**Exhibit 10.5**

**SECURITIES PURCHASE AGREEMENT**

This Securities Purchase Agreement (as the same may be supplemented,modified, amended, restated or replaced from time to time in the manner provided herein, this “Agreement”) is dated as of February 9, 2007 among Star Energy Corporation, a Nevada corporation (the “Company”),and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”, and together with the Company, each a “party” andcollectively the “parties”). 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant toSection 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, desiresto purchase from the Company, securities of the Company, all upon the terms and provisions and subject to the conditions 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 eachPurchaser 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 or other applicable Transaction Documents (as such terms are defined herein), and (b) the following terms have the meaningsset forth in this Section 1.1: 

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

“Affiliate” means any Person that, directly or indirectly through one or moreintermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that ismanaged on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. 

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

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

“Closing Date” means the Trading Day when all of the TransactionDocuments 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 theSecurities have been satisfied or waived. 

“Commission” means the Securities and Exchange Commission.

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

“Common StockEquivalents” means any securities of the Company or the Subsidiaries which would entitle (upon exercise or conversion) 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 David Lubin & Associates, PLLC, with offices located at 26 East Hawthorne Avenue, ValleyStream, NY 11580. 

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

“Debentures” means the 8% Secured Convertible Debentures due, subject to the terms therein, 3 years fromtheir date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto, as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein.

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

“Effective Date” means the date that the initial Registration Statement filed by the Company pursuant to the RegistrationRights Agreement is first declared effective by the Commission. 

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

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

“Exempt Issuance” means the issuance of(a) shares of Common Stock or options to employees, 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 of the Company or amajority of the members of a committee of non-employee directors established, (b) securities upon the exercise or exchange of or 

 

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conversion of any Securities issued hereunder and/or any other securities exercisable or exchangeable for or convertible into shares of Common Stock issuedand 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 suchsecurities, and (c) securities issued pursuant to 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 throughits 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 issuingsecurities 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. 

“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 transferrestriction. 

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

“Material Permits” shall have the meaning ascribed to such term inSection 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 4.13. 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, jointventure, 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 4.13. 

 

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

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.11. 

“Registration Rights Agreement” means the Registration Rights Agreement with respect to the Underlying Shares, dated the date hereof, among the Company and the Purchasers, in the form of ExhibitB attached hereto. 

“Registration Statement” means a registration statement meeting the requirementsset forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement. 

“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 orpotentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Warrants and Debentures (including Underlying Shares issuable as payment of interest),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 ofdetermination. 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, assuch 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 hereunder.

“Security Agreement” means the Security Agreement, dated the date hereof, among the Company and thePurchasers, in the form of Exhibit E attached hereto, as the same may be supplemented, modified, amended, restated or replace from time to time in the manor provided therein. 

“Security Documents” shall mean the Security Agreement, the Subsidiary Guarantees and any other documents and filingrequired thereunder in order to grant the Purchasers a security interest in the personal assets and properties of the Company and 

 

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the U.S. Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts, as the same may be supplemented, modified, amended,restated or replace from time to time in the manor provided therein. 

“Short Sales” means all “shortsales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchasedhereunder 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 4.13. 

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.13. 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a). 

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of thePurchasers, in the form of Exhibit F attached hereto, as the same may be supplemented, modified, amended, restated or replace from time to time in the manor provided therein. 

“Trading Day” means a day on which the Common Stock is traded on a Trading Market. 

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading onthe 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 Registration Rights Agreement, theSecurity Agreement, the Subsidiary Guarantee, all exhibits and schedules hereto and thereto and any other documents or agreements executed in connection with the transactions contemplated hereunder, as the same may be supplemented, modified,amended, restated or replace from time to time in the manor provided therein. 

“Transfer Agent” meansInterwest Transfer Company, with a mailing address of 191 East Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117 and a facsimile number of 801-277-3147, and any successor transfer agent of the Company. 

 

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“Underlying Shares” means the shares of Common Stock issued and issuableupon conversion or redemption of the Debentures and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the Debentures. 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.14(b). 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if theCommon 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 as reportedby 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 Common Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then reported in the“Pink Sheets” published by Pink Sheets, LLC (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 (c) in all other cases, thefair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchaser and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. 

“Warrants” means collectively the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordancewith Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to five years, in the form of Exhibit C attached hereto, as the same may be supplemented, modified, amended, restated orreplace from time to time in the manor provided therein. 

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

**ARTICLE II.**

**PURCHASE AND SALE**

2.1 Closing. On the Closing Date, upon the terms and subject to theconditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and each Purchaser, severally and not jointly, agrees to purchase up to an aggregate of$7,500,000 in principal amount of the Debentures. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to its Subscription Amount and the Company shall deliver to each Purchaser itsrespective 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 conditions setforth 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. 

 

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2.2 Deliveries. 

(a) On 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, 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 a number of shares of Common Stock equal to 65%of such Purchaser’s Subscription Amount divided by the initial Conversion Price, with an exercise price equal to $3.81, subject to adjustment therein; 

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

(vi) a lock up agreement, in the form of Exhibit G, attached hereto, duly executed by all officers, directors and 10%stockholders of the Company; and 

(vii) the Registration Rights Agreement duly executed by the Company. 

(b) On 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; 

(iii) the Security Agreement duly executed by such Purchaser; and 

(iv) the Registration Rights 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 when made and on the Closing Date of the representations and warranties of the Purchasers contained herein; 

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

 

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(iii) the delivery by the Purchasers of the items set forth in Section 2.2(b) ofthis Agreement. 

(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject tothe following conditions being met: 

(i) the accuracy in all material respects when made and on the Closing Date of therepresentations and warranties of the Company contained herein; 

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

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

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

(v) from the date hereof to the Closing Date, trading in theCommon Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to theClosing), and, at any time prior 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 reportedby 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 nationalor 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 Debenturesat the Closing. 

**ARTICLE III.**

**REPRESENTATIONS AND WARRANTIES**

3.1 Representations and Warranties of the Company. Except as set forth in theDisclosure 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 Disclosure Schedules, the Company hereby makes thefollowing representations and warranties to each Purchaser as of the date hereof (unless otherwise indicated): 

(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 clearof 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. 

 

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(b) Organization and Qualification. The Company and each of the Subsidiaries is anentity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties andassets 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 orcharter 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 ownedby 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 orenforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business (including prospects) or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) amaterial 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 noProceeding 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 thetransactions 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 thetransactions 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, its board of directors or its stockholders in connection therewith other thanin 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 bindingobligation 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 applicationaffecting 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 contributionprovisions may be limited by applicable law. 

 

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(d) No Conflicts. The execution, delivery and performance of the TransactionDocuments 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 orarticles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of anyLien 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 agreement, credit facility, debtor 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 Subsidiaryis 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 orreasonably be expected to result in a Material Adverse Effect. 

(e) Filings, Consents and Approvals. The Company isnot 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 theexecution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.6, (ii) the filing with the Commission of the Registration Statement, (iii) the notice and/orapplication(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby and (iv) the filing of Form D with the Commissionand 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 andnonassessable, 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 bevalidly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company, other than restrictions on transfer (if any) provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stocka 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 ofthe Company as of the 

 

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date hereof. Except as set forth on Schedule 3.1(g)(i), the Company has not issued any capital stock since its most recently filed current or periodicreport 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 planand pursuant to the conversion 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 purchase of the Securities contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities and as set forth on Schedule 3.1(g), there are no outstanding options,warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for oracquire, 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 andsale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than to the Purchasers pursuant to the Transaction Documents) and will not result in a right of any holder of Companysecurities 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 withall 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 Boardof Directors of the Company 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 Companyis a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. 

(h) SECReports; Financial Statements. Except as set forth on Schedule 3.1(h), 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 exhibitsthereto 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 priorto the expiration of any such extension, other than any non-timely filing that would not preclude the Company’s use of a S-3 registration statement. As of their respective dates, the SEC Reports complied in all material respects with therequirements 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 inorder to make the statements therein, in the light of the circumstances under which they were made, not misleading, other than to the extent correct in a subsequent SEC 

 

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Report. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and therules 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 basisduring the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto, except for changes in GAAP, and except that unaudited financial statements may not contain all footnotesrequired by GAAP, and such financial statements 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 theperiods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. 

(i)Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, 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 accruedexpenses 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, or(C) indebtedness, liabilities or other obligations that would not have been prohibited under the Debentures if they has been executed as of the last day in the fiscal year covered by such audited financial statements, (iii) the Company hasnot 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 itscapital 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 forconfidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, 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 that has not been publicly disclosed at least one Trading Day prior to thedate that this representation is made. 

(j) Litigation. There is no Proceeding pending or, to the knowledge of theCompany, overtly 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 orforeign) (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 unfavorabledecision, 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 

 

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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 isnot pending or overtly threatened, 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 anyregistration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 

(k) LaborRelations. 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 theCompany’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company, and neither the Company or any of its Subsidiaries is a party to a collective bargaining agreement, and theCompany 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 be, in violation of any material term of any employment contract,confidentiality, disclosure or proprietary information agreement or non-competition agreement with the Company or any of its Subsidiaries, or any similar contract, agreement or restrictive covenant with any predecessor employer, and the continuedemployment 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, localand 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 beexpected to have a Material Adverse Effect. 

(l) Compliance. Neither the Company nor any Subsidiary (i) is indefault 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 noticeof 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 defaultor 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 withoutlimitation 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 theappropriate 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 have or reasonably be expected to resultin 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. 

 

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(n) Title to Assets. The Company and the Subsidiaries have good and marketabletitle in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and theSubsidiaries, in each case free and clear of all Liens, except for (i) such 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 Companyand the Subsidiaries, (ii) Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties, (iii) Permitted Liens as defined in the Debentures. Any real property and facilitiesheld under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases under 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 marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses asdescribed in the SEC Reports and where the failure to so have such rights could reasonably be expected to have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary hasreceived a notice (written or otherwise) that 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 areenforceable 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 oftheir Intellectual Property Rights, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 

(p) Insurance. Except as set forth on Schedule 3.1(p), the Company and the Subsidiaries are insured by insurers of recognizedfinancial 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 coverageat 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 coveragefrom 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 anytransaction 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 orpersonal property to or from, or otherwise requiring payments to or from any officer, director or such 

 

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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 $60,000 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 employeebenefits, including stock option agreements under any stock option plan of the Company. 

(r) Sarbanes-Oxley; InternalAccounting Controls. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 that are applicable to it as of the Closing Date. To the extent required to do so as of the Closing Date under the Sarbanes-OxleyAct of 2002: (A) 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 specificauthorizations, (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 withmanagement’s general or specific 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; (B) theCompany 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 theCompany 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; (C) the Company’s certifying officers haveevaluated 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 “EvaluationDate”); and (D) 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 theirevaluations 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 reasonablylikely to materially affect, the Company’s internal control over financial reporting except for changes required by the Sarbanes-Oxley Act of 2002. 

(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 orother 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 typecontemplated 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 theCompany 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. 

 

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(u) Investment Company. The Company is not, and is not an Affiliate of, andimmediately 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 sothat it will not become subject to the Investment Company Act of 1940, as amended. 

(v) Registration Rights. Otherthan each of the Purchasers or as set forth on Schedule 3.1(v), 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 Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) ofthe 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 received any notification thatthe Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that theCompany 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 andmaintenance requirements. 

(x) Application of Takeover Protections. The Company and its board of directors have takenall 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’scertificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could reasonably be expected to become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling theirobligations 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 TransactionDocuments, 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, nonpublicinformation. 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 Purchasersregarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to

 

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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. Thepress 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 ornecessary in order to make the statements, 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 respectto the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. 

(z) NoIntegrated 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 orindirectly, 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 theSecurities Act or any applicable shareholder approval provision of any Trading Market on which any of the securities of the Company are listed or designated. 

(aa) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to thereceipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the assets of the Company and its subsidiaries taken as a whole exceeds the amount that will be required to be paid on or inrespect of the Company’s existing debts and other liabilities of the Company and its subsidiaries taken as a whole (including the likely amount of known contingent liabilities) as they mature; (ii) the assets of the Company and itssubsidiaries taken as a whole do not constitute unreasonably small capital to carry on their business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of thebusiness conducted by the Company and its subsidiaries taken as a whole, and the projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company and its subsidiaries taken as a whole, togetherwith the proceeds they would receive, were they to liquidate all of their assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of their liabilities when such amounts are requiredto 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 orcircumstances 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 datesthereof 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 (a) anyliabilities for borrowed money or similar amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business and inter-company advances among the Company and its subsidiaries), (b) all guaranties,endorsements and other contingent obligations in respect of Indebtedness of 

 

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others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except for (i) guaranties byendorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and (ii) guaranties of the Indebtedness or other obligations of the Company or any Subsidiary by any other Subsidiary orthe Company; and (c) 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 any payment or other material default withrespect to any Indebtedness. 

(bb) Tax Status. Except for matters that would not, individually or in the aggregate,have or reasonably be expected to have 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 theCompany has no knowledge of a tax deficiency that has been asserted or overtly 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 theSecurities 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 forunlawful contributions, gifts, entertainment or 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 domesticpolitical 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 Schedule. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm asrequired 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 on Form 10-KSB for the year ended December 31, 2006. 

(ff) Seniority. As of the Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures in right ofpayment, 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 leaseobligations (which is senior only as to the property covered thereby). 

 

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(gg) No Disagreements with Accountants and Lawyers. There are no disagreements ofany 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 itsaccountants and lawyers. 

(hh) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Companyacknowledges 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 noPurchaser 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 respectiverepresentatives 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 theCompany’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. Anything in this Agreement or elsewhere herein to the contrarynotwithstanding (except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged by the Company (i) that none of the Purchasers have been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling, longand/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) that past or future open market or other transactions by anyPurchaser, including Short Sales, and specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the marketprice of the Company’s publicly-traded securities; (iii) that any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short”position in the Common Stock, and (iv) that 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 andacknowledges that (a) one or more Purchasers may engage in hedging activities not involving physical delivery of any of the Securities (other than in accordance with the Transaction Documents and applicable law) at various times during theperiod 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 (b) such hedging activities (if any) couldreasonably be expected to 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 hedgingactivities do not constitute a breach of any of the Transaction Documents. 

(jj) Regulation M Compliance. TheCompany has not, and to its knowledge 

 

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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 ofthe 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 of the Company or (iii) paid oragreed 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 withthe placement of the Securities. 

3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no otherPurchaser hereby, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows: 

(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 with full right, corporate or partnership power and authority to enter into andto consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by thisAgreement 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 inaccordance 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 otherequitable 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 asprincipal 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 suchSecurities 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 (thisrepresentation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act orany applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. 

 

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(c) Purchaser Status. At the time such Purchaser was offered the Securities, itwas, and at 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 theSecurities 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 isable 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, magazineor similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. 

(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than the transaction contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuantto any understanding with such Purchaser, executed any transaction, including Short Sales, in the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from theCompany or any other Person setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managedinvestment vehicle whereby separate portfolio 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 ofsuch Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Otherthan to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). 

**ARTICLE IV.**

**OTHER AGREEMENTS OF THEPARTIES**

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 ofSecurities (other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of 

 

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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 Companyan 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 ofsuch 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 and theRegistration Rights Agreement. 

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

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THISSECURITY 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, THEREGISTRATION 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 THECOMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT 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 aregistered 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 theprovisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may collaterally assign and physically deliver pledged or secured Securities to the pledgees or secured parties.Such a pledge or transfer would not be subject to approval of the Company. Unless and until the pledge or secured party elects to foreclose or otherwise realize upon any of the Securities, (i) no notice shall be required of such pledge, and(ii) no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as apledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation andfiling of any required prospectus supplement under Rule 

 

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424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder,provided the Company shall not be required in such documentation to make any additional representations or warranties, incur ant additional liability or obligation or confirm or grant to such pledge or secured party any additional rights beyondthose provided in the Transaction Documents. 

(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 (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following anysale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144(k), or (iv) if such legend may be removed without potential liability to the Company under applicable requirementsof the Securities Act and the Uniform Commercial Code (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 afterthe Effective Date if required by the Transfer Agent to effect the removal of the legend hereunder on the Underlying Shares subject to the Registration Statement. If all or any portion of a Debenture or Warrant is converted or exercised (asapplicable) 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(k) or if such legend may be removed without potential liability to theCompany under applicable requirements of the Securities Act and Uniform Commercial Code (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 the Effective Date with respect to the Underlying Shares subject to the Registration Statement or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than threeTrading 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 RemovalDate”), 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 TransferAgent that enlarge the restrictions on transfer set forth in this Section. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchasers by crediting the account of thePurchaser’s prime broker with the Depository Trust Company System. 

(d) In addition to such Purchaser’s otheravailable 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 theTransfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 15 Trading Days after such damages have begun to accrue) for each Trading Day after the secondTrading Day following the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s 

 

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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 the removal of the restrictive legend fromcertificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, includingany applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein. 

4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares ofCommon 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 Sharespursuant 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 Purchaserand regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company. 

4.3Furnishing of Information. As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Companyafter 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 inaccordance 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 theextent 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. 

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 definedin Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would beintegrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market. 

4.5 Conversion andExercise Procedures. 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 orconvert the Debentures. No additional legal opinion or other information or instructions shall be 

 

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required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of theDebentures 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, by 8:30 a.m. (New York City time) on the Trading Day following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactionscontemplated hereby and attaching the Transaction Documents thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company norany Purchaser shall issue any such press release or 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 respectto 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 suchpublic 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 (i) as required by federal securities law in connection with (A) any registration statement contemplated by the Registration Rights Agreement and (B) the filing of finalTransaction Documents (including signature pages thereto) with the Commission and (ii) 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 ofsuch disclosure permitted under this clause (ii). 

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 similaranti-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 orunder any other agreement between the Company and the Purchasers. 

4.8 Non-Public Information. Except with respect to the materialterms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any informationthat the Company believes constitutes material non-public information, and each Purchaser severally covenants and agrees that it will not request any such material non-public information, unless prior thereto such Purchaser shall have executed awritten agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations 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 thesale of the Securities hereunder for working capital purposes and shall not use such proceeds for the satisfaction of any portion of the Company’s 

 

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debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), or to redeem any Common Stock orCommon Stock Equivalents or to settle any outstanding litigation. 

4.10 [RESERVED] 

4.11 Indemnification of Purchasers. Subject to the provisions of this Section 4.11, the Company will indemnify and hold each Purchaser andits 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 whocontrols 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 afunctionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”, and collectively the “Purchaser parties”)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 anysuch 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) anyaction instituted against a Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser or its Purchaser parties, with respect to any of the transactions contemplated by theTransaction Documents (unless such action is based upon any sales, pledges, margin sales and similar transactions by such Purchaser to or with any other stockholder, any breach of such Purchaser’s representations, warranties or covenants underthe Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder, any violations by the Purchaser or its representatives of state or federal securities laws or other applicable law, or any act, omissionor other conduct by such Purchaser or its representatives that 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 pursuantto 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 (or the majorityof them if more than one is involved in such action). 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 ofsuch 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 employcounsel 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 Companyshall be responsible for the reasonable fees and expenses of no more than one such separate counsel for all Purchaser parties involved in such action. The Company will not be liable to any Purchaser Party under this Agreement (i) for anysettlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent, that a loss, claim, damage or liability isattributable to any sales, pledge, margin sales and similar 

 

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transactions by such Purchaser to or with any other stockholder, any breach of such Purchaser’s representations, warranties or covenants under theTransaction Documents or any agreements or understandings such Purchaser may have with any such stockholder, any violations by the Purchaser or its representatives of state or federal securities laws or other applicable law, or any act, omission orother conduct by such Purchaser or its representatives that constitutes fraud, gross negligence, willful misconduct or malfeasance. 

4.12Reservation and Listing of Securities. 

(a) The Company shall maintain a reserve from its duly authorized shares ofCommon Stock for issuance pursuant to the Transaction Documents in such amount as may 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 RequiredMinimum on such date, then the Board of Directors of the Company 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 Stockto 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 Stockat 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 on such Trading Market as soon as possible thereafter, (iii) provide tothe Purchasers evidence of such listing, and (iv) maintain the listing 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. 

4.13 Participation in Future Financing. 

(a) From the date hereof until the date that is the 12 month anniversary of the Effective Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (a“Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the Subsequent Financing (the “Participation Maximum”) on the same terms,conditions and price provided for in the Subsequent Financing. 

(b) At least 5 Trading Days prior to the closing of theSubsequent 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 if it wants to review the details of suchfinancing (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 1Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the 

 

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proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom suchSubsequent 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 providewritten notice to the Company by not later than 5:30 p.m. (New York City time) on the 5th Trading Day after all of the Purchasers have received thePre-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 theSubsequent Financing Notice. If the Company receives no notice from a Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to havenotified the Company that it does not elect to participate. 

(d) Ifby 5:30 p.m. (New York City time) on the 5th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasersof 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 Participation Maximum of such Subsequent Financing, then the Company may effect theremaining 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 5th Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seekingto 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 theratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date byall Purchasers participating under this Section 4.13. 

(f) The Company must provide the Purchasers with a secondSubsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.13, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason onthe terms set forth in such Subsequent Financing Notice within 60 Trading Days after the date of the initial Subsequent Financing Notice. 

(g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt Issuance or (ii) an underwritten public offering of Common Stock. 

4.14 Subsequent Equity Sales. 

(a) From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock 

 

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Equivalents; provided, however, the 90 day period set forth in this Section 4.14 shall be extended for the number of Trading Days duringsuch period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, the Registration Statement is not effective or the prospectus included in the Registration Statement may not beused by the Purchasers for the resale of the Underlying Shares. 

(b) From the date hereof until such time as no Purchaserholds any of the Securities other than any Underlying Securities that have been de-legended in accordance with this Agreement, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involvinga Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include theright to receive additional shares of Common Stock either (A) at a conversion, exercise 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 afterthe 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 ofspecified 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 maysell securities at a future determined price. 

(c) Notwithstanding the foregoing, this Section 4.14 shall not apply inrespect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance. 

4.15 Equal Treatment ofPurchasers. No consideration shall be offered or paid to any Purchaser 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 Purchasers.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 thePurchasers acting in concert or as a group with respect to their respective representations or warranties, purchase, disposition or voting of Securities or otherwise. 

4.16 Short Sales and Confidentiality After The Date Hereof. Each Purchaser severally and not jointly with the other Purchasers covenants that neither it nor any Affiliate acting on its behalf or pursuant to anyunderstanding with it will execute any Short Sales during the period commencing at the Discussion Time and ending at the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6. EachPurchaser, 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 4.6, such Purchaser will maintainthe confidentiality of all disclosures made 

 

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to it in connection with this transaction (including the existence and terms of this transaction). Each Purchaser understands and acknowledges, severally andnot jointly with any other Purchaser, that the Commission currently takes the position that coverage of short sales of shares of the Common Stock “against the box” prior to the Effective Date of the Registration Statement with theSecurities is a violation of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the Manual of Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief Counsel, Division ofCorporation Finance. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by thisAgreement are first publicly announced as described in Section 4.6. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of suchPurchaser’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 withrespect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. 

4.17 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. TheCompany 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. 

4.18Capital Changes. Until the one year anniversary of the Effective Date, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding amajority in principal amount outstanding of the Debentures. 

4.19 Most Favored Nation Provision. If the Company effects a SubsequentFinancing at any time while the Debentures are outstanding, each Purchaser may elect, in its sole discretion, to exchange all or some of the Debentures then held by such Purchaser for additional securities of the same class issued in a SubsequentFinancing (such exchange to be made at the same time as the closing of such Subsequent Financing) based on the principal amount of such Debenture then outstanding being exchanged plus accrued, but unpaid interest thereon and the effective price atwhich such securities were sold in such Subsequent Financing. The Company shall provide each Purchaser notice of any such Subsequent Financing in the manner provided in Section 4.13. 

**ARTICLE V.**

**MISCELLANEOUS**

5.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without anyeffect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the 

 

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Closing has not been consummated on or before February 28, 2007; provided, however, that such termination will not affect the right of anyparty to sue for any breach by the other party (or parties). 

5.2 Fees and Expenses. At the Closing, the Company has agreed toreimburse Enable Capital Management, LLC (“Enable”) the non-accountable sum of $10,000, for its legal fees and expenses. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the ClosingStatement 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 own advisers, counsel, accountants and other experts, if any, and all otherexpenses 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 thedelivery of any Securities to the Purchasers. 

5.3 Entire Agreement. No party has (directly or indirectly) offered, made, acceptedor acknowledged any representation, warranty, promise, assurance or other agreement or understanding (whether written, oral, express, implied or otherwise) to, with or for the benefit of any other party any of their respective Affiliates orrepresentatives respecting any of the matters contained in this Agreement and the other Transaction Documents except for those expressly set forth in this Agreement and the other Transaction Documents. The Transaction Documents, together with theexhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior representations, warranties, promises, assurances and other agreements and understandings (whetherwritten, oral, express, implied or otherwise), 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 orpermitted 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 thesignature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth onthe signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading Day following the date timely delivery to a U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. Refusal to accept delivery shall constitutedelivery. The address for such notices and communications shall be as set forth on the signature pages attached hereto or at such other address as shall be designated by written notice to the other parties. 

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in or pursuant to writteninstrument signed, in the case of an amendment, by the Company and each Purchaser 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 anyparty to exercise any right hereunder in any manner impair the exercise of any such right. 

 

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

5.7 Successors and Assigns. This Agreement shallbe 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 bymerger). 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 such transferee agrees in writing to be bound, with respect to the transferredSecurities, by the provisions of the Transaction Documents that apply to the “Purchasers.” 

5.8 No Third-PartyBeneficiaries. 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 asotherwise set forth in Section 4.11. 

5.9 Governing Law. All questions concerning the construction, validity, enforcement andinterpretation of the Transaction Documents shall, to the greatest extent permitted by applicable law, be governed by and construed and enforced in accordance with the internal laws of the State of New York and the federal laws of the United Statesof America,, without regard to any principles of conflicts of law thereof that would defer to the substantive laws of any other jurisdiction. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of thetransactions 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 stateand federal courts sitting in the City of New York, borough of Manhattan. 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 adjudicationof 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 toassert 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. The preceeding consents toNew York governing law and jurisdiction and venue in New York State’s Supreme Court have been made by the parties in reliance (at least in part) on Section 5-1401 and 5-1402 of the General Obligations Law of the State of New York, asamended (as and to the extent applicable), and other applicable law. 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 viaregistered 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 andnotice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. In any action, suit or proceeding in any jurisdiction brought by any party against any other 

 

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party, each party, knowingly and intentionally and to the greatest extent permitted by applicable law, hereby absolutely, unconditionally, irrevocably andexpressly waives forever trial by jury. 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 shall be reimbursed by the other party forits 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 shall survive the Closing and the delivery of the Securities for the applicable statue of limitations. 

5.11 Execution. This Agreement and the other Transaction Documents may be executed in two or more counterparts of the entire document or of thesignature pages hereto, any of which may be delivered by telecopy, email or other electronic means, and all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed byeach 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, e-mail delivery of a “.pdf” or similar formatdata file or other electronic means, 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, “.pdf”electronically transmitted signature page were an original thereof. 

5.12 Severability. If any term, provision, covenant orrestriction 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 andshall in no way be affected, impaired or invalidated, in each case unless it absence of the invalid, illegal, void or unenforceable term, provision, covenant or restriction would impair the practical realization of the applicable party’sprincipal rights and benefits hereunder, 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 hereafterdeclared invalid, illegal, void or unenforceable, in each case unless it absence of the invalid, illegal, void or unenforceable term, provision, covenant or restriction would impair the practical realization of the applicable party’s principalrights and benefits hereunder. 

5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (andwithout limiting any similar provisions of) any of the other Transaction Documents, whenever any party exercises a right, election, demand or option under a Transaction Document and the other applicable party (or parties) fails to timely perform itsor their related obligations within the periods therein provided, then such first party may rescind or withdraw, in its sole discretion from time to time upon written notice to the other applicable party (or parties), any relevant notice, demand orelection in whole or in part without prejudice to its future actions and rights; provided, however, in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall be required to return anyshares of Common Stock delivered in connection with any such rescinded conversion or exercise notice. 

 

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5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities ismutilated, 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 of such loss, theft or destruction and a customary indemnity agreement from that applicant for a new certificate or instrument reasonably satisfactory to the Company. The applicant for a new certificate orinstrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities. 

5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of thePurchasers 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 inthe Transaction Documents, and each 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 aPurchaser 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, recoveredfrom, 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 equitablecause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied by such payment(s) shall be revived and continued in full force and effect as if such payment(s) had not been made orsuch enforcement or setoff had not occurred. 

5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not toinsist 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, actionor 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 thatthe 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 theforegoing, 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 such 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 contractrate 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 ofthe Maximum Rate 

 

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is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaserto the unpaid principal balance of any such indebtedness without premium or penalty 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 severaland 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 orin any other Transaction Document, and no action taken by any 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 thePurchasers 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, includingwithout 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 hasbeen 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 Companythrough FWS. FWS does not represent any of the Purchasers but only Rodman & Renshaw, LLC, the placement agent for the transaction. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for theconvenience of the Company and not because it was required or requested to do so by the Purchasers. 

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

5.20 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had anopportunity 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 Documentsor any amendments hereto. 

*(Signature Pages Follow)*

 

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

 
**STAR ENERGY CORPORATION**  Address for Notice:By: 
 
  
317 Madison Avenue

21st Floor

New York, NY 10017
Name:   Title:   
With a copy to (which shall not constitute notice):

David Lubin & Associates, PLLC

26 E. Hawthorne Avenue

Valley Stream, NY 11580
        
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 

SIGNATURE PAGE FOR PURCHASER FOLLOWS] 

 

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[PURCHASER SIGNATURE PAGES TO SERG SECURITIES PURCHASE AGREEMENT] 

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

Name ofPurchaser:                                                                                                                            

*Signature of Authorized Signatory ofPurchaser*:                                                                                

Name of AuthorizedSignatory:                                                                                                                

Title of AuthorizedSignatory:                                                                                                                  

Email Address ofPurchaser:                                                                                                          

Facsimile Number ofPurchaser:                                                                                                          

Address for Notice of Purchaser: 

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

SubscriptionAmount:                                          

WarrantShares:                                              

EIN Number: 

[SIGNATURE PAGES CONTINUE] 

 

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**Annex A**

**CLOSING STATEMENT**

Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, thepurchasers shall purchase up to $7,500,000 of Debentures and Warrants from Star Energy Corporation (the “Company”). All funds will be wired into a trust account maintained by                                        ,counsel to the Company. All funds will be disbursed in accordance with this Closing Statement. 

**Disbursement Date:**February    , 2007****

 
**I. PURCHASE PRICE**  
**Gross Proceeds Received**
  $                            **II. DISBURSEMENTS**      $    $    $    $    $**Total Amount Disbursed:**  $**WIRE INSTRUCTIONS:**    To: 
 
           To: 
 
   
 

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