Exhibit 10.1

 

 

‘mktg, inc.’

SECURITIES PURCHASE AGREEMENT

November 25, 2009

 

 

12.5% Senior Secured Notes

 

 

Series D Convertible Participating Preferred Stock

 

 

Warrants to Purchase Common Stock

 

 

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TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

 

 

 

 

1. PURCHASE AND SALE OF NOTES, PREFERRED SHARES AND WARRANTS.

 

2

(a)

Notes, Preferred Shares, and Warrants

 

2

(b)

Closing

 

2

(c)

Purchase Price

 

2

(d)

Form of Payment

 

2

2. BUYER’S REPRESENTATIONS AND WARRANTIES.

 

3

(a)

Organization; Authority

 

3

(b)

No Public Sale or Distribution

 

3

(c)

Accredited Investor Status

 

3

(d)

Reliance on Exemptions

 

3

(e)

Information

 

3

(f)

No Governmental Review

 

4

(g)

Transfer or Resale

 

4

(h)

Legends

 

4

(i)

Validity; Enforcement

 

5

(j)

No Conflicts

 

5

(k)

Residency

 

5

(l)

No Brokers

 

5

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

6

(a)

Organization and Qualification

 

6

(b)

Authorization; Enforcement; Validity

 

6

(c)

Issuance of Securities

 

7

(d)

No Conflicts

 

7

(e)

Consents

 

8

(f)

Acknowledgment Regarding Buyer’s Purchase of Securities

 

8

(g)

No General Solicitation; Placement Agent’s Fees

 

8

(h)

No Integrated Offering

 

8

(i)

Dilutive Effect

 

9

(j)

Application of Takeover Protections; Rights Agreement

 

9

(k)

SEC Documents; Financial Statements

 

9

(l)

Absence of Certain Changes

 

10

(m)

Intentionally Deleted

 

10

(n)

Conduct of Business; Regulatory Permits

 

10

(o)

Foreign Corrupt Practices

 

11

(p)

Sarbanes-Oxley Act

 

11

(q)

Transactions With Affiliates

 

11

(r)

Equity Capitalization

 

12

(s)

Indebtedness and Other Contracts

 

12

(t)

Absence of Litigation

 

13

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(u)

Insurance

 

13

(v)

Employee Relations.

 

13

(w)

Title

 

14

(x)

Intellectual Property Rights

 

14

(y)

Environmental Laws

 

15

(z)

Subsidiary Rights

 

15

(aa)

Tax Status

 

15

(bb)

Internal Accounting and Disclosure Controls

 

15

(cc)

Off Balance Sheet Arrangements

 

16

(dd)

Investment Company Status

 

16

(ee)

Transfer Taxes

 

16

(ff)

Manipulation of Price

 

16

(gg)

Disclosure

 

16

(hh)

Margin Stock

 

17

(ii)

Bank Holding Company Act

 

17

(jj)

Anti-Terrorism Laws.

 

17

(kk)

Ranking of Notes

 

18

4. COVENANTS.

 

18

(a)

Best Efforts

 

18

(b)

Form D and Blue Sky

 

18

(c)

Reporting Status

 

18

(d)

Use of Proceeds

 

18

(e)

Financial Information

 

19

(f)

Listing

 

19

(g)

Fees.

 

19

(h)

Pledge of Securities

 

20

(i)

Interim Actions

 

20

(j)

Full Access

 

20

(k)

No Conflicting Agreements

 

20

(l)

Integration

 

20

(m)

Disclosure of Transactions and Other Material Information.

 

20

(n)

Additional Registration Statements

 

21

(o)

Corporate Existence

 

21

(p)

Reservation of Shares

 

21

(q)

Conduct of Business

 

21

(r)

Additional Issuances of Securities.

 

22

(s)

Lock-Up Agreements

 

25

(t)

Approval of Principal Market

 

25

(u)

Collateral Agent

 

26

(v)

Successor Collateral Agent.

 

26

(w)

Collateral Agent Individually

 

27

(x)

Buyer Credit Decision

 

27

(y)

Exercise of Remedies

 

27

(z)

No Solicitation of Competing Proposal or Changes of Recommendation.

 

27

(aa)

Director Indemnification Agreement

 

29

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5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

29

(a)

Register

 

29

(b)

Transfer Agent Instructions

 

30

(c)

Breach

 

30

(d)

Additional Relief

 

30

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

31

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

32

8. TERMINATION.

 

35

(a)

Termination

 

35

(b)

Effect of Termination

 

36

9. MISCELLANEOUS.

 

36

(a)

Governing Law; Jurisdiction; Jury Trial

 

36

(b)

Counterparts

 

37

(c)

Headings

 

37

(d)

Severability

 

37

(e)

Entire Agreement; Amendments

 

37

(f)

Notices

 

38

(g)

Successors and Assigns

 

39

(h)

No Third Party Beneficiaries

 

40

(i)

Survival

 

40

(j)

Further Assurances

 

40

(k)

Indemnification

 

40

(l)

No Strict Construction

 

41

(m)

Remedies

 

41

(n)

Rescission and Withdrawal Right

 

41

(o)

Payment Set Aside

 

41

(p)

Independent Nature of Buyers’ Obligations and Rights

 

42

(q)

Counsel Issues

 

42

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EXHIBITS

 

 

 

 

 

Exhibit A

-

Form of Certificate of Designations

Exhibit B

-

Form of Secured Note

Exhibit C

-

Form of Warrant

Exhibit D

-

Form of Registration Rights Agreement

Exhibit E

-

Form of Irrevocable Transfer Agent Instructions

Exhibit F

-

Form of Secretary’s Certificate

Exhibit G

-

Form of Officer’s Certificate

Exhibit H

-

Form of Lock-Up Agreement

Exhibit I

-

Form of Director Indemnification Agreement

 

 

 

SCHEDULES

 

 

 

 

 

Schedule of Buyers

 

Schedule 3(a)

-

Subsidiaries

Schedule 3(d)

-

No Conflicts

Schedule 3(e)

-

Consents

Schedule 3(k)

-

Certain SEC Matters

Schedule 3(l)

-

Absence of Certain Changes

Schedule 3(n)

-

Certain Nasdaq Matters

Schedule 3(q)

-

Transactions with Affiliates

Schedule 3(r)

-

Equity Capitalization

Schedule 3(s)

-

Indebtedness and Other Contracts

Schedule 3(t)

-

Absence of Litigation

Schedule 3(w)

-

Title

Schedule 3(z)

-

Subsidiary Rights

Schedule 3(bb)

-

Internal Accounting and Disclosure Controls

Schedule 3(kk)

-

Ranking of Notes

Schedule 4(d)

-

Use of Proceeds

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SECURITIES PURCHASE AGREEMENT

          SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of November
25, 2009, by and among ‘mktg, inc.’, a Delaware corporation, with headquarters
located at 75 Ninth Avenue, New York, NY 10011 (the “Company”), and the “UCC
Investor” and the “Management Investors” listed on the Schedule of Buyers
attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

          WHEREAS:

          A. The Company and each Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

          B. The Company has authorized a new series of convertible
participating preferred stock of the Company designated as Series D Convertible
Participating Preferred Stock, the terms of which are set forth in the
certificate of designation for such series of preferred stock (the “Certificate
of Designations”) in the form attached hereto as Exhibit A (together with any
convertible participating preferred shares issued in replacement thereof in
accordance with the terms thereof, the “Preferred Shares”), which Preferred
Shares shall be convertible into the Company’s common stock, par value $0.001
per share (the “Common Stock”), in accordance with the terms of the Certificate
of Designations.

          C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement,

          (i) that aggregate principal amount of Senior Secured Promissory Notes
substantially in the form attached hereto as Exhibit B (the “Notes”) issued by
the Company set forth opposite such Buyer’s name on the Schedule of Buyers
(which aggregate amount for all Buyers shall be $2,500,000.00),

          (ii) that aggregate number of Preferred Shares set forth opposite such
Buyer’s name on the Schedule of Buyers (which aggregate number for all Buyers
shall be 2,500,000 shares), and

          (iii) warrants substantially in the form attached hereto as Exhibit C
(the “Warrants”) to acquire up to that number of shares of Common Stock (as
exercised, collectively, the “Warrant Shares”) set forth opposite such Buyer’s
name on the Schedule of Buyers (which aggregate amount of Warrant Shares for all
Buyers upon exercise shall be 2,456,272 Warrant Shares, subject to adjustment as
set forth in the Warrants).

          D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit D (the
“Registration Rights Agreement”), pursuant to which the Company has agreed to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement), under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.

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          E. The Notes, the Preferred Shares and the Warrants are collectively
referred to herein as the “Closing Date Securities”. The Notes, the Preferred
Shares, the shares of Common Stock issuable upon conversion of the Preferred
Shares (the “Conversion Shares”), the Warrants and the Warrant Shares are
collectively referred to herein as the “Securities.”

          NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

1. PURCHASE AND SALE OF NOTES, PREFERRED SHARES AND WARRANTS.

          (a) Notes, Preferred Shares, and Warrants. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Closing Date (as defined below), (i)
the aggregate principal amount of Notes as is set forth opposite such Buyer’s
name on the Schedule of Buyers, (ii) the number of Preferred Shares as is set
forth opposite such Buyer’s name on the Schedule of Buyers, and (iii) Warrants
to acquire up to that number of Warrant Shares as is set forth opposite such
Buyer’s name on the Schedule of Buyers.

          (b) Closing. The closing (the “Closing”) of the purchase of the Notes,
the Preferred Shares, and the Warrants by the Buyers shall occur at the offices
of Finn Dixon & Herling LLP, 177 Broad Street, Stamford, CT 06901, counsel to
the UCC Investor. The date and time of the Closing (the “Closing Date”) shall be
10:00 a.m., New York City Time, on the first business day on which the
conditions to the Closing set forth in Sections 6 and 7 below have been
satisfied or waived (or such other date and time as is mutually agreed to by the
Company and each Buyer).

          (c) Purchase Price. The aggregate purchase price for the Notes, the
Preferred Shares and the Warrants to be purchased by each Buyer (the “Purchase
Price”) shall be the amount set forth opposite such Buyer’s name on the Schedule
of Buyers. Each Buyer shall pay $0.68 for each Preferred Share, $1.00 per dollar
of principal amount of Notes, and $0.32 for each Warrant to be purchased by such
Buyer at the Closing.

          (d) Form of Payment. On the Closing Date,

               (i) each Buyer shall pay its portion of the Purchase Price to the
Company for the Notes, the Preferred Shares and related Warrants to be issued
and sold to such Buyer at the Closing, by wire transfer of immediately available
funds in accordance with the Company’s written wire instructions, minus amounts
withheld by the UCC Investor pursuant to Section 4(g) and amounts paid on behalf
of the Company pursuant to Section 1(d)(iii);

               (ii) the Company shall deliver to each Buyer such Closing Date
Securities, each duly executed on behalf of the Company and registered on the
transfer books of the Company in the name of such Buyer or its designee; and

               (iii) the UCC Investor shall pay on behalf of the Company, out of
the Purchase Price, to an account designated by the Diageo Parties (as defined
herein) the amount necessary to satisfy all amounts due (the “Diageo Payoff
Amount”) under the Promissory Note dated July 31, 2009 issued by the Company to
the Diageo Parties (the “Diageo Note”).

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2. BUYER’S REPRESENTATIONS AND WARRANTIES.

          Each Buyer, severally and not jointly, represents and warrants with
respect to only itself that:

          (a) Organization; Authority . Such Buyer (if not a Management
Investor) is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents (as defined in Section 3(b) below) to which it is a
party and otherwise to carry out its obligations hereunder and thereunder.

          (b) No Public Sale or Distribution. Such Buyer is (i) acquiring the
Closing Date Securities, (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares, and (iii) upon exercise of the Warrants, will
acquire the Warrant Shares, in each case, for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer (if it is not a Management Investor) is acquiring the Securities
hereunder in the ordinary course of its business. Such Buyer does not presently
have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities in violation of the 1933 Act.

          (c) Accredited Investor Status . Such Buyer is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D.

          (d) Reliance on Exemptions . Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

          (e) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.

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          (f) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

          (g) Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”);
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made) may
be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Securities may be pledged in connection with a bona
fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(g).

          (h) Legends. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares, the Warrant Shares, the Notes
and, until such time as the resale of the Conversion Shares and the Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares and Warrant Shares, except as set forth below, shall bear any
legend as required by the “blue sky” laws of any state and a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, unless otherwise required by state securities laws, if (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144(b)(1)(i).

          (i) Validity; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies.

          (j) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) if an entity, result in a violation of the organizational documents
of such Buyer or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Buyer, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.

          (k) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.

          (l) No Brokers. Each Buyer represents that it neither is nor will be
obligated for any broker’s or finder’s fee or commission in connection with this
transaction. Each Buyer agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
broker’s or finder’s fee arising out of this transaction (and the costs and
expenses of defending against such liability or asserted liability) for which
such Buyer is responsible.

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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

          The Company represents and warrants to each of the Buyers that:

          (a) Organization and Qualification. The Company and its “Subsidiaries”
(which for purposes of this Agreement means any joint venture or any entity in
which the Company, directly or indirectly, owns capital stock or holds an equity
or similar interest) are entities duly organized and validly existing and in
good standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
reasonably be expected to have a Material Adverse Effect. As used in this
Agreement, “Material Adverse Effect” means any material adverse effect on the
business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries, taken
as a whole, or on the transactions contemplated hereby and by the other
Transaction Documents or by the other agreements and instruments to be entered
into in connection herewith or therewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below). The Company has no Subsidiaries except as set forth on Schedule 3(a).

          (b) Authorization; Enforcement; Validity. The Company and each of its
Subsidiaries, to the extent a party thereto, has the requisite power and
authority to enter into and perform its obligations under this Agreement, the
Notes, the other Secured Note Documents (for all purposes in this Agreement, as
defined in each of the Notes), the Certificate of Designations, the Warrants,
the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions
(as defined in Section 5(b)) and each of the other agreements entered into by
the parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the “Transaction Documents”) and, in the case of the
Company, to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and each of its Subsidiaries, as applicable, and the consummation by the
Company, and each of its Subsidiaries, as applicable, of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Notes, the granting of any security to secure the Company’s and its
Subsidiaries’ obligations under the Secured Note Documents, the issuance of the
Preferred Shares, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Preferred Shares and the
issuance of the Warrants and the reservation for issuance of the Warrant Shares
issuable upon exercise of the Warrants, have been duly authorized by the
Company’s board of directors and (other than the filing with the SEC of a Form D
and one or more Registration Statements in accordance with the requirements of
the Registration Rights Agreement and any other filings as may be required by
any state securities agencies) no further filing, consent, or authorization is
required by the Company, its board of directors or its stockholders. This
Agreement and the other Transaction Documents of even date herewith have been
duly executed and delivered by the Company and its Subsidiaries, in each case to
the extent a party thereto, and constitute the legal, valid and binding
obligations of the Company and its Subsidiaries, as applicable, enforceable
against the Company and each Subsidiary in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of applicable creditors’ rights and remedies. The Certificate of Designations in
the form attached hereto as Exhibit A will be filed with the Secretary of State
of the State of Delaware prior to Closing and will be in full force and effect,
enforceable against the Company in accordance with its terms and will not be
amended prior to the Closing.

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          (c) Issuance of Securities. The issuance of the Notes, the Preferred
Shares and the Warrants are duly authorized and upon issuance in accordance with
the terms of the Transaction Documents shall be free from all taxes, liens and
charges with respect to the issue thereof, and the Preferred Shares shall be
entitled to the rights and preferences set forth in the Certificate of
Designations. As of the Closing, the Company shall have reserved from its duly
authorized capital stock not less than the sum of (i) 130% of the maximum number
of shares of Common Stock issuable upon conversion of the Preferred Shares
(assuming for purposes hereof, that the Preferred Shares are convertible at the
Conversion Price) and (ii) 100% of the maximum number of shares of Common Stock
issuable upon exercise of the Warrants. Upon issuance or conversion in
accordance with the Certificate of Designations or exercise in accordance with
the Warrants, as the case may be, the Conversion Shares and the Warrant Shares,
respectively, will be validly issued, fully paid and nonassessable and free from
all preemptive or similar rights, taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Subject to the representations and warranties of the
Buyers in this Agreement, the offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.

          (d) No Conflicts. Except as set forth on Schedule 3(d), the execution,
delivery and performance of the Transaction Documents by the Company and its
Subsidiaries, as applicable, and the consummation by the Company and its
Subsidiaries of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Notes, the Preferred Shares and the
Warrants and reservation for issuance of the Conversion Shares and the Warrant
Shares) will not (i) result in a violation of the Certificate of Incorporation
(as defined in Section 3(r)) of the Company or any certificate of incorporation,
certificate of formation, any certificate of designations or other constituent
document of any of its Subsidiaries, any capital stock of the Company or Bylaws
(as defined in Section 3(r)) or the Certificate of Designations or any other
certificates of designations of the Company or any of its Subsidiaries bylaws or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Nasdaq Capital Market
(the “Principal Market”) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected.

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          (e) Consents. Except as set forth on Schedule 3(e), neither the
Company nor any of its Subsidiaries is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company or any such Subsidiary is required to obtain
pursuant to the preceding sentence will be obtained or effected on or prior to
the Closing Date, and the Company and its Subsidiaries are unaware of any facts
or circumstances which might prevent the Company from obtaining or effecting any
of the registration, application or filings pursuant to the preceding sentence.
Except as set forth on Schedule 3(e), the Company is not in violation of the
requirements of the Principal Market and has no knowledge of any facts which
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future. Set forth on Schedule 3(e) is the Company’s plan to return
to compliance with the requirements of the Principal Market. The Company has
received written approval from the NASDAQ Listing Qualifications Department in
accordance with NASDAQ Rule 5635(f) that approval of the stockholders of the
Company is not required for issuance of the Securities under NASDAQ Rule 5635.

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

          (g) No General Solicitation; Placement Agent’s Fees. Neither the
Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its
or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or brokers’ commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, attorney’s fees and out-of-pocket expenses) arising in
connection with any such claim. Neither the Company nor any of its Subsidiaries
has engaged any placement agent or other agent in connection with the sale of
the Securities.

          (h) No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.

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          (i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations and
its obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.

          (j) Application of Takeover Protections; Rights Agreement. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or any
certificates of designations or the laws of the jurisdiction of its formation or
incorporation which is or could become applicable to any Buyer as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company’s issuance of the Securities and any Buyer’s ownership of the
Securities. The Company has not adopted a stockholder rights plan or similar
arrangement relating to accumulations of beneficial ownership of Common Stock or
a change in control of the Company.

          (k) SEC Documents; Financial Statements. Except as set forth on
Schedule 3(k), since January 1, 2007, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”). The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of each of the SEC Documents not available on the
EDGAR system that have been requested by each Buyer. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto as in effect as
of the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

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          (l) Absence of Certain Changes. Except as disclosed in Schedule 3(l),
since March 31, 2008, nothing has occurred that could reasonably be expected to
have a Material Adverse Effect. Except as disclosed in Schedule 3(l), since
March 31, 2008, neither the Company nor any of its Subsidiaries has (i) declared
or paid any dividends, (ii) sold any assets, individually or in the aggregate,
in excess of $250,000 outside of the ordinary course of business or (iii) had
capital expenditures, individually or in the aggregate, in excess of $250,000.
Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, after giving effect to the
transactions contemplated hereby to occur at the Closing, will not be Insolvent
(as defined below). For purposes of this Section 3(l), “Insolvent” means, with
respect to any Person (as defined in Section 3(s)) (i) the present fair saleable
value of such Person’s assets is less than the amount required to pay such
Person’s total Indebtedness (as defined in Section 3(s)), (ii) such Person is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, (iii) such Person
intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature or (iv) such Person has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.

          (m) Intentionally Deleted.

          (n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, the Certificate of Designations, any other
certificate of designation, preferences or rights of any other outstanding
series of preferred stock of the Company or Bylaws or their organizational
charter or certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
its Subsidiaries, and neither the Company nor any of its Subsidiaries will
conduct its business in violation of any of the foregoing, except in all cases
for possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Schedule 3(n), since January 1, 2007, (i) the Common Stock has been designated
for quotation on the Principal Market, (ii) trading in the Common Stock has not
been suspended by the SEC or the Principal Market and (iii) the Company has
received no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

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          (o) Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.

          (p) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.

          (q) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten (10) days prior to the date hereof and other than
the grant of stock options or restricted stock disclosed on Schedule 3(q), none
of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other entity in which
any such officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.

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          (r) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 25,000,000 shares of Common Stock,
of which as of the date hereof, 8,596,951 are issued and outstanding and
352,451shares are reserved for issuance pursuant to securities (other than the
Preferred Shares and the Warrants) exercisable or exchangeable for, or
convertible into, shares of Common Stock and (ii) 5,000,000 shares of preferred
stock of which, as of the date hereof, none are issued and outstanding. No
shares of the Company’s Series A Preferred Stock, par value $0.001 per share, or
Series B Preferred Stock, par value $0.001 per share, were ever issued by the
Company. All shares of the Company’s Series C Preferred Stock, par value $4.00
per share, that were ever issued have been validly cancelled. All of such
outstanding shares of Common Stock have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(r): (i) none of the Company’s capital stock is subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness (as defined
in Section 3(s)) of the Company or any of its Subsidiaries or by which the
Company or any of its Subsidiaries is or may become bound; (iv) there are no
financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with the Company or any of its
Subsidiaries; (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii) the
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in the
SEC Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses. The Company has furnished to the Buyers true, correct and complete
copies of the Company’s Certificate of Incorporation, as amended and as in
effect on the date hereof (the “Certificate of Incorporation”), and the
Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto. Schedule 3(r) sets forth the shares of Common Stock owned
beneficially or of record and Common Stock Equivalents (as defined below) held
by each director and executive officer.

          (s) Indebtedness and Other Contracts. Except as set forth in Schedule
3(s), neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in material violation
of any term of or in material default under any material contract, agreement or
instrument relating to any Indebtedness, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. Schedule 3(s) provides a detailed description of the material
terms of any such outstanding Indebtedness in excess of $50,000. For purposes of
this Agreement: (x) “Indebtedness” of any Person means, without duplication (A)
all indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with generally accepted
accounting principles) (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

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          (t) Absence of Litigation. Except as set forth in Schedule 3(t), there
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company’s Subsidiaries or any of the Company’s or its Subsidiaries’
officers or directors, whether of a civil or criminal nature or otherwise.

          (u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

          (v) Employee Relations.

               (i) Neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer of the Company or any of its Subsidiaries (as
defined in Rule 501(f) of the 1933 Act) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

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               (ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

          (w) Title. Except as set forth on Schedule 3(w), the Company and its
Subsidiaries have (i) good and marketable title in fee simple to all real
property, if any, and (ii) good and marketable title to all personal property
owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property or interests
and do not interfere with the use made and proposed to be made of such property
or interests by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.

          (x) Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, original works of authorship, trade secrets and other
intellectual property rights and all applications related thereto necessary to
conduct their respective businesses as now conducted except where the failure to
so own or possess would not reasonably be expected to result in a Material
Adverse Effect (collectively, “Intellectual Property Rights”). None of the
Company’s or its Subsidiaries’ Intellectual Property Rights have expired,
terminated or been abandoned, or are expected to expire, terminate or be
abandoned, within three years from the date of this Agreement. The Company does
not have any knowledge of any infringement by the Company or any of its
Subsidiaries of Intellectual Property Rights of others. There is no claim,
action or proceeding being made or brought, or to the knowledge of the Company,
being threatened, against the Company or any of its Subsidiaries regarding its
Intellectual Property Rights. The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.

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          (y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term “Environmental Laws” means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

          (z) Subsidiary Rights. Except as set forth in Schedule 3(z), the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

          (aa) Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The transactions contemplated hereby will not result
in an “ownership change” as defined in Section 382 of the Internal Revenue Code
of 1986, as amended from time to time, and the regulations promulgated
thereunder.

          (bb) Internal Accounting and Disclosure Controls. The Company and each
of its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as set forth in Schedule 3(bb), during the twelve (12) months
prior to the date hereof neither the Company nor any of its Subsidiaries have
received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting
controls of the Company or any of its Subsidiaries.

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          (cc) Off Balance Sheet Arrangements. There is no material transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its 1934 Act filings and is not so disclosed.

          (dd) Investment Company Status. The Company is not, and upon
consummation of the sale of the Securities will not be, an “investment company,”
a company controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
are defined in the Investment Company Act of 1940, as amended.

          (ee) Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to each Buyer
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with.

          (ff) Manipulation of Price. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company.

          (gg) Disclosure. All disclosure provided to the Buyers regarding the
Company and its Subsidiaries, their business and the transactions contemplated
hereby, including the Schedules to this Agreement and the information referred
to in Section 2(e), furnished by or on behalf of the Company is true and correct
in all material respects and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each press release issued by the Company or its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

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          (hh) Margin Stock. Neither the Company nor any of its Subsidiaries is
engaged principally or as one of its activities in the business of extending
credit for the purpose of purchasing or carrying any margin stock (as each such
term is defined or used in Regulation U of the Federal Reserve Board). No part
of the proceeds of any of the Notes will be used for purchasing or carrying
margin stock or for any purpose which violates the provisions of Regulation T, U
or X of such Federal Reserve Board.

          (ii) Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to regulation by the Federal Reserve Board. Neither the Company nor
any of its Subsidiaries or affiliates owns or controls, directly or indirectly,
five percent (5%) or more of the outstanding shares of any class of voting
securities or twenty-five percent (25%) or more of the total equity of a bank or
any equity that is subject to the BHCA and to regulation by the Federal Reserve
Board. Neither the Company nor any of its Subsidiaries or affiliates exercises a
controlling influence over the management or policies of a bank or any equity
that is subject to the BHCA and to regulation by the Federal Reserve Board.

          (jj) Anti-Terrorism Laws.

               (i) Neither the Company nor any of its Subsidiaries is, and to
the knowledge of the Company and its Subsidiaries, none of their respective
affiliates is in violation of any requirement of law relating to terrorism or
money laundering (“Anti-Terrorism Laws”), including Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001 (the “Executive Order”), and
the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as amended.

               (ii) Neither the Company nor any of its Subsidiaries is, and to
the knowledge of the Company or any such Subsidiary, no affiliate or broker or
other agent of the Company or any such Subsidiary acting or benefiting in any
capacity in connection with the issuance and sale of the Closing Date Securities
is any of the following:

          (1) a Person that is listed in the annex to, or is otherwise subject
to the provisions of, the Executive Order;

          (2) a Person owned or controlled by, or acting for or on behalf of,
any person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order;

          (3) a Person that commits, threatens or conspires to commit or
supports “terrorism” as defined in the Executive Order; or

          (4) a Person that is named as a “specially designated national and
blocked person” on the most current list published by the U.S. Treasury
Department Office of Foreign Assets Control (“OFAC”) at its official website or
any replacement website or other replacement official publication of such list.

               (iii) Neither the Company nor any of its Subsidiaries, and to the
knowledge of the Company or any such Subsidiary, no broker or other agent of the
Company or any such Subsidiary acting in any capacity in connection with the
issuance and sale of the Closing Date Securities, (A) conducts any business or
engages in making or receiving any contribution of funds, goods or services to
or for the benefit of any Person described in paragraph (b) above, (B) deals in,
or otherwise engages in any transaction relating to, any property or interests
in property blocked pursuant to the Executive Order, or (C) engages in or
conspires to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in any Anti-Terrorism Law.

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          (kk) Ranking of Notes. Except as set forth on Schedule 3(kk), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.

4. COVENANTS.

          (a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

          (b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the UCC Investor promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the UCC Investor on or prior to the
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing Date.

          (c) Reporting Status. Until the date on which the Buyers shall have
sold all the Conversion Shares and the Warrant Shares, and none of the Preferred
Shares or Warrants is outstanding, the Company shall use commercially reasonable
efforts to timely file all reports required to be filed with the SEC pursuant to
the 1934 Act. Until the date on which the Buyers shall have sold, in the
aggregate, seventy-five percent (75%) of the Conversion Shares and the Warrant
Shares issuable upon conversion of the Preferred Shares and exercise of the
Warrants purchased by them hereunder (the “Reporting Period”), the Company shall
not terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would no longer
require or otherwise permit such termination. From the time Form S-3 is
available to the Company for the registration of the Conversion Shares and the
Warrant Shares, the Company shall use commercially reasonable efforts to
maintain its eligibility to register the Conversion Shares and the Warrant
Shares for resale by the Buyers on Form S-3.

          (d) Use of Proceeds. The Company will use the proceeds from the sale
of the Securities in accordance with Schedule 4(d), and not for any other
purpose, including the redemption or repurchase of any of its or its
Subsidiaries’ equity securities.

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          (e) Financial Information. The Company agrees to send the following to
the UCC Investor during the Reporting Period (i) unless the following are filed
with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day after the filing thereof with the SEC, a
copy of its Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or
10-QSB, any interim reports or any consolidated balance sheets, income
statements, stockholders’ equity statements and/or cash flow statements for any
period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, (ii) at least thirty (30) days prior to the end of the fiscal year, a
comprehensive operating budget for the upcoming fiscal year, (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders and (iv) to the extent not already provided for herein, the
information set forth in Section 9(q) of the Notes during the timeframe provided
for in such section of the Notes (even if the Notes are no longer outstanding).
As used herein “Business Day” means any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

          (f) Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon the Principal Market (subject to official notice of issuance). During the
Reporting Period, the Company shall use commercially reasonable efforts to
maintain the Common Stock’s authorization for quotation on the Principal Market
or any Eligible Market (as defined in the Certificate of Designations). Neither
the Company nor any of its Subsidiaries shall take any action during the
Reporting Period which would be reasonably expected to result in the delisting
or suspension of the Common Stock on the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(f). The Company shall use its best efforts to satisfy the procedures
set forth on Schedule 3(e) in order to return to compliance with the
requirements of the Principal Market within the time frame set forth on such
Schedule 3(e).

          (g) Fees. The Company shall pay or reimburse the UCC Investor and its
designees for all reasonable costs and expenses incurred in connection with the
transactions contemplated by the Transaction Documents (including all reasonable
legal fees and disbursements in connection therewith, documentation and
implementation of the transactions contemplated by the Transaction Documents and
due diligence in connection therewith), which amount shall be non-refundable and
payable as follows: (x) $150,000 of such amount shall be paid by the Company on
the date hereof and (y) the remainder shall be paid by the Company at Closing or
upon termination of this Agreement as provided in this Agreement (not to exceed,
in respect of costs and expenses up to and including the Closing, $250,000 in
the aggregate). From and after the Closing, the Company shall be responsible for
the payment of any fees reasonably incurred by the UCC Investor and Union
Capital Corporation in connection with enforcement of the Transaction Documents
and/or in connection with any amendments or modifications to the Transaction
Documents requested by or on behalf of the Company (irrespective of the $250,000
maximum set forth in the preceding clause). The Company shall be responsible for
the payment of any placement agent’s fees, financial advisory fees, or broker’s
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby,including, without limitation, any
fees payable to the Collateral Agent (as defined below). The Company shall pay,
and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney’s fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment.

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          (h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Securities may reasonably request in connection with a pledge
of the Securities to such pledgee by an Investor.

          (i) Interim Actions. The Company shall not, or allow any Subsidiary
to, during the period between the date hereof and the earlier of the Closing
Date and the date this Agreement is terminated in accordance with Section 8,
take any action (i) listed in Section 3(l), (ii) that, had the Preferred Stock
been outstanding at such time, (A) would have resulted in a distribution or
payment to the holders of the Preferred Stock, (B) would, or together with other
like events could, have resulted in any adjustments to the terms of the
Preferred Stock, or (C) would have required the prior approval of or consent by
the holders of the Preferred Stock or (iii) that would have violated the terms
of the Secured Note Documents (had they been outstanding).

          (j) Full Access. During the period between the date hereof and the
earlier of the Closing Date or the date this Agreement is terminated in
accordance with Section 8, the Company will permit the Buyers to have reasonable
access at reasonable times to its premises, properties, personnel and other
third parties whose consent is required in order to consummate the transactions
contemplated hereby, and to the books and documents of or pertaining to the
Company and its Subsidiaries.

          (k) No Conflicting Agreements. During the period between the date
hereof and the earlier of the Closing Date or the date this Agreement is
terminated in accordance with Section 8, the Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
with the Company’s obligations to the Buyers under the Transaction Documents.

          (l) Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the 1933 Act) that would be integrated with the offer or sale of
the Securities for purposes of the rules and regulations of any of the following
markets or exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the Pink OTC Markets, the OTC Bulletin Board, the
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market,
the Nasdaq Global Select Market or the New York Stock Exchange such that it
would require shareholder approval before the closing of such other transaction
unless shareholder approval is obtained before the closing of such subsequent
transaction.

          (m) Disclosure of Transactions and Other Material Information.

               (i) As soon as reasonably practicable after the date hereof (but
in any event within three (3) Business Days after the date hereof), the Company
shall mail to the holders of Common Stock the letter required by Nasdaq Rule
5635(f) in the form previously agreed to by the Parties.

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               (ii) On or before 8:30 a.m., New York City time, on the third
Business Day following the date of this Agreement, the Company shall issue a
press release and file a Current Report on Form 8-K describing the terms of the
transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching the material Transaction Documents (including,
without limitation, this Agreement, the form of Certificate of Designations, the
form of Warrant and the form of the Registration Rights Agreement) as exhibits
to such filing (including all attachments, the “8-K Filing”). Subject to the
foregoing, none of the Company, its Subsidiaries or any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i), the UCC Investor shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release). Without the
prior written consent of any applicable Buyer, neither the Company nor any of
its Subsidiaries or affiliates shall disclose the name of such Buyer in any
filing, announcement, release or otherwise, unless such disclosure is required
by law, regulation or the Principal Market.

          (n) Additional Registration Statements. Until a registration statement
of the type described in the Registration Rights Agreement covering the resale
of the Conversion Shares and the Warrant Shares has been declared effective, the
Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Securities other than on Form S-8 (as promulgated
under the 1933 Act) or its then equivalents relating to equity securities to be
issuable solely in connection with stock option or other employee benefit plans.

          (o) Corporate Existence. Without limiting any covenant set forth in
the Notes, so long as any Buyer beneficially owns any Preferred Shares or
Warrants, the Company shall not be party to any Fundamental Transaction (as
defined in the Certificate of Designations) unless the Company is in compliance
with the applicable provisions governing Fundamental Transactions set forth in
the Certificate of Designations and the Warrants.

          (p) Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than the sum of (i) one hundred thirty percent (130%) of the maximum number
of shares of Common Stock issuable upon conversion of the Preferred Shares
(assuming for purposes hereof, that the Preferred Shares are convertible at the
Conversion Price and without taking into account any limitations on the
conversion of the Preferred Shares set forth in the Certificate of Designations)
and (ii) one hundred percent (100%) of the maximum number of shares of Common
Stock issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth in the Warrants).

          (q) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

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          (r) Additional Issuances of Securities.

               (i) For purposes of this Section 4(r), the following definitions
shall apply.

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

          (2) “Eligible UCC Investor” means the UCC Investor or any transferee
of such UCC Investor as permitted hereunder.

          (3) “Excluded Securities” means the Excluded Securities set forth in
the Certificate of Designations and any Common Stock issued or issuable upon
conversion, exercise or exchange of any Options or Convertible Securities which
are outstanding on the day immediately preceding the date hereof and listed on
Schedule 3(r) hereto; provided, that such issuance is made pursuant to the terms
of such Options or Convertible Securities in effect on the date immediately
preceding the date hereof and such Options or Convertible Securities are not
amended, modified or changed after the date hereof in any material respect.

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

          (5) “Common Stock Equivalents” means, collectively, Options and
Convertible Securities.

          (6) “Subsequent Placement” means any action to offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition of) any of its or its
Subsidiaries’ equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents, other than Excluded Securities.

               (ii) From the Closing Date until no Preferred Shares remain
outstanding, the Company will not, directly or indirectly, effect any Subsequent
Placement unless the Company shall have first complied with this Section
4(r)(ii).

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          (1) The Company shall deliver to each Eligible UCC Investor a written
notice (the “Offer Notice”) of any proposed or intended issuance or sale or
exchange (the “Offer”) of the securities being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with each Eligible UCC Investor (a) that portion of the Offered
Securities which equals the proportion that the Common Stock issued and held by
such Eligible UCC Investor, or issuable upon conversion or exercise of all
Common Stock Equivalents then held by such Eligible UCC Investor, bears to the
total Common Stock of the Company then outstanding (assuming full conversion and
or exercise of all Common Stock Equivalents then outstanding) (the “Basic
Amount”), and (b) with respect to each Eligible UCC Investor that elects to
purchase its Basic Amount, any additional portion of the Offered Securities
attributable to the Basic Amounts of other Eligible UCC Investors as such
Eligible UCC Investor shall indicate it will purchase or acquire should the
other Eligible UCC Investors subscribe for less than their Basic Amounts (the
“Undersubscription Amount”), which process shall be repeated until the Eligible
UCC Investors shall have an opportunity to subscribe for any remaining
Undersubscription Amount.

          (2) To accept an Offer, in whole or in part, such Eligible UCC
Investor must deliver a written notice to the Company prior to the end of the
third (3rd) Business Day after such Eligible UCC Investor’s receipt of the Offer
Notice (the “Offer Period”), setting forth the portion of such Eligible UCC
Investor’s Basic Amount that such Eligible UCC Investor elects to purchase and,
if such Eligible UCC Investor shall elect to purchase all of its Basic Amount,
the Undersubscription Amount, if any, that such Eligible UCC Investor elects to
purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts
subscribed for by all Eligible UCC Investors are less than the total of all of
the Basic Amounts, then each Eligible UCC Investor who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Eligible UCC Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Eligible UCC
Investor bears to the total Basic Amounts of all Eligible UCC Investors that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary. Notwithstanding the
foregoing, if the Company desires to modify or amend the terms and conditions of
the Offer prior to the expiration of the Offer Period, the Company may deliver
to the Eligible UCC Investors a new Offer Notice and the Offer Period shall
expire on the third (3rd) Business Day after such Buyer’s receipt of such new
Offer Notice.

          (3) The Company shall have thirty (30) days from the expiration of the
Offer Period above (i) to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Eligible UCC Investors (the “Refused Securities”) pursuant to a definitive
agreement(s) (the “Subsequent Placement Agreement”), but only upon terms and
conditions (including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less favorable to
the Company than those set forth in the Offer Notice and (ii) to publicly
announce (a) the execution of such Subsequent Placement Agreement, and (b)
either (x) the consummation of the transactions contemplated by such Subsequent
Placement Agreement or (y) the termination of such Subsequent Placement
Agreement, which shall be filed with the SEC on a Current Report on Form 8-K
with such Subsequent Placement Agreement and any documents contemplated therein
filed as exhibits thereto.

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          (4) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 4(r)(ii)(3) above), then each Eligible UCC Investor may, at its sole
option and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that such Eligible UCC
Investor elected to purchase pursuant to Section 4(r)(ii)(2) above multiplied by
a fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Eligible UCC Investors pursuant to
Section 4(r)(ii)(3) above prior to such reduction) and (ii) the denominator of
which shall be the original amount of the Offered Securities. In the event that
any Eligible UCC Investor so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Eligible UCC Investors in accordance with Section 4(r)(ii)(1) above.

          (5) Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Eligible UCC Investors shall acquire
from the Company, and the Company shall issue to the Eligible UCC Investors, the
number or amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(r)(ii)(3) above if the Buyers have so elected,
upon the terms and conditions specified in the Offer. The purchase by the
Eligible UCC Investors of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Eligible UCC
Investors of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Eligible UCC Investors and their
respective counsel; provided that such purchase is on the same terms and
conditions as the Subsequent Placement Agreement.

          (6) Any Offered Securities not acquired by the Eligible UCC Investors
or other persons in accordance with Section 4(r)(ii)(3) above may not be issued,
sold or exchanged until they are again offered to the Eligible UCC Investors
under the procedures specified in this Agreement.

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          (7) In the event the Company has made a good faith determination that
any matters relating to an Offer Notice required to be provided to any Eligible
UCC Investor pursuant to this Section 4(r) constitute material non-public
information, prior to providing such Offer Notice, the Company shall promptly
inquire (either orally or in writing) to each Eligible UCC Investor whether such
Eligible UCC Investor wants to receive any material nonpublic information (the
“Material Event Notice”). Notwithstanding anything contained in this Section
4(r) to the contrary, the Company shall not deliver an Offer Notice that
contains material nonpublic information to any Eligible UCC Investor that has
not affirmatively indicated (either orally or in writing) that it wishes to
receive material nonpublic information. Until the earlier to occur of (x) the
date on which a Eligible UCC Investor gives notice (either orally or in writing)
to the Company authorizing the delivery of material nonpublic information to the
Eligible UCC Investor (the “Material Event Notice Acceptance”) or (y) the date
on which the material non-public information which was to be set forth in the
Offer Notice is publicly disclosed in a filing with the SEC, the Company shall
be relieved of any obligation imposed by this Section 4(r) to deliver an Offer
Notice to the Eligible UCC Investor containing material nonpublic information
and such Eligible UCC Investor shall be deemed to have waived the Eligible UCC
Investor’s rights hereunder to receive such Offer Notice until such time as the
Eligible UCC Investor delivers such Material Event Notice Acceptance to the
Company. Notwithstanding anything in any Transaction Document to the contrary,
the Company covenants and agrees that it shall not provide the Offer Notice to
any Eligible UCC Investor which contains material non-public information until
the earlier to occur of (x) such time as the Material Event Notice Acceptance is
received by the Company or (y) the material non-public information which was to
be set forth in the Offer Notice has been disclosed in a filing with the SEC.

          (8) Notwithstanding the foregoing provisions of this Section 4(r), if
the Company reasonably determines that market conditions dictate that it would
be advisable that an issuance or sale of Offered Securities be consummated prior
to offering to sell additional Offered Securities to each Eligible UCC Investor
pursuant to this Section 4(r), the Company may consummate such issuance or sale
of Offered Securities prior to making such offer pursuant to this Section 4(r),
provided that the Company shall have made full provision for full compliance
with this Section 4(r) in any agreement for the sale of such Offered Securities,
and the Company shall within thirty (30) days following the consummation of such
issuance or sale, comply with the provisions of this Section 4(r).

          (9) In addition, the Company and the Company’s Board of Directors will
take all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti takeover provision under the
Company’s certificate of incorporation (or similar charter documents) or other
agreements or the laws of its state of incorporation, and in order to comply
with applicable law.

          (s) Lock-Up Agreements. The Company shall not amend, waive or modify
any of the Lock-Up Agreements without the written consent of the Required
Holders (as defined in the Certificate of Designations).

          (t) Approval of Principal Market. The Company shall use commercially
reasonable efforts, acting diligently and in good faith, to obtain the approval
of the Principal Market with respect to the transactions contemplated by the
Transaction Documents as soon as practicable.

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          (u) Collateral Agent. Each Buyer hereby (a) appoints the UCC Investor
(together with any successor collateral agent pursuant to Section 4(v)), as the
collateral agent hereunder, under the Notes and under the other Secured Note
Documents (in such capacity, the “Collateral Agent”), and (b) authorizes the
Collateral Agent (and its officers, directors, employees and agents) to take
such action on such Buyer’s behalf in accordance with the terms hereof and
thereof and such powers as are reasonably incidental thereto. The Collateral
Agent shall not have, by reason hereof or any of the other Transaction
Documents, a fiduciary relationship in respect of any Buyer. Neither the
Collateral Agent nor any of its officers, directors, employees, agents and
affiliates shall have any liability to any Buyer for any action taken or omitted
to be taken in connection hereof or any other Transaction Document except to the
extent caused by its own gross negligence or willful misconduct (each as
determined in a final, non-appealable judgment by a court of competent
jurisdiction), and each Buyer agrees to defend, protect, indemnify and hold
harmless the Collateral Agent and all of its officers, directors, employees,
agents and affiliates (collectively, the “Indemnitees”) from and against any
losses, damages, liabilities, obligations, penalties, actions, judgments, suits,
fees, costs and expenses (including, without limitation, reasonable attorneys’
fees, costs and expenses) incurred by such Indemnitee, whether direct, indirect
or consequential, arising from or in connection with the performance by such of
the duties and obligations of the Collateral Agent pursuant hereto or any of the
other Transaction Documents. Any such indemnification by the Buyers shall be pro
rata based on the aggregate outstanding principal amount of Notes held by each
Buyer. The Collateral Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from action (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Holders (as defined in the Notes) of the Notes then
outstanding (or, if expressly required in the Secured Note Documents, a greater
proportion of the Holder of the Notes), and such instructions shall be binding
upon all holders of the Notes; provided, however, that the Collateral Agent
shall not be required to take any action which, in the reasonable opinion of the
Collateral Agent, exposes the Collateral Agent to liability or which is contrary
to this Agreement or any other Transaction Document or applicable law. The
Collateral Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it
in good faith to be genuine and correct and to have been signed, sent or made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Transaction Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.

          (v) Successor Collateral Agent.

               (i) The Collateral Agent may resign from the performance of all
its functions and duties hereunder and under the other Secured Note Documents at
any time by giving at least thirty (30) Business Days’ prior written notice to
the Company and each holder of Notes. Such resignation shall take effect upon
the acceptance by a successor Collateral Agent of appointment pursuant to
clauses (ii) and (iii) below or as otherwise provided below.

               (ii) Upon any such notice of resignation, the Required Holders of
the Notes then outstanding shall appoint a successor collateral agent. Upon the
acceptance of any appointment as collateral agent hereunder by a successor
agent, such successor collateral agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the collateral
agent, and the Collateral Agent shall be discharged from its duties and
obligations under this Agreement and the other Secured Note Documents. After the
Collateral Agent’s resignation hereunder as the collateral agent, the provisions
of this Section 4(v) shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Collateral Agent under this Agreement
and the other Secured Note Documents.

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               (iii) If a successor collateral agent shall not have been so
appointed within said thirty (30) Business Day period, the Collateral Agent
shall then appoint a successor as collateral agent who shall serve as the
collateral agent until such time, if any, as the Required Holders of the Notes
then outstanding appoints a successor collateral agent as provided above.

          (w) Collateral Agent Individually. The Collateral Agent and its
affiliates may make loans and other extensions of credit to, acquire Securities
of, engage in any kind of business with, the Company or any affiliate thereof as
though it were not acting as Collateral Agent and may receive separate fees and
other payments therefore.

          (x) Buyer Credit Decision. Each Buyer acknowledges that it shall,
independently and without reliance upon the Collateral Agent or any other Buyer
or affiliate thereof or upon any document solely or in part because such
document was transmitted by the Collateral Agent or any of its affiliates to
such Buyer, conduct its own independent investigation of the financial condition
and affairs of each of the Company and its Subsidiaries and make and continue to
make its own credit decisions in connection with entering into, and taking or
not taking any action under, any Transaction Document or with respect to any
transaction contemplated in any Transaction Document, in each case based on such
documents and information as it shall deem appropriate.

          (y) Exercise of Remedies. Each Buyer agrees that it will not have any
right individually to enforce or seek to enforce this Agreement or any other
Secured Note Document or to realize upon any collateral security for the Notes
and all obligations related thereto; it being understood and agreed that such
rights and remedies may be exercised only (i) so long as the Notes are
outstanding, by the Collateral Agent in accordance with the terms of the Secured
Note Documents, and (ii) to the extent that the Notes are no longer outstanding,
by the UCC Investor in accordance with the terms hereof.

          (z) No Solicitation of Competing Proposal or Changes of
Recommendation.

               (i) No Solicitation or Changes of Recommendation. From and after
the date of this Agreement until the earlier of the Closing Date or the date, if
any, on which this Agreement is properly terminated pursuant to Section 8(a)
(such earlier date, the “Termination Date”), the Company shall not, and shall
cause its Subsidiaries and its and their respective representatives not to,
directly or indirectly:

          (1) solicit, initiate, facilitate or encourage (including by way of
providing information) the making, submission, announcement or completion of any
Competing Proposal (as defined below) or take any action that is intended to
lead to any Competing Proposal;

          (2) furnish or disclose to any person any non-public information
relating to the Company or any of its Subsidiaries in response to, in connection
with or to any person who would reasonably be expected to be interested in
making, any Competing Proposal;

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          (3) participate or engage in any discussions or negotiations with any
Person with respect to, or otherwise cooperate with or assist any Person in
connection with, any Competing Proposal;

          (4) support, adopt, approve, endorse or recommend any Competing
Proposal;

          (5) enter into any letter of intent, agreement in principle,
investment agreement, purchase agreement, merger agreement, acquisition
agreement, option agreement or similar document or any other contract or
agreement relating to any Competing Proposal; or

          (6) resolve, propose, disclose any intention or agree to do any of the
foregoing.

               (ii) Cessation of Negotiations. The Company shall, and shall
cause its Subsidiaries and its and their respective representatives, to
immediately cease any existing solicitations, discussions or negotiations with
any person that has made or indicated an intention to make, has been invited to
make, or has requested or been provided with non-public information relating to
the Company or any of its Subsidiaries relating to, a Competing Proposal.

               (iii) Notice of Competing Proposals and Developments. The Company
shall provide notice to the Buyers of the receipt by the Company, any of its
Subsidiaries or any of its or their respective representatives, prior to the
earlier of the Termination Date and the Closing Date, of (i) any Competing
Proposal or (ii) any request for non-public information relating to the Company
or any of its Subsidiaries reasonably relating to such a Competing Proposal, in
either case promptly, and in all cases within twenty-four (24) hours following,
receipt thereof, including all material terms and conditions of such Competing
Proposal or request and the identity of the Person or group making any such
Competing Proposal or request. The Company shall forward to the Buyers copies of
all written material (including materials received by facsimile and electronic
communications) received by the Company, any of its Subsidiaries or any of its
or their respective Representatives relating to any such Competing Proposal or
request promptly, and in all cases within twenty-four (24) hours following,
receipt thereof. The Company shall keep each Buyer informed on a reasonably
current basis (and in any event within twenty-four (24) hours of the occurrence
of any changes, developments, discussions or negotiations), and at any time upon
the request of any Buyer from time to time, of the status and material terms and
conditions (including all amendments or proposed amendments) of any such
Competing Proposal or request.

               (iv) Enforcement of Standstills and Confidentiality Agreements.
Until the earlier of the Termination Date and the Closing Date, the Company
shall enforce, and shall not release or permit the release of any person from,
or amend, waive, terminate or modify, and shall not permit the amendment,
waiver, termination or modification of, any provision of, any nondisclosure,
confidentiality, standstill or similar agreement or provision to which the
Company or any of its Subsidiaries is a party or under which the Company or any
of its Subsidiaries has any rights. Until the earlier of the Termination Date
and the Closing Date, the Company shall not, and shall not permit any of its
Subsidiaries or its or their representatives to, enter into any nondisclosure or
confidentiality agreement with any person subsequent to the date of this
Agreement, and none of the Company, any of its Subsidiaries or any of its or
their respective representatives is party to any agreement, which prohibits the
Company from providing any information to any Buyer.

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               (v) Competing Proposal Definition. As used in this Agreement,
“Competing Proposal” means any proposal, offer or inquiry (other than a
proposal, offer or inquiry by the UCC Investor or any of its affiliates or any
of its or their respective representatives) relating to any transaction or
series of related transactions involving or resulting in: (i) any acquisition or
purchase (including from the Company) by any person or “group” (as defined in or
under Section 13(d) of the Exchange Act), directly or indirectly, of more than
fifteen percent (15%) of the total outstanding voting securities of the Company
or any of its Subsidiaries, or any tender offer or exchange offer that, if
consummated, would result in the person or “group” (as defined in or under
Section 13(d) of the Exchange Act) beneficially owning fifteen percent (15%) or
more of the total outstanding voting securities (including securities that are
convertible into voting securities) of the Company or any of its Subsidiaries;
(ii) any preferred stock investment in, or debt financing for, the Company or
any of its Subsidiaries (other than pursuant to the Notes and other Secured Loan
Documents); (iii) any merger, consolidation, share exchange, business
combination, issuance of securities, acquisition of securities,
recapitalization, tender offer, exchange offer or other similar transaction
involving the Company or any of its Subsidiaries pursuant to which the
stockholders of the Company immediately prior to the consummation of such
transaction would hold less than eighty-five percent (85%) of the equity
interests in the surviving or resulting entity of such transaction immediately
after consummation thereof; (iv) any sale, lease, exchange, transfer, license,
acquisition or disposition of more than fifteen percent (15%) of the aggregate
assets of the Company and its Subsidiaries (measured by either book or fair
market value thereof) or the aggregate net revenues or net income of the Company
and its Subsidiaries; or (v) any liquidation, dissolution, recapitalization or
other significant corporate reorganization of the Company and/or its
Subsidiaries.

          (aa) Director Indemnification Agreement. Upon any nominee of the
Required Holders (as defined in the Certificate of Designations) being elected
to the Board of Directors, the Company shall execute and deliver to such nominee
an indemnification agreement in the form of Exhibit I.

5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

          (a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes, the Preferred
Shares and the Warrants in which the Company shall record the name and address
of the Person in whose name the Notes, the Preferred Shares and the Warrants
have been issued (including the name and address of each transferee), the number
of Preferred Shares held by such Person and the number of Conversion Shares
issuable upon conversion of the Preferred Shares and Warrant Shares issuable
upon exercise of the Warrants held by such Person. The Company shall keep the
register open and available at all times during business hours for inspection of
any Buyer or its legal representatives.

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          (b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit D attached hereto (the “Irrevocable Transfer Agent Instructions”). The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(h) hereof, will be given by the Company to its transfer
agent with respect to the Securities, and that the Securities shall otherwise be
freely transferable on the books and records of the Company, as applicable, and
to the extent provided in this Agreement and the other Transaction Documents. If
a Buyer effects a sale, assignment or transfer of any Securities in accordance
with Section 2(g), the Company shall permit the transfer and shall promptly
instruct its transfer agent to issue one or more certificates or credit shares
to the applicable balance accounts at DTC in such name and in such denominations
as specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Conversion Shares, Common
Stock and/or Warrant Shares sold, assigned or transferred pursuant to an
effective registration statement with prospectus delivery (unless an exemption
from the prospectus delivery requirements is available), or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend.

          (c) Breach. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer and that the remedy
at law for a breach of its obligations under this Section 5 will be inadequate.
In addition, the Company agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Section 5, that a Buyer shall be
entitled, in addition to all other available remedies, to seek an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

          (d) Additional Relief. If the Company shall fail for any reason or for
no reason to issue to such holder unlegended certificates within five (5)
Business Days of receipt of documents necessary for the removal of legend set
forth above (the “Deadline Date”), then, in addition to all other remedies
available to the holder, if on or after the Trading Day (as defined in the
Certificate of Designations) immediately following such five (5) Business Day
period, the holder purchases (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by the holder of shares of
Common Stock that the holder anticipated receiving from the Company (a
“Buy-In”), then the Company shall, within three (3) Business Days after the
holder’s request and in the holder’s discretion, either (i) pay cash to the
holder in an amount equal to the holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the holder a certificate or
certificates representing such shares of Common Stock and pay cash to the holder
in an amount equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on
the Deadline Date. “Closing Bid Price” means, for any security as of any date,
the last closing price for such security on the Principal Market, as reported by
Bloomberg (as defined in the Certificate of Designations), or, if the Principal
Market begins to operate on an extended hours basis and does not designate the
closing bid price then the last bid price of such security prior to 4:00:00
p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is
not the principal securities exchange or trading market for such security, the
last closing price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Closing
Bid Price of such security on such date shall be the fair market value as
mutually determined by the Company and the holder. If the Company and the holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 2(d)(iii) of the Certificate of
Designations. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

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6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

          The obligation of the Company hereunder to issue and sell the Closing
Date Securities, to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

               (i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.

               (ii) Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price for the Closing Date Securities, being purchased by
such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.

               (iii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specified date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.

               (iv) The Company shall have obtained the approval of the
Principal Market with respect to the consummation of the transactions
contemplated by the Transaction Documents.

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7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

          The obligation of each Buyer hereunder to purchase the Closing Date
Securities is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:

               (i) The Company shall have duly executed and delivered to such
Buyer the Closing Date Securities set forth across from such Buyer’s name in the
Schedule of Buyers being purchased by such Buyer at the Closing pursuant to this
Agreement.

               (ii) The Company and any applicable Subsidiary shall have duly
executed and delivered to such Buyer the Transaction Documents to which it is a
party.

               (iii) Such Buyer shall have received the opinion of Cooley
Godward Kronish LLP, the Company’s outside counsel, dated as of the Closing
Date, in a form reasonably acceptable to the Buyers and their counsel.

               (iv) The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit E attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent.

               (v) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in each such entity’s jurisdiction of formation issued by the
Secretary of State (or equivalent) of such jurisdiction of formation as of a
date within ten (10) days of the Closing Date.

               (vi) The Company shall have delivered to such Buyer a certificate
evidencing the Company’s qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business and is required to so
qualify, as of a date within ten (10) days of the Closing Date.

               (vii) The Company shall have delivered to such Buyer a certified
copy of the Certificate of Incorporation as certified by the Secretary of State
of the State of Delaware within ten (10) days of the Closing Date.

               (viii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by the Company’s board of directors in a form reasonably acceptable to such
Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in
effect at the Closing, in the form attached hereto as Exhibit F.

               (ix) The representations and warranties of the Company shall be
true and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specified date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto
as Exhibit G.

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               (x) The Company shall have delivered to such Buyer a letter from
the Company’s transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.

               (xi) Except as set forth on Schedule 3(e), the Common Stock,
including the Conversion Shares and the Warrant Shares (I) shall be designated
for quotation or listed on the Principal Market (subject to the official notice
of issuance) and (II) shall not have been suspended, as of the Closing Date, by
the SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market.

               (xii) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities and the Company shall have obtained all necessary permits and
qualifications, if any, or secured an exemption therefrom, required by any sate
prior to the offer and sale of the Securities.

               (xiii) The Company shall have obtained account control agreements
in form and substance reasonably satisfactory to the Collateral Agent.

               (xiv) The Company shall have obtained landlord and bailee waivers
in form and substance reasonably satisfactory to the Collateral Agent.

               (xv) The Certificate of Designations in the form attached hereto
as Exhibit A shall have been filed with the Secretary of State of the State of
Delaware and shall be in full force and effect, enforceable against the Company
in accordance with its terms and shall not have been amended.

               (xvi) Such Buyer shall have received lock-up agreements in the
form attached hereto as Exhibit H (the “Lock-Up Agreements”), duly executed and
delivered by all directors and officers of the Company.

               (xvii) The Company shall have obtained the approval of the
Principal Market with respect to the consummation of the transactions
contemplated by the Transaction Documents pursuant to Nasdaq Rule 5635(f) and
shall have delivered a written copy of such approval to the Buyers, and ten (10)
days shall have elapsed since the Company shall have mailed to the holders of
Common Stock the letter required by Nasdaq Rule 5635(f) in the form previously
agreed to by the Parties.

               (xviii) The Company shall have executed and delivered to Union
Capital Corporation a management consulting agreement in the form approved by
Union Capital Corporation (the “Management Agreement”).

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               (xix) The Company shall have paid-off all indebtedness (other
than as permitted by the Notes) of the Company and/or its Subsidiaries prior to
the Closing and provided to the Buyers proof of such pay-off reasonably
satisfactory to the Buyers and any and all related release, cancellation and/or
termination documents, duly executed by the Company and such lender thereto,
together with the UCC-3 termination statements for all UCC-1 financing
statements filed, covering any portion of the Collateral (as defined in the
applicable Secured Note Documents) and existing as of the Closing, in each case
in form and substance reasonably satisfactory to the Buyers. The Company shall
have received from the Diageo Parties a pay-off letter providing for the
cancellation of the Diageo Note upon receipt of the Diageo Payoff Amount in form
reasonably satisfactory to the UCC Investor.

               (xx) Appropriate financing statements on Form UCC-1 shall be duly
filed in such office or offices as may be necessary or, in the opinion of the
Collateral Agent, desirable to perfect the security interests purported to be
created by each applicable Secured Note Document.

               (xxi) Within two (2) Business Days prior to the Closing, the
Buyer shall have received to its reasonable satisfaction true copies of UCC
search results, listing all effective financing statements which name as debtor
the Company or any of its Subsidiaries filed in the prior five (5) years to
perfect an interest in any assets thereof, together with copies of such
financing statements, none of which, except for Permitted Liens (as defined in
the Notes) and as otherwise agreed in writing by the Buyers, shall cover any of
the Collateral (as defined in the applicable Secured Note Documents) and the
results of searches for any intellectual property lien, tax lien and judgment
lien filed against such Person or its property, which results, except as
otherwise agreed to in writing by the Buyers, shall not show any such Liens (as
defined in the applicable Secured Note Documents other than Permitted Liens (as
defined in the Notes).

               (xxii) Insurance certificates in form and substance satisfactory
to the Collateral Agent demonstrating that the insurance policies required by
Section 9(l) of the Notes are in full force and effect and have all endorsements
required by such Section.

               (xxiii) There shall have been paid to the UCC Investor, for the
account of the UCC Investor, all fees and all reimbursements of costs or
expenses, in each case due and payable under any Transaction Document on or
before the Closing.

               (xxiv) There shall have been paid to Union Capital Corporation a
partial closing fee equal to $162,500 in accordance with the terms of the
Management Agreement.

               (xxv) The Company shall have delivered a separate indemnification
agreement in the form of Exhibit I, each duly executed by the Company, with each
of the nominees of the holders of the Series D Preferred Stock to the Board
pursuant to the Certificate of Designations, which indemnification agreement
shall become effective upon such nominee becoming a member of the Board.

               (xxvi) The Company, Diageo North America, Inc., Diageo-Guinness
USA, Inc. (the “Diageo Parties”)and U.S. Concepts Inc. shall have entered into
an amendment (the “Diageo Amendment”) to the the Marketing and Promotion
Agreement among the Company and the Diageo Parties dated July 1, 2006 (the
“Existing Diageo Agreement”) in the form substantially similar to that reviewed
by the UCC Investor.

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               (xxvii) The Existing Diageo Agreement, as amended by the Diageo
Amendment, shall be in full force and effect and not have been terminated.

               (xxviii) The Diageo Payoff Amount shall not exceed $1,600,000.

               (xxix) The Bylaws shall be amended and restated to provide that
the Investor Directors (as defined in the Certificate of Designation) have the
ability to call a special meeting of the stockholders.

               (xxx) The Company shall have taken all actions necessary and
appropriate to cause the Investor Directors (as defined in the Certificate of
Designations) to be appointed to the Board of Directors upon Closing.

               (xxxi) The UCC Investor shall be reasonably satisfied that, upon
receipt of the aggregate Purchase Price, (a) the Company’s independent auditors
will issue an audit report upon the consolidated financial statements of the
Company as of, and for the fiscal year ended March 31, 2009, that does not
include a going concern, impairment or other qualification and (b) the Company
will promptly file with the SEC its Quarterly Reports for the periods ending
June 30, 2009 and September 30, 2009 and its Annual Report for the period ending
March 31, 2009.

               (xxxii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request.

8. TERMINATION.

          (a) Termination. This Agreement and the obligations of the Company, on
the one hand, and each Buyer, on the other hand, to effect the Closing may be
terminated at any time prior to the Closing as follows:

               (i) upon the mutual written consent of the Company and the UCC
Investor;

               (ii) by the Company:

          (1) if the UCC Investor has breached any representation, warranty, or
covenant contained in this Agreement or in any other Transaction Document in any
material respect, the Company has notified the UCC Investor of the breach, and
the breach has continued without cure for a period of ten (10) calendar days
after the notice of breach, or

          (2) if the Closing shall not have occurred on or before December 21,
2009 (the “Outside Date”), by reason of the failure of any of the conditions set
forth in Section 6 hereof or if satisfaction of any such condition by such date
is or becomes impossible (unless the failure results primarily from the Company
breaching any representation, warranty, or covenant contained in this Agreement
or any other Transaction Document);

35

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               (iii) by the UCC Investor:

          (1) if the Company has breached any representation, warranty, or
covenant contained in this Agreement or in any other Transaction Document in any
material respect, the UCC Investor has notified the Company of the breach, and
the breach has continued without cure for a period of ten (10) calendar days
after the notice of breach, or

          (2) if the Closing shall not have occurred on or before the Outside
Date, by reason of the failure of any of the conditions set forth in Section 7
hereof or if satisfaction of any such condition by such date is or becomes
impossible (unless the failure results primarily from the UCC Investor breaching
any representation, warranty, or covenant contained in this Agreement or any
other Transaction Document).

          (b) Effect of Termination. In the event that this Agreement is validly
terminated in accordance with Section 8(a), except as provided herein, all of
the parties shall be relieved of their respective duties and obligations arising
under this Agreement after the date of such termination and such termination
shall be without liability to the Buyers or the Company; provided, that no such
termination shall relieve any party hereto from liability for a breach of any of
its covenants or agreements contained in this Agreement except in the case of
those covenants or agreements that are solely intended to be performed after
Closing; provided further, that the covenants and agreements of the parties set
forth in Section 8 and Section 9 hereof shall survive any such termination and
shall be enforceable hereunder; and provided further, the Company shall be
obligated to pay and/or reimburse the fees and expenses of the UCC Investor,
Union Capital Corporation and their respective designees pursuant to Section
4(g), notwithstanding any such termination. The damages recoverable by the
non-breaching party shall include all attorneys’ fees reasonably incurred by
such party in connection with the transactions contemplated hereby.
Notwithstanding this Section 8(b), if this Agreement is terminated because of a
breach of this Agreement by the non-terminating party or because one or more of
the conditions of the terminating party’s obligations under this Agreement is
not satisfied as a result of the non-terminating party’s failure to comply with
its obligations under this Agreement, the terminating party’s right to pursue
all legal and equitable remedies (including rights to specific performance under
Section 9(m)) will survive such termination unimpaired.

9. MISCELLANEOUS.

          (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

36

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          (b) Counterparts. This Agreement may be executed in two (2) or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

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

          (d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

          (e) Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the Preferred Shares issued
and issuable hereunder and the Required Holders (as defined in the Notes), and
any amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable. No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought; provided,
however, that the holders of a majority of the Preferred Shares issued and
issuable hereunder and the Required Holders (as defined in the Notes), may waive
any provision hereof that is intended for the benefit of the Buyers and such
waiver shall be applicable to all Buyers and holders of Securities, as
applicable.No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Preferred Shares and the Notes then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Preferred Shares, holders of the Notes,
holders of the Common Stock or holders of Warrants, as the case may be. The
Company has not, directly or indirectly, made any agreements with any Buyers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents. Without
limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.

37

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          (f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

 

 

 

If to the Company:

 

 

75 Ninth Avenue

 

New York, NY 10011

 

Telephone:

212-366-3400

 

Facsimile:

212-660-3863

 

Attention:

Board of Directors

 

 

 

With a copy (for informational purposes only) to:

 

 

Cooley Godward Kronish LLP

 

1114 Avenue of the Americas

 

New York, NY 10036

 

 

 

Telephone:

212-479-6000

 

Facsimile:

212-479-6275

 

Attn: Zev Bomrind

 

 

If to the Transfer Agent:

 

 

American Stock Transfer & Trust Company

 

59 Maiden Lane

 

Plaza Level

 

New York, NY 10038

 

 

 

 

Telephone:

1-800-937-5449

 

Facsimile:

718-921-8335

 

Attention:

Geraldine Zarbo

38

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          If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer’s representatives as set forth on
the Schedule of Buyers,

 

 

 

with a copy (for informational purposes only) to:

 

 

Finn Dixon & Herling LLP

 

177 Broad Street

 

Stamford, Connecticut 06901

 

Telephone:

203-325-5000

 

Facsimile:

203-325-5001

 

Attention:

Charles J. Downey III, Esq.

or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party pursuant to this Section. Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

          (g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes, the Preferred Shares or the Warrants.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of:

          (i) at least a majority in aggregate principal amount of the
outstanding Notes, including by way of a Fundamental Transaction (unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes); and

          (ii) at least a majority of the aggregate number of the Preferred
Shares issued hereunder, including by way of a Fundamental Transaction (unless
the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Certificate of Designations and the
Warrants).

A Buyer may assign some or all of its rights hereunder in connection with
transfer of any of its Securities without the consent of the Company, in which
event such assignee shall be deemed to be a Buyer hereunder with respect to such
assigned rights; provided however, that a transfer of any Security by a Buyer
shall require, in the case of the Preferred Shares, Warrant Shares or Conversion
Shares, the prior written consent of the holders of at least a majority of the
then-outstanding aggregate number of the Preferred Shares issued hereunder and,
in the case of the Notes, at least a majority in aggregate principal amount of
the outstanding Notes.

39

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          (h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person; provided, that Sections 4(s), 4(t), 4(u), 4(v), 4(w),
9(k), 9(m), 9(n), and 9(o) are for the benefit of the Collateral Agent and may
be enforced by the Collateral Agent.

          (i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing and the delivery and exercise of Securities, as
applicable. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.

          (j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

          (k) Indemnification. In consideration of each Buyer’s execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless the
Collateral Agent, each Buyer and each other holder of the Securities (other than
holders of Securities purchased on any Eligible Market (as defined in the
Certificate of Designations) or the Principal Market with respect to those
Securities), and all of the Collateral Agent’s and such Buyer’s stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”),
as incurred, from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys’ fees and disbursements, (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, (b) any breach of any covenant, agreement
or obligation of the Company contained in the Transaction Documents or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby unless
resulting from the gross negligence or willful misconduct of a Buyer as
determined by a court of competent jurisdiction pursuant to a final
non-appealable order, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the
Securities or (iii) the status of such Buyer or holder of the Securities (other
than holders of Securities purchased on any Eligible Market or the Principal
Market with respect to those Securities), as an investor in the Company pursuant
to the transactions contemplated by the Transaction Documents, but excluding, in
the case of this clause (iii), any loss in value of any investment in the
Company by such Buyer. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.

40

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          (l) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

          (m) Remedies. Subject to Section 4(y), each Buyer and each holder of
the Securities shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under the Transaction
Documents, any remedy at law may prove to be inadequate relief to the Collateral
Agent or the Buyers. The Company therefore agrees that the Collateral Agent and
the Buyers shall be entitled to seek temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages and without
posting a bond or other security.

          (n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever the Collateral Agent or any Buyer exercises a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then the Collateral Agent or such Buyer may rescind or withdraw, in
its sole discretion from time to time prior to the Company’s performance upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

          (o) Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers or the Collateral Agent enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.

41

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          (p) Independent Nature of Buyers’ Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group, and the
Company will not assert any such claim, with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
and each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Subject to Section 4(y), each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.

          (q) Counsel Issues. It is acknowledged by all of the parties that the
UCC Investor has retained Finn Dixon & Herling LLP to act as its special counsel
in connection with the transactions contemplated hereby and that Finn Dixon &
Herling LLP has not acted as counsel for any other Buyer or for any other party
in connection with the transactions contemplated hereby and that none of the
other Buyers or any other party has the status of a client of Finn Dixon &
Herling LLP for conflict of interest or any other purposes as a result thereof.

[Signature Page Follows]

42

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

 

 

 

 

 

 

‘mktg, inc.’

 

 

 

 

 

By:

/s/ Charles Horsey

 

 

 

 

 

Name:

Charles Horsey

 

 

Title:

President

 

 

 

 

Buyers:

 

 

 

 

 

UCC-mktg Investment, LLC

 

 

 

 

 

By:

UCC-mktg Partners, LLC

 

Its:

Manager

 

 

 

 

By:

/s/ Gregory J. Garville

 

 

 

 

 

Name:

Gregory J. Garville

 

 

Title:

Managing Director

43

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MANAGEMENT BUYERS

 

 

 

/s/ Marc Particelli

 

 

 

Name: Marc Particelli

 

 

 

/s/ Charles Horsey

 

 

 

Name: Charles Horsey

 

 

 

/s/ Patty Hubbard

 

 

 

Name: Patty Hubbard

 

 

 

/s/ James Ferguson

 

 

 

Name: James Ferguson

 

 

 

/s/ Dave Arnold

 

 

 

Name: Dave Arnold

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

SCHEDULE A

Schedule of Buyers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Principal Amount of Senior Notes

 

Number of Preferred Shares

 

Number of Warrants

 

Aggregate Purchase Price

 

                   

UCC BUYERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

UCC-mktg Investment, LLC
c/o Union Capital Corporation
445 Park Avenue
14th Floor
New York, NY 10022
Attn: Gregory J. Garville
Telephone: 212-832-1141
Facsimile: 212-832-0554

 

$

2,132,500

 

 

2,132,500

 

 

2,095,200

 

$

4,265,000

 

MANAGEMENT BUYERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Marc Particelli

 

$

250,000

 

 

250,000

 

 

245,627

 

$

500,000

 

Charles Horsey

 

$

100,000

 

 

100,000

 

 

98,251

 

$

200,000

 

Patty Hubbard

 

$

12,500

 

 

12,500

 

 

12,281

 

$

25,000

 

James Ferguson

 

$

2,500

 

 

2,500

 

 

2,456

 

$

5,000

 

Dave Arnold

 

$

2,500

 

 

2,500

 

 

2,456

 

$

5,000

 

TOTALS

 

$

2,500,000

 

 

2,500,000

 

 

2,456,272

 

$

5,000,000

 

A-1

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