledge, 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 and security under circumstances that would cause the offering of
the Securities pursuant to the Agreement or any Related Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions.
 
7.           There is no action, suit, proceeding or investigation pending or,
to such counsel’s knowledge, currently threatened against the Company or any of
its Subsidiaries that prevents the right of the Company or any of its
Subsidiaries to enter into this Agreement or any Related Agreement, or to
consummate the transactions contemplated thereby.  To such counsel’s knowledge,
the Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality; nor is there any action, suit, proceeding or investigation by
the Company currently pending or which the Company intends to initiate.
 
8.           The terms and provisions of the Master Security Agreement and the
Stock Pledge Agreement create a valid security interest in favor of the Agent,
in the respective rights, title and interests  of the Company and its
Subsidiaries in and to the Collateral (as defined in each of the Master Security
Agreement and the Stock Pledge Agreement).  Each UCC-1 Financing Statement
naming the Company or any Subsidiary thereof as debtor and the Agent as secured
party are in proper form for filing and assuming that such UCC-1 Financing
Statements have been filed with the Secretary of State of [_____________], the
security interest created under the Master Security Agreement will constitute a
perfected security interest under the Uniform Commercial Code in favor of the
Agent in respect of the Collateral that can be perfected by filing a financing
statement.  After giving effect to the delivery to the Agent of the stock
certificates representing the ownership interests of each Subsidiary of the
Company (together with effective endorsements) and assuming the continued
possession by the Agent of such stock certificates in the State of New York, the
security interest created in favor of the Agent under the Stock Pledge Agreement
constitutes a valid and enforceable first perfected security interest in such
ownership interests (and the proceeds thereof) in favor of the Agent, subject to
no other security interest.  No filings, registrations or recordings are
required in order to perfect (or maintain the perfection or priority of) the
security interest created under the Stock Pledge Agreement in respect of such
ownership interests.
 
9.           [Real property opinions will also be required]
 
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EXHIBIT D
 
FORM OF ESCROW AGREEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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EXHIBIT E
 
FORM OF COMPLIANCE CERTIFICATE
 

 
[See Attached]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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SCHEDULE 1
 
PURCHASER COMMITMENTS
 

 
VALENS U.S. SPV I,
LLC                                                                                     $647,508.90
 

 
VALENS OFFSHORE SPV II,
CORP                                                                   $597,700.52
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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SCHEDULE 2
 
WARRANT HOLDERS AND WARRANT SHARES
 

 
VALENS U.S. SPV I,
LLC                                                                                     516,218
 

 
VALENS OFFSHORE SPV II,
CORP                                                                   476,509