Exhibit 10.1

PURCHASE AGREEMENT

This Purchase Agreement (this “Agreement”) is dated as of August 22, 2006, among
Tut Systems, Inc., a Delaware corporation (the “Company”), and the investors
identified on the signature pages hereto (each an “Investor” and, collectively,
the “Investors”).

WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company desires to borrow certain sums from each of the Investors and, in
consideration thereof issue certain convertible notes and warrants to each of
the Investors, and each Investor, severally and not jointly, desires to make a
loan to the Company and accept such notes and warrants from the Company, all
pursuant to the terms set forth herein.

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

ARTICLE I.

DEFINITIONS

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms shall have the meanings
indicated in this Section 1.1:

“Action” means any action, claim, suit, inquiry, notice of violation, proceeding
(including, without limitation, any investigation or partial proceeding such as
a deposition) or investigation pending or threatened in writing against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency,
regulatory authority (federal, state, provincial, county, local or foreign),
stock market, stock exchange or trading facility.

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144.

“Bankruptcy Event” means any of the following events: (a) the Company or any
Subsidiary commences a proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company or any
Subsidiary thereof; (b) there is commenced against the Company or any Subsidiary
any such case or proceeding that is not dismissed within 60 days after
commencement; (c) the Company or any Subsidiary is adjudicated by a court of
competent jurisdiction insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any
Subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within
60 days; (e) under applicable law the Company or any Subsidiary makes a general
assignment for the benefit of creditors; (f) the Company or any Subsidiary fails
to pay, or states

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that it is unable to pay or is unable to pay, its debts generally as they become
due; (g) the Company or any Subsidiary calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or
(h) the Company or any Subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.

“Benefit Arrangement” means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or Multiemployer Plan and
which is maintained or otherwise contributed by the Company.

“Benefit Plan” has the meaning set forth in Section 3.1(aa)(ii).

“Business Day” means any day except Saturday, Sunday and any day that is a
federal legal holiday or a day on which banking institutions in the State of New
York or State of Oregon are authorized or required by law or other governmental
action to close.

“Closing” means the closing of the purchase and sale of Notes and Warrants
contemplated by Section 2.1.

“Closing Date” means the Business Day immediately following the date on which
all of the conditions set forth in Section 2.1(d) and 2.1(e) have been
satisfied, or such other date as the parties may agree.

“Code” means the Internal Revenue Code of 1986, as amended.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $.001 per share,
and any securities into which such common stock may hereafter be reclassified,
converted or exchanged.

“Common Stock Equivalents” means any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.

“Company Counsel” means DLA Piper Rudnick Gray Cary US LLP.

“Contingent Liability” means, as to any Person, any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing or agreeing to pay or become responsible for any Debt or obligation
of any other Person in any manner, whether directly or indirectly, including
without limitation any obligation of such

 

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Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(b) to purchase property or services for the purpose of assuring the owner of
such Debt of its payment, or (c) to maintain the solvency, working capital,
equity, cash flow, fixed charge or other coverage ratio, or any other financial
condition of the primary obligor so as to enable the primary obligor to pay any
Debt or to comply with any agreement relating to any Debt or obligation.

“Debt” of any Person means at any date, without duplication, (i) all obligations
of such Person for borrowed money, (ii) all obligations of such Person evidenced
by bonds, debentures, notes, or other similar instruments issued by such Person,
(iii) all obligations of such Person as lessee which (y) are capitalized in
accordance with GAAP or (z) arise pursuant to sale-leaseback transactions,
(iv) all reimbursement obligations of such Person in respect of letters of
credit or other similar instruments, (v) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is otherwise an obligation of
such Person and (vi) all Debt of others guaranteed by such Person.

“Disclosure Materials” has the meaning set forth in Section 3.1(h).

“Effective Date” means the date that the Registration Statement required by
Section 2(a) of the Registration Rights Agreement is first declared effective by
the Commission.

“Eligible Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, or
the NASDAQ Capital Market on which the Common Stock is listed or quoted for
trading on the date in question.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
or any successor statute.

“ERISA Group” means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“First Notice” has the meaning set forth in Section 4.4.

“GAAP” means U.S. generally accepted accounting principles.

“Indebtedness” of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all

 

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obligations of such Person upon which interest charges are customarily paid,
(d) all obligations of such Person under conditional sale or other title
retention agreements relating to property or assets purchased by such Person,
(e) all obligations of such Person issued or assumed as the deferred purchase
price of property or services (other than unsecured accounts payable incurred in
the ordinary course of business and no more than ninety (90) days past the date
of the invoice therefor), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed,
(g) all obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging arrangements that exceed amounts necessary to hedge the Company’s
cross-currency exposure and (h) all obligations of such Person as an account
party in respect of letters of credit and bankers’ acceptances. The Indebtedness
of any Person shall include the Indebtedness of any partnership in which such
Person is a general partner.

“Intellectual Property Rights” has the meaning set forth in Section 3.1(p).

“Investment Amount” means, with respect to each Investor, the investment amount
indicated below such Investor’s signature page to this Agreement.

“Investor Deliverables” has the meaning set forth in Section 2.1(c).

“Investor Party” has the meaning set forth in Section 4.12.

“Lien” means any lien, charge, encumbrance, security interest, right of first
refusal or other restrictions of any kind.

“Losses” has the meaning set forth in Section 4.12.

“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company and the Subsidiaries or
(iii) an adverse impairment to the Company’s ability to timely perform its
obligations under any Transaction Document.

“New Issue Securities” has the meaning set forth in Section 4.4.

“New York Courts” means the state and federal courts sitting in the City of New
York, Borough of Manhattan.

“Notes” means the 8% convertible senior subordinated promissory notes issuable
by the Company to the Investors at Closing in the Form of Exhibit A, due on the
three year anniversary of the Closing Date.

 

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“Outside Date” means the twentieth calendar day following the date of this
Agreement.

“PBGC” means the Pension Benefit Guarantee Corporation or any entity succeeding
to any or all of its functions under ERISA.

“Permitted Indebtedness” has the meaning set forth in Section 5.3.

“Permitted Liens” means: (a) Liens for taxes, assessments or governmental
charges not delinquent or being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with GAAP are
maintained on the books of the Company or the applicable Subsidiary; (b) Liens
arising out of deposits in connection with workers’ compensation, unemployment
insurance, old age pensions or other social security or retirement benefits
legislation; (c) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds, and other obligations of like nature arising in the ordinary
course of business of the Company or a Subsidiary; (d) Liens imposed by law,
such as mechanics’, workers’, materialmens’, carriers’ or other like liens
arising in the ordinary course of business of the Company or a Subsidiary which
secure the payment of obligations which are not past due or which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP are maintained on the books of the
Company or the applicable Subsidiary; (e) Liens existing on the Closing Date,
and specified on Schedule 3.1(o); (f) purchase money security interests or Liens
for the purchase of fixed assets to be used in the business of the Company or a
Subsidiary, securing solely the fixed assets so purchased and the proceeds
thereof; (g) capitalized leases which do not violate any provision of this
Agreement; (h) Liens of commercial depository institutions, arising in the
ordinary course of business, constituting a statutory or common law right of
setoff against amounts on deposit with such institution; and (i) rights of way,
zoning restrictions, easements and similar encumbrances affecting the Company’s
real property which do not materially interfere with the use of such property.

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

“Plan” means at any time an employee pension plan benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of any
Person which was at such time a member of the ERISA group.

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investors of the Underlying Shares and Warrant Shares.

 

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“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and the Investors, in the
form of Exhibit B hereto.

“Required Investors” means one or more Investors representing greater than 50%
of the aggregate principal amount of all Notes then outstanding.

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents that the Company is obligated to issue, whether
contingently or otherwise, including, without limitation, any Underlying Shares
issuable upon conversion in full of all outstanding Notes and Warrant Shares
issuable upon exercise of all outstanding Warrants (without regard to any
otherwise applicable conversion or exercise restrictions contained therein)
(assuming for such purpose that the Conversion Price (as defined in the Notes)
and the Exercise Price (as defined in the Warrants) equals 50% of the Conversion
Price and Exercise Price in effect on the Closing Date).

“Restricted Payment” means, with respect to any Person, (a) any direct or
indirect distribution, dividend or other payment on account of any equity
interest in, or shares of capital stock or other securities of, such Person and
(b) any management, consulting or other similar fees, or any interest thereon,
payable by such Person to any affiliate of such Person (other than the Company),
or to any other Person other than an unrelated third party; provided, however,
that Restricted Payments shall not include any arms length consulting agreements
with consultants of the Company which are approved by the Board of Directors of
the Company.

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

“SEC Reports” has the meaning set forth in Section 3.1(h).

“Securities” means the Notes, the Warrants, the Underlying Shares and the
Warrant Shares.

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

“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act and all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
swaps and similar arrangements (including on a total return basis), and sales
and other transactions through non-US broker dealers or foreign regulated
brokers.

“Subsidiary” means any subsidiary of the Company included in the SEC Reports.

 

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“Trading Day” means (i) a day on which the Common Stock is traded on an Eligible
Market, or (ii) if the Common Stock is not listed on an Eligible Market, a day
on which the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board or the Pink Sheets, LLC, or (iii) if the Common Stock
is not quoted on the OTC Bulletin Board, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the Pink Sheets, LLC (or
any similar organization or agency succeeding to its functions of reporting
prices); provided, that in the event that the Common Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a
Business Day.

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

“Transaction Documents” means this Agreement, the Notes, the Registration Rights
Agreement, the Warrants and any other documents or agreements executed in
connection with the transactions contemplated hereunder.

“Underlying Shares” means the shares of Common Stock issuable upon conversion of
the Notes.

“Warrants” means the Common Stock purchase warrants, in the form of Exhibit C,
issuable to each Investor at the Closing.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1 Closing.

(a) Subject to the terms and conditions set forth in this Agreement, at the
Closing the Company shall issue and sell to each Investor, and each Investor
shall, severally and not jointly, purchase from the Company, the Notes and the
Warrants representing such Investor’s Investment Amount. The Closing shall take
place at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, New York,
NY 10104 at 4:30 p.m. (New York City time) on the Closing Date or at such other
location or time as the parties may agree.

 

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(b) At the Closing, the Company shall deliver or cause to be delivered to each
Investor the following (the “Company Deliverables”):

(i) Notes in the aggregate principal amount of the Investment Amount indicated
below such Investor’s name on its signature page of this Agreement, registered
in the name of such Investor;

(ii) Warrants, registered in the name of such Investor, pursuant to which such
Investor shall have the right to acquire the number of shares of Common Stock
equal to 50% of the Underlying Shares issuable upon an assumed conversion of the
Notes issuable to such Investor in accordance with Section 2.1(b)(i) (without
regard to any conversion restrictions contained thereunder);

(iii) the legal opinion of Company Counsel, in agreed form, addressed to the
Investors;

(iv) the Registration Rights Agreement, duly executed by the Company;

(v) a certificate executed by a duly authorized officer of the Company
certifying that (i) all representations and warranties made by the Company and
information furnished by the Company in any schedules to this Agreement, are
true and correct in all material respects as of the Closing Date, (ii) all
covenants, agreements and obligations required by this Agreement to be performed
or complied with by the Company, prior to or at the Closing, have been performed
or complied with and (iii) the items referenced in Sections
2.1(d)(iv)-2.1(d)(vii) are true and correct as of the Closing Date;

(vi) a certificate duly executed by Silicon Valley Bank setting forth (i) the
aggregate outstanding amount of any Indebtedness owed to them by the Company,
(ii) acknowledging that no defaults exist under the Senior Bank Indebtedness
Documents (as defined in the Notes) and (iii) acknowledging that the
transactions contemplated by the Transaction Documents will not constitute a
default under any of the Senior Bank Indebtedness Documents (as defined in the
Note).

(vii) lien and record search reports in form and substance acceptable to the
Investors; and

(viii) any other documents reasonably requested by such Investor.

(c) At the Closing, each Investor shall deliver or cause to be delivered to the
Company the following (the “Investor Deliverables”):

(i) the Investment Amount indicated below such Investor’s name on its signature
page of this Agreement, in United States dollars and in immediately available
funds, by wire transfer to an account designated in writing by the Company for
such purpose; and

 

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(ii) the Registration Rights Agreement, duly executed by such Investor.

(d) Conditions Precedent to the Obligations of an Investor to Purchase Notes and
Warrants. The obligation of each Investor to acquire Notes and Warrants and make
loans at the Closing is subject to the satisfaction or waiver by such Investor,
at or before the Closing, of each of the following conditions:

(i) Representations and Warranties. The representations and warranties of the
Company contained in the Transaction Documents shall be true and correct as of
the date when made and as of the Closing Date as though made on and as of such
date;

(ii) Performance. The Company shall have performed, satisfied and complied with
all covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by it at or prior to the Closing;

(iii) Officer’s Certificate. The officer’s certificate described in
Section 2.1(b)(vii) hereof shall have been delivered;

(iv) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents;

(v) Adverse Changes. Since the execution of this Agreement, no event or series
of events shall have occurred that has had or would reasonably be expected to
result in a Material Adverse Effect;

(vi) No Suspensions of Trading in Common Stock; Listing. Trading in the Common
Stock shall not have been suspended by the Commission or any Trading Market
(except for any suspensions of trading of not more than one Trading Day solely
to permit dissemination of material information regarding the Company) at any
time since the date of execution of this Agreement, and the Common Stock shall
have been at all times since such date listed for trading on an Eligible Market;

(vii) Nasdaq Listing. The Nasdaq Stock Market shall have waived application of
the 15 day prior notice contained in NASD Marketplace Rule 4310(c)(17)(D) or
such timeframe shall have expired without objection; and

(viii) Company Deliverables. The Company shall have delivered the Closing
Company Deliverables in accordance with Section 2.1(b).

(e) Conditions Precedent to the Obligations of the Company to sell Notes and
Warrants. The obligation of the Company to sell Notes and Warrants at the
Closing is subject to

 

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the satisfaction or waiver by the Company, at or before the Closing, of each of
the following conditions:

(i) Representations and Warranties. The representations and warranties of each
Investor contained herein shall be true and correct as of the date when made and
as of the Closing Date as though made on and as of such date;

(ii) Performance. Each Investor shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by such
Investor at or prior to the Closing;

(iii) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents;

(iv) Nasdaq Listing. The Nasdaq Stock Market shall have waived application of
the 15 day prior notice contained in NASD Marketplace Rule 4310(c)(17)(D) or
such timeframe shall have expired without objection; and

(v) Investors Deliverables. Each Investor shall have delivered its Investor
Deliverables in accordance with Section 2.1(c).

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. The Company hereby makes the
following representations and warranties to each Investor:

(a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than
as specified in the SEC Reports. Except as disclosed in Schedule 3.1(a), the
Company owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any and all Liens (other than Permitted Liens), and
all the issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive and
similar rights.

(b) Organization and Qualification. The Company and each Subsidiary are duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. The Company and each Subsidiary are duly
qualified to conduct its respective

 

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businesses and are in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect. Payments
of cash on account of principal of or interest under the Notes, upon any Event
of Default under the Notes, as a result of liquidated damages under any
Transaction Document or upon a Buy-In under and as such term is defined in a
Warrant will not require the consent of, any payment to, or the springing of any
Lien in favor of any lender to or creditor of the Company or any Subsidiary
(under a credit facility, loan agreement or otherwise) and will not result in a
default under any such credit facilities, loans or other agreements.

 

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(e) Filings, Consents and Approvals. Except as set forth in Schedule 3.1(e), the
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of one or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement, (ii) filings required by state securities laws,
(iii) the filing of a Notice of Sale of Securities on Form D with the Commission
under Regulation D of the Securities Act (iv) the filings required in accordance
with Section 4.7 and 4.10, and (iv) those that have been made or obtained prior
to the date of this Agreement.

(f) Issuance of the Securities. The Securities have been duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens. The Company has reserved from its duly authorized capital stock a number
of shares of Common Stock issuable upon conversion of the Notes and upon
exercise of the Warrants, which number of reserved shares is not less than the
Required Minimum calculated as of the date hereof.

(g) Capitalization. The number of shares and type of all authorized, issued and
outstanding capital stock of the Company, and all shares of Common Stock
reserved for issuance under the Company’s various option and incentive plans, is
specified in Schedule 3.1(g). Except as specified in Schedule 3.1(g), no
securities of the Company are entitled to preemptive or similar rights, and no
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. Except as specified in Schedule 3.1(g), there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issuance and sale of the Securities will not, immediately or with the
passage of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.

(h) SEC Reports; Financial Statements. The Company has filed all reports, forms
or other information required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
twelve months preceding the date hereof (or such shorter period as the Company
was required by law to file such reports) (the foregoing materials being
collectively referred to herein as the “SEC Reports” and, together with the
Schedules to this Agreement (if any), the “Disclosure Materials”) on a timely
basis or has timely filed a valid extension of such time of filing and has filed
any such SEC Reports prior

 

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to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
For purposes of this Agreement, any reports, forms or other information provided
to the Commission whether by filing, furnishing or otherwise providing, is
included in the term “filed” (or any derivations thereof).

(i) Press Releases. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
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 light of the circumstances under which they were made and when made,
not misleading.

(j) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables, accrued expenses and other liabilities incurred
in the ordinary course of business consistent with past practice and
(B) liabilities (not to exceed $50,000) not required to be reflected in the
Company’s financial statements pursuant to GAAP or required to be disclosed in
filings made with the Commission, (iii) the Company has not altered its method
of accounting or the identity of its auditors, (iv) the Company has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans and consistent with past practice. The Company does
not have pending before the Commission any request for confidential treatment of
information.

(k) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC Reports, would,
if there were an unfavorable

 

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decision, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor
any director or officer thereof (in his or her capacity as such), is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty, except
as specifically disclosed in the SEC Reports. There has not been, and to the
knowledge of the Company, there is not pending any investigation by the
Commission involving the Company or any current or former director or officer of
the Company (in his or her capacity as such). The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

(l) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company.

(m) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement (including the Senior Bank Indebtedness
Documents (as defined in the Notes)) or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case
described in clauses (i), (ii) and (iii) as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. The Company is in compliance with all effective requirements of the
Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder, that are applicable to it, except where such noncompliance could not
have or reasonably be expected to result in a Material Adverse Effect.

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

(o) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to their
respective businesses and good and valid title in all personal property owned by
them that is material to their respective businesses, in each case free and
clear of all Liens, except for

 

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Permitted Liens and Liens that do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries. To the knowledge of
the Company, any real property and facilities held under lease by the Company
and the Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance, except as
could not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.

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

(q) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. The Company has no reason to believe that it will
not be able to renew its and the Subsidiaries’ 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 on terms consistent with
market for the Company’s and such Subsidiaries’ respective lines of business.

(r) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, 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 officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.

(s) Internal Accounting Controls. The Company and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded

 

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accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared.
The Company’s certifying officers have evaluated the effectiveness of the
Company’s controls and procedures in accordance with Item 307 of Regulation S-K
under the Exchange Act for the Company’s most recently ended fiscal quarter or
fiscal year-end (such date, the “Evaluation Date”). If applicable, the Company
presented in its most recently filed Form 10-K or Form 10-Q the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s internal controls
that would be required to be disclosed pursuant to Item 308(c) of Regulation S-K
under the Exchange Act or, to the Company’s knowledge, in other factors that
could reasonably be expected to have a Material Adverse Effect on the Company’s
internal controls.

(t) Solvency. Based on the financial condition of the Company as of the Closing
Date (and assuming that the Closing shall have occurred), (i) the Company’s fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company’s
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company has no current intention
to incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of its
debt).

(u) Certain Fees. Except as specified in Schedule 3.1(u), no brokerage or
finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. The Investors shall have no obligation with respect to any fees
or with respect to any claims (other than such fees or commissions owed by a
Investor pursuant to written agreements executed by such Investor which fees or
commissions shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.

 

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(v) Certain Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-3.2(e), no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Investors under the Transaction Documents. The
Company is eligible to register the resale of its Common Stock for resale by the
Investors under Form S-3 promulgated under the Securities Act. Except as
specified in Schedule 3.1(v), the Company has not granted or agreed to grant to
any Person any rights (including “piggy-back” registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied or exercised.

(w) Listing and Maintenance Requirements. Except as specified in the SEC
Reports, the Company has not, in the two years preceding the date hereof,
received notice from any Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market on which the Common Stock is
currently listed or quoted. The issuance and sale of the Securities under the
Transaction Documents does not contravene the rules and regulations of the
Trading Market on which the Common Stock is currently listed or quoted, and no
approval of the shareholders of the Company thereunder is required for the
Company to enter into and to consummate the transactions contemplated by the
Transaction Documents, including, without limitation, to issue and deliver to
the Investors the Securities contemplated by the Transaction Documents.

(x) Investment Company. The Company is not, and is not an Affiliate of, and
immediately following Closing will not have become, an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.

(y) Application of Takeover Protections. The Company has taken all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors or
shareholders of the Company prior to the Closing Date as a result of the
Investors and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and the Investors’ ownership of the
Securities.

(z) No Additional Agreements. The Company does not have any agreement or
understanding with any Investor with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.

(aa) Compliance with ERISA. (i) Each member of the ERISA Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable

 

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provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.

(ii) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the “Benefit Plans”)
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.

(iii) No Benefit Plans have any unfunded liabilities, either on a “going
concern” or “winding up” basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.

(bb) Taxes. All United States federal or state, or foreign income tax returns,
and to the knowledge of the Company, county or municipality local income tax
returns and all other material tax returns (including foreign tax returns) which
are required to be filed by or on behalf of the Company and each Subsidiary have
been filed and all material taxes due pursuant to such returns or pursuant to
any assessment received by the Company and each Subsidiary have been paid except
those being disputed in good faith and for which adequate reserves have been
established. The charges, accruals and reserves on the books of the Company and
each Subsidiary in respect of taxes or other governmental charges have been
established in accordance with GAAP.

(cc) Absence of Any Undisclosed Liabilities or Capital Calls. Except for
litigation described in the SEC Reports, there are no liabilities of the Company
or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than (i) those liabilities provided for in

 

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the Company’s financial statements and (ii) other undisclosed liabilities which,
individually or in the aggregate, could not have, or reasonably be expected to
result in, a Material Adverse Effect.

(dd) Secured Indebtedness. Other than as set forth in Schedule 3.1(dd), the
Company has no Debt that is secured by any Lien.

(ee) Seniority. Except as set forth on Schedule 3.1(ee), no indebtedness of the
Company is senior to or pari passu with the Notes in right of payment, whether
with respect to interest or upon liquidation or dissolution, or otherwise.

(ff) Consultation with Auditors. The Company has consulted its independent
auditors concerning the accounting treatment of the transactions contemplated by
the Transaction Documents, and in connection therewith has furnished such
auditors complete copies of the Transaction Documents.

(gg) Indebtedness and Other Contracts. Except as disclosed in Schedule 3.1(gg),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness, (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument would result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under any contract, agreement
or instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect.
Schedule 3.1(gg) provides a detailed description of the material terms of any
such outstanding Indebtedness.

(hh) Disclosure. The Company confirms that, except pursuant to a non-disclosure
agreement, neither it nor any Person acting on its behalf has provided any
Investor or its respective agents or counsel with any information that the
Company believes constitutes material, non-public information except insofar as
the existence and terms of the proposed transactions hereunder may constitute
such information. The Company understands and confirms that the Investors will
rely on the foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Investors regarding
the Company, its business and the transactions contemplated hereby, furnished by
or on behalf of the Company (including the Company’s representations and
warranties set forth in this Agreement) are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.

Each Investor acknowledges and agrees that the Company has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.1.

 

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3.2 Representations and Warranties of the Investors. Each Investor hereby, for
itself and for no other Investor, represents and warrants to the Company as
follows:

(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by such Investor of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if such Investor is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such Investor.
Each of this Agreement and the Registration Rights Agreement has been duly
executed by such Investor, and when delivered by such Investor in accordance
with terms hereof, will constitute the valid and legally binding obligation of
such Investor, enforceable against it in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

(b) Investment Intent. Such Investor is acquiring the Securities as principal
for its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Investor’s right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time. Such Investor is
acquiring the Securities hereunder in the ordinary course of its business. Such
Investor does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.

(c) Investor Status. At the time such Investor was offered the Securities, it
was, and at the date hereof it is, an “accredited investor” as defined in Rule
501(a) under the Securities Act. Such Investor is not a registered broker-dealer
under Section 15 of the Exchange Act.

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

(e) Access to Information. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and

 

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prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such Investor
or its representatives or counsel shall modify, amend or affect such Investor’s
right to rely on the truth, accuracy and completeness of the Disclosure
Materials and the Company’s representations and warranties contained in the
Transaction Documents.

(f) Certain Trading Activities. Such Investor has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any transactions in the securities of the Company
(including, without limitations, any Short Sales involving the Company’s
securities) since the time that such Investor was first contacted by the Company
or placement agent engaged by the Company regarding an investment in the
Company. Such Investor covenants that neither it nor any Person acting on its
behalf or pursuant to any understanding with it will engage in any transactions
in the securities of the Company (including Short Sales) prior to the time that
the transactions contemplated by this Agreement are publicly disclosed.
Notwithstanding the foregoing, in the case of an Investor that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Investor’s assets and the portfolio managers have no
actual knowledge of the investment decisions made by the portfolio managers
managing other portions of such Investor’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement.

(g) Limited Ownership. The purchase by such Investor of the Securities issuable
to it at the Closing will not result in such Investor (individually or together
with other Person with whom such Investor has identified, or will have
identified, itself as part of a “group” in a public filing made with the
Commission involving the Company’s securities) acquiring, or obtaining the right
to acquire, in excess of 19.999% of the outstanding shares of Common Stock or
the voting power of the Company on a post transaction basis that assumes that
the Closing shall have occurred. Such Investor does not presently intend to,
alone or together with others, make a public filing with the Commission to
disclose that it has (or that it together with such other Persons have)
acquired, or obtained the right to acquire, as a result of the Closing (when
added to any other securities of the Company that it or they then own or have
the right to acquire), in excess of 19.999% of the outstanding shares of Common
Stock or the voting power of the Company on a post transaction basis that
assumes that the Closing shall have occurred.

(h) Independent Investment Decision. Such Investor has independently evaluated
the merits of its decision to purchase Securities pursuant to this Agreement,
and such Investor confirms that it has not relied on the advice of any other
Investor’s business and/or legal counsel in making such decision.

 

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The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1 (a) The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of the Securities other
than pursuant to an effective registration statement, to the Company, to an
Affiliate of an Investor or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act.

(b) Certificates evidencing the Securities will contain the following legend,
until such time as they are not required under Section 4.1(c):

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OR
EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT
BEEN REGISTERED] WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. [THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE OF THESE
SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that an Investor may from time to time
pledge, and/or grant a security interest in some or all of the Securities
pursuant to a bona fide margin agreement in connection with a bona fide margin
account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Securities to the

 

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pledgees or secured parties. Such a pledge or transfer would not be subject to
approval or consent of the Company and no legal opinion of legal counsel to the
pledgee, secured party or pledgor shall be required in connection with the
pledge, but such legal opinion may be required in connection with a subsequent
transfer following default by the Investor transferee of the pledge. No notice
shall be required of such pledge. At the appropriate Investor’s expense, the
Company will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a pledge
or transfer of the Securities including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.

(c) Certificates evidencing Underlying Shares and Warrant Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)): (i) while
a registration statement (including the Registration Statement) covering such
Underlying Shares or Warrant Shares is then effective, or (ii) following a sale
or transfer of such Securities pursuant to Rule 144 (assuming the transferor is
not an Affiliate of the Company), or (iii) while such Securities are eligible
for sale under Rule 144(k). If an Investor shall make a sale or transfer of
Shares either (x) pursuant to Rule 144 or (y) pursuant to a registration
statement and in each case shall have delivered to the Company or the Company’s
transfer agent the certificate representing Shares containing a restrictive
legend which are the subject of such sale or transfer and a representation
letter in customary form (the date of such sale or transfer and Share delivery
being the “Share Delivery Date”) and (1) the Company shall fail to deliver or
cause to be delivered to such Investor a certificate representing such Shares
that is free from all restrictive or other legends by the third Trading Day
following the Share Delivery Date and (2) following such third Trading Day after
the Share Delivery Date and prior to the time such Shares are received free from
restrictive legends, the Investor, or any third party on behalf of such
Investor, purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Investor of such Shares
(a “Buy-In”), then the Company shall pay in cash to the Investor (for costs
incurred either directly by such Investor or on behalf of a third party) the
amount by which the total purchase price paid for Common Stock as a result of
the Buy-In (including brokerage commissions, if any) exceed the proceeds
received by such Investor as a result of the sale to which such Buy-In relates.
The Investor shall provide the Company written notice indicating the amounts
payable to the Investor in respect of the Buy-In. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.

4.2 Furnishing of Information. As long as any Investor owns the Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as any
Investor owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Investors and make
publicly available in accordance with Rule 144(c) such information as is
required for the Investors to sell the Underlying Shares and Warrant Shares
under Rule 144. The Company

 

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further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell the Underlying Shares and Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

4.3 Listing of Securities. The Company agrees, (i) if the Company applies to
have the Common Stock traded on any other Trading Market, it will include in
such application the Underlying Shares and Warrant Shares, and will take such
other action as is necessary or desirable to cause the Underlying Shares and
Warrant Shares to be listed on such other Trading Market as promptly as
possible, and (ii) it will take all action reasonably necessary to continue the
listing and trading of its Common Stock on a Trading Market and will comply in
all material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the Trading Market.

4.4 Participation Right. If at any time while the Notes are outstanding, the
Company proposes to offer, issue, or sell any equity Common Stock or Common
Stock Equivalents (collectively, “New Issue Securities”), the Company shall
first offer the New Issue Securities to the Investors in accordance with the
following provisions:

(a) The Company shall give a written notice to each Investor (the “First
Notice”) stating (i) its intention to issue the New Issue Securities, (ii) the
number and description of the New Issue Securities proposed to be issued and
(iii) the purchase price (calculated as of the proposed issuance date) and the
other terms and conditions upon which the Company is offering the New Issue
Securities.

(b) Transmittal of the First Notice to the Investors by the Company shall
constitute an offer by the Company to sell to each Investor (i) up to its pro
rata portion (based upon such Investor’s percentage ownership of the total
number of issued and outstanding shares of Common Stock) of the New Issue
Securities (the “Basic Amount”) for the price and upon the terms and conditions
set forth in the First Notice and (ii) with respect to each Investor that elects
to purchase its Basic Amount, any additional portion of the New Issue Securities
attributable to the Basic Amounts of other Investors as such Investor shall
indicate it will purchase or acquire should the other Investors subscribe for
less than their Basic Amounts (the “Undersubscription Amount”). For a period of
ten (10) Trading Days after receipt of the First Notice, each Investor shall
have the option, exercisable by written notice to the Company, to accept the
Company’s offer as to all or any part of such Investor’s Basic Amount and, if
such Investor shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Investor elects to purchase (in
either case, the “Notice of Acceptance”). If the Basic Amounts subscribed for by
all Investors are less than the total of all of the Basic Amounts, then each
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 Investor who has
subscribed for any

 

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Undersubscription Amount shall be entitled to purchase that portion of the
Available Undersubscription Amount as the Basic Amount of such Investor bears to
the total Basic Amounts of all Investors that have subscribed for
Undersubscription Amounts, subject to rounding by the Board of Directors to the
extent its deems reasonably necessary. If two or more types of New Issue
Securities are to be issued or New Issue Securities are to be issued together
with other types of securities, including, without limitation, debt securities,
in a single transaction or related transactions, the rights to purchase New
Issue Securities granted to the Investors under this Section must be exercised
to purchase all types of New Issue Securities and such other securities in the
same proportion as such New Issue Securities and other securities are to be
issued by the Company.

(c) The Company shall have ten (10) Trading Days from the expiration of the
period set forth in Section 4.4(b) above to either (i) issue, sell or exchange
all or any part of such New Issue Securities as to which a Notice of Acceptance
has not been given by the Investors (the “Refused Securities”) and publicly
announce such transaction, 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 than those set forth in the First Notice or
(ii) notify the Investors that the Company has abandoned a sale of New Issue
Securities and confirm to the Investors that they are not in possession of any
non-public information with respect to the Company.

(d) 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 4.4(c) above), then each Investor may, at its sole option and in its
sole discretion, reduce the number or amount of the New Issue Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of New Issue Securities that the Investor elected to
purchase pursuant to Section 4.4(b) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of New Issue Securities the
Company actually proposes to issue, sell or exchange (including prior to such
reduction) and (ii) the denominator of which shall be the original amount of the
New Issue Securities. In the event that any Investor so elects to reduce the
number or amount of New Issue Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the New Issue Securities unless and until such securities have again
been offered to the Investors in accordance with Section 4.4(a) above.

(e) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Investors shall acquire from the Company, and the
Company shall issue to the Investors, the number or amount of New Issue
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4.4(d) the Investors have so elected, upon the terms and conditions
specified in the First Notice. The purchase by the Investors of any New Issue
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Investors of a purchase agreement relating to such New Issue
Securities reasonably

 

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satisfactory in form and substance to the Investors and the Company and their
respective counsel.

(f) The participation rights contained in this Section 4.4 shall not apply to
the issuance and sale by the Company of shares of Common Stock issued as a
result of: (i) the issuance of Warrant Shares, (ii) to the extent consistent
with past practice, the grant of options or warrants, or the issuance of
additional securities, under any duly authorized Company stock option,
restricted stock plan or stock purchase plan whether now existing or approved by
the Company and its shareholders in the future (but not as to any amendments or
other modifications to the number of Common Stock issuable thereunder, the terms
set forth therein, or the exercise price set forth therein, unless such
amendments or other modifications are approved by the Company’s shareholders),
or (iii) the issuance and sale by the Company of shares of Common Stock issued
as consideration for the acquisition of another company or business in which the
shareholders of the Company do not have an ownership interest, which acquisition
has been approved by the Board of Directors of the Company.

4.5 Acknowledgment of Dilution. The Company acknowledges that the issuance of
Underlying Shares upon conversion of Notes and Warrant Shares upon exercise of
Warrants will result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial. The Company further acknowledges that its
obligation to honor conversions under the Notes is unconditional and absolute
and not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim that the Company may
have against any Investor.

4.6 Integration. The Company shall not, and shall use its best efforts to ensure
that no Affiliate of the Company shall, sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Investors, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market in a manner that would require stockholder
approval of the sale of the Securities to the Investors.

4.7 Reservation of Shares. The Company shall maintain a reserve from its duly
authorized shares of Common Stock to comply with its conversion obligations
under the Notes. If on any date the Company would be, if notice of conversion
were to be delivered on such date, precluded from issuing the number of
(i) Underlying Shares, as the case may be, issuable upon conversion in full of
the Notes or (ii) Warrant Shares, as the case may be, issuable upon exercise in
full of the Warrants, due to the unavailability of a sufficient number of
authorized but unissued or reserved shares of Common Stock, then the Board of
Directors of the Company shall promptly prepare and mail to the stockholders of
the Company proxy materials or other applicable materials requesting
authorization to amend the Company’s certificate of incorporation or other
organizational document to increase the number of shares of Common Stock which
the Company is authorized to issue so as to provide enough shares for issuance
of the Underlying Shares and Warrant Shares. In connection therewith, the Board
of Directors shall

 

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(a) adopt proper resolutions authorizing such increase, (b) recommend to and
otherwise use its best efforts to promptly and duly obtain stockholder approval
to carry out such resolutions (and hold a special meeting of the stockholders as
soon as practicable, but in any event not later than the 60th day after delivery
of the proxy or other applicable materials relating to such meeting) and
(c) within five Business Days of obtaining such stockholder authorization, file
an appropriate amendment to the Company’s certificate of incorporation or other
organizational document to evidence such increase.

4.8 Conversion Procedures. The form of Conversion Notice included in and as
defined in the Notes sets forth the totality of the procedures required by the
Investors in order to convert the Notes. The Company shall honor conversions of
the Notes and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

4.9 Subsequent Registrations. Other than pursuant to the Registration Statement,
prior to the Effective Date, the Company may not file any registration statement
with the Commission with respect to any securities of the Company other than
registration statements on Form S-8 promulgated by the Commission.

4.10 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York City time) on
the Trading Day following the Closing Date, the Company shall issue a press
release in a form reasonably acceptable to the Investors disclosing the
transactions contemplated hereby. By 9:00 a.m. (New York City time) on the
Trading Day following the Closing Date the Company will file a Current Report on
Form 8-K disclosing the material terms of the Transaction Documents (and attach
as exhibits thereto the Transaction Documents) and disclosing the Closing. In
addition, the Company will make such other filings and notices in the manner and
time required by the Commission and the Trading Market on which the Common Stock
is listed. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
filing with the Commission (other than the Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market, without the prior written consent of such Investor, except to
the extent such disclosure is required by law or Trading Market regulations.

4.11 Limitation on Issuance of Future Priced Securities. Until the earlier of
(a) the conversion, in full, of the Notes into Common Stock pursuant to the
terms of the Notes, or (b) the prepayment or payment in full of the Notes, the
Company shall not issue any “Future Priced Securities” as such term is described
by NASD IM-4350-1.

4.12 Indemnification of Investors. In addition to the indemnity provided in the
Registration Rights Agreement, the Company will indemnify and hold the Investors
and their directors, officers, shareholders, partners, employees and agents
(each, an “Investor Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable

 

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attorneys’ fees and costs of investigation (collectively, “Losses”) that any
such Investor Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 4.12 shall be the same as those set forth in
Section 5 of the Registration Rights Agreement.

4.13 Non-Public Information. The Company covenants and agrees that neither it
nor any other Person acting on its behalf will provide any Investor or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Investor shall have
executed a written agreement regarding the confidentiality and use of such
information.

4.14 Use of Proceeds. The Company will use the net proceeds from the sale of the
Securities hereunder for working capital purposes and not for the satisfaction
of any portion of the Company’s debt (other than payment of trade payables and
accrued expenses in the ordinary course of the Company’s business and consistent
with prior practices), or to redeem any Common Stock or Common Stock
Equivalents.

4.15 Existence; Conduct of Business. The Company will, and will cause each of
the Subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges and franchises material to the conduct of its
business, provided, that the foregoing shall not prohibit (a) any sale, lease,
transfer or other disposition permitted by this Agreement, or (b) any merger of
(i) any domestic Subsidiary with any other domestic Subsidiary, (ii) any
domestic Subsidiary with and into the Company, or (iii) any foreign Subsidiary
with any other foreign Subsidiary.

ARTICLE V.

NEGATIVE COVENANTS

The Company hereby agrees that, from and after the date hereof until the date
that the Notes have either been repaid in their entirety and/or converted
entirely into Common Stock, the Company shall be bound according to the
restrictions set forth in each of the following negative covenants unless any
such restriction shall have been expressly waived in writing by the Required
Investors:

5.1 Restrictions on Certain Amendments. The Company will not amend the rights
and privileges granted under the Notes, to adversely affect the rights or
privileges granted under the Notes.

5.2 Restricted Payment. The Company shall not make any Restricted Payment.

 

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5.3 Debt. The Company shall not create, incur, assume, become or be liable in
any manner in respect of, or suffer to exist, any Debt, except (a) Debt in
existence on the date hereof, as shown on Schedule 5.3(a) and any amendment to
the Silicon Valley Bank Loan and Security Agreement listed thereon provided,
however that the Company obtains the approval of the Investors holding 80% of
the then outstanding principal amount of Notes prior to increasing the size of
the overall credit facility, (b) trade payables incurred and paid in the
ordinary course of business, (c) Contingent Liabilities in existence on the date
hereof, as shown on Schedule 5.3(c), (d) Contingent Liabilities resulting from
the endorsement of negotiable instruments for collection in the ordinary course
of business, (e) Debt in connection with a capital raising transaction that is
approved by the Board of Directors of the Company, provided, however, that
(1) such Debt is unsecured, (2) such Debt is expressly subordinate to the Notes,
(3) such Debt has a maturity date that is, and the Company does not use any
funds towards the payment of such Debt until, 91 days after the date that the
Notes are no longer outstanding and (4) the Company obtains the approval of the
Investors holding a majority of the then outstanding principal amount of Notes
held by Investors and (f) refinancing of that certain Subordinated Promissory
Note, dated November 7, 2002 issued to Tektronix, Inc. (the “Tektronix Note”),
provided, however, (i) that any Debt incurred with respect to such refinancing
is expressly subordinate to the Notes and is not for a principal amount greater
than the outstanding principal amount of the Tektronix Note on the date of such
refinancing and (ii) the Company obtains the approval of each Investor that, at
the time such approval is sought, holds greater than $50,000 in principal amount
of Notes (collectively (a) through (f) shall be referred to as “Permitted
Indebtedness”).

5.4 Liens. The Company shall not create or suffer to exist any Lien upon any of
its properties, except (a) Liens in existence on the date hereof and disclosed
in Schedule 5.4, and (b) Permitted Liens. Except as provided in this
Section 5.4, the Company shall not hereafter agree with any Person (other than
the Investors) to grant a Lien on any of its assets or to permit the pledge of
any of its equity interests.

5.5 Amendment of Organizational Documents. The Company shall not permit any
amendment to its certificate of incorporation that would adversely affect the
rights or privileges granted under the Notes.

5.6 Sale and Leaseback. The Company shall not enter into any arrangement whereby
it sells or transfers any of its assets, and thereafter rents or leases such
assets.

5.7 Transactions with Affiliates. The Company shall not, directly or indirectly,
pay any funds to or for the account of, make any investment (whether by
acquisition of stock or indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect
any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate, except, on terms no less favorable than terms
that could be obtained by the Company from a Person that is not an Affiliate of
the Company upon negotiation at arms’ length, as determined in

 

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good faith by the Board; provided that no determination of the Board of
Directors shall be required with respect to any such transactions entered into
in the ordinary course of business.

5.8 Limitation on Restrictions. Other than as permitted by the Transaction
Documents, the Company shall not, and shall not permit any Subsidiary, to enter
into, or suffer to exist, any agreement with any Person which prohibits or
limits its ability to (a) pay Debt owed to the Investors, and (b) make loans or
advances to the Company, pay dividends or other distributions in respect of its
equity interests to the Company (except that Subsidiaries may pay dividends or
other distributions) or guarantee Debt of the Company.

5.9 Payment of Cash Dividend. The Company agrees, so long as any of the Notes
are outstanding, not to declare, pay or make any provision for any cash dividend
or distribution with respect to the Common Stock of the Company, without first
obtaining the approval of the Required Investors.

ARTICLE VI.

MISCELLANEOUS

6.1 Fees and Expenses. At the Closing, the Company shall pay to Bryan Cave LLP
$50,000 (minus any amounts previously paid) as partial reimbursement of SF
Capital Partners Ltd. for their respective legal fees in connection with the
Transaction Documents (SF Capital Partners Ltd. may deduct such amount from the
Investment Amount deliverable to the Company at Closing), it being understood
that Bryan Cave LLP has only rendered legal advice to SF Capital Partners Ltd.,
and not to the Company or any other Investor in connection with the transactions
contemplated hereby, and that each of the Company and the other Investors has
relied for such matters on the advice of its own respective counsel. Except as
specified in the immediately preceding sentence, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of the Transaction Documents.
The Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Notes.

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

6.3 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile (provided the sender receives
a machine-generated confirmation of successful transmission) at the facsimile
number specified in this Section prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or

 

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communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:

 

If to the Company:    Tut Systems, Inc.    6000 SW Meadows Rd., Suite 200   
Lake Oswego, Oregon 97035    Facsimile: (971) 217-0456    Attention: Chief
Financial Officer With a copy to:    DLA Piper Rudnick Gray Cary US LLP    4365
Executive Drive, Suite 1100    San Diego, CA 92121    Attn: Marty B. Lorenzo,
Esq.    Facsimile: (858) 677-1401 If to an Investor:    To the address set forth
under such Investor’s name on the signature pages hereof;

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

6.4 Amendments; Waivers; No Additional Consideration. No provision of this
Agreement may be waived or amended except in a written instrument signed by the
Company and the Required Investors except as set forth below and except that the
conditions precedent set forth in Section 2.1(d) may only be waived by each
Investor to be bound by such waiver. No waiver of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. No consideration shall be offered or paid
to any Investor to amend or consent to a waiver or modification of any provision
of any Transaction Document unless the same consideration is also offered to all
Investors who then hold Notes. Without the written consent or the affirmative
vote of each Investor affected thereby, an amendment or waiver under this
Section 6.4 may not:

(a) change the maturity of the principal amount of, or the interest payment date
under, or the payment of liquidated damages, is due on, any Note or Warrant;

(b) make any change that impairs the conversion or exercise rights of any
Securities;

 

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(c) amend or modify in any manner adverse to the Holders of Securities the
Company’s obligation to make such payments;

(d) amend the definition of Required Investors;

(e) change the currency of any amount owed or owing under the Securities or any
interest thereon from U.S. Dollars;

(f) impair the right of any Investor to institute suit for the enforcement of
any payment with respect to, or conversion or exercise of, any Security; or

(g) modify the provisions of this Section 6.4 or Section 6.5.

It shall not be necessary for the consent of the Investors under this
Section 6.4 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.

6.5 Termination. This Agreement may be terminated prior to the Closing:

(a) by written agreement of the Investors and the Company;

(b) by the Company or an Investor (as to itself but no other Investor) upon
written notice to the other, if the Closing shall not have taken place by 5:30
p.m. (New York City time) on the Outside Date; provided, that the right to
terminate this Agreement under this Section 6.5(b) shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time.

(c) by an Investor (as to itself but no other Investor) if it concludes in good
faith that any of the conditions precedent contained in Sections 2.1(d)(iv),
2.1(d)(v), or 2.1(d)(vi) shall have been breached or shall not be capable of
being satisfied by the Outside Date despite the assumed best efforts of the
Company.

In the event of a termination pursuant to this Section, the Company shall
promptly notify all non-terminating Investors and shall pay to the terminating
Investor(s) all of the fees and expenses incurred by such Investors (including
reasonable legal fees and expenses) in connection with this Agreement and the
transactions contemplated by this Agreement through the termination date. Other
than as to the foregoing fees and expenses, upon a termination in accordance
with this Section 6.5, the Company and the terminating Investor(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Investor will have any liability to any other
under the Transaction Documents Investor as a result therefrom.

6.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

 

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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. This Agreement shall be construed as if
drafted jointly by the parties, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement or any of the Transaction Documents.

6.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Notes, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the “Investors.”

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

6.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Actions concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective Affiliates,
employees or agents) shall be commenced exclusively in the New York Courts. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
Action, any claim that it is not personally subject to the jurisdiction of any
such New York Court, or that such Action has been commenced in an improper or
inconvenient forum. Each party hereto hereby irrevocably waives personal service
of process and consents to process being served in any such Action by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If either party shall commence an Action to enforce any
provisions of a Transaction Document, then the prevailing party in such Action
shall be reimbursed by the other party for its

 

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reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Action.

6.10 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities.

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

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

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

6.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity (which shall not include a surety bond), if requested. The applicants
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities. If a replacement certificate or instrument evidencing any Securities
is requested due to a mutilation thereof, the Company may require delivery of
such mutilated certificate or instrument as a condition precedent to any
issuance of a replacement.

6.15 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any

 

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breach of obligations described in the foregoing sentence and hereby agrees to
waive in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

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

6.17 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.

6.18 Limitation of Liability. Notwithstanding anything herein to the contrary,
the Company acknowledges and agrees that the liability of an Investor arising
directly or indirectly, under any Transaction Document of any and every nature
whatsoever shall be satisfied solely out of the assets of such Investor, and
that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.

 

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

 

TUT SYSTEMS, INC.

By:

      

Name: Salvatore D’Auria

 

Title: President and Chief Executive Officer

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR INVESTORS FOLLOW]

 

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

 

NAME OF INVESTOR    By:       

Name:

 

Title:

Investment Amount: $      

Tax ID No.:      

 

ADDRESS FOR NOTICE c/o:     

Street:     

City/State/Zip:     

Attention:     

Tel:     

Fax:     

 

DELIVERY INSTRUCTIONS (if different from above) c/o:     

Street:     

City/State/Zip:     

Attention:     

Tel:     

 

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