Exhibit 10.1


 


SECURITIES PURCHASE AGREEMENT


 


This
Securities Purchase Agreement (this “Agreement”) is dated as of December
6, 2007 between Ecotality, Inc., 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”).


 


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


 


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


 


ARTICLE I.


DEFINITIONS


 


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


 


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


 


“Affiliate” means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405
under the Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.


 


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


 


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


 


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


 

















 


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


 


 “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 of securities into which such securities
may hereafter be reclassified or changed into.


 


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


 


“Company Counsel(s)” means Farella Braun + Martel LLP, with
offices located at Russ Building, 235 Montgomery Street, San Francisco, CA
94104 and Gary A. Agron, Esq., 5445 DTC Parkway, Suite 520, Englewood, CO
80111.


 


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


 


“Debentures” means the 8% Secured Original Issue Discount
Convertible Debentures due, subject to the terms therein, 30 months from their
date of issuance, issued by the Company to the Purchasers hereunder, in the
form of Exhibit A attached hereto.


 


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


 


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


 


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


 


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


 


“Exempt Issuance” means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company pursuant to
any stock or option plan duly adopted for such purpose by a majority of the
non-employee members of the Board of Directors or a majority of the members of
a committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of or


 


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conversion of
any Securities issued hereunder and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or
to decrease the exercise, exchange or conversion price of such securities, and
(c) securities issued, whether at the closing or subsequent thereto, 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 either a direct or indirect equity owner of, or an
entity that is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.


 


 “FWS” means Feldman
Weinstein & Smith LLP with offices located at 420 Lexington Avenue, Suite
2620, New York, New York 10170-0002.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


“November Debentures” means the 8% Secured Original Issue
Discount Convertible Debentures of the Company issued pursuant to the November
Purchase Agreement.


 


“November Guarantees” means those certain Guarantees executed by
the Subsidiaries of the Company pursuant to the November Purchase Agreement.


 


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 “November Purchase Agreement”
means that certain securities purchase agreement dated November 6, 2007 among
the Company, the Purchasers [and the other investors signatory thereto].


 


“November Registration Rights Agreement” means that certain
registration rights agreement entered into in connection with the November
Purchase Agreement.


 


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


 


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


 


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


 


“Principal Amount” shall mean, as to each Purchaser, the amounts
set forth below such Purchaser’s signature block on the signature pages hereto
and next to the heading “Principal Amount,” in United States Dollars, which
shall equal such Purchaser’s Subscription Amount multiplied by 1.176471.


 


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


 


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


 


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


 


“Registration Statement” means a registration statement meeting
the requirements set 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 or potentially 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 of
determination.


 


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


 


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


 


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


 


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


 


“Security Agreement” means the Security Agreement, dated
November 6, 2007, entered into in connection with the November Purchase
Agreement.


 


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


 


“Shareholder Approval” means the vote
by the stockholders of the Company to approve amended and restated articles of
incorporation of the Company that ratifies all prior amendments to the Company’s
articles of incorporation, including the increase in the number of authorized
shares of Common Stock to 300,000,000 (the “Amendment”).


 


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


 


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


 


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


 


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


 


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


 


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


 


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“Trading Day” means a day on which the New York Stock Exchange
is open for trading.


 


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


 


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


 


“Transfer Agent” means Holladay Stock Transfer, Inc., the
current transfer agent of the Company, whose mailing address is 2939 N. 67th
Place, Suite C, Scottsdale, Arizona, 85251, and fax number is (480) 481-3941,
and any successor transfer agent of the Company.


 


“Underlying Shares” means the shares of Common Stock issued and
issuable upon 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 4.13(b).


 


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


 


“Warrants” means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants


 


6

















 


shall be
exercisable immediately and have a term of exercise equal to 5 years, in the
form of Exhibit C attached hereto.


 


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


 


ARTICLE II.


PURCHASE AND SALE


 


2.1           Closing. On the Closing Date, upon
the terms and subject to the conditions set forth herein, substantially
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and the Purchasers, severally and not
jointly, agree to purchase, up to an aggregate of $1,764,706.50 in Principal
Amount of the Debentures (for an aggregate cash Subscription Amount of up to
$1,500,000). 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 its respective Debenture and a
Warrant, as determined pursuant to Section 2.2(a), and the Company and each
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at
the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and
2.3, the Closing shall occur at the offices of FWS or such other location as
the parties shall mutually agree.


 


2.2           Deliveries.


 


(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 substantially the form of Exhibit D
attached hereto;


 


(iii)          a
Debenture with a principal amount equal to such Purchaser’s Principal 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 50% of such Purchaser’s Principal Amount
divided by the Conversion Price, with an exercise price equal to $0.32, subject
to adjustment therein;


 


(v)           the
Security Agreement, duly executed by all parties thereto, including updated
schedules as of the Closing Date, along with all of the Security Documents,
including the Subsidiary Guarantee, duly executed by the parties thereto;


 


(vi)          lock-up
agreements, in the form of Exhibit G attached hereto, duly executed by
each officer, director and 10% stockholder of the Company and each


 


7

















 


Subsidiary;
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 on the Closing Date of the representations and warranties of
the Purchasers contained herein;


 


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


 


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


 


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


 


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


 


(ii)           any Subsidiaries of the
Company that did not execute the Security Agreement or a subsidiary guarantee
in connection with the November Purchase Agreement shall have executed a
joinder agreement with respect to such agreements, and the Company shall have
complied with its other obligations under such agreements with respect to such
Subsidiaries (including the pledge of all equity securities of such
Subsidiaries);


 


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


 


8

















 


(iv)          all existing debtholders
of the Company and its Subsidiaries shall each have executed and delivered the
Purchasers a written
subordination agreement acceptable to, and approved by, the Purchasers,
provided, however, C. Timothy Caldwell and the investors party to the
November Purchase Agreement,
shall not be required to deliver a subordination agreement with respect to the
indebtedness owed to him and described on Schedule 3.1(n) hereto, so
long as the Company provides evidence acceptable to the Purchasers that the
amounts owed under such indebtedness is $350,000 or less;


 


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


 


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


 


(vii)         from the date hereof to
the Closing Date, trading in the Common 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 the Closing), 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 reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Securities at the Closing.


 


ARTICLE III.


REPRESENTATIONS AND WARRANTIES


 


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


 


(a)           Subsidiaries. All of the direct and
indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries, all
other


 


9

















 


references to the Subsidiaries or any of them
in the Transaction Documents shall be disregarded.


 


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


 


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


 


(d)           No
Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of


 


10

















 


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 any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or result
in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.


 


(e)           Filings,
Consents and Approvals. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than (i) filings required pursuant to Section 4.6, (ii) the filing with the
Commission of the Registration Statement, (iii) the notice and/or
application(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
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required Approvals”).


 


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


 


(g)           Capitalization.
The capitalization of the Company is as set forth on Schedule 3.1(g),
which Schedule 3.1(g) shall also include the number of shares of Common
Stock owned beneficially, and of record, by Affiliates of the Company as of the
date hereof. The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to
the exercise of employee stock options under the Company’s stock option plans,
the issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and


 


11

















 


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


 


(h)           SEC Reports; Financial Statements. The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by law or regulation to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”) on a timely basis
or has received a valid extension of such time of filing and has filed any such
SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated


 


12

















 


Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.


 


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


 


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


 


(k)           Labor
Relations. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company which
could reasonably be expected to result in a Material Adverse Effect. None of
the


 


13

















 


Company’s or
its Subsidiaries’ employees is a member of a union that relates to such
employee’s relationship with the Company or such Subsidiary, and neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject
the Company or any of its Subsidiaries to any liability with respect to any of
the foregoing matters. The Company and its Subsidiaries are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.


 


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


 


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


 


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


 


14

















 


valid, subsisting and enforceable leases with
which the Company and the Subsidiaries are in compliance.


 


(o)           Patents
and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service 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 as described in the SEC
Reports and which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”). Neither the Company
nor any Subsidiary has received a notice (written or otherwise) that any of the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.


 


(p)           Insurance.
The Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither the
Company nor any Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.


 


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


 


(r)            Sarbanes-Oxley;
Internal Accounting Controls. The Company is in material compliance with
all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as
of the Closing Date. The Company and the Subsidiaries maintain a


 


15

















 


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


 


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


 


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


 


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


 


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


 


16

















 


(w)          Listing
and Maintenance Requirements. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration. The Company has not, in the 12 months preceding
the date hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.


 


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


 


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


 


(z)            No Integrated Offering. Assuming the
accuracy of the Purchasers’ representations and warranties set forth in Section
3.2, neither the Company, nor any of its Affiliates, nor any Person acting on
its or their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under


 


17

















 


circumstances that would cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of (i) the Securities Act which would require the registration of any
such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of 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 the receipt by the Company of the proceeds from the sale of the Securities
hereunder, (i) the fair saleable value of the Company’s assets exceeds the
amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities)
as they mature, (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business as now conducted and as proposed to be
conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof, and (iii) the current
cash flow of the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. Schedule 3.1(aa) sets forth as of
the date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, “Indebtedness” means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business; and (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 default with respect to any Indebtedness.


 


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


 


(cc)         No
General Solicitation. Neither the Company nor any person acting on behalf
of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for
sale only


 


18

















 


to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.


 


(dd)         Foreign
Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended.


 


(ee)         Accountants.
The Company’s accounting firm is set forth on Schedule 3.1(ee) of the
Disclosure Schedule. To the knowledge and belief of the Company, such
accounting firm (i) is a registered public accounting firm as required by the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-K (or
10-KSB) for the year ending December 31, 2007.


 


(ff)           Seniority.
As of the Closing Date, no Indebtedness or other claim against the Company is
senior to the Debentures in right of payment, whether with respect to interest
or upon liquidation or dissolution, or otherwise, other than indebtedness
secured by purchase money security interests (which is senior only as to
underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).


 


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


 


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


 


19

















 


independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.


 


(ii)           Acknowledgment
Regarding Purchasers’ Trading Activity. Notwithstanding anything in this
Agreement or elsewhere herein to the contrary (except for Sections 3.2(f) and
4.15 hereof), it is understood and acknowledged by the Company that (i) none of
the Purchasers has been asked to agree by the Company, nor has any Purchaser agreed,
to desist from purchasing or selling, long and/or short, securities of the
Company, or “derivative” securities based on securities issued by the Company
or to hold the Securities for any specified term, (ii) past or future open
market or other transactions by any Purchaser, specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities, (iii) any
Purchaser, and counter-parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, may presently have a “short”
position in the Common Stock, and (iv) each Purchaser shall not be deemed to
have any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
(a) one or more Purchasers may engage in hedging activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined and (b) such
hedging activities (if any) could reduce the value of the existing stockholders’
equity interests in the Company at and after the time that the hedging
activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.


 


(jj)           Regulation
M Compliance.  The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii)
and (iii), compensation paid to the Company’s placement agent in connection
with the placement of the Securities.


 


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


 


(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 and to consummate
the transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of the Transaction Documents and performance by such Purchaser of the
transactions


 


20

















 


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


 


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


 


(c)           Purchaser
Status. At the time such Purchaser was offered the Securities, it was, and
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 the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.


 


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


 


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


 


21
















 


(f)            Short
Sales and Confidentiality Prior To The Date Hereof. Other than consummating
the transactions contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing
from the time that such Purchaser first received a term sheet (written or oral)
from the Company or any other Person representing the Company 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-managed investment 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 of such 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. Other than 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 THE PARTIES


 


4.1           Transfer Restrictions.


 


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


 


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


 


[NEITHER] THIS SECURITY [NOR
THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS
[NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN


 


22

















 


AVAILABLE EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
[AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY SUCH SECURITIES.


 


The Company acknowledges and
agrees that a Purchaser may from time to time pledge pursuant to a bona fide
margin agreement with a registered broker-dealer or grant a security interest
in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to
be bound by the provisions of this Agreement and the Registration Rights
Agreement and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Securities to the pledgees or secured parties. Such
a pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor shall
be required in connection therewith. Further, no notice shall be required of
such pledge. At the appropriate Purchaser’s expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of
the Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing of
any required prospectus supplement under Rule 424(b)(3) under the Securities
Act or other applicable provision of the Securities Act to appropriately amend
the list of Selling Stockholders thereunder.


 


(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 any sale 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 is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a Debenture or
Warrant is converted or exercised (as applicable) 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 is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Underlying Shares shall be issued free of all legends.
The Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 4.1(c), it will, no later than
three Trading Days following the delivery by a Purchaser to the Company or


 


23

















 


the Transfer
Agent of a certificate representing Underlying Shares, as applicable, issued
with a restrictive legend (such third Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to the Transfer
Agent that enlarge the restrictions on transfer set forth in this Section. Certificates
for Underlying Shares subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System as directed
by such Purchaser.


 


(d)           In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have begun
to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.


 


(e)           Each Purchaser, severally and not jointly
with the other Purchasers, agrees that such Purchaser will sell any Securities
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, 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, and acknowledges that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company’s reliance upon this understanding.


 


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


 


4.3           Furnishing of Information. Until the
earliest of the time that no 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 Company after
the date hereof pursuant to the Exchange Act even if the Company is not then
subject to the reporting


 


24

















 


requirements of the Exchange Act. As long as
any Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.


 


4.4           Integration. The Company shall not
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities to the Purchasers in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Purchasers or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market.


 


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


 


4.6           Securities
Laws Disclosure; Publicity. The Company shall, 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 transactions contemplated hereby
and attaching the Transaction Documents as exhibits 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 nor any 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 respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior
written consent of such Purchaser, except (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 final Transaction 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 of such disclosure
permitted under this clause (ii).


 


25

















 


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


 


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


 


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


 


4.10         Indemnification
of Purchasers. Subject to the provisions of this Section 4.10, the Company
will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser in any
capacity, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance). If
any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this


 


26

















 


Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate counsel. The
Company will not be liable to any Purchaser Party under this Agreement (i) for
any settlement 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
is attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.


 


4.11         Reservation and Listing of Securities.


 


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


 


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


 


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


 


4.12         [RESERVED]


 


4.13         Subsequent Equity Sales.


 


(a)           From
the date hereof until 45 days after the Effective Date, neither the Company nor
any Subsidiary shall issue (or enter into any agreement, discussions or


 


27

















 


letter of
intent to issue) shares of Common Stock or Common Stock Equivalents; provided,
however, the 45 day period set forth in this Section 4.13 shall be
extended for the number of Trading Days during such 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 be used by the Purchasers for
the resale of the Underlying Shares.


 


(b)           From
the date hereof until the earlier of (x) the date the Debentures are no longer
outstanding or (y) the 12 month anniversary of the Effective Date, the Company
shall be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company issues or sells (i)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, 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 after the initial issuance of such debt or equity
securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement, including, but
not limited to, an equity line of credit, whereby the Company may sell
securities at a future determined price.


 


(c)           Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance
unless such Variable Rate Transaction meets the requirements described in
clause (c) of the definition of “Exempt Issuance” in Section 1.1 hereof.


 


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


 


4.15         Short
Sales and Confidentiality 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 any understanding 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.  Each Purchaser, severally and not
jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as


 


28

















 


described in
Section 4.6, such Purchaser will maintain the confidentiality of the existence
and terms of this transaction and the information included in the Disclosure
Schedules.  Each Purchaser severally and not jointly with any other
Purchaser understands and acknowledges, and agrees, to act in a manner that
will not violate the positions of the Commission 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 of Corporation 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 this Agreement 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 such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.


 


4.16         Form D; Blue Sky Filings. The Company
agrees to timely file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof, promptly upon request of any
Purchaser. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the
Securities for, sale to the Purchasers at the Closing under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of such actions promptly upon request of any Purchaser.


 


4.17         Capital Changes. Until such time that
the Debentures are no longer outstanding, 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 75% of the principal amount
outstanding of the Debentures.


 


4.18         Shareholder Approval. The Company shall
use its best efforts to effect the Shareholder Approval as soon as practicable
following the Closing Date. It shall be an “Event of Default” (as defined in
the Debentures) in the event that any of the following items do not occur on or
before January 5, 2008:  (i) the
Shareholder Approval does not occur for any reason; (ii) the Company has not
delivered each Purchaser evidence of the filing of the Amendment with the
Secretary of State of the State of Nevada and the acceptance of the Amendment
by the Secretary of State of the State of Nevada; or (iii) the Company fails to
cause its counsel to issue each Purchaser a legal opinion regarding the
capitalization of the Company, including the due reservation of all shares of
Common Stock issued and issuable under the Transaction Documents, which opinion
shall be in form and substance reasonably satisfactory the Purchasers.


 


4.19         Secured Obligation. As an inducement
for the Purchasers to purchase the Debentures and to secure the complete and
timely payment, performance and discharge in full, as the case may be, of all
of the obligations of the Company under the Debentures, including the
Debentures, the Company, and each Subsidiary, unconditionally and irrevocably
pledges, grants and hypothecates to the Purchasers a continuing and perfected
security interest in and to, a lien


 


29

















 


upon and a right of set-off against all of
their respective right, title and interest of whatsoever kind and nature in and
to, all of the assets of the Company and its Subsidiaries. The parties
acknowledge and agree that the obligations of the Company under the Transaction
Documents, including but not limited to the Debentures, are subject to security
interest granted by the Company and its Subsidiaries pursuant to the Security
Agreement, by and among the Company, its Subsidiaries and the secured parties thereto
and that such obligations are “Obligations” under such Security Agreement. The
Company and the Subsidiaries shall take any and all actions requested by the
Purchasers in order to grant the Purchasers a first priority security interest
in the assets of the Company and the Subsidiaries, including all UCC-1 filing
receipts.


 


4.20         November Purchase Agreement Waivers. Subject
to the terms and conditions hereunder, each Purchaser, in its capacity as a
purchaser under the November Purchase Agreement and constituting 96% in
interest of the purchasers under the November Purchase Agreement, hereby waives
the restrictions set forth in Section 4.13(a) of the November Purchase
Agreement, Sections 7(a), 7(b), 7(d) and 7(g) of the November Debentures,
Section 6(b) of the November Registration Rights Agreement and Section 4(b) of
the November Guarantees, solely with respect to the transactions contemplated
hereby and the Company’s obligations to the Purchasers hereunder and under the
other Transaction Documents.


 


ARTICLE V.


MISCELLANEOUS


 


5.1           Termination.  This Agreement may
be terminated by any Purchaser, as to such Purchaser’s obligations hereunder
only and without any effect whatsoever on the obligations between the Company
and the other Purchasers, by written notice to the other parties, if the
Closing has not been consummated on or before December 7, 2007; provided,
however, that such termination will not affect the right of any party to
sue for any breach by the other party (or parties).


 


5.2           Fees and Expenses. At the Closing,
the Company has agreed to reimburse Enable Capital Management, LLC (“Enable”)
the non-accountable sum of $10,000 for its legal fees and expenses, none of
which has been paid prior to the Closing. The Company shall deliver to each
Purchaser, prior to the Closing, a completed and executed copy of the Closing
Statement attached hereto as Annex A. Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties
levied in connection with the delivery of any Securities to the Purchasers.


 


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


 


30

















 


5.4           Notices.
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (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 on the 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 second
Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.


 


5.5           Amendments; Waivers. No provision of
this Agreement may be waived, modified, supplemented or amended except in a
written instrument signed, in the case of an amendment, by the Company and the
Purchasers of at least 85% in interest of the Securities still held by
Purchasers or, in the case of a waiver, by the party against whom enforcement
of any such waived provision is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.


 


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


 


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


 


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


 


5.9           Governing Law. All questions
concerning the construction, validity, enforcement and interpretation of the
Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York. Each
party hereby irrevocably


 


31

















 


submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for
such proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. If either party shall commence an action
or proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.


 


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


 


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


 


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


 


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


 


32

















 


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 any shares of Common Stock delivered in
connection with any such rescinded conversion or exercise notice.


 


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


 


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


 


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


 


5.17         Usury. To the extent it may lawfully do
so, the Company hereby agrees not to insist upon or plead or in any manner
whatsoever claim, and will resist any and all efforts to be compelled to take
the benefit or advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any claim, action or proceeding that may
be brought by any Purchaser in order to enforce any right or remedy under any
Transaction Document. Notwithstanding any provision to the contrary contained
in any Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the “Maximum Rate”), and, without limiting the
foregoing, in no event shall any rate of interest or default interest, or both
of them, when aggregated with any other sums in the nature of interest that the
Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest
allowed by law and applicable to the Transaction Documents is increased or


 


33

















 


decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess shall
be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.


 


5.18         Independent Nature of Purchasers’
Obligations and Rights. The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance or non-performance of the obligations of any other Purchaser under
any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Purchaser pursuant thereto, shall be
deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FWS. FWS does not represent all
of the Purchasers but only Enable. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.


 


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


 


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


 


5.21         Construction. The parties agree that
each of them and/or their respective counsel has reviewed and had an
opportunity to revise the Transaction Documents and, therefore, the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of the
Transaction Documents or any amendments hereto.


 


34

















 


5.22         Waiver of Jury Trial.
In any action, suit or proceeding in any jurisdiction brought by any party
against any other party, the parties each knowingly and intentionally, to the
greatest extent permitted by applicable law, hereby absolutely,
unconditionally, irrevocably and expressly waives forever trial by jury.


 


(Signature
Pages Follow)


 


35

















 


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


 


	
  ECOTALITY, INC.

  	
   

  	
  Address for Notice:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Fax:

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With a copy to (which shall not constitute
  notice):

  



 


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


SIGNATURE PAGE FOR PURCHASER FOLLOWS]


 


36

















 


[PURCHASER SIGNATURE PAGES TO ETLY SECURITIES PURCHASE AGREEMENT]


 


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


 


 


	
  Name of
  Purchaser:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature
  of Authorized Signatory of Purchaser:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Email
  Address of Purchaser:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Facsimile
  Number of Purchaser:

  	
   

  	
   

  	
   

  
												



 


 


Address for Notice of
Purchaser:


 


 


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


 


 


Subscription Amount:


 


Principal Amount:                   (Subscription
Amount x 1.176471)


 


Warrant Shares:


 


 


EIN Number:  [PROVIDE THIS UNDER
SEPARATE COVER]


 


[SIGNATURE PAGES CONTINUE]


 


37

















 


Annex A


 


CLOSING STATEMENT


 


Pursuant to the attached
Securities Purchase Agreement, dated as of the date hereto, the purchasers shall
purchase up to $1,500,000 of Debentures and Warrants from Ecotality, Inc. (the “Company”).
All funds will be wired into an account maintained by the Company. All funds
will be disbursed in accordance with this Closing Statement.


 


Disbursement Date:    December       ,
2007


 


 


	
  I. PURCHASE PRICE

  	
   

  
	
   

  	
   

  
	
   

  	
  Gross
  Proceeds to be Received

  	
  $

  
	
   

  	
   

  
	
  II.DISBURSEMENTS

  	
   

  
	
   

  	
   

  
	
   

  	
  $

  
	
   

  	
  Enable
  Capital

  	
  $

  
	
   

  	
  $

  
	
   

  	
  $

  
	
   

  	
  $

  
	
   

  	
   

  
	
  Total
  Amount Disbursed:

  	
  $

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  



 


 


WIRE
INSTRUCTIONS:


 


 


To:


 


 


To:


 


38