exv10w1






Exhibit 10.1




SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”) is dated as of May 28, 2009,
between T3 Motion, Inc., a Delaware corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively, the “Purchasers”).



     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company, securities of the
Company as more fully described in this Agreement.



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



ARTICLE I.

DEFINITIONS




     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a)
capitalized terms that are not otherwise defined herein have the meanings given to such terms in
the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this
Section 1.1:




     “Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.




     “Action” shall have the meaning ascribed to such term in Section 3.1(j).




     “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person, as
such terms are used in and construed under Rule 405 under the Securities Act.




     “Board of Directors” means the board of directors of the Company.




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




     “Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.




     “Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii)
the Company’s obligations to deliver the Securities have been satisfied or waived.



 









 






     “Closing Statement” means the Closing Statement in the form attached hereto as
Annex A.




     “Commission” means the United States Securities and Exchange Commission.




     “Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may hereafter be
reclassified or changed into.




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




     “Company Counsel” means Richardson & Patel LLP, with offices located at 10900
Wilshire Boulevard, Suite 500, Los Angeles, CA 90024.




     “Conversion Price” shall have the meaning ascribed to such term in the
Debentures.




     “Debentures” means the 10% Secured Convertible Debentures due, subject to the
terms therein, 12 months from their date of issuance, issued by the Company to the
Purchasers hereunder, in the form of Exhibit A attached hereto.




     “Disclosure Schedules” shall have the meaning ascribed to such term in Section
3.1.




     “Discussion Time” shall have the meaning ascribed to such term in Section
3.2(f).




     “Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(r).




     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.




     “Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, attorneys, consultants (but if to consultants, not to exceed 500,000 in any 12
month period, subject to adjustment for reverse and forward stock splits and the like),
officers or directors of the Company pursuant to any stock or option plan duly adopted for
such purpose, by a majority of the non-employee members of the Board of Directors or a
majority of the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of any Securities
issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise, exchange or
conversion price of such securities and (c) securities issued pursuant to



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acquisitions or
strategic transactions approved by a majority of the disinterested directors of the Company,
provided that any such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business of the
Company and in which the Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is investing in
securities.




     “FWS” means Feldman Weinstein & Smith LLP with offices located at 420 Lexington
Avenue, Suite 2620, New York, New York 10170-0002; and on and after June 1, 2009, Weinstein
Smith LLP at the same address.




     “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).




     “Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).




     “Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).




     “Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).




     “Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.




     “Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).




     “Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).




     “Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.




     “Participation Maximum” shall have the meaning ascribed to such term in Section
4.12(a).




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




     “Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).




     “Pro Rata Portion” shall have the meaning ascribed to such term in Section
4.12(e).



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     “Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.




     “Public Information Failure” shall have the meaning ascribed to such term in
Section 4.3(b).




     “Public Information Failure Payments” shall have the meaning ascribed to such
term in Section 4.3(b).




     “Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.




     “Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).




     “Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise in full of all
Warrants or conversion in full of all Debentures (including Underlying Shares issuable as
payment of interest on the Debentures), ignoring any conversion or exercise limits set forth
therein, and assuming that the Conversion Price is at all times on and after the date of
determination 75% of the then Conversion Price on the Trading Day immediately prior to the
date of determination.




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




     “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).




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




     “Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.




     “Security Agreement” means the Security Agreement, dated the date hereof, among
the Company and the Purchasers, in the form of Exhibit E attached hereto.




     “Security Documents” shall mean the Security Agreement, the Subsidiary
Guarantees and any other documents and filing required thereunder in order to grant the
Purchasers a first priority security interest in the assets of the Company and the
Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.




     “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or



4









 







reservation of borrowable shares of Common Stock), nor shall Short Sale include any
short sale or hedge against any basket of securities traded on any public market, whether or
not such basket includes the Common Stock. 




     “Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s
name on the signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.




     “Subsequent Financing” shall have the meaning ascribed to such term in Section
4.12(a).




     “Subsequent Financing Notice” shall have the meaning ascribed to such term in
Section 4.12(b).




     “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.




     “Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof,
by each Subsidiary in favor of the Purchasers, in the form of Exhibit F attached
hereto.




     “To the knowledge of the Company” means the actual knowledge of the management
of the Company.




     “Trading Day” means a day on which the principal Trading Market is open for
trading.




     “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American Stock Exchange,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.




     “Transaction Documents” means this Agreement, the Debentures, the Warrants, the
Security Agreement, the Subsidiary Guarantee, the Escrow Agreement, the Lock-Up Agreement
and all exhibits and schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated hereunder.




     “Transfer Agent” means Securities Transfer Corporation, the current transfer
agent of the Company, with a mailing address of 2591 Dallas Parkway, Suite 102, Frisco,
Texas 75034 and a facsimile number of 469-633-0088, and any successor transfer agent of the
Company.




     “Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Debentures and upon exercise of the Warrants.



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     “Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.13.




     “Vision” means Vision Opportunity Master Fund, Ltd.




     “VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted for
trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then
reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization
or agency succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (d) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Securities then outstanding and reasonably
acceptable to the Company, the fees and expenses of which shall be paid by the Company.




     “Warrants” means, collectively, the Series E Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall be exercisable immediately and have a term of exercise equal to 5 years, in
the form of Exhibit C attached hereto.




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



ARTICLE II.

PURCHASE AND SALE




     2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to
purchase, up to an aggregate of $600,000 in principal amount of the Debentures. Each Purchaser
shall deliver to the Company via wire transfer or a certified check of immediately available funds
equal to its Subscription Amount and the Company shall deliver to each Purchaser its respective
Debenture and a Warrant, as determined pursuant to Section 2.2(a), and the Company and each
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at the offices of FWS or such other location as the parties shall mutually agree.



     2.2 Deliveries.



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     (a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following:




     (i) this Agreement duly executed by the Company;




     (ii) a legal opinion of Company Counsel, substantially in the form of
Exhibit D attached hereto;




     (iii) a Debenture with a principal amount equal to such Purchaser’s
Subscription Amount, registered in the name of such Purchaser;




     (iv) a Warrant registered in the name of such Purchaser to purchase up to
300,000 shares of Common Stock per each $600,000 of such Purchaser’s Subscription
Amount (pro-rata for lesser amounts), with an exercise price equal to $1.20, subject
to adjustment therein; and




     (v) the Security Agreement, duly executed by the Company and each Subsidiary,
along with all of the Security Documents, including the Subsidiary Guarantee, duly
executed by the parties thereto..




     (b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:




     (i) this Agreement duly executed by such Purchaser;




     (ii) such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company; and




     (iii) the Security Agreement duly executed by such Purchaser.



     2.3 Closing Conditions.




     (a) The obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:




     (i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchasers contained herein (unless as of a
specific date therein);




     (ii) all obligations, covenants and agreements of each Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and




     (iii) the delivery by each Purchaser of the items set forth in Section 2.2(b)
of this Agreement.




     (b) The respective obligations of the Purchasers hereunder in connection



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with the Closing are subject to the following conditions being met:




     (i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Company contained herein (unless as of a
specific date therein);




     (ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;




     (iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;




     (iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;




     (v) from the date hereof to the Closing Date, trading in securities generally
as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported by
such service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall there
have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase the
Securities at the Closing.



ARTICLE III.

REPRESENTATIONS AND WARRANTIES




     3.1 Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify
any representation or otherwise made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedules, the Company hereby makes the following
representations and warranties to each Purchaser:




     (a) Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.




     (b) Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in



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good standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective certificate
or articles of incorporation, bylaws or other organizational or charter documents. Each of
the Company and the Subsidiaries is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be, could not have
or reasonably be expected to result in: (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material adverse effect on
the results of operations, assets, business, prospects or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company’s ability to perform in any material respect on a timely basis its obligations
under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.




     (c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and no further action is
required by the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be limited by applicable
law.




     (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the other transactions
contemplated hereby and thereby do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any



9









 







agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to result in a
Material Adverse Effect.




     (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by the Company of
the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of
this Agreement, (ii) application(s) to each applicable Trading Market for the listing of the
Securities for trading thereon in the time and manner required thereby and (iii) the filing
of Form D with the Commission and such filings as are required to be made under applicable
state securities laws (collectively, the “Required Approvals”).




     (f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents. The
Underlying Shares, when issued in accordance with the terms of the Transaction Documents,
will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the Transaction Documents.
The Company has reserved from its duly authorized capital stock a number of shares of Common
Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the
date hereof.




     (g) Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g), which Schedule 3.1(g) shall
also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of
the date hereof. The Company has not issued any capital stock since its most recently filed
periodic report under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of Common Stock
to employees pursuant to the Company’s employee stock purchase plans and pursuant to the
conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the
most recently filed periodic report under the Exchange Act. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or



10









 







exchangeable for, or giving any Person any right to subscribe for or acquire any shares
of Common Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors or others is required for the
issuance and sale of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any of the
Company’s stockholders.




     (h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange Act, as
applicable, and none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company has never been an issuer subject to Rule 144(i)
under the Securities Act. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in such financial statements
or the notes thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.




     (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports,



11









 







except as specifically disclosed in a subsequent SEC Report filed prior to the date
hereof: (i) there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any agreements
to purchase or redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no event,
liability or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial condition,
that would be required to be disclosed by the Company under applicable securities laws at
the time this representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.




     (j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.




     (k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company, which could
reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to



12









 







be, in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party, 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. The Company
and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws
and regulations relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.




     (l) Compliance. Neither the Company nor any Subsidiary: (i) is in default
under or in violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of its properties
is bound (whether or not such default or violation has been waived), (ii) is in violation of
any order of any court, arbitrator or governmental body or (iii) is or has been in violation
of any statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business and all
such laws that affect the environment, except in each case as could not have or reasonably
be expected to result in a Material Adverse Effect.




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




     (n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable title in all
personal property owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the Subsidiaries and Liens
for the payment of federal, state or other taxes, the payment of which is neither delinquent
nor subject to penalties. Any real property and facilities held under lease by the Company
and the Subsidiaries are held by them under valid, subsisting and enforceable leases with
which the Company and the Subsidiaries are in compliance.




     (o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service



13









 







marks, trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights as described in the SEC Reports as necessary
or material for use in connection with their respective businesses and which the failure to
so have could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where failure to
do so could not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.




     (p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance coverage at least
equal to the aggregate Subscription Amount. Neither the Company nor any 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 without a significant increase in cost.




     (q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.




     (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific



14









 







authorization, and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that information required to be disclosed by the Company
in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The
Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s most recently
filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over financial reporting
(as such term is defined in the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial reporting.




     (s) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions contemplated
by the Transaction Documents. The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated by the Transaction Documents.




     (t) Private Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration under the
Securities Act is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does
not contravene the rules and regulations of the Trading Market.




     (u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.




     (v) Registration Rights. Other than each of the Purchasers, no Person has any
right to cause the Company to effect the registration under the Securities Act of any
securities of the Company.




     (w) Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company



15









 







received any notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date hereof, received
notice from the Over-the-Counter Bulletin Board to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future continue to be,
in compliance with all such listing and maintenance requirements.




     (x) Application of Takeover Protections. The Company and the 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 Company’s
certificate of incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.




     (y) Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms that
neither it nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting transactions in securities
of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers
regarding the Company, its business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company during the twelve months
preceding the date of this Agreement taken as a whole do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under which they were
made and when made, not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2 hereof.




     (z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of (i) the Securities Act which would require the
registration of any such securities under the Securities Act, or (ii) any applicable
shareholder approval provisions of the Over-the-Counter Bulletin Board.



16









 






     (aa) Solvency. Based on the consolidated financial condition of the Company as
of the Closing Date, after giving effect to the receipt by the Company of the proceeds from
the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as they
mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on
its business as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” means (x) any liabilities for borrowed money or amounts owed in
excess of $50,000 (other than trade accounts payable incurred in the ordinary course of
business), (y) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary course of
business; and (z) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.




     (bb) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been asserted or threatened against
the Company or any Subsidiary.




     (cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for sale only
to the Purchasers and certain other “accredited investors” within the meaning of Rule 501
under the Securities Act.




     (dd) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has: (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or



17









 







other unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law or (iv) violated in any
material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.




     (ee) Accountants. The Company’s accounting firm is set forth on Schedule
3.1(ee) of the Disclosure Schedules. To the knowledge and belief of the Company, such
accounting firm: (i) is a registered public accounting firm as required by the Exchange Act
and (ii) shall express its opinion with respect to the financial statements to be included
in the Company’s Annual Report for the year ending December 31, 2009.




     (ff) Seniority. As of the Closing Date, the Indebtedness or other claim
against the Company set forth on Schedule 3.1(ff) are senior to the Debentures in
right of payment, whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).




     (gg) No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to arise, between
the Company and the accountants and lawyers formerly or presently employed by the Company
and the Company is current with respect to any fees owed to its accountants and lawyers
which could affect the Company’s ability to perform any of its obligations under any of the
Transaction Documents.




     (hh) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated thereby and any advice given by
any Purchaser or any of their respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further represents to each Purchaser
that the Company’s decision to enter into this Agreement and the other Transaction Documents
has been based solely on the independent evaluation of the transactions contemplated hereby
by the Company and its representatives.




     (ii) Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding
anything in this Agreement or elsewhere herein to the contrary (except for Sections 3.2(f)
and 4.16 hereof), it is understood and acknowledged by the Company that: (i) none of the
Purchasers has been asked to agree by the Company, nor has any



18









 







Purchaser agreed, to desist from purchasing or selling, long and/or short, securities
of the Company, or “derivative” securities based on securities issued by the Company or to
hold the Securities for any specified term, (ii) past or future open market or other
transactions by any Purchaser, specifically including, before or after the closing of this
or future private placement transactions, may negatively impact the market price of the
Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or indirectly,
may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not
be deemed to have any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that (y) one or
more Purchasers may engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods that the value
of the Underlying Shares deliverable with respect to Securities are being determined, and
(z) such hedging activities (if any) could reduce the value of the existing stockholders’
equity interests in the Company at and after the time that the hedging activities are being
conducted.  The Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.




     (jj) Regulation M Compliance.  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, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the Securities.




     (kk) Stock Option Plans. Each stock option granted by the Company under the
Company’s stock option plan was granted (i) in accordance with the terms of the Company’s
stock option plan and (ii) with an exercise price at least equal to the fair market value of
the Common Stock on the date such stock option would be considered granted under GAAP and
applicable law. No stock option granted under the Company’s stock option plan has been
backdated. The Company has not knowingly granted, and there is no and has been no Company
policy or practice to knowingly grant, stock options prior to, or otherwise knowingly
coordinate the grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their financial results or
prospects.



     3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself
and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the
Closing Date to the Company as follows (unless as of a specific date therein):




     (a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization



19









 







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




     (b) Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the Securities Act
or any applicable state securities law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to any registration statement or otherwise in compliance with applicable
federal and state securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business.




     (c) Purchaser Status. At the time such Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it exercises any Warrants
or converts any Debentures it will be either: (i) an “accredited investor” as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.




     (d) Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the Securities and, at
the present time, is able to afford a complete loss of such investment.




     (e) General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over



20









 







television or radio or presented at any seminar or any other general solicitation or
general advertisement.




     (f) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Purchaser to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions contemplated
by the Transaction Documents. The Company shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated by the Transaction Documents.




     (g) Purchaser Opportunity. Such Purchaser acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and conditions of
the offering of the Securities and the merits and risks of investing in the Securities; (ii)
access to information about the Company and the Subsidiaries and their respective financial
condition, results of operations, business, properties, and management sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such additional
information that the Company possesses or can acquire without unreasonable effort or expense
that is necessary to make an informed investment decision with respect to the investment.
Neither such inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s
right to rely on the truth, accuracy and completeness of the Company’s representations and
warranties contained in the Transaction Documents.



ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES




     4.1 Transfer Restrictions.




     (a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than pursuant to an
effective registration statement or Rule 144, to the Company or to an Affiliate of a
Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such transfer
does not require registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement.




     (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:



21









 






[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND
THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.




     The Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and, if required under the terms of such arrangement, such
Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company and no legal
opinion of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge. At the
appropriate Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities.




     (c) Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a registration
statement covering the resale of such security is effective under the Securities Act (so
long as Purchaser shall deliver the applicable certificate to the Company or its replacement
for a certificate with an appropriate legend upon notice from the Company that the
registration statement is not effective), (ii) following any sale of such Underlying Shares
pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144,
without the requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and without volume or
manner-of-sale restrictions or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company shall cause its counsel to issue a legal
opinion to the Transfer Agent promptly after the date required hereunder to effect the
removal of the



22









 







legend for Underlying Shares that qualify under subsections (ii) and (iii). If all or
any portion of a Debenture is converted or Warrant is exercised at a time when there is an
effective registration statement to cover the resale of the Underlying Shares, or if such
Underlying Shares may be sold under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144 as to such
Underlying Shares and without volume or manner-of-sale restrictions as to such Underlying
Shares or if such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Underlying Shares shall be issued free of all legends. The
Company agrees that following such time that a legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend (such third Trading Day, the
“Legend Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to the Transfer
Agent that enlarge the restrictions on transfer set forth in this Agreement. Certificates
for Underlying Shares subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker
with the Depository Trust Company System as directed by such Purchaser.




     (d) In addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are
submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject
to Section 4.1(c), $10 per Trading Day for each Trading Day after the Legend Removal Date
until such certificate is delivered without a legend. Nothing herein shall limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates
representing any Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.




     (e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that
such Purchaser will sell any Securities pursuant to either the registration requirements of
the Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom.



     4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including, without limitation, its obligation to issue the
Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any
such dilution or any claim the Company may have against any Purchaser and



23









 







regardless of the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.



     4.3 Furnishing of Information; Public Information.




     (a) If the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act.
Until the earliest of the time that (i) no Purchaser owns Securities or (ii) the Warrants
have expired, the Company covenants to maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, to the extent required from time
to time to enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.




     (b) At any time during the period commencing from the six (6) month anniversary of the
date hereof and ending at such time that all of the Securities may be sold without the
requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to
satisfy the current public information requirement under Rule 144(c) (a “Public
Information Failure”) then, in addition to such Purchaser’s other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, by reason of any such delay in or reduction of its ability to sell the Securities,
an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such
Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth
(30th) day (pro rated for periods totaling less than thirty days) thereafter
until the earlier of (a) the date such Public Information Failure is cured and (b) such time
that such public information is no longer required  for the Purchasers to transfer the
Underlying Shares pursuant to Rule 144 but no more than twenty percent (20%) of the
aggregate Subscription Amount.  The payments to which a Purchaser shall be entitled pursuant
to this Section 4.3(b) are referred to herein as “Public Information Failure
Payments.”  Public Information Failure Payments shall be paid on the earlier of (i) the
last day of the calendar month during which such Public Information Failure Payments are
incurred and (ii) the third (3rd) Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured.  In the event the Company fails to
make Public Information Failure Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual
damages for the Public Information Failure, and such Purchaser shall have the right to
pursue all remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.



24









 





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



     4.5 Conversion and Exercise Procedures. Each of the form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the Debentures set forth
the totality of the procedures required of the Purchasers in order to exercise the Warrants or
convert the Debentures. No additional legal opinion, other information or instructions shall be
required of the Purchasers to exercise their Warrants or convert their Debentures. The Company
shall honor exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.



     4.6 Securities Laws Disclosure; Publicity. The Company shall within 3 Trading Days a
Current Report on Form 8-K, including the Transaction Documents as exhibits thereto. The Company
and each Purchaser shall consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such
press release nor otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the prior consent of each
Purchaser, with respect to any press release of the Company, which consent shall not unreasonably
be withheld or delayed, except if such disclosure is required by law, in which case the disclosing
party shall promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of
any Purchaser, or include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such Purchaser, except:
(a) as required by federal securities law in connection with the filing of final Transaction
Documents (including signature pages thereto) with the Commission and (b) to the extent such
disclosure is required by law or Trading Market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure permitted under this clause (b).



     4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person”
under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such
plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.



     4.8 Non-Public Information. Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents, the Company covenants and



25









 







agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser
or its agents or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed a written agreement
regarding the confidentiality and use of such information. The Company understands and confirms
that each Purchaser shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.



     4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for working capital
purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s
debt (other than payment of trade payables in the ordinary course of the Company’s business and
prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the
settlement of any outstanding litigation.



     4.10 Indemnification of Purchasers. Subject to the provisions of this Section 4.10,
the Company will indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any other title), each
Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity,
or any of them or their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right
to assume the defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees



26









 







and expenses of no more than one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without
the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to
the extent, but only to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by
such Purchaser Party in this Agreement or in the other Transaction Documents or from such Purchaser
Party’s fraud, gross negligence, willful misconduct or malfeasance.



     4.11 Reservation and Listing of Securities.




     (a) The Company shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in such amount as may then be
required to fulfill its obligations in full under the Transaction Documents.




     (b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of
Directors shall use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.




     (c) The Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an additional shares
listing application covering a number of shares of Common Stock at least equal to the
Required Minimum on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing or quotation on such Trading Market
as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any date at
least equal to the Required Minimum on such date on such Trading Market or another Trading
Market.



     4.12 Participation in Future Financing.




     (a) From the date hereof until the date that is the 18 month anniversary of the date
hereof, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common
Stock Equivalents for cash consideration, Indebtedness (or a combination of units hereof) (a
“Subsequent Financing”), each Purchaser shall have the right to participate in up to
an amount of the Subsequent Financing equal that percentage of the Subsequent Financing (the
“Participation Maximum”) equal to the Purchaser’s percentage ownership of the then
outstanding shares of Common Stock on a fully-diluted basis on the same terms, conditions
and price provided for in the Subsequent Financing.




     (b) At least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser



27









 







if it wants to review the details of such financing (such additional notice, a
“Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than 3 Trading Days after such request, deliver a Subsequent Financing Notice
to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the
proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document relating thereto
as an attachment.




     (c) Any Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth
(5th) Trading Day after all of the Purchasers have received the Pre-Notice that
the Purchaser is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such fifth (5th) Trading Day,
such Purchaser shall be deemed to have notified the Company that it does not elect to
participate.




     (d) If by 5:30 p.m. (New York City time) on the fifth (5th ) Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing,
then the Company may effect the remaining portion of such Subsequent Financing on the terms
and with the Persons set forth in the Subsequent Financing Notice.




     (e) If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day
after all of the Purchasers have received the Pre-Notice, the Company receives responses to
a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate
amount of the Participation Maximum, each such Purchaser shall have the right to purchase
its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata
Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers
participating under this Section 4.12.




     (f) The Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in this
Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent Financing Notice
within 30 Trading Days after the date of the initial Subsequent Financing Notice.




     (g) Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of (i)
an Exempt Issuance, or (ii) an underwritten public offering of Common Stock.



28









 





     4.13 Subsequent Equity Sales. From the date hereof until such time as the earlier of
(i) the date that no Purchaser holds any of the Securities and 3 years from the date hereof, the
Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a Variable Rate Transaction. “Variable Rate Transaction” means a
transaction in which the Company (i) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to receive, additional
shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other
price that is based upon, and/or varies with, the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a
conversion, exercise or exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the market for the Common
Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. Any Purchaser shall be
entitled to obtain injunctive relief against the Company to preclude any such issuance, which
remedy shall be in addition to any right to collect damages. Notwithstanding the foregoing, this
Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.



     4.14 Equal Treatment of Purchasers. No consideration (including any modification of
any Transaction Document) 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 is
also offered to all of the parties to the Transaction Documents. Further, the Company shall not
make any payment of principal or interest on the Debentures in amounts which are disproportionate
to the respective principal amounts outstanding on the Debentures at any applicable time. For
clarification purposes, this provision constitutes a separate right granted to each Purchaser by
the Company and negotiated separately by each Purchaser, and is intended for the Company to treat
the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert
or as a group with respect to the purchase, disposition or voting of Securities or otherwise.



     4.15 Short Sales and Confidentiality. Each Purchaser, severally and not jointly with
the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant
to any understanding with it, will execute any Short Sales during the period commencing on the date
hereof and ending on the one year anniversary after the Underlying Shares have been registered.
Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time
as the transactions contemplated by this Agreement are publicly disclosed by the Company as
described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and
terms of this transaction and the information included in the Transaction Documents and the
Disclosure Schedules. Until all of the Purchaser’s Securities are sold, neither the Purchaser nor
its agents, representatives and affiliates shall in any manner whatsoever enter into or effect,
directly or indirectly, any Short Sale or hedging transaction which establishes a net short
position with respect to the Common Stock. After the one year anniversary of the date hereof, no
Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short
Sales in the securities of the Company.  Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio



29









 







managers manage separate portions of such Purchaser’s assets and the portfolio managers have
no direct knowledge of the investment decisions made by the portfolio managers managing other
portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.



     4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy thereof, promptly
upon request of any Purchaser. The Company shall 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 Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of
the United States, and shall provide evidence of such actions promptly upon request of any
Purchaser.



     4.17 Capital Changes. Until the 12 month anniversary of the date hereof, the Company
shall not undertake a reverse stock split or reclassification of the Common Stock without the prior
written consent of the Purchasers holding a majority in principal amount outstanding of the
Debentures.



     4.18
Most Favored Nation Provision. From the date hereof until such time that the
Debentures are no longer outstanding, if the Company effects a Subsequent Financing, each Purchaser
may elect, in its sole discretion, to exchange all or some of the Debentures (but not the Warrants)
then held by such Purchaser for any securities or units issued in a Subsequent Financing on a $1.00
for $1.00 basis (that is, for each $1.00 Principal Amount of Debentures surrendered by the
Purchaser, the Purchaser shall receive $1.00 of units in such Subsequent Financing) based on the
outstanding principal amount and interest of such Debentures, along with any liquidated damages and
other amounts owing thereon, and the effective price at which such securities are to be sold in
such Subsequent Financing; provided, however, notwithstanding any conversion,
exercise, exchange, or reset price (other any other similar feature) or lack thereof in the
securities issued in a Subsequent Financing, such securities issued in such Subsequent Financing
shall be irrevocably convertible, exercisable, exchangeable or resetable (or any other similar
feature) based on the conversion price, exercise price, exchange price or reset price (or such
similar price) in such Subsequent Financing. By way of example, if the Company undertakes a
Subsequent Financing of $100,000 of preferred stock and warrants, the Purchaser shall have the
right, but not the obligation, in its sole discretion, to purchase $100,000 of preferred stock and
warrants of such Subsequent Financing by surrendering $100,000 in principal amount of such
Purchaser’s Debenture and, if such preferred stock has either no conversion price or a conversion
price that exceeds $1.00 (subject to adjustment), then the conversion price as to the Purchaser
shall be $1.00 (if non-convertible, a conversion feature similar to the rights under the Debentures
shall be added as to the Purchaser). This Section 4.18 shall not apply with respect to an Exempt
Issuance. The Company shall provide each Purchaser with notice of any such Subsequent Financing in
the manner set forth in Section 4.18. Notwithstanding anything herein to the contrary, the holder
of the Debentures shall be obliged to exercise its rights under this Section 4.18 (“Mandatory
Conversion”) if the following conditions are met:



30









 






     (a) the Subsequent Financing is in the form of convertible preferred stock of the
Company; and




     (b) the Subsequent Financing is for gross proceeds of at least $4 million, excluding
the exercise of rights pursuant to this Section 4.12.


Notwithstanding the foregoing, upon a Mandatory Conversion, the Debentures (but not the Warrants)
then held by such Purchaser shall be converted for any securities or units issued in the applicable
Subsequent Financing on a $0.90 for $1.00 basis (that is, for each $0.90 in Principal Amount of
Debentures surrendered by the Purchaser, the Purchaser shall receive $1.00 of units in such
Subsequent Financing) based on the outstanding principal amount and interest of such Debentures,
along with any liquidated damages and other amounts owing thereon, and the effective price at which
such securities are to be sold in such Subsequent Financing.




     4.19 In the event that the Company does not raise at least $4,000,000 or more in the
Subsequent Financing within 90 days of the Closing Date, the holder of the Debentures shall have
the right at any time to convert all or a portion of the Debentures into shares of the Company’s
common stock at $1.00 per share (subject to adjustment for forward and reverse stock splits, stock
dividends, recapitalizations and the like that occur after the date hereof).



     4.20 Limitation on Executive Compensation. So long as any Securities remain held by
Vision or its Affiliates, the Company shall not increase the aggregate compensation of its officers
and directors by more than 10% per year without the written prior approval of Vision.



     4.21 Limitation on Employee Stock Option Plan. So long as any Securities remain held
by Vision or its Affiliates, any stock or option plan shall not permit the issuance of more than
15% of the shares of Common Stock issued and outstanding on the date in question.



     4.22 Market Maker. The Company shall maintain the effectiveness of the current
registration statement and use best efforts to initiate a public market for the Common Stock on a
Trading Market on or before September 15, 2009.



     4.23 Registration Rights. If at any time after the date hereof, the Company shall
determine to prepare and file with the Commission a registration statement relating to an offering
for its own account or the account of others of any of its equity securities, other than on Form
S-4 or Form S-8 (each as promulgated under the Securities Act), or their then equivalents, relating
to equity securities to be issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send a written notice of such determination to each Purchaser and, if
within ten calendar days after the date of delivery of such notice, any such Purchaser shall so
request in writing, the Company shall include in such registration statement all or any part of the
Underlying Shares as the Purchaser requests to be registered so long as such Underlying Shares are
proposed to be disposed in the same manner as those securities set forth in the registration
statement; provided, however, if the offering is an underwritten offering and was
initiated by the Company or at the request of a shareholder, and if the managing underwriters
advise the Company that the inclusion of Underlying Shares requested to be included in the
registration



31









 







statement would cause an adverse effect on the success of any such offering, based on market
conditions or otherwise (an “Adverse Effect”), then the Company shall be required to
include in such registration statement, to the extent of the amount of securities that the managing
underwriters advise may be sold without causing such Adverse Effect, (a) first, the securities of
the Company and (b) second, the shares, including the Underlying Shares, of all shareholders, on a
pro rata basis, requesting registration and whose shares the Company is obligated by contract to
include in the registration statement; provided, further, however, to the
extent that all of the Underlying Shares are not included in the initial registration statement,
the Purchaser shall have the right to request the inclusion of its Underlying Shares in subsequent
registration statements until all such Underlying Shares have been registered in accordance with
the terms hereof. If the offering in which the Underlying Shares is being included in a
registration statement is a firm commitment underwritten offering, unless otherwise agreed by the
Company, the Purchaser shall sell its Underlying Shares in such offering using the same
underwriters and, subject to the provisions hereof, on the same terms and conditions as the other
shares of Common Stock that are included in such underwritten offering. The Company shall use its
best efforts to cause any registration statement to be declared effective by the Commission as
promptly as is possible following it being filed with the Commission and to remain effective until
all Underlying Shares subject thereto have been sold. All fees and expenses incident to the
performance of or compliance with this Section 4.24 by the Company shall be borne by the Company
whether or not any Underlying Shares are sold pursuant to the registration statement. The Company
shall indemnify and hold harmless the Purchaser, the officers, directors, members, partners,
agents, brokers, investment advisors and employees of each of them, each person who controls the
Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act), and the officers, directors, members, shareholders, partners, agents and employees of each
such controlling person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable
attorneys’ fees) and expenses (collectively, the “Losses”), as incurred, arising out of or
relating to (i) any untrue or alleged untrue statement of a material fact contained in the
registration statement, any prospectus included therein or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to
any omission or alleged omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any prospectus or form of prospectus or supplement
thereto, in light of the circumstances under which they were made) not misleading or (ii) any
violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state
securities law, or any rule or regulation thereunder, in connection with the performance of its
obligations under this Section 4.24, except to the extent, but only to the extent, that such untrue
statements or omissions referred to in (i) above are based solely upon information regarding the
Purchaser furnished in writing to the Company by the Purchaser expressly for use therein, or to the
extent that such information relates to the Purchaser or the Purchaser’s proposed method of
distribution of Underlying Shares and was reviewed and expressly approved in writing by the
Purchaser expressly for use in the registration statement, such prospectus or such form of
prospectus or in any amendment or supplement thereto. The rights of the Purchaser under this
Section 4.25 shall survive until all Underlying Shares have been either registered under a
registration statement, eligible for resale under Rule 144 without volume or manner-of-sale
limitations or been sold pursuant to an exemption to the registration requirements of the
Securities Act.



32









 





     4.24 Amendments of March Securities Purchase Agreement and 
Related Instruments.



          (a) The second sentence of Section 4.18 of the Securities Purchase Agreement dated as of March
24, 2008 by and among the Company and the Purchasers (“March Purchase Agreement”) set forth therein
shall be amended and restated as follows: “For a period of 24 months from May 28, 2009, the term
“Discounted Purchase Price” shall mean the effective price per common share equivalent received by
the Company in such Subsequent Financing.”




          (b) The first sentence of Section 4.19 of the March Purchase Agreement shall be amended and
restated as follows: The Company shall use its best efforts to qualify the Common Stock for
quotation on a Trading Market as soon as practicable, but in no event later than the later of (a)
September 15, 2009 or (b) the 90th day after the effectiveness of the registration
statement on Form S-1 registering some or all of the Common Stock (such date, the “Reporting Date”
and such event, the “Liquidity Event”); provided, that if (i) there is material non-public
information regarding the Company which the Board of Directors reasonably determines not to be in
the Company’s best interest to disclose and which the Company is not otherwise required to
disclose, or (ii) there is a significant business opportunity (including, but not limited to, the
acquisition or disposition of assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the Company which the Board
of Directors reasonably determines not to be in the Company’s best interest to disclose, then the
Company may postpone the Reporting Date for a period not to exceed thirty (30) consecutive days.




          (c) Section 8(a)(xii) of the Company’s 10% Secured Convertible Debenture dated as of December
30, 2008 is hereby amended and restated in its entirely with the following text:




          “the Company shall fail to initiate a public market for the Common Stock on a Trading Market
before by September 15, 2009;”




     4.25 Mandatory Conversion of the December 2008 Debenture. The last sentence of
Section 4.18 of the Securities Purchase Agreement dated as of December 31, 2008 by and among the
Company and the Purchasers shall be amended and restated in its entirety as follows:



     “The Company shall provide each Purchaser with notice of any such Subsequent Financing in the
manner set forth in Section 4.18. Notwithstanding anything herein to the contrary, the holder of
the Debentures shall be obliged to exercise its rights under this Section 4.18 if the following
conditions are met (“Mandatory Conversion”):




     (a) the Subsequent Financing is consummated on or before September 15, 2009;




     (b) the Subsequent Financing is in the form of convertible preferred stock of the
Company at a price no greater than $1.00 per share of preferred stock;




     (c) the Subsequent Financing is for gross proceeds of at least $4 million, excluding
the exercise of rights pursuant to this Section 4.12; and



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     (d) the Subsequent Financing includes at least 100% warrant coverage.



ARTICLE V.

MISCELLANEOUS




     5.1 Termination.  This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before January 15, 2009; provided, however, that such
termination will not affect the right of any party to sue for any breach by the other party (or
parties).



     5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse Vision the
non-accountable sum of $15,000 for its legal fees and expenses. Accordingly, in lieu of the
foregoing payments, the aggregate amount that Vision is to pay for the Securities at the Closing
shall be reduced by $15,000 in lieu thereof. The Company shall deliver to each Purchaser, prior to
the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex
A. Except as expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp
taxes and other taxes and duties levied in connection with the delivery of any Securities to the
Purchasers.



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



     5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of: (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (Los Angeles time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile number set forth on the
signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (Los
Angeles time) on any Trading Day, (c) the second (2nd) Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.



     5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an



34









 







amendment, by the Company and the Purchasers holding at least 67% in interest of the
Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future
or a waiver of any subsequent default or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.



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



     5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that
such transferee agrees in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Purchasers.”



     5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.10.



     5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City 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 (including with respect to the enforcement of
any of the Transaction Documents), 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 improper or is an inconvenient venue for such
proceeding. 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 via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by
law. If either party shall commence an action or proceeding to enforce any provisions of the
Transaction Documents, then the prevailing party in such action or proceeding



35









 







shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such action or proceeding.



     5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Securities for the applicable statute of limitations.



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



     5.12 Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the intention of the parties
that they would have executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or unenforceable.



     5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights; provided, however, that in the
case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall
be required to return any shares of Common Stock subject to any such rescinded conversion or
exercise notice.



     5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in
lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance of such replacement
Securities.



36









 





     5.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in
any action for specific performance of any such obligation the defense that a remedy at law would
be adequate.



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



     5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to
insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be
compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the maximum lawful rate authorized under applicable law
(the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by
such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the
Company, the manner of handling such excess to be at such Purchaser’s election.



     5.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by any



37









 







Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the rights arising out
of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review and negotiation of
the Transaction Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS. FWS does not represent
all of the Purchasers but only Vision. The Company has elected to provide all Purchasers with the
same terms and Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.



     5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages and other amounts have
been paid notwithstanding the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been canceled.



     5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a Business Day,
then such action may be taken or such right may be exercised on the next succeeding Business Day.



     5.21 Construction. The parties agree that each of them and/or their respective counsel
has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal
rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments
hereto. In addition, each and every reference to share prices and shares of Common Stock in any
Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.



     5.22 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION
BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE
GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND
EXPRESSLY WAIVES FOREVER TRIAL BY JURY.



(Signature Pages Follow)




38









 








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



	 	 	 	 	 
	T3 MOTION, INC.	 	Address for Notice:
	 

	 	 	 	2990 Airway Avenue
	 

	 	 	 	Costa Mesa, California 92626
	 
	 	 	 	 
	By:

	 	 	 	Fax: (714) 619-3616
	 

	 	 

Name: Ki Nam
	 	 
	 

	 	Title: Chief Executive Officer	 	 
	 
	 	 	 	 
	With a copy to (which shall not constitute notice):	 	 
	 
	 	 	 	 
	Richardson & Patel LLP	 	 
	10900 Wilshire Boulevard, Suite 500	 	 
	Los Angeles, California 90024	 	 
	Facsimile: (310) 208-1154	 	 
	Attention: Ryan S. Hong	 	 






[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]




39









 








[PURCHASER SIGNATURE PAGES TO T3 SECURITIES PURCHASE AGREEMENT]




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



	 	 	 
	Name of Purchaser:
	 	 
	 

	 	 





	 	 	 
	Signature of Authorized Signatory of Purchaser:
	 	 
	 

	 	 





	 	 	 
	Name of Authorized Signatory:
	 	 
	 

	 	 





	 	 	 
	Title of Authorized Signatory:
	 	 
	 

	 	 





	 	 	 
	Email Address of Authorized Signatory:
	 	 
	 

	 	 





	 	 	 
	Facsimile Number of Authorized Signatory:
	 	 
	 

	 	 




Address for Notice of Purchaser:



Address for Delivery of Securities for Purchaser (if not same as address for notice):



Subscription Amount:                                         



Warrant Shares:                                         




[SIGNATURE PAGES CONTINUE]




40









 








Annex A




CLOSING STATEMENT



Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers
shall purchase up to $600,000 of Debentures and Warrants from T3 Motion, Inc., a Delaware
corporation (the “Company”). All funds will be wired into an account maintained by the
Company. All funds will be disbursed in accordance with this Closing Statement.




Disbursement Date: May _29, 2009




	 	 	 	 	 
	I. PURCHASE PRICE
	 	 	 	 
	 
	 	 	 	 
	Gross Proceeds to be Received
	 	$	600,000	 
	 
	 	 	 	 
	II. DISBURSEMENTS
	 	 	 	 
	 	 
	T3 Motion, Inc.
	 	$	600,000	 
	Vision Opportunity Master
Fund, Ltd. (to be withheld by
Vision for legal fees and
expenses)
	 	$	15,000	 
	 
	 	 	 	 
	Total Amount Disbursed:
	 	$	585,000	 





WIRE INSTRUCTIONS:






 




			
	To:	 	T3 Motion, Inc. — $600,000

	[insert wire instructions]





To:




To: Vision Opportunity Master Fund, Ltd. — $15,000

[insert wire instructions]




To: Richardson & Patel LLP — $65,000

[insert wire instructions]




41









 





	 	 	 
	DULY EXECUTED THIS ___ DAY OF MAY 2009:
	 
	 	 
	T3 MOTION, INC.
	 
	 	 
	By:
	 	 
	 	 	 
	Name: Ki Nam
	Title: Chief Executive Officer







42