Exhibit 10.1


	
  

 
	 

 






‘mktg, inc.’


SECURITIES PURCHASE AGREEMENT


November 25, 2009



	
  

 
	 

 



12.5% Senior Secured Notes


	
  

 
	 

 



Series D Convertible Participating Preferred
Stock


	
  

 
	 

 



Warrants to Purchase Common Stock


	
  

 
	 


 















TABLE OF CONTENTS


	
  
 	
  
 	
  
 	
  
 
	
  
 	
  
 	
  
 	
 Page
 
	
  
 	
  
 	
  
 	  
	
 1. PURCHASE AND SALE OF NOTES,
 PREFERRED SHARES AND WARRANTS.
 	
  
 	
 2
 
	
 (a)
 	
 Notes, Preferred Shares, and Warrants
 	
  
 	
 2
 
	
 (b)
 	
 Closing
 	
  
 	
 2
 
	
 (c)
 	
 Purchase Price
 	
  
 	
 2
 
	
 (d)
 	
 Form of Payment
 	
  
 	
 2
 
	
 2. BUYER’S REPRESENTATIONS AND
 WARRANTIES.
 	
  
 	
 3
 
	
 (a)
 	
 Organization; Authority
 	
  
 	
 3
 
	
 (b)
 	
 No Public Sale or Distribution
 	
  
 	
 3
 
	
 (c)
 	
 Accredited Investor Status
 	
  
 	
 3
 
	
 (d)
 	
 Reliance on Exemptions
 	
  
 	
 3
 
	
 (e)
 	
 Information
 	
  
 	
 3
 
	
 (f)
 	
 No Governmental Review
 	
  
 	
 4
 
	
 (g)
 	
 Transfer or Resale
 	
  
 	
 4
 
	
 (h)
 	
 Legends
 	
  
 	
 4
 
	
 (i)
 	
 Validity; Enforcement
 	
  
 	
 5
 
	
 (j)
 	
 No Conflicts
 	
  
 	
 5
 
	
 (k)
 	
 Residency
 	
  
 	
 5
 
	
 (l)
 	
 No Brokers
 	
  
 	
 5
 
	
 3. REPRESENTATIONS AND WARRANTIES
 OF THE COMPANY.
 	
  
 	
 6
 
	
 (a)
 	
 Organization and Qualification
 	
  
 	
 6
 
	
 (b)
 	
 Authorization; Enforcement; Validity
 	
  
 	
 6
 
	
 (c)
 	
 Issuance of Securities
 	
  
 	
 7
 
	
 (d)
 	
 No Conflicts
 	
  
 	
 7
 
	
 (e)
 	
 Consents
 	
  
 	
 8
 
	
 (f)
 	
 Acknowledgment Regarding Buyer’s Purchase of
 Securities
 	
  
 	
 8
 
	
 (g)
 	
 No General Solicitation; Placement Agent’s Fees
 	
  
 	
 8
 
	
 (h)
 	
 No Integrated Offering
 	
  
 	
 8
 
	
 (i)
 	
 Dilutive Effect
 	
  
 	
 9
 
	
 (j)
 	
 Application of Takeover Protections; Rights
 Agreement
 	
  
 	
 9
 
	
 (k)
 	
 SEC Documents; Financial Statements
 	
  
 	
 9
 
	
 (l)
 	
 Absence of Certain Changes
 	
  
 	
 10
 
	
 (m)
 	
 Intentionally Deleted
 	
  
 	
 10
 
	
 (n)
 	
 Conduct of Business; Regulatory Permits
 	
  
 	
 10
 
	
 (o)
 	
 Foreign Corrupt Practices
 	
  
 	
 11
 
	
 (p)
 	
 Sarbanes-Oxley Act
 	
  
 	
 11
 
	
 (q)
 	
 Transactions With Affiliates
 	
  
 	
 11
 
	
 (r)
 	
 Equity Capitalization
 	
  
 	
 12
 
	
 (s)
 	
 Indebtedness and Other Contracts
 	
  
 	
 12
 
	
 (t)
 	
 Absence of Litigation
 	
  
 	
 13
 


i









	
  
 	
  
 	
  
 	
  
 
	
 (u)
 	
 Insurance
 	
  
 	
 13
 
	
 (v)
 	
 Employee Relations.
 	
  
 	
 13
 
	
 (w)
 	
 Title
 	
  
 	
 14
 
	
 (x)
 	
 Intellectual Property Rights
 	
  
 	
 14
 
	
 (y)
 	
 Environmental Laws
 	
  
 	
 15
 
	
 (z)
 	
 Subsidiary Rights
 	
  
 	
 15
 
	
 (aa)
 	
 Tax Status
 	
  
 	
 15
 
	
 (bb)
 	
 Internal Accounting and Disclosure Controls
 	
  
 	
 15
 
	
 (cc)
 	
 Off Balance Sheet Arrangements
 	
  
 	
 16
 
	
 (dd)
 	
 Investment Company Status
 	
  
 	
 16
 
	
 (ee)
 	
 Transfer Taxes
 	
  
 	
 16
 
	
 (ff)
 	
 Manipulation of Price
 	
  
 	
 16
 
	
 (gg)
 	
 Disclosure
 	
  
 	
 16
 
	
 (hh)
 	
 Margin Stock
 	
  
 	
 17
 
	
 (ii)
 	
 Bank Holding Company Act
 	
  
 	
 17
 
	
 (jj)
 	
 Anti-Terrorism Laws.
 	
  
 	
 17
 
	
 (kk)
 	
 Ranking of Notes
 	
  
 	
 18
 
	
 4. COVENANTS.
 	
  
 	
 18
 
	
 (a)
 	
 Best Efforts
 	
  
 	
 18
 
	
 (b)
 	
 Form D and Blue Sky
 	
  
 	
 18
 
	
 (c)
 	
 Reporting Status
 	
  
 	
 18
 
	
 (d)
 	
 Use of Proceeds
 	
  
 	
 18
 
	
 (e)
 	
 Financial Information
 	
  
 	
 19
 
	
 (f)
 	
 Listing
 	
  
 	
 19
 
	
 (g)
 	
 Fees.
 	
  
 	
 19
 
	
 (h)
 	
 Pledge of Securities
 	
  
 	
 20
 
	
 (i)
 	
 Interim Actions
 	
  
 	
 20
 
	
 (j)
 	
 Full Access
 	
  
 	
 20
 
	
 (k)
 	
 No Conflicting Agreements
 	
  
 	
 20
 
	
 (l)
 	
 Integration
 	
  
 	
 20
 
	
 (m)
 	
 Disclosure of Transactions and Other Material
 Information.
 	
  
 	
 20
 
	
 (n)
 	
 Additional Registration Statements
 	
  
 	
 21
 
	
 (o)
 	
 Corporate Existence
 	
  
 	
 21
 
	
 (p)
 	
 Reservation of Shares
 	
  
 	
 21
 
	
 (q)
 	
 Conduct of Business
 	
  
 	
 21
 
	
 (r)
 	
 Additional Issuances of Securities.
 	
  
 	
 22
 
	
 (s)
 	
 Lock-Up Agreements
 	
  
 	
 25
 
	
 (t)
 	
 Approval of Principal Market
 	
  
 	
 25
 
	
 (u)
 	
 Collateral Agent
 	
  
 	
 26
 
	
 (v)
 	
 Successor Collateral Agent.
 	
  
 	
 26
 
	
 (w)
 	
 Collateral Agent Individually
 	
  
 	
 27
 
	
 (x)
 	
 Buyer Credit Decision
 	
  
 	
 27
 
	
 (y)
 	
 Exercise of Remedies
 	
  
 	
 27
 
	
 (z)
 	
 No Solicitation of Competing Proposal or Changes of
 Recommendation.
 	
  
 	
 27
 
	
 (aa)
 	
 Director Indemnification Agreement
 	
  
 	
 29
 


ii








	 
	 
	 
	 

	5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
	 
	29

	(a)
	Register
	 
	29

	(b)
	Transfer Agent Instructions
	 
	30

	(c)
	Breach
	 
	30

	(d)
	Additional Relief
	 
	30

	6. CONDITIONS TO THE COMPANY’S
      OBLIGATION TO SELL.
	 
	31

	7. CONDITIONS TO EACH BUYER’S
      OBLIGATION TO PURCHASE.
	 
	32

	8. TERMINATION.
	 
	35

	(a)
	Termination
	 
	35

	(b)
	Effect of Termination
	 
	36

	9. MISCELLANEOUS.
	 
	36

	(a)
	Governing Law; Jurisdiction; Jury Trial
	 
	36

	(b)
	Counterparts
	 
	37

	(c)
	Headings
	 
	37

	(d)
	Severability
	 
	37

	(e)
	Entire Agreement; Amendments
	 
	37

	(f)
	Notices
	 
	38

	(g)
	Successors and Assigns
	 
	39

	(h)
	No Third Party Beneficiaries
	 
	40

	(i)
	Survival
	 
	40

	(j)
	Further Assurances
	 
	40

	(k)
	Indemnification
	 
	40

	(l)
	No Strict Construction
	 
	41

	(m)
	Remedies
	 
	41

	(n)
	Rescission and Withdrawal Right
	 
	41

	(o)
	Payment Set Aside
	 
	41

	(p)
	Independent Nature of Buyers’ Obligations and Rights
	 
	42

	(q)
	Counsel Issues
	 
	42



iii









	
  

 	
  

 	
  

 
	
 EXHIBITS

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 Exhibit A

 	
 -

 	
 Form of
 Certificate of Designations

 
	
 Exhibit B

 	
 -

 	
 Form of
 Secured Note

 
	
 Exhibit C

 	
 -

 	
 Form of
 Warrant

 
	
 Exhibit D

 	
 -

 	
 Form of
 Registration Rights Agreement

 
	
 Exhibit E

 	
 -

 	
 Form of
 Irrevocable Transfer Agent Instructions

 
	
 Exhibit F

 	
 -

 	
 Form of
 Secretary’s Certificate

 
	
 Exhibit G

 	
 -

 	
 Form of
 Officer’s Certificate

 
	
 Exhibit H

 	
 -

 	
 Form of
 Lock-Up Agreement

 
	
 Exhibit I

 	
 -

 	
 Form of
 Director Indemnification Agreement

 
	
  

 	
  

 	
  

 
	
 SCHEDULES

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 Schedule of
 Buyers

 	
  

 
	
 Schedule
 3(a)

 	
 -

 	
 Subsidiaries

 
	
 Schedule
 3(d)

 	
 -

 	
 No Conflicts

 
	
 Schedule
 3(e)

 	
 -

 	
 Consents

 
	
 Schedule
 3(k)

 	
 -

 	
 Certain SEC
 Matters

 
	
 Schedule
 3(l)

 	
 -

 	
 Absence of
 Certain Changes

 
	
 Schedule
 3(n)

 	
 -

 	
 Certain
 Nasdaq Matters

 
	
 Schedule
 3(q)

 	
 -

 	
 Transactions
 with Affiliates

 
	
 Schedule
 3(r)

 	
 -

 	
 Equity
 Capitalization

 
	
 Schedule
 3(s)

 	
 -

 	
 Indebtedness
 and Other Contracts

 
	
 Schedule
 3(t)

 	
 -

 	
 Absence of
 Litigation

 
	
 Schedule
 3(w)

 	
 -

 	
 Title

 
	
 Schedule
 3(z)

 	
 -

 	
 Subsidiary
 Rights

 
	
 Schedule
 3(bb)

 	
 -

 	
 Internal
 Accounting and Disclosure Controls

 
	
 Schedule
 3(kk)

 	
 -

 	
 Ranking of
 Notes

 
	
 Schedule
 4(d)

 	
 -

 	
 Use of
 Proceeds

 


iv






SECURITIES PURCHASE AGREEMENT


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


          WHEREAS:


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


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


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


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


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


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


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


1






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


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


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


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


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


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


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


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


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


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


2






2. BUYER’S
REPRESENTATIONS AND WARRANTIES.


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


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


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


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


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


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


3






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


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


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


4






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


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


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


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


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


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


5






3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.


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


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


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


6






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


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


7






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


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


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


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


8






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


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


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


9






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


          (m)
Intentionally Deleted.


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


10






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


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


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


11






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


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


12






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


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


          (v)
Employee Relations.


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


13






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


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


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


14






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


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


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


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


15






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


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


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


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


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


16






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


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


          (jj)
Anti-Terrorism Laws.


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


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


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


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


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


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


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


17






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


4. COVENANTS.


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


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


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


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


18






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


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


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


19






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


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


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


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


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


          (m)
Disclosure of Transactions and Other Material Information. 


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


20






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


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


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


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


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


21






          (r)
Additional Issuances of Securities.


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


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


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


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


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


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


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


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


22






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


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


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


23






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


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


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


24






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


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


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


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


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


25






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


          (v)
Successor Collateral Agent.


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


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


26






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


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


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


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


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


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


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


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


27






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


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


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


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


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


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


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


28






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


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


5. REGISTER;
TRANSFER AGENT INSTRUCTIONS.


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


29






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


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


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


30






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


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


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


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


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


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


31






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


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


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


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


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


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


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


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


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


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


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


32






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


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


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


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


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


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


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


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


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


33






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


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


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


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


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


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


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


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


34






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


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


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


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


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


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


8.
TERMINATION. 


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


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


               (ii)
by the Company: 


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


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


35






               (iii)
by the UCC Investor:


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


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


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


9. MISCELLANEOUS.


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


36






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


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


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


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


37






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


	
  

 	
  

 	
  

 
	
 If to the Company:

 
	
  

 
	
  

 	
 75 Ninth
 Avenue

 
	
  

 	
 New York, NY
 10011

 
	
  

 	
 Telephone:

 	
 212-366-3400

 
	
  

 	
 Facsimile:

 	
 212-660-3863

 
	
  

 	
 Attention:

 	
 Board of
 Directors

 
	
  

 	
  

 	
  

 
	
 With a copy (for informational purposes
 only) to:

 
	
  

 
	
  

 	
 Cooley
 Godward Kronish LLP

 
	
  

 	
 1114 Avenue
 of the Americas

 
	
  

 	
 New York, NY
 10036

 
	
  

 	
  

 
	
  

 	
 Telephone:

 	
 212-479-6000

 
	
  

 	
 Facsimile:

 	
 212-479-6275

 
	
  

 	
 Attn: Zev Bomrind

 
	
  

 	
  

 
	
 If to the Transfer Agent: 

 
	
  

 
	
  

 	
 American
 Stock Transfer & Trust Company

 
	
  

 	
 59 Maiden
 Lane

 
	
  

 	
 Plaza Level

 
	
  

 	
 New York, NY
 10038

 
	
  

 	
  

 	
  

 
	
  

 	
 Telephone:

 	
 1-800-937-5449

 
	
  

 	
 Facsimile:

 	
 718-921-8335

 
	
  

 	
 Attention:

 	
 Geraldine
 Zarbo

 


38






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


	
  

 	
  

 	
  

 
	
 with a copy (for informational purposes
 only) to:

 
	
  

 
	
  

 	
 Finn Dixon
 & Herling LLP

 
	
  

 	
 177 Broad
 Street

 
	
  

 	
 Stamford,
 Connecticut 06901

 
	
  

 	
 Telephone:

 	
 203-325-5000

 
	
  

 	
 Facsimile:

 	
 203-325-5001

 
	
  

 	
 Attention:

 	
 Charles J.
 Downey III, Esq.

 



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


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


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


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


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


39






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


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


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


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


40






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


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


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


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


41






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


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


 [Signature Page Follows]


42






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


	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  ‘mktg, inc.’

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
 /s/ Charles
 Horsey

 
	
  

 	
  

 	 

 
	
  

 	
  

 	
 Name:

 	
 Charles
 Horsey

 
	
  

 	
  

 	
 Title:

 	
 President

 
	
  

 	
  

 	
  

 	
  

 
	
 Buyers:

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 UCC-mktg Investment, LLC

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By: 

 	
 UCC-mktg Partners, LLC

 
	
  

 	
 Its: 

 	
 Manager

 
	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
 /s/ Gregory
 J. Garville

 
	
  

 	
  

 	 

 
	
  

 	
  

 	
 Name:

 	
 Gregory J.
 Garville

 
	
  

 	
  

 	
 Title:

 	
 Managing
 Director

 


43








	
  

 	
  

 
	
  

 	
 MANAGEMENT BUYERS

 
	
  

 	
  

 
	
  

 	
 /s/ Marc
 Particelli

 
	
  

 	 

 
	
  

 	
 Name: Marc Particelli

 
	
  

 	
  

 
	
  

 	
 /s/ Charles Horsey

 
	
  

 	 

 
	
  

 	
 Name: Charles Horsey

 
	
  

 	
  

 
	
  

 	
 /s/ Patty
 Hubbard

 
	
  

 	 

 
	
  

 	
 Name: Patty Hubbard

 
	
  

 	
  

 
	
  

 	
 /s/ James
 Ferguson

 
	
  

 	 

 
	
  

 	
 Name: James Ferguson

 
	
  

 	
  

 
	
  

 	
 /s/ Dave
 Arnold

 
	
  

 	 

 
	
  

 	
 Name: Dave Arnold

 










SCHEDULE A


Schedule of Buyers


	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Name

 	
  

 	
 Principal
 Amount of Senior Notes

 	
  

 	
 Number
 of Preferred Shares

 	
  

 	
 Number
 of Warrants

 	
  

 	
 Aggregate
 Purchase Price

 	
  

 
	 

 	 

 	 

 	 

 	 

 	 

 	 

 	 

 	 

 	 

 
	
 UCC BUYERS:

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 UCC-mktg Investment, LLC 

 c/o Union Capital Corporation 

 445 Park Avenue 

 14th Floor 

 New York, NY 10022 

 Attn: Gregory J. Garville 

 Telephone: 212-832-1141 

 Facsimile: 212-832-0554

 	
  

 	
 $

 	
 2,132,500

 	
  

 	
  

 	
 2,132,500

 	
  

 	
  

 	
 2,095,200

 	
  

 	
 $

 	
 4,265,000

 	
  

 
	
 MANAGEMENT BUYERS:

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Marc Particelli

 	
  

 	
 $

 	
 250,000

 	
  

 	
  

 	
 250,000

 	
  

 	
  

 	
 245,627

 	
  

 	
 $

 	
 500,000

 	
  

 
	
 Charles Horsey

 	
  

 	
 $

 	
 100,000

 	
  

 	
  

 	
 100,000

 	
  

 	
  

 	
 98,251

 	
  

 	
 $

 	
 200,000

 	
  

 
	
 Patty Hubbard

 	
  

 	
 $

 	
 12,500

 	
  

 	
  

 	
 12,500

 	
  

 	
  

 	
 12,281

 	
  

 	
 $

 	
 25,000

 	
  

 
	
 James Ferguson

 	
  

 	
 $

 	
 2,500

 	
  

 	
  

 	
 2,500

 	
  

 	
  

 	
 2,456

 	
  

 	
 $

 	
 5,000

 	
  

 
	
 Dave Arnold

 	
  

 	
 $

 	
 2,500

 	
  

 	
  

 	
 2,500

 	
  

 	
  

 	
 2,456

 	
  

 	
 $

 	
 5,000

 	
  

 
	
 TOTALS

 	
  

 	
 $

 	
 2,500,000

 	
  

 	
  

 	
 2,500,000

 	
  

 	
  

 	
 2,456,272

 	
  

 	
 $

 	
 5,000,000

 	
  

 


A-1