ex101.htm


    SECURITIES
PURCHASE AGREEMENT

     

    SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated
as of August 19, 2008, by and among PNG Ventures, Inc., a Nevada corporation,
with headquarters located at 3001 Knox Street, suite 403, Dallas, Texas 75205
(the “Company”),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer”
and collectively, the “Buyers”).

     

    WHEREAS:

     

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

     

    B. The
Company has authorized a new series of convertible notes of the Company (the
“Notes”), which Notes
shall be convertible into shares (as converted, collectively, the “Conversion Shares”) of the
Company’s common stock, $0.001 par value per share (the “Common Stock”), in accordance
with the terms of the Notes.

     

    C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of
Notes, in substantially the form attached hereto as Exhibit A, set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be $3,188,235) and (ii) warrants, in
substantially the form attached hereto as Exhibit B (the “Warrants”), to acquire that
number of shares (as exercised, collectively, the “Warrant Shares”) of Common
Stock set forth opposite such Buyer’s name in column (4) on the Schedule of
Buyers.

     

    D. The
Notes, the Conversion Shares, the Warrants and the Warrant Shares, are
collectively are referred to herein as the “Securities.”

     

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

     

    1. PURCHASE AND SALE OF NOTES
AND WARRANTS.

     

    (a) Amount.  Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, agrees to purchase from the Company on the Closing Date (as
defined below), a principal amount of Notes as is set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers, along with Warrants to
acquire that number of Warrant Shares as is set forth opposite such Buyer’s name
in column (4) on the Schedule of Buyers.

     

    (b) Closing.  The
closing (the “Closing”)
of the purchase of the Notes and the Warrants by the Buyers shall occur at the
offices of Fox Rothschild LLP, 100 Park Avenue, Suite 1500, New York, NY
10017.  The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City Time, on the date hereof, subject to notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below (or such later date as is mutually agreed to by the Company and
each Buyer).

     

    (c) Purchase
Price.  The purchase price (the “Purchase Price”) of the Notes
and related Warrants to be purchased by each Buyer at the Closing shall be equal
to $1.00 for each $1.00 of principal amount of Notes being purchased by such
Buyer at the Closing. The Buyers and the Company agree that the Notes and the
Warrants constitute an "investment unit" for purposes of Section 1273(c)(2) of
the Internal Revenue Code of 1986, as amended (the "Code").  The
Buyers and the Company mutually agree that the allocation of the issue price of
such investment unit between the Notes and the Warrants in accordance with
Section 1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall
be an aggregate amount of $197,389 allocated to the Warrants, and the balance of
the Purchase Price allocated to the Notes, and neither the Buyers nor the
Company shall take any position inconsistent with such allocation in any tax
return or in any judicial or administrative proceeding in respect of
taxes.

     

    (d) Form of
Payment.  On the Closing Date, (i) each Buyer shall, subject to
the provisions set forth below in this Section 1(d), pay its aggregate Purchase
Price to the Company for the Notes and the Warrants to be issued and sold to
such Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company’s written wire instructions, and (ii) the
Company shall deliver to each Buyer the Notes (in the denominations as such
Buyer shall have requested prior to the Closing) which such Buyer is then
purchasing along with the Warrants (in the denominations as such Buyer shall
have requested prior to the Closing) such Buyer is purchasing, duly executed on
behalf of the Company and registered in the name of such Buyer or its
designee.  The Company agrees that, at the Closing, the Buyer(s)
shall, as a dollar-for-dollar credit towards the Purchase Price: (x) withhold
and reserve the sum of $478,235.25 to be
applied as Prepaid Interest under the Notes; (y) withhold the further sum of
$180,000 reflecting the application and receipt of a prior interim advance made
by the Buyer to the Company on August 15, 2008; and (z) fund a reserve account
in the sum of $1,000,000 with Fourth Third, LLC for the benefit of the Company
(the “Reserve Amount”) to be applied against regularly scheduled interest
payments as they become due and payable under the Company’s outstanding Amended
and Restated Credit Agreement with Fourth Third, LLC. as in effect as of the
Closing Date (the “Fourth Third Credit Agreement”).

     

    2. BUYER’S REPRESENTATIONS AND
WARRANTIES.

     

    Each
Buyer represents and warrants with respect to only itself that:

     

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

     

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

     

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

     

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

     

    (f) Information.  Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such
Buyer.  Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company.  Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations and warranties contained
herein.  Such Buyer understands that its investment in the Securities
involves a high degree of risk and illiquidity.  Such Buyer has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
Buyer acknowledges the risks of illiquidity and longer holding period under Rule
144 (as hereinafter defined), as a result of the Company recently having been a
shell company (as such term is defined under Rule 405 under the 1933 Act),
including, without limitations, risks related to illiquidity in the event that
the Company shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) under the 1933 Act.

     

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

     

    (h) Transfer or
Resale.  Such Buyer understands that except as provided for in
Section 4(q), the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered thereunder, (B)
such Buyer shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or, in each
case, a successor rule thereto)(collectively, “Rule 144”); or some other
applicable exemption from registration under the 1933 Act or the rules and
regulations of the SEC thereunder, provided, however, that the
Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities and such pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Buyer effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document (as defined in Section 3(b)), including, without limitation, this
Section 2(h).

     

    (i) Legends.  Such
Buyer understands that the certificates or other instruments representing the
Notes and the Warrants and, until such time as the Conversion Shares and the
Warrant Shares have been registered under the 1933 Act, as contemplated by
Section 4(q) hereof, the stock certificates representing the Conversion Shares
and the Warrant Shares, shall bear any legend as required by the “blue sky” laws
of any state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):

     

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

     

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

     

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

     

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

     

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

     

    3. REPRESENTATIONS AND
WARRANTIES OF THE COMPANY.

     

    As an
inducement to the Buyers to enter into this Agreement and to consummate the
transactions contemplated hereby, the Company represents and warrants to each of
the Buyers that each and all of the following representations and warranties (as
modified by the disclosure schedules delivered to the Buyers contemporaneously
with the execution and delivery of this Agreement (the “Schedules”)) are true
and correct as of the date of this Agreement.  The Schedules shall be
arranged by the Company in paragraphs corresponding to the sections and
subsections contained in this Article 3.

     

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

     

    (b) Authorization; Enforcement;
Validity.  The Company has the requisite power and authority to
enter into and perform its obligations under this Agreement, the Notes, the
Warrants,  and the Irrevocable Transfer Agent Instructions (as defined
in Section 5(b)), and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms
hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Notes, the reservation for issuance and the issuance of the Conversion
Shares issuable
upon conversion of the Notes, the issuance of the Warrants and the reservation
for issuance and issuance of the Warrant Shares issuable upon exercise of the
Warrants, have been duly authorized by the Company’s Board of Directors and
(other than the filing with the SEC of a Form D and one or more Registration
Statements in accordance with the requirements of the registration rights
provisions in this Agreement and other than filings with  “Blue Sky”
authorities as required therein) no further filing, consent, or authorization is
required by the Company, its Board of Directors or its
stockholders.  This Agreement and the other Transaction Documents of
even date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.

     

    (c) Issuance of
Securities.  The issuance of the Notes and the Warrants are
duly authorized and are free from all taxes, liens and charges with respect to
the issue thereof.  As of the Closing, a number of shares of Common
Stock shall have been duly authorized and reserved for issuance which equals at
least 130% of the sum of the maximum number of shares of Common Stock issuable
(A) upon conversion of the Notes (assuming for purposes hereof, that the Notes
are convertible at the Conversion Price and without taking into account any
limitations on the conversion of the Notes set forth in the Notes) and (B) upon
exercise of the Warrants (without taking into account any limitations on the
exercise of the Warrants set forth in the Warrants).  Upon
conversion  in accordance with the Notes or exercise in accordance
with the Warrants, as the case may be, the Conversion Shares and the Warrant
Shares, respectively, will be validly issued, fully paid and nonassessable and
free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock.  The offer and issuance by the
Company of the Securities is exempt from registration under the 1933
Act.

     

    (d) No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes, the Warrants,  and the reservation for issuance
of the Conversion Shares and the Warrant Shares) will not (i) result in a
violation of the Articles of Incorporation or Bylaws (each as defined in Section
3(r)) of the Company or any of its Subsidiaries or the terms of any capital
stock of the Company or any of its Subsidiaries; (ii) other than as set forth on
Schedule 3(d),
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party; or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and the rules
and regulations of the principal market, exchange or quotation system (including
the OTC Bulletin Board and the Pink sheets) upon which the shares of the Company
trade  (the “Principal Market”) applicable
to the Company or any of its Subsidiaries or by which any property or asset of
the Company or any of its Subsidiaries is bound or affected.

     

    (e) Consents.  Other
than as set forth on Schedule 3(e), the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by the
Transaction Documents, in each case in accordance with the terms hereof or
thereof (other than (x) the filing with the SEC of a Form D or one or more
Registration Statements in accordance with the registration provisions of this
Agreement and (y) filings with  “Blue Sky” authorities as required
thereby.  All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the Closing Date, and the
Company and its Subsidiaries are unaware of any facts or circumstances which
might prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence.  The
Company is not in violation of the listing requirements of the Principal Market
and has no knowledge of any facts which would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future.  The Company
is not in violation of the listing requirements of the Principal Market and has
no knowledge of any facts which would reasonably lead to delisting or suspension
of the Common Stock in the foreseeable future.

     

    (f) Acknowledgment Regarding
Buyer’s Purchase of Securities.  The Company acknowledges and
agrees that each Buyer or any Person acting as an affiliate of such Buyer, is
acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and
that no Buyer is: (i) an officer or director of the Company, (ii) acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby.  The Company further represents to each Buyer that the
Company’s decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its
representatives.

     

    (g) No General Solicitation;
Placement Agent’s Fees.  Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or brokers’ commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby.  The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorneys’ fees and out-of-pocket expenses)
arising in connection with any such claim. The Company has not engaged the
services of a placement agent or other financial advisor in connection with the
sale of the Securities.

     

    (h) No Integrated
Offering.  Assuming the accuracy of the Buyer’s representations
and warranties set forth in Article 2, neither the Company, its Subsidiaries,
any of their affiliates or any Person acting on their behalf, has directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of:
(i) the 1933 Act which would require the registration of any such securities
under the 1933 Act; or (ii) any applicable shareholder approval provision of any
Eligible Market on which any of the securities of the Company are
listed.

     

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

     

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

     

    (k)  SEC Documents; Financial
Statements.  Except as disclosed in Schedule 3(k), during
the two (2) years prior to the date hereof, the Company (which, for the
avoidance of doubt, includes only PNG Ventures, Inc., a Nevada corporation, and
not any Subsidiary of the Company) has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the “1934 Act”) (all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements, notes and schedules thereto and documents incorporated
by reference therein being hereinafter referred to as the "SEC
Documents").  The Company has delivered to the Buyers or their
respective representatives, true, correct and complete copies of the SEC
Documents not available on the EDGAR system.  As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, other than as may have been subsequently
restated or amended in an amended or subsequent report.  As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto.  Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).  No other
information provided by or on behalf of the Company to each of the Buyers which
is not included in the SEC Documents, including, without limitation, information
referred to in Section 2(f) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading.

     

    (l) Absence of Certain
Changes.  Except as disclosed in Schedule 3(l), since
June 30, 2008 (the “Schedule 3(l) Date”), there has been no material adverse
change and no material adverse development in the business, assets, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries.  Except as disclosed in
Schedule 3(l),
since the Schedule 3(l) Date, the Company has not (i) declared or paid any
dividends, (ii) sold any assets outside of its ordinary course of business, or
(iii) had capital expenditures, individually or in the aggregate, in excess of
$100,000.  The Company has not taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so.  The Company is not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be “Insolvent” (as defined below).  For purposes of
this Section 3(l), “Insolvent” means (i) the
present fair saleable value of the Company’s assets is less than the amount
required to pay the Company’s total Indebtedness (as defined in Section 3(s)),
(ii) the Company is unable to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) the Company intends to incur or believes that it will incur debts
that would be beyond its ability to pay as such debts mature or (iv) the Company
has unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be
conducted.

     

    (m)  No Undisclosed Events,
Liabilities, Developments or Circumstances.  Except as set
forth on Schedule
3(m), since the Schedule 3(l) Date, no event, liability, development or
circumstance has occurred or exists, or is contemplated to occur with respect to
the Company, that has caused or could cause a Material Adverse
Effect.

     

    (n) Conduct of Business;
Regulatory Permits.  Neither the Company nor its Subsidiaries
is in violation of any term of or in default under any certificate of
designations of any outstanding series of preferred stock of the Company, its
Articles of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or bylaws, respectively.  Other than as
set forth on Schedule
3(n), neither the Company nor any of its Subsidiaries is in violation of
any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or its Subsidiaries, and neither the Company nor any
of its Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. Except as set forth on Schedule 3(n), the
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

     

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

     

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

     

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

     

    (r) Equity
Capitalization.  As of the date hereof, the authorized, issued
and outstanding capital stock of the Company and shares reserved for issuance is
set forth on Schedule
3(r). All of such shares set forth on Schedule 3(r) have
been, or upon issuance will be, validly issued and are fully paid and
non-assessable.  Except as disclosed in Schedule 3(r): (i)
none of the Company’s share capital is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
share capital of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional share capital of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
share capital of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
; (vi) there are no outstanding securities or instruments of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii)  there are no
outstanding securities or instruments of the Company that contain: (A)
anti-dilution or similar provisions that will be triggered by the issuance of
any securities of the Company; or (B) anti-dilution or similar provisions that
could result in a reduction of an exercise price, conversion price or increase
in the number of shares issuable upon the exercise or conversion of a
convertible instrument in the case of the issuance of any securities by the
Company (other than standard anti-dilution adjustments in the case of a stock
dividend, recapitalization, forward or reverse split or business combination);
(ix) the Company does not have any stock appreciation rights or “phantom stock”
plans or agreements or any similar plan or agreement; and (x) the Company and
its Subsidiaries have no liabilities or obligations required to be disclosed in
the SEC Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
businesses and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect.  Schedule 3(r)
contains a schedule of all outstanding registration rights granted by the
Company which are still in effect, as well as true and correct copies of any
agreements containing registration rights granted by the Company. The
Secretary’s Certificate in substantially the form attached hereto as Exhibit E
contains true, correct and complete copies of the Company’s Articles of
Incorporation, as amended and as in effect on the date hereof (the “Articles of Incorporation”),
and the Company’s Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”).

     

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

     

    (t) Absence of
Litigation.  Except as set forth in Schedule 3(t), there
is not now, nor has there been in the last three years, any action, suit,
proceeding, inquiry or investigation before or by  any court, public
board, government agency (including the SEC), self-regulatory organization or
body pending or, to the knowledge of the Company, involving, threatened against
or affecting the Company, the Common Stock or, to the best of the Company’s
knowledge, any of the Company’s Subsidiaries or any of the Company’s or its
Subsidiaries’ officers, directors, consultants or agents.

     

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

     

    (v) Employee
Relations.  Neither Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or employs any member of a
union.  The Company and its Subsidiaries believe that their relations
with their employees are good.  No executive officer of the Company or
any of its Subsidiaries has notified the Company or any such Subsidiary that
such officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer’s employment with the Company or any such
Subsidiary.  No executive officer of the Company or any of its
Subsidiaries, to the knowledge of the Company or any such Subsidiary, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any such Subsidiary to any liability with respect to any
of the foregoing matters.  The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

     

    (w)  Title.  The
Company and its Subsidiaries have good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by
them which is material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects (other than any
lien, encumbrance or defect disclosed under Section 3(s) of this Agreement or
Schedule 3(s) attached hereto) except such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be made
of such property by the Company and any of its
Subsidiaries.   Any real property and facilities held under lease
by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

     

    (x) Intellectual Property
Rights.  The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now
conducted.  Except as set forth in Schedule 3(x), none
of the Company’s Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three (3) years from the date of this
Agreement.  The Company does not have any knowledge of any
infringement by the Company or its Subsidiaries of Intellectual Property Rights
of others.  There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the
Company or its Subsidiaries regarding its Intellectual Property
Rights.  The Company is unaware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings.  The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.

     

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

     

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

     

    (aa) Investment
Company.  The Company is not an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of  1940, as
amended.

     

    (bb) Tax
Status.  The Company and each of its Subsidiaries (i) has made
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.

     

    (cc) Internal Accounting and
Disclosure Controls.  The Company maintains disclosure controls
and procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that
are effective in ensuring that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or furnishes under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.

     

    (dd) Off Balance Sheet
Arrangements.  There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its 1934 Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.

     

    (ee) Ranking of
Notes.  Except with respect to the “Senior Debt” (as defined in
the Notes) and as set forth on Schedule (ee), no
Indebtedness of the Company will rank senior to or pari passu with the Notes in
right of payment, whether with respect of payment of principal, interest,
damages or upon liquidation or dissolution or otherwise.

     

    (ff)        Form S-1
Eligibility.  The Company is eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form S-1
promulgated under the 1933 Act.

     

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

     

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

     

    (ii) Acknowledgement Regarding
Buyers' Trading Activity.  It is understood and acknowledged by
the Company that (i) none of the Buyers have been asked to agree, nor has any
Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) any Buyer,
and counter parties in "derivative" transactions to which any such Buyer is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation
with or control over any arm's length counter-party in any "derivative"
transaction.  The Company further understands and acknowledges that
(a) one or more Buyers may engage in hedging and/or trading activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Conversion Shares
and the Warrant Shares  deliverable with respect to Securities are
being determined and (b) such hedging and/or trading activities, if any, can
reduce the value of the existing stockholders' equity interest in the Company
both at and after the time the hedging and/or trading activities are being
conducted.  The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the
Notes, the Warrants or any of the documents executed in connection
herewith.

     

    (jj) U.S. Real Property Holding
Corporation.  The Company is not, nor has ever been, a U.S.
real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify upon
Buyer's request.

     

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

     

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

     

    (mm) Disclosure.  The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic
information.  The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company.  All disclosure provided to the Buyers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.  Each press release issued by the Company during
the twelve (12) months preceding the date of this Agreement did not at the time
of release contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading.  No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under the 1934 Act and the rules and regulations promulgated thereunder ,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.

     

    4. COVENANTS.

     

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

     

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

     

    (c) Reporting
Status.  Until the date on which all of the Buyers and their
permitted assignees shall have sold all the Common Stock, the Conversion Shares,
and Warrant Shares and none of the Notes
or Warrants is
outstanding (the "Reporting
Period"), the Company shall file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would otherwise permit such
termination.

     

    (d) Use of
Proceeds.  The Company hereby agrees that the proceeds from the
sale of the Securities shall be used solely for the payment of the Prepaid
Interest (as defined in the Note), to fund  the Reserve Amount in an
amount of $1 million, to pay approximately $580,000 of the principal balance
owed by the Company’s under its outstanding Indebtedness to Black Forest
International, LLC, and for general corporate purposes, including general and
administrative expenses, , and not for (i) the repayment of the principal amount
under any other outstanding Indebtedness of the Company or any of its
Subsidiaries, (ii) the redemption or repurchase of any of its or its
Subsidiaries' equity securities, or (iii) the settlement of any claims, actions
or proceedings against the Company or any of its Subsidiaries.

     

    (e) Financial
Information.  The Company agrees to send the following to each
Buyer during the Reporting Period (i) unless filed with the SEC through EDGAR
and available to the public through the EDGAR system, within one “Business Day”
(as defined below), after the filing thereof with the SEC, a copy of all Annual
Reports on Form 10-K, any interim reports or any consolidated balance sheets,
income statements, stockholders’ equity statements and/or cash flow statements
for any period other than annual, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) within one day after  the release thereof, copies
of all press releases issued by the Company or any of its Subsidiaries, and
(iii) copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. As used herein, "Business Day" means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

     

    (f) Listing.  The
Company shall promptly secure the listing of no less than 130% of all of the
Common Shares, Conversion Shares and Warrant Shares (the "Registrable Securities") upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents.  The Company
shall maintain the Common Stocks' authorization for quotation on the Principal
Market.  Neither the Company nor any of its Subsidiaries shall take
any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market.  The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(f).

     

    (g) Fees.  The
Company shall reimburse Castlerigg Master Investments Ltd. (“Castlerigg”) (a
Buyer) or its designee(s) (in addition to any other expense amounts paid to any
Buyer prior to the date of this Agreement) for all reasonable costs and expenses
incurred in connection with the transactions contemplated by the Transaction
Documents (including all reasonable legal fees and disbursements in connection
therewith, documentation and implementation of the transactions contemplated by
the Transaction Documents and due diligence in connection therewith), which
amounts shall be withheld by such Buyer from its Purchase Price at the
Closing.  The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other
than for Persons engaged by any Buyer) relating to or arising out of the
transactions contemplated hereby.  The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment.

     

    (h) Pledge of
Securities.  The Company acknowledges and agrees that the
Securities may be pledged by a Buyer in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities.  The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(h) hereof; provided that an Investor and its pledge shall be required
to comply with the provisions of Section 2(h) hereof in order to effect a sale,
transfer or assignment of securities to such pledge.  The Company
hereby agrees to execute and deliver such documentation as a pledgee of the
Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by a Buyer.

     

    (i) Disclosure of Transactions
and Other Material Information.  On or before 8:00 a.m., New
York City time, on the first Business Day following the date of this Agreement,
the Company shall issue a press release and file a Current Report on Form 8-K
describing, among other things, the terms of the transactions contemplated by
the Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of Notes and the form of
Warrant) (including all attachments, the “8-K Filing”).  Any material
non-public information provided by the Company to any Buyer in connection with
this transaction, shall be included by the Company within the aforementioned
Form 8-K or otherwise make publicly available.  Following the date
upon which the Buyer notifies the Company that it shall no longer be in a
position to receive and hold non-public information,  the Company
shall not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express written consent of such Buyer.  If a Buyer has, or
believes it has, thereafter received any such material, nonpublic information
regarding the Company or any of its Subsidiaries, it shall provide the Company
with written notice thereof.  The Company shall, within two (2)
Trading Days of receipt of such notice, make public disclosure of such material,
nonpublic information.  In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents.  No Buyer shall
have any liability to the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents for any such
disclosure.  Subject to the foregoing, neither the Company, its
Subsidiaries nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filings and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).  Without the prior written
consent of any applicable Buyer, neither the Company nor any of its Subsidiaries
or affiliates shall disclose the name of such Buyer in any filing, announcement,
release or otherwise.

     

    (j) Restriction on Redemption
and Cash Dividends So long as any Notes are outstanding, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on, the Common Stock without the prior express written consent
of the holders of Notes representing not less than a majority of the aggregate
principal amount of the then outstanding Notes.

     

    (k) Additional Notes; Variable
Securities; Dilutive Issuances.  For so long as any Notes or
Warrants remain outstanding, the Company shall not, in any manner, issue or sell
any rights, warrants or options to subscribe for or purchase Common Stock or
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary after issuance with the market
price of the Common Stock, including by way of one or more reset(s) to any fixed
price, unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) with respect to the Common Stock into which any Note is convertible or
the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable.  For purposes
of clarification, this does not prohibit the issuance of securities with
customary “weighted average” or “full ratchet” anti-dilution adjustments which
adjust a fixed conversion or exercise price of securities sold by the Company in
the future.  For so long as any Notes or Warrants remain outstanding,
the Company shall not, in any manner, enter into or effect any Dilutive Issuance
(as defined in the Notes) if the effect of such Dilutive Issuance is to cause
the Company to be required to issue upon conversion of any Notes or exercise of
any Warrant any shares of Common Stock in excess of that number of shares of
Common Stock which the Company may issue upon conversion of the Notes and
exercise of the Warrants without breaching the Company’s obligations under the
rules or regulations of the Principal Market or any applicable “Eligible Market”
on which the Company’s Common Stock is then traded or on which the Company has
applied for listing. "Eligible
Market" means any of the of The New York Stock Exchange, the American
Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market, The
NASDAQ Capital Market or OTC Bulletin Board or the Pink Sheets.

     

    (l) Corporate
Existence.  So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.

     

    (m)  Incurrence of
Liens.  So long as any Notes are outstanding, the Company shall
not, directly or indirectly, allow or suffer to exist any Lien, other than
Permitted Liens (as defined in the Notes), upon any property or assets
(including accounts and contract rights) owned by the Company.

     

    (n) Reservation of
Shares.  So long as any Buyer owns any Notes or Warrants, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 130% of the sum of the number
of shares of Common Stock issuable (i) upon conversion of the Notes, and (ii)
upon exercise of the Warrants then outstanding (without taking into account any
limitations on the conversion of the Notes or exercise of the Warrants set forth
in the Notes and Warrants, respectively).

     

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

     

    (p) Additional Issuances of
Securities.

     

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

     

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

     

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

     

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

     

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

     

    (ii) From the
date hereof until the later of (i) the second anniversary of the Closing Date;
or (ii) the end of the period during which at least twenty (20%) percent of the
Notes remain outstanding, the Company will not, directly or indirectly, effect
any Subsequent Placement unless the Company shall have first complied with this
Section 4(p)(ii).

     

    (1) The
Company shall deliver to each Buyer an irrevocable written notice (the “Offer
Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”)
of the securities being offered (the “Offered Securities”) in a Subsequent
Placement, which Offer Notice shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the Offered Securities to
be issued, sold or exchanged, (y) identify the persons or entities (if known) to
which or with which the Offered Securities are to be offered, issued, sold or
exchanged and (z) offer to issue and sell to or exchange with such Buyers all of
the Offered Securities, allocated among such Buyers at identical terms and
prices as provided in the Offer Notice (a) based on such Buyer’s pro rata
portion of the aggregate principal amount of Notes purchased hereunder (the
“Basic Amount”), and (b) with respect to each Buyer that elects to purchase its
Basic Amount, any additional portion of the Offered Securities attributable to
the Basic Amounts of other Buyers as such Buyer shall indicate it will purchase
or acquire should the other Buyers subscribe for less than their Basic Amounts
(the “Undersubscription Amount”), or with a statement from the Buyers that it
will waive any rights to subscribe for any portion of the Undersubscription
Amount, which process shall be repeated until the Buyers shall have an
opportunity to subscribe for or waive the right to receive any remaining
Undersubscription Amount.

     

    (2) To accept
an Offer, in whole or in part, such Buyer must deliver a written notice to the
Company prior to the end of the tenth (10th) Business Day after such Buyer’s
receipt of the Offer Notice (the “Offer Period”), setting forth the portion of
such Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer
shall elect to purchase all of its Basic Amount, the Undersubscription Amount,
if any, that such Buyer elects to purchase (in either case, the “Notice of
Acceptance”). If the Basic Amounts subscribed for by all Buyers are less than
the total of all of the Basic Amounts, then each Buyer who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Buyer who has subscribed for any Undersubscription Amount shall
be entitled to purchase only that portion of the Available Undersubscription
Amount as the Basic Amount of such Buyer bears to the total Basic Amounts of all
Buyers that have subscribed for Undersubscription Amounts, subject to rounding
by the Company to the extent its deems reasonably necessary. Notwithstanding
anything to the contrary contained herein, if the Company desires to modify or
amend the terms and conditions of the Offer prior to the expiration of the Offer
Period, the Company may deliver to the Buyers a new Offer Notice (which period
shall be deemed to have replaced and restated the prior Offer Notice) and the
Offer Period shall expire on the tenth (10th) Business Day after such Buyer’s
receipt of such new Offer Notice.

     

    (3) The
Company shall have five (5) Business Days from the later of: (i) the expiration
of the Offer Period above; or (ii) upon the written consent of the Buyer, such
longer period for which the Offered Securities are being offered to third
parties as part of the Subsequent Placement, to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by the Buyers (the “Refused Securities”), but only to the
offerees described in the Offer Notice (if so described therein) and only upon
terms and conditions (including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer Notice and, if the
Company’s Securities are traded on a Principal Market, to publicly announce (a)
the execution of such Subsequent Placement Agreement, and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent
Placement Agreement and any documents contemplated therein filed as exhibits
thereto.

     

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

     

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

     

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

     

    (7) The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer,  neither the agreement regarding the Subsequent Placement (the
“Subsequent Placement Agreement”) with respect to such Offer nor any other
transaction documents related thereto (collectively, the “Subsequent Placement
Documents”) shall include any term or provisions whereby any Buyer shall be
required to agree to any restrictions in trading as to any securities of the
Company owned by such Buyer prior to such Subsequent Placement.

     

    (8) Notwithstanding
anything to the contrary in this Section 4(p) and unless otherwise agreed to by
the Buyers, the Company shall either confirm in writing to the Buyers that the
transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose on or before the closing thereof its intention to issue the
Offered Securities, in either case in such a manner such that the Buyers will
not be in possession of material non-public information, by the fifteenth (15th)
Business Day following delivery of the Offer Notice. If by the fifteenth (15th)
Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received by
the Buyers, such transaction shall be deemed to have been abandoned and the
Buyers shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to pursue
such transaction with respect to the Offered Securities, the Company shall
provide each Buyer with another Offer Notice and each Buyer will again have the
right of participation set forth in this Section 4(p)(ii). The Company shall not
be permitted to deliver more than one such Offer Notice to the Buyers in any 60
day period.

     

    (iii) The
restrictions contained in subsection (ii)  of this Section 4(p) shall
not apply in connection with the issuance of any Excluded Securities (as defined
in the Notes).

     

    (q) Piggy-Back
Registrations.

     

    (i) If at any
time the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee or
director benefit plans), then the Company shall send to each Buyer written
notice of such determination and, if within twenty days after receipt of such
notice, any such Holder shall so request in writing, the Company shall include
in such registration statement 130% of the number of shares of Common Stock that
constitute the “Registrable Securities” (as hereafter defined) as such holder
requests to be registered, subject to customary underwriter cutbacks applicable
to all holders of registration rights on a pro rata basis (along with other
holders of piggyback registration rights with respect to the Company); provided, that (A) the
Company shall not be required to register any Registrable Securities pursuant to
this Section 4(q) that are (I) eligible for resale under Rule 144 without the
requirement to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, or (II) that are the subject of
a then effective registration statement and (B) if at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities pursuant to this Section 4(q) in connection
with such registration (but not from its obligation to pay expenses in
accordance with Section 4(q) hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 4(q) for the same period as
the delay in registering such other securities. For the purposes of this Section
4(q), the term “Registrable Securities” shall mean (i) all shares of Common
Stock issued or issuable upon conversion of the Notes; and (ii) all shares of
Common Stock issued or issuable upon exercise of the Warrants; including any
shares of Common Stock that may be issued or issuable as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversion and/or redemption of the Notes
or exercise of the Warrants..

     

    (ii) Registration
Expenses.  All fees and expenses incident to the Company’s
performance of or compliance with its obligations under this Agreement
(excluding any underwriting discounts and selling commissions, but including all
legal fees and expenses of legal counsel for any Buyer) shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement.  The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with any Trading Market on which the Common Stock
is then listed for trading, (B) in compliance with applicable state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Company in connection with Blue Sky qualifications or exemptions
of the Registrable Securities and determination of the eligibility of the
Registrable Securities for investment under the laws of such jurisdictions as
requested by the Holders) and (C) with respect to any filing that may be
required to be made by any broker through which a Holder intends to make sales
of Registrable Securities with the Corporate Financing Department of Financial
Industry Regulatory Authority, Inc. ("FINRA") pursuant to FINRA Rule
2710(b)(10)(A)(i), so long as the broker is receiving no more than a customary
brokerage commission in connection with such sale, (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the Holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and the Buyer, (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Section.  In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Section (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit and the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.  In no
event shall the Company be responsible for any broker or similar commissions of
any Holder.

     

    (iii) Registration
Procedures.  Whenever it is obligated to register any
Registrable Securities pursuant to this Agreement, the Company
shall:

     

    (A) prepare
and file with the Commission a Registration Statement with respect to the
Registrable Securities in the manner set forth in Section 4(q) hereof and use
its reasonable best efforts to cause such Registration Statement to become
effective as promptly as possible and to remain effective until the earlier of
(i) the sale of all shares of Registrable Securities covered thereby, (ii) the
availability under Rule 144(c)(1) for each Buyer to immediately, freely resell
without restriction all Registrable Securities covered thereby, or (iii) two (2)
years from the date of this Agreement;

     

    (B)  permit
one legal counsel designated by Buyers to review and comment upon a Registration
Statement at least five (5) Business Days prior to its filing with the
Commission, and all amendments and supplements to all Registration Statements,
and reimburse the Buyers for the cost of such legal counsel. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
such legal counsel, which consent shall not be unreasonably withheld. The
Company shall furnish to such legal counsel, without charge, (i) copies of any
correspondence from the Commission or the staff of the Commission to the Company
or its representatives relating to any Registration Statement, (ii) promptly
after the same is prepared and filed with the Commission, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested;

     

    (C) prepare
and file with the Commission such amendments (including post-effective
amendments) and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the period specified in Section 4(q)(iii)(A) above and
to comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities covered by such Registration Statement in accordance
with the intended method of disposition set forth in such Registration Statement
for such period;

     

    (D) furnish
to each Buyer such number of copies of the Registration Statement and the
prospectus included therein (including each preliminary prospectus) as such
person may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities covered by such Registration
Statement;

     

    (E) use its
reasonable best efforts to register or qualify the Registrable Securities
covered by such Registration Statement under the state securities laws of such
jurisdictions as any Buyer shall reasonably request; provided, however, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;

     

    (F) in the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering;

     

    (G) immediately
notify each Buyer at any time when a prospectus relating thereto is required to
be delivered under the 1933 Act, of the happening of any event as a result of
which the prospectus contained in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required or necessary to be stated therein in order to make the
statements contained therein not misleading in light of the circumstances under
which they were made.  The Company will use reasonable efforts to
amend or supplement such prospectus in order to cause such prospectus not to
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made;

     

    (H) prepare
and file with the Commission such amendments and supplements to such
Registration Statement and the prospectus used in connection with such
Registration Statements as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
Registration Statement;

     

    (I) use its
reasonable best efforts to list the Registrable Securities covered by such
Registration Statement on each exchange or automated quotation system on which
similar securities issued by the Company are then listed (with the listing
application being made at the time of the filing of such Registration Statement
or as soon thereafter as is reasonably practicable);

     

    (J) notify
each Buyer of any threat by the Commission or state securities commission to
undertake a stop order with respect to sales under the Registration Statement;
and

     

    (K) cooperate
in the timely removal of any restrictive legends from the shares of Registrable
Securities in connection with the resale of such shares covered by an effective
Registration Statement.

     

    (iv) Indemnification.

     

    (A) The
Company agrees to indemnify, to the extent permitted by law, each Buyer, such
Buyer’s respective partners, officers, directors, underwriters and each Person
who controls any Buyer (within the meaning of the 1933 Act) against all actual
losses, claims, damages, liabilities and expenses (but not lost profits) caused
by (i) any untrue statement of or alleged untrue statement of material fact
contained in the Registration Statement, prospectus or preliminary prospectus or
any amendment or supplement thereto, (ii) any omission of or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the 1933 Act, the 1934 Act, any state securities law or any
rule or regulation promulgated under the 1933 Act, the 1934 Act or any state
securities law in connection with the offering covered by such registration
statement (“Violations”); provided, however, that the indemnity agreement
contained in this Section 4(q)(iv) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld, nor shall the Company be liable for any loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with information
furnished to the Company by such Buyer, partner, officer, director, underwriter
or controlling person of such Buyer.

     

    (B) Any
Person entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any Person's right to indemnification hereunder to the extent such
failure has not prejudiced the indemnifying party), and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party.  If such defense is
assumed, the indemnifying party shall not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
shall not be unreasonably withheld).  An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.

     

    (C) If the
indemnification provided for in this Section 4(q)(iv) is held by a court of
competent jurisdiction to be unavailable to the Buyer with respect to any
losses, claims, damages or liabilities referred to herein, the Company, in lieu
of indemnifying such indemnified party thereunder, shall to the extent permitted
by applicable law contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
violation(s) that resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations.  The relative fault of
the indemnifying party and of the indemnified party shall be determined by a
court of law by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, that in
no event shall the Buyer be responsible for any amounts hereunder, with the
exception of a possible set-off against amounts otherwise due the Buyer as an
indemnification or contribution claim; and in that event, the Buyer’s
entitlement to contribution shall not be subject to set-off in any amount to
exceed the net proceeds from the offering received by such Buyer.

     

    (D) The
indemnification provided for under this Agreement shall remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified
party or any officer, director or controlling Person of such indemnified party
and shall survive the transfer of securities.  The Company also agrees
to make such provisions as are reasonably requested by any indemnified party for
contribution to such party in the event the Company's indemnification is
unavailable for any reason.

     

    (v) Penalty
Provisions.  If the Company breaches or otherwise fails to
perform any of its obligations under Section 4(q) above (a “Registration
Breach”), then as partial relief for the damages to any Buyer by reason of any
such Registration Breach (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each holder of
Registrable Securities an amount in cash equal to two percent (2.0%) of the
aggregate Purchase Price of such Buyer’s Registrable Securities as of the date
of such Registration Breach and thereafter an additional amount in cash equal to
two percent (2.0%) of the aggregate Purchase Price of such Buyer’s Registrable
Securities for each period of thirty days  after the day of a
Registration Breach  (pro rated for periods totaling less than thirty
days) until such Registration Breach is cured.

     

    (vi) Assignment of Registration
Rights; Assumption of Registration Rights.

     

    (A) The
registration rights under Section 4(q) of this Agreement shall be automatically
assignable by the Buyer to any transferee of all or any portion of such Buyer’s
Registrable Securities if: (i) the Buyer agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act or applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
this Agreement, if any.

     

    (B) In
conjunction with, and as a condition precedent to the consummation of any
“Fundamental Transaction” (as such term is defined in the Note), the
registration obligations of the Company as identified in this Agreement, shall
be assumed by the acquiring company or the Person that assumes control of the
Company, in manner, form and substance acceptable to the Buyer.

     

    (r) Public
Information.

     

    (i) If the
Common Stock is listed on an Eligible Market other than the Principal Market
(the "New Principal
Market") and the issuance of the Conversion Shares or Warrant Shares as
contemplated under the Transaction Documents would exceed that number of shares
of Common Stock which the Company may issue without breaching the Company's
obligations under the rules or regulations of the New Principal Market, then the
Company shall obtain the approval of its stockholders as required by the
applicable rules of the New Principal Market for issuances of the Conversion
Shares and Warrant Shares in excess of such amount. At such time, the Company
shall provide each stockholder entitled to vote at a special or annual meeting
of stockholders of the Company (the "Stockholder Meeting"), which
shall be promptly called and held not later than 75 days after the earlier of
(i) the New Principal Market indication of and (ii) the Company becoming aware
of, any limitation imposed by the New Principal Market on the issuance of
Conversion Shares, Warrant Shares or Common Shares (the "Stockholder Meeting
Deadline"), a proxy statement, substantially in the form which has been
previously prepared by counsel to the Company and reviewed by the Buyers and
counsel to the Buyers, at the expense of the Company, soliciting each such
stockholder's affirmative vote at the Stockholder Meeting for approval of
resolutions providing for the Company's issuance of all of the Securities as
described in the Transaction Documents in accordance with applicable law and the
rules and regulations of the New Principal Market and such affirmative approval
being referred to herein as the "Stockholder Approval"), and
the Company shall use its reasonable best efforts to (i) solicit its
stockholders' approval of such resolutions and to (ii) cause the Board of
Directors of the Company to recommend to the stockholders that they approve such
resolutions. The Company shall be obligated to use its reasonable best efforts
to obtain the Stockholder Approval by the Stockholder Meeting Deadline. If,
despite the Company's reasonable best efforts the Stockholder Approval is not
obtained on or prior to the Stockholder Meeting Deadline, the Company shall
cause an additional Stockholder Meeting to be held every six (6) months
thereafter until such Stockholder Approval is obtained or the Notes and the
Warrants are no longer outstanding.

     

    (s) Closing
Documents.  On or prior to fourteen (14) calendar days after
the Closing Date, the Company agrees to deliver, or cause to be delivered, to
each Buyer and Fox Rothschild LLP executed copies of the Transaction Documents,
Securities and any other document required to be delivered to any party pursuant
to Section 7 hereof.

     

    (t) Integration.                                
The Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities to the
Buyer in a manner that would require the registration under the 1933 Act of the
sale of the Securities to the Buyer or that would be integrated with the offer
or sale of the Securities to the Buyers for purposes of the rules and
regulations of any Eligible Market on which any of the securities of the Company
are listed or designated such that it would require shareholder approval prior
to the closing of such other transaction unless shareholder approval is obtained
before the closing of such subsequent transaction.

     

    (u) Investors’
Rights.  At the Closing, the Company shall appoint to its Board
of Directors  two (2) individuals nominated by the
Buyer(s).  At the Closing, the Company shall deliver to the Buyer(s)
any and all documents and instruments, effective as of the Closing, which may be
necessary to effect the provisions of this Section 4(u) including, without
limitation,  amended and restated Articles of Incorporation and/or By
Laws of the Company consistent with the foregoing.

     

    (v) State Qualifications.
Within no more that ten (10) Business Days after Closing, the Company shall
deliver to such Buyer a certificate evidencing the Company’s qualification as a
foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts
business.

     

    5. REGISTER; TRANSFER AGENT
INSTRUCTIONS.

     

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

     

    (b) Transfer Agent
Instructions.  The Company shall issue irrevocable instructions
to its then current transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”), provided that the
Transfer Agent is participating in the DTC Fast Automated Securities Transfer
Program and the Common Stock issuable upon conversion of the Note and/or
exercise of the Warrants, whichever is applicable, is eligible for public resale
under the 1933 Act,  registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Notes or exercise of the Warrants in the form of Exhibit C attached
hereto (the “Irrevocable
Transfer Agent Instructions”).  The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5(b), and stop transfer instructions to give effect to Section
2(g) hereof, will be given by the Company to its transfer agent with respect to
the Securities, and that the Securities shall otherwise be freely transferable
on the books and records of the Company, as applicable, and to the extent
provided in this Agreement and the other Transaction Documents.  If a
Buyer effects a sale, assignment or transfer of the Securities in accordance
with Section 2(f), the Company shall permit the transfer and shall promptly
instruct its transfer agent to issue one or more certificates or credit shares
to the applicable balance accounts at DTC in such name and in such denominations
as specified by such Buyer to effect such sale, transfer or
assignment.  In the event that such sale, assignment or transfer
involves Conversion Shares or Warrant Shares sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule 144, the
transfer agent shall issue such Securities to the Buyer, assignee or transferee,
as the case may be, without any restrictive legend.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer.  Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5(b)
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section 5(b), that a Buyer shall be
entitled, in addition to all other available remedies, to seek an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (i) The
Company shall have executed and delivered to such Buyer (A) each of the
Transaction Documents and (B) the Notes (in such denominations as such Buyer
shall have requested prior to the Closing) and the related Warrants
(in such denominations as such Buyer shall have requested prior to the Closing)
being purchased by such Buyer at the Closing pursuant to this
Agreement;

     

    (ii) Such
Buyer shall have received the opinion of Hodgson Russ LLP, the Company’s outside
counsel, dated as of the Closing Date, in substantially the form of Exhibit D attached
hereto;

     

    (iii) [INTENTIONALLY
OMITTED] ;

     

    (iv) The
Company and the Fourth Third, LLC shall have entered into an amendment to the
Fourth Third Credit Agreement with the Company, to establish, maintain and
administer the Reserve Amount in a manner reasonably acceptable to Buyer, and in
the form attached hereto as Exhibit H;

     

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

     

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

     

    (vii) The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market, if applicable;

     

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

     

    (ix) Intentionally
Omitted.;

     

    (x) The
Company shall have delivered to such Buyer a certified copy of the Articles of
Incorporation as certified by the Secretary of State of the State of Nevada
reasonably proximate to the Closing Date;

     

    (xi) The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit
E;

     

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

     

    (xiii) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities;

     

    (xiv) The
Buyers shall have completed a satisfactory due diligence review, in their sole
and complete discretion, of among others, the Company’s assets, financial
condition, results of operations, management, operations, finances and
prospects;

     

    (xv) Within
six (6) Business Days prior to the Closing, the Company shall have delivered or
caused to be delivered to each Buyer (A) certified copies of UCC search results,
listing all effective financing statements which name as debtor the Company or
any of its Subsidiaries filed in the prior five years and the results of
searches for any tax lien and judgment lien filed against such Person or its
property, which results, except as otherwise agreed to in writing by the Buyers
shall not show any such Liens except Permitted Liens;

     

    (xvi) The
Company shall have appointed to its Board of Directors upon the Closing two
individuals nominated by the Buyer(s); and

     

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

     

    8. TERMINATION.  In
the event that the Closing shall not have occurred with respect to a Buyer on or
before five (5) business days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the non-breaching party’s failure to waive such unsatisfied condition(s)),
the non-breaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, this if
this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(g) above.

     

    9. MISCELLANEOUS.

     

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

     

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

     

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

     

    (d) Severability.  If
any provision of this Agreement is prohibited by law or otherwise determined to
be invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties.  The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).

     

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

     

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

     

    If to the
Company,

    


    PNG Ventures, Inc.

    3001 Knox Street; Suite
403

    Dallas,
Texas 75205

    Telephone:
(760)
804-8844

    Attention:   Kevin
Markey, CEO

    


    


    With a
copy (for informational purposes only) to:

     

    Hodgson
Russ LLP

    1540
Broadway, 24th
floor

    New York,
New York 10036

    Telephone:
(212)
751-4300                                                                 

    Facsimile:  (212)
751-0928                                                                 

    Attention:   Ron
Levy, Esq.

    


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

     

    With a
copy (for informational purposes only) to:

     

    Fox
Rothschild LLP

     

    100 Park
Avenue, suite 1500

     

    New York,
NY 10017

     

    Telephone:                                (215)
299-2744

     

    Facsimile:                                (215)
299-2150

     

    Attention:                                Stephen
M. Cohen

     

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

     

    (g) Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Notes or the Warrants.  The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants).  A Buyer may assign some or all of its rights hereunder in
connection with transfer of any of its Securities without the consent of the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights.

     

    (h) No Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

     

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

     

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

     

    (k) Indemnification.  In
consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, including the
indemnification provisions under Section 4(q), the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents.  To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.  The indemnification provided in this section 9(k)
shall be in addition to, and not in lieu of, the indemnification provided for in
Section 4(q) of this Agreement.

     

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

     

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

     

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

     

    (o)  Individual
Buyer.  Notwithstanding anything in this agreement to the
contrary, or any references to "Buyers" herein, the Buyer whose name appears on
the signature page hereof acknowledges and the Company confirms
that  such Buyer is the only Buyer party to the transactions
contemplated by this Agreement.

     

    [Signature
Page Follows]

     

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


     

     

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

     

    


     

    
      	
              COMPANY:

               

            
	
              PNG
      VENTURES, INC.

               

              By:     
      /s/
      Kevin Markey

              Name:  Kevin
      Markey

              Title:    Chief
      Executive Officer

            
	 
      


    

    


     

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
 

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

     

    


     

    
      	
              BUYER:

               

            
	
              CASTLERIGG
      PNG INVESTMENTS LLC

              By:  Castlerigg
      Master Investments Ltd., its sole member

              By:  Sandell
      Asset Management Corp., its investment manager

              By:      /s/
      Patrick Burke

              Name:
      Patrick Burke

              Title:   Senior
      Managing Director

               

            


    

    


     

    


     

    


     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


     

     

    SCHEDULE
OF BUYERS

     

    


    
      	
              (1)

            	
              (2)

            	
              (3)

            	
              (4)

            	
              (5)

            
	
              
                 

                Buyer

              

            	
              
                 

                Address
      and Facsimile Number

              

            	
              
                 

                 

                Aggregate
      Principal Amount of Notes

              

            	
              
                 

                 

                 

                Aggregate
      Number of Warrants

              

            	
              
                Legal
      Representative’s

                Address
      and Facsimile Number

              

            
	 
      	 
      	 
      	 
      	 
      
	
              Castlerigg
      PNG Investments LLC

            	
              c/o
      Sandell Asset Management

              40
      West 57th St

              26th
      Floor

              New
      York, NY 10019

              Fax:  (212)
      603-5710

              Telephone:
      (212) 603-5775

              Attn:
      Matthew Pliskin/Cem Hacioglu

            	
              $3,188,235

            	
               797,059

            	
              Fox
      Rothschild LLP

              100
      Park Avenue, Suite 1500

              New
      York, New York  10017

              Attention:  Stephen
      Cohen

              Facsimile:
      (215) 299-2744

              Telephone:  (215(
      299-2150

            
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
              Total
      principal amount of Notes: $3,188,235

            	
              Total
      Warrants to be issued: 797,059

            	 
      


    

    


     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    EXHIBITS

     

    Exhibit
A                      Form
of Notes

    Exhibit
B                      Form
of Warrants

    Exhibit
C                      Irrevocable
Transfer Agent Instructions

    Exhibit
D                      Form
of Company Opinion of Counsel

    Exhibit
E                      Form
of Secretary’s Certificate

    Exhibit
F                      Form
of Officer’s Certificate

    Exhibit
G                      Intentionally
Omitted

    Exhibit
H                      Amendment
to Fourth Third Credit Agreement

    


    


    SCHEDULES

     

    Schedule
3(a)                                Subsidiaries

    Schedule
3(d)                                No
Conflicts

    Schedule
3(e)                                Consents

    Schedule
3(g)                                No
General Solicitation; Placement Agent’s Fees

    Schedule
3(k)                                SEC
Documents; Financial Statements

    Schedule
3(l)                                Absence
of Certain Changes

    Schedule
3(m)                                No
Undisclosed Events

    Schedule
3(n)                                Conduct
of Business; Regulatory Permits

    Schedule
3(q)                                Transactions
with Affiliates

    Schedule
3(r)                                Equity
Capitalization

    Schedule
3(s)                                Indebtedness
and Other Contracts

    Schedule
3(t)                                Absence
of Litigation

    Schedule
3(x)                                Intellectual
Property Rights

    Schedule
3(z)                                Subsidiary
Rights

    Schedule
3(ee)                                Ranking
of Notes