Document:

Form of Securities Purchase Agreement

 

EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

     This
Securities Purchase Agreement (this “Agreement”) is
dated as of September 15,
2005 among Viragen, Inc., a Delaware corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively the “Purchasers”).

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

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

ARTICLE I.

DEFINITIONS

     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a)
capitalized terms that are not otherwise defined herein have the meanings given to such terms in
the Debentures (as defined herein), and (b) the following terms have the meanings indicated 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 144 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.

     “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 $0.01 per
share, and any other class of securities into which such securities may hereafter have been
reclassified or changed into.

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

     “Company Counsel” means Schneider Weinberger and Beilly LLP.

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

     “Debentures” means, the amortizing convertible debentures issued by the Company
to the Purchasers hereunder, in the form of Exhibit A.

     “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.

     “Escrow Agent” shall have the meaning set forth in the Escrow Agreement.

     “Escrow Agreement” shall mean the Escrow Agreement in substantially the form of
Exhibit E hereto executed and delivered contemporaneously with this Agreement.

     “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 by a majority of the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of or in respect of
any Securities issued hereunder and/or securities exercisable or exchangeable for or
convertible into, or as payment of interest on, convertible debt securities outstanding on
the date hereof or 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 any such securities, (c) securities issued pursuant to acquisitions or
strategic transactions, provided any such

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issuance shall only be to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in securities, (d) shares of Common Stock offered in a firm commitment underwritten public offering with a
reputable investment bank, (e) shares issued in connection with the acquisition by the
Company of the minority interest in Viragen International, Inc. and (f) securities to a
vendor or lessor in any equipment lease or similar equipment financing transaction in which
the Company or any Subsidiary obtains the use of equipment for its business.

     “FW” means Feldman Weinstein 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).

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

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

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

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

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

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

     “Participation Maximum” shall have the meaning ascribed to such term in Section
4.13.

     “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 4.13.

     “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 1.4.

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

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

     “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.

     “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.

     “Shareholder Approval” means approval by the shareholders of the Company to
increase the Company’s authorized number of shares of Common Stock and such approval as may
be required by the applicable rules and regulations of the American Stock Exchange (or any
successor entity) from the shareholders of the Company with respect to the transactions
contemplated by the Transaction Documents, including the issuance of all of the Underlying
Shares and shares of Common Stock issuable upon exercise of the Warrants in excess of 19.99%
of the issued and outstanding Common Stock on the Closing Date.

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     “Short Sales” shall include all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act.

     “Subscription Amount” shall mean, as to each Purchaser, the amount to be paid
for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement, in United States Dollars.

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

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

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

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

     “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market,
the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market.

     “Transaction Documents” means this Agreement, the Debentures, the Warrants, the
Escrow Agreement and the Registration Rights Agreement.

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

     “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 Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Trading
Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, 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 the Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share of Common Stock as
determined by an independent

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appraiser selected in good faith by the Purchasers and reasonably acceptable to the
Company.

     “Warrants” means collectively the Common Stock purchase warrants, in the form
of Exhibit C delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise
equal to 3 years.

     “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, concurrent with the execution and delivery of this Agreement by the parties hereto,
the Company agrees to sell, and each Purchaser agrees to purchase in the aggregate, severally and
not jointly, up to $2,000,000 Principal Amount of the Debentures for an aggregate Subscription
Amount of $1,430,000. Each Purchaser shall deliver to the Company via wire transfer or a certified
check immediately available funds equal to their Subscription Amount and the Company shall deliver
to each Purchaser their respective Debenture and Warrants as determined pursuant to Section 2.2(a)
and the other items set forth in Section 2.2 issuable 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 the Escrow
Agent, 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 the
Escrow Agent the following:

     (i) this Agreement duly executed by the Company;

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

     (iii) a Debenture with a principal amount equal to such Purchaser’s 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 $1.25 ,
subject to adjustment therein;

     (v) the written voting agreement, in the form of Exhibit H attached
hereto of all of the officers and directors;

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     (vi) the Escrow Agreement duly executed by the Company; and

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

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

     (i) this Agreement duly executed by such Purchaser;

     (ii) such Purchaser’s Subscription Amount by wire transfer to the Escrow Agent;

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

     (iv) the Registration Rights Agreement duly executed by such Purchaser.

     2.3 Closing Conditions.

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

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

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

     (iii) the delivery by the Purchasers 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 on the Closing Date of the
representations and warranties of the Company contained herein;

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

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

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

     (v) an agreement from each holder of the Company’s 7% Convertible

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Note Due
2006, through a separate agreement substantially in the form of Exhibit I
attached hereto with any such holder to, among other things, extend the maturity of
said notes to at least August 31, 2008 in exchange for the granting of full ratchet
anti-dilution rights in such notes and the warrant issued in connection therewith,
provided that no consideration shall be offered or paid to any person to amend,
extend or consent to a waiver or modification of said notes unless the same
consideration was also offered to all holders of said notes; and

     (vi) from the date hereof to the Closing Date, trading in the Common Stock
shall not have been suspended by the Commission (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 Financial Markets 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 Debentures at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the disclosure schedules delivered to the Purchasers concurrently herewith
(the “Disclosure Schedules”) which Disclosure Schedules shall be deemed a part hereof, the
Company hereby makes the representations and warranties set forth below to each Purchaser.

     (a) Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). Except with respect to the minority interest in
Viragen International, Inc., 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 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, then references in the Transaction
Documents to the Subsidiaries will 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

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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 thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith other 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 applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other equitable
remedies.

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

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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 Debentures
and Warrants and the listing of the Underlying Shares for trading thereon in the time and
manner required thereby, (iv) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws and (vi) Shareholder Approval
(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. 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). 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 plan and
pursuant to the conversion or exercise of outstanding Common Stock Equivalents. 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 and as otherwise set forth in the SEC
Reports, there are no outstanding options, warrants, script 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

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the exercise, conversion, exchange or reset price under 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 of the Company or others is
required for the issuance and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s capital stock to
which the 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 it 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 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 and the rules and
regulations of the Commission promulgated thereunder, 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
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 the SEC
Reports, (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 required to be 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

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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.

     (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.

     (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
except in each case as could not have 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 have or
reasonably be expected to result in a Material Adverse Effect (“Material 

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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. Except as otherwise set forth in the SEC Reports, the
Company and the Subsidiaries have good and marketable title in fee simple to all real
property owned by them that is material to the business of the Company and the Subsidiaries
and good and marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases of 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, copyrights, licenses and other 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 written notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of others.

     (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. To the best knowledge of the Company, such
insurance contracts and policies are accurate and complete. 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,

13

 

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 (i) for payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option agreements under
any stock option plan of the Company.

     (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific 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 material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities, particularly during
the period in which the Company’s most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures as of the date prior to
the filing date of the 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 significant changes in the
Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under
the Exchange Act) or, to the knowledge of the Company, in other factors that could
significantly affect the Company’s internal controls.

     (s) Certain Fees. Other than with respect to HPC Capital Management, 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. Subject to the filing of the listing agreement with AMEX, the

14

 

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.

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

     (w) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(b) 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 its Board of
Directors have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the 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. 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 constitutes or might constitute material, nonpublic information. The
Company understands and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company with respect to the representations and warranties
made herein are true and correct with respect to such representations and warranties and do
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

15

 

circumstances under which they were made, not misleading. The Company acknowledges and
agrees that no Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in Section 3.2
hereof.

     (z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and regulations of any
Trading Market on which any of the securities of the Company are listed or designated.

     (aa) Solvency. Based on the 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 Company’s fair saleable value of its 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 for
the current fiscal year 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
debt 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. The SEC Reports set forth as of the dates thereof 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” shall mean (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.

16

 

     (bb) Form S-3 Eligibility. The Company is eligible to register the resale of
the Underlying Shares for resale by the Purchaser on Form S-3 promulgated under the
Securities Act.

     (cc) 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.

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

     (ee) 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.

     (ff) Accountants. The Company’s accountants are set forth on Schedule
3.1(ff) of the Disclosure Schedule. To the knowledge of the Company, such accountants,
who the Company expects will express their opinion with respect to the financial statements
to be included in the Company’s Annual Report on Form [10-K for the year ended June 30, 2005
are a registered public accounting firm as required by the Securities Act.

     (gg) Seniority. As of the Closing Date, no indebtedness or other equity of 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).

     (hh) 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 accountants and lawyers formerly or presently employed by the

17

 

Company and the Company is current with respect to any fees owed to its accountants and
lawyers.

     (ii) 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 hereby. 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
this Agreement and the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby 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 has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its representatives.

     (jj) Acknowledgement Regarding Purchasers’ Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Section 4.16
hereof), it is understood and agreed by the Company (i) that none of the Purchasers have
been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling,
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) that past or
future open market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and
counter parties in “derivative” transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction. The Company further understands
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.

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

18

 

securities of the Company.

     (ll) Acknowledgement Regarding Adjustment to Outstanding Securities. The
Company acknowledges and agrees that the consummation of this transaction shall result in an
immediate adjustment to the conversion price of the Company’s amended 7% Convertible Note
Due 2006 to $1.05 and the exercise price of the amended warrants issued in connection
therewith to $1.25 and that any subsequent issuances pursuant to the Transaction Documents
at a lower price, including but not limited to, an issuance of shares in lieu of cash
payments pursuant to a monthly amortization shall, if at a price less than the then
Conversion Price, result in additional adjustments downward to such securities.

     3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for
itself and for no other Purchaser, 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, delivery and performance by
such Purchaser of the transactions contemplated by this Agreement 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 arrangement or understanding with any
other persons 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

19

 

business. Such Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.

     (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.

     (f) Short Sales and Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, such Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Purchaser,
executed any disposition, including Short Sales (but not including the location and/or
reservation of borrowable shares of Common Stock), in the securities of the Company during
the period commencing from the time that such Purchaser first received a term sheet from the
Company or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-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).

     The Company acknowledges and agrees that each Purchaser does not make or has not made
any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in this Section 3.2.

20

 

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(b), of a legend on any of the Securities in the following form:

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE]
[CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES 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

21

 

counsel of the pledgee, secured party or pledgor shall be required in connection
therewith. At the appropriate Purchaser’s expense, the Company will execute and deliver
such reasonable documentation as 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 made in accordance with the requirements of 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 Company’s transfer agent promptly after
the Effective Date if required by the Company’s 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 thereof) 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 the Company’s 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 any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the transfer agent of the Company to the
Purchasers by crediting the account of the Purchaser’s prime broker with the Depository
Trust Company System.

     (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 Company’s 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

22

 

the Transaction Documents, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

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

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

     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. As long as any Purchaser owns Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take
such further action as any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions 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 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

23

 

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. Eastern
time on the Trading Day following the date hereof, issue a Current Report on Form 8-K (“Current
Report”), reasonably acceptable to each Purchaser disclosing the material terms of the
transactions contemplated hereby, and shall attach the Transaction Documents thereto. The Company
and each Purchaser shall consult with each other in issuing any other press releases with respect
to the transactions contemplated hereby, and neither the Company 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 the Current Report or the registration
statement contemplated by the Registration Rights Agreement 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 subclause (i) or (ii).

     4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or, to
the knowledge of the Company, any other Person that any Purchaser is an “Acquiring Person” under
any shareholder rights plan or similar 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. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.

     4.8 Non-Public Information. 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 representations in effecting transactions in securities of the Company.

     4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for working capital
purposes and not for the satisfaction of any portion of the Company’s debt (other than payment

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

     4.10 Reimbursement. If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except as a result of
sales, pledges, margin sales and similar transactions by such Purchaser to or with any current
stockholder), solely as a result of such Purchaser’s acquisition of the Securities under this
Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses
(including the cost of any investigation preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the Purchasers and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any such Affiliate and any such Person.
The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors,
agents, employees or controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.

     4.11 Indemnification of Purchasers. Subject to the provisions of this Section 4.11,
the Company will indemnify and hold the Purchasers and their directors, officers, shareholders,
members, partners, employees and agents (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, or any of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right
to assume the defense thereof with counsel of its own choosing. 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. The Company

25

 

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 the Purchasers in this Agreement or in the other
Transaction Documents.

     4.12 Reservation and Listing of Securities.

     (a) At any time following the 75 day from the date hereof, 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) After the 75th day following the date hereof, 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 of the Company shall use
commercially reasonable efforts to amend the Company’s certificate or articles of
incorporation to increase the number of authorized but unissued shares of Common 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
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 the 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. In addition, the Company shall hold a
special meeting of shareholders (which may also be at the annual meeting of shareholders) on
or before 75 days from the date hereof for the purpose of obtaining Shareholder Approval,
with the recommendation of the Company’s Board of Directors that such proposal be approved,
and the Company shall solicit proxies from its shareholders in connection therewith in the
same manner as all other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of such proposal. If
the Company does not obtain Shareholder Approval at the first meeting, the Company shall
call a meeting every four months thereafter to seek Shareholder Approval until the earlier
of the date Shareholder Approval is obtained or the Debentures are no longer outstanding.

     4.13 Participation in Future Financing.

     (a) From the date hereof until the date that is the 12 month anniversary of the
Effective Date, upon any financing by the Company or any of its Subsidiaries of Common Stock
or Common Stock Equivalents (a “Subsequent Financing”), each

26

 

Purchaser shall have the right to participate in up to an amount of the Subsequent
Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”).

     (b) At least 5 Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it
wants to review the details of such financing (such additional notice, a “Subsequent
Financing Notice”). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than
1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.
A Subsequent Financing Notice delivered to a Purchaser under this paragraph shall be
confidential information within he meaning of Section 4.8 hereof. The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet
or similar document relating thereto.

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

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

     (e) If by 5:30 p.m. (New York City time) on the 5th Trading Day after all of
the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent
Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to purchase the greater of
(a) their Pro Rata Portion (as defined below) of the Participation Maximum and (b) the
difference between the Participation Maximum and the aggregate amount of participation by
all other Purchasers. “Pro Rata Portion” is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser participating under this
Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities purchased
on the Closing Date by all Purchasers participating under this Section 4.13.

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

     (g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an
Exempt Issuance and shall be subordinate to any similar participatory rights granted under
the Purchase Agreements relating to the Company’s $20 million principal amount of
convertible notes due 2006.

     4.14 Subsequent Equity Sales.

     (a) From the date hereof until 90 days after the Effective Date, neither the Company
nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 90 day period set forth in this Section 4.14 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 such time as no Purchaser holds any of the Securities,
the Company shall be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a “Variable Rate Transaction”. The term “Variable Rate
Transaction” shall mean 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) Unless Shareholder Approval has been obtained and deemed effective, the Company
shall not make any issuance whatsoever of Common Stock or Common Stock Equivalents for a per
share purchase price of less than the Exercise Price of the Warrants.

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

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     4.15 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.

     4.16 Short Sales and Confidentiality After The Date Hereof. Each Purchaser severally
and not jointly with the other Purchasers covenants that neither it nor any affiliates acting on
its behalf or pursuant to any understanding with it will execute any Short Sales during the period
after 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 described in Section 4.6,
such Purchaser will maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each Purchaser
understands and acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares of the Common Stock
“against the box” prior to the Effective Date of the Registration Statement with the Securities is
a violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under 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.

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 September 15, 2005; provided, however, that no
such termination will affect the right of any party to sue for any breach by the other party (or
parties).

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     5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse Palisades
Master Fund, L.P. (“Palisades”) non-accountable sum of $25,000, for its actual, reasonable,
out-of-pocket legal fees and expenses. 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.

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

     5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (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 2nd Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached hereto.

     5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and each
Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver 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 either 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. The
language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against any party.

     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. Any Purchaser may assign any or all of its rights under this Agreement to any Person to
whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in

30

 

writing to be bound, with respect to the transferred Securities, by the provisions hereof 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 4.11.

     5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is improper or 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 manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such action or
proceeding.

     5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery, exercise and/or conversion of the Securities, as applicable 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, 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 signature page were an original thereof.

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     5.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.

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

     5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof, 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 and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs 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 described in the foregoing sentence and hereby agrees to waive 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.

32

 

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

     5.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in
any 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 FW. FW does not represent all of the Purchasers but only Palisades. 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

33

 

which such partial liquidated damages or other amounts are due and payable shall have been
canceled.

     5.20 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.

(Signature Pages Follow)

34

 

     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.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	VIRAGEN, INC.	 	Address for Notice:	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

35

 

[PURCHASER SIGNATURE PAGES TO VRA 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:                                                                                                                                            

Address for Notice of Purchaser:

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

Subscription Amount (0.71 times face amount of Debenture):

Principal Amount (1.4 times amount actually paid):

Warrant Shares (0.50 * Principal Amount divided by $1.05):

[SIGNATURE PAGES CONTINUE]

36Form of Amortizing, Convertible Debentures

 

EXHIBIT 10.2

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

Original Issue Date: September ___, 2005

Original Conversion Price (subject to adjustment herein): $1.05

$                                        

AMORTIZING CONVERTIBLE DEBENTURE

     THIS AMORTIZING CONVERTIBLE DEBENTURE is one of a series of duly authorized and issued
Amortizing Convertible Debentures of Viragen, Inc., a Delaware corporation, having a principal
place of business at                                                              (the “Company”), designated as its
Amortizing Convertible Debenture (this debenture, the “Debenture” and collectively with
the other such series of debentures, the “Debentures”).

     FOR VALUE RECEIVED, the Company promises to pay to                                                              or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal
sum of $                                         in full by September ___, 2008, or such earlier date as this Debenture is
required or permitted to be repaid as provided hereunder (the “Maturity Date”). This
Debenture is subject to the following additional provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:

     “Alternate Consideration” shall have the meaning set forth in Section 5(d).

     “Base Conversion Price” shall have the meaning set forth in Section 5(b).

1

 

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

     “Buy-In” shall have the meaning set forth in Section 4(d)(v).

     “Change of Control Transaction” means the occurrence after the date hereof of
any of (i) an acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company, by contract
or otherwise) of in excess of 33% of the voting securities of the Company, or (ii) the
Company merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the aggregate
voting power of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as an entirety, to
another Person and the stockholders of the Company immediately prior to such transaction own
less than 66% of the aggregate voting power of the acquiring entity immediately after the
transaction, (iv) a replacement at one time or within a three year period of more than
one-half of the members of the Company’s board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the date hereof
(or by those individuals who are serving as members of the board of directors on any date
whose nomination to the board of directors was approved by a majority of the members of the
board of directors who are members on the date hereof), or (v) the execution by the Company
of an agreement to which the Company is a party or by which it is bound, providing for any
of the events set forth above in (i) or (iv).

     “Common Stock” means the common stock, par value $0.01 per share, of the
Company and stock of any other class of securities into which such securities may hereafter
have been reclassified or changed into.

     “Conversion Date” shall have the meaning set forth in Section 4(a).

     “Conversion Price” shall have the meaning set forth in Section 4(b).

     “Conversion Shares” means the shares of Common Stock issuable upon conversion
of this Debenture in accordance with the terms.

     “Debenture Register” shall have the meaning set forth in Section 2(c).

     “Dilutive Issuance” shall have the meaning set forth in Section 5(b).

     “Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

2

 

     “Effectiveness Period” shall have the meaning given to such term in the
Registration Rights Agreement.

     “Equity Conditions” shall mean, during the period in question, (i) the Company
shall have duly honored all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Notice of Conversions of the Holder, if any, (ii) all liquidated
damages and other amounts owing to the Holder in respect of this Debenture shall have been
paid; (iii) there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant
to the Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv) the Common Stock
is trading on the Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for
the foreseeable future), (v) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vi) there is then existing no Event of Default or
event which, with the passage of time or the giving of notice, would constitute an Event of
Default, (vii) the issuance of the shares in question [(or, in the case of a redemption, the
shares issuable upon conversion in full of the redemption amount) to the Holder
would not violate the limitations set forth in [Section 4(c)(i) and Section 4(c)(ii) and
(viii) no public announcement of a pending or proposed Fundamental Transaction, Change of
Control Transaction or acquisition transaction has occurred that has not been consummated.

     “Event of Default” shall have the meaning set forth in Section 8.

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

     “Forced Conversion” shall have the meaning set forth in Section 6(c).

     “Forced Conversion Notice” shall have the meaning set forth in Section 6(c).

     “Forced Conversion Notice Date” shall have the meaning set forth in Section
6(c).

     “Fundamental Transaction” shall have the meaning set forth in Section 5(d).

     “Mandatory Default Amount” shall equal the sum of (i) the greater of: (A) 130%
of the principal amount of this Debenture to be prepaid or (B) the principal amount of this
Debenture to be prepaid divided by the Conversion Price on (x) the date the Mandatory
Default Amount is demanded or otherwise due or (y) the date the Mandatory Default Amount is
paid in full, whichever is less, multiplied by the VWAP on (x) the date the Mandatory
Default Amount is demanded or otherwise due or (y) the date the Mandatory Default Amount is
paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Debenture.

3

 

     “Monthly Conversion Period” shall have the meaning set forth in Section 6(a)
hereof.

     “Monthly Conversion Price” shall have the meaning set forth in Section 6(a)
hereof.

     “Monthly Redemption” shall mean the redemption of this Debenture pursuant to
Section 6(a) hereof.

     “Monthly Redemption Amount” shall mean, as to a Monthly Redemption,
$___1.

     “Monthly Redemption Date” means the 1st of each month, commencing on January 1,
2006 and ending upon the full redemption of this Debenture.

     “Monthly Redemption Notice” shall have the meaning set forth in Section [6(a)
hereof.

     “Monthly Redemption Period” shall have the meaning set forth in Section [6(a)
hereof.

     “Monthly Redemption Share Amount” shall have the meaning set forth in Section
[6(a) hereof.

     “New York Courts” shall have the meaning set forth in Section 9(d).

     “Notice of Conversion” shall have the meaning set forth in Section 4(a).

     “Original Issue Date” shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless of the
number of instruments which may be issued to evidence such Debenture.

     “Permitted Indebtedness” means:

     (a) indebtedness outstanding on the Original Issued Date prior to issuance of
this Debenture; and

     (b) indebtedness evidenced by this Debenture and the other Debentures;

     (c) indebtedness incurred after the Original Issue Date in an aggregate amount
not to exceed $1 million at any one time outstanding so long as (x) such

 

			
	1	 	1/32nd of the original Principal Amount of this Debenture.

4

 

indebtedness is incurred for the purpose of acquiring equipment owned or used or to
be owned or used by the Company or any Subsidiaries (or for the purpose of acquiring
the capital stock or similar equity interests of a Subsidiary that is formed for the
limited purpose of owning same and does not own or hold any other material assets)
and does not exceed the purchase price of the equipment, capital stock or other
equity interest so acquired plus reasonable transaction expenses and (y) such
indebtedness, if secured, is secured solely by the interest of the Company or one of
its Subsidiaries in the equipment so acquired and rights related thereto;

     (d) indebtedness incurred after the Original Issue Date that is secured solely
by raw materials, works in progress and finished goods inventory and accounts
receivable in a financing by a bank, finance company or other institutional lender
providing receivables or inventory financing;

     (e) endorsements for collection or deposit in the ordinary course of business;
and

     (f) in the case of any Subsidiary, indebtedness
owed by such Subsidiary to the Company.

     “Permitted Lien” mean (a) Liens with respect to the payment of taxes or
governmental charges in all cases which are not yet due or which are subject to a good faith
contest; (b) any Liens incurred in connection with Permitted Debt provided that such liens
are not secured by assets of the Company or its Subsidiaries other than the assets so
acquired or leased; and (c) statutory Liens of landlords or equipment lessors against any
property of the Company or its Subsidiaries existing as of the date of the Purchase
Agreement in favor of suppliers, mechanics, carriers, materialmen, warehousemen or workmen.

     “Person” means a corporation, an association, a partnership, organization, a
business, an individual, a government or political subdivision thereof or a governmental
agency.

     “Pre-Redemption Conversion Shares” shall have the meaning set forth in Section
6(a) hereof.

     “Purchase Agreement” means the Securities Purchase Agreement, dated as of
September ___, 2005, to which the Company and the original Holder are parties, as amended,
modified or supplemented from time to time in accordance with its terms.

     “Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of the Purchase Agreement, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in accordance with its
terms.

5

 

     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among other things the
resale of the Conversion Shares and naming the Holder as a “selling stockholder” thereunder.

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

     “Shareholder Approval” shall have the meaning given to such term in the
Purchase Agreement.

     “Subsidiary” shall have the meaning given to such term in the Purchase
Agreement.

     “Threshold Period” shall have the meaning given to such term in Section 6(c).

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

     “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market,
the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market.

     “Transaction Documents” shall have the meaning set forth in the Purchase
Agreement.

     “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 Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Trading
Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, 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 the Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.

     Section 2. No Prepayment. Except as otherwise set forth in this Debenture,
the Company may not prepay any portion of the principal amount of this Debenture without the prior
written consent of the Holder.

6

 

     Section 3. Registration of Transfers and Exchanges.

     a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations, as requested
by the Holder surrendering the same. No service charge will be made for such registration
of transfer or exchange.

     b) Investment Representations. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations.

     c) Reliance on Debenture Register. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat the Person in
whose name this Debenture is duly registered on the Debenture Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other purposes, whether
or not this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

     Section 4. Conversion.

     a) Voluntary Conversion. At any time after the Original Issue Date until this
Debenture is no longer outstanding, this Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at any time and from time to
time (subject to the limitations on conversion set forth in Section 4(c) hereof). The
Holder shall effect conversions by delivering to the Company the form of Notice of
Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying
therein the principal amount of this Debenture to be converted and the date on which such
conversion is to be effected (a “Conversion Date”). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice
of Conversion is provided hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture to the Company unless the entire
principal amount of this Debenture has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Debenture in an amount equal
to the applicable conversion. The Holder and the Company shall maintain records showing the
principal amount converted and the date of such conversions. The Company shall deliver any
objection to any Notice of Conversion within 1 Business Day of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any assignee, by acceptance
of this Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture may be less than the amount stated on the face hereof.

     b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to $1.05 (subject to adjustment herein)(the “Conversion Price”).

7

 

     c) Conversion Limitations.

     i. Trading Market Limitations. Notwithstanding anything herein to the
contrary, if the Company has not obtained Shareholder Approval, then the Company may
not issue upon conversion of this Debenture, a number of shares of Common Stock
which, when aggregated with any shares of Common Stock issued prior to such
Conversion Date (A) pursuant to any Debentures issued pursuant to the Purchase
Agreement and (B) pursuant to any Warrants issued pursuant to the Purchase
Agreement, would exceed the lesser of the number of shares of Common Stock
authorized under the Company’s Certificate of Incorporation, as amended, or 19.999%
of the number of shares of Common Stock outstanding on the Trading Day immediately
preceding the Original Issue Date (such number of shares, the “Issuable
Maximum”). Each Holder shall be entitled to a portion of the Issuable Maximum
equal to the quotient obtained by dividing (x) the aggregate principal amount of the
Debenture(s) issued and sold to such Holder on the Original Issue Date by (y) the
aggregate principal amount of all Debentures issued and sold by the Company on the
Original Issue Date. If any Holder shall no longer hold the Debenture(s), then such
Holder’s remaining portion of the Issuable Maximum shall be allocated pro-rata among
the remaining Holders. If on any Conversion Date: (1) the applicable Conversion
Price then in effect is such that the shares issuable under this Debenture on any
Conversion Date together with the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all then outstanding Debentures
would exceed the Issuable Maximum, and (2) Shareholder Approval has not been
obtained and deemed effective (the “Shareholder Approval”), then the Company
shall issue to the Holder requesting a conversion a number of shares of Common Stock
equal to such Holder’s pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum and, with respect to the remainder of the
aggregate principal amount of the Debentures then held by such Holder for which a
conversion in accordance with the applicable conversion price would result in an
issuance of shares of Common Stock in excess of such Holder’s pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the Issuable Maximum
(the “Excess Principal”), the Company shall be prohibited from converting
such Excess Principal, and shall notify the Holder of the reason therefor. This
Debenture shall thereafter be unconvertible to such extent until and unless
Shareholder Approval is subsequently obtained, but this Debenture shall otherwise
remain in full force and effect.

     ii. Holder’s Restriction on Conversion. The Company shall not effect
any conversion of this Debenture, and the Holder shall not have the right to convert
any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the extent
that after giving effect to such conversion, the Holder (together with the Holder’s
affiliates), as set forth on the applicable Notice of Conversion, would beneficially
own in excess of 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to such conversion. For

8

 

purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with respect to
which the determination of such sentence is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Debenture beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any other Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(c)(ii), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. To the extent that the limitation contained in
this section applies, the determination of whether this Debenture is convertible (in
relation to other securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to represent to the
Company each time it delivers a Notice of Conversion that such Notice of Conversion
has not violated the restrictions set forth in this paragraph and the Company shall
have no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 4(c)(ii), in
determining the number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (x) the Company’s
most recent Form [10-Q or Form [10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the Company’s
Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of the Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of securities
of the Company, including this Debenture, by the Holder or its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
[The provisions of this Section 4(c) may be waived by the Holder, at the election of
the Holder, upon not less than 61 days’ prior notice to the Company, and the
provisions of this Section 4(c) shall continue to apply until such 61st day (or such
later date, as determined by the Holder, as may be specified in such notice of
waiver). The provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(c) to correct
this paragraph (or any portion hereof) which may be defective or inconsistent with
the intended 4.99% beneficial ownership limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such 4.99%
limitation. The limitations contained in this

9

 

paragraph shall apply to a successor holder of this Debenture. The holders of
Common Stock of the Company shall be third party beneficiaries of this Section 4(c)
and the Company may not waive this Section 4(c) without the consent of holders of a
majority of its Common Stock.

     d) Mechanics of Conversion

     i. Conversion Shares Issuable Upon Conversion of Principal Amount. The
number of shares of Common Stock issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal amount
of this Debenture to be converted by (y) the Conversion Price.

     ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date, the Company will deliver or cause to be
delivered to the Holder a certificate or certificates representing the Conversion
Shares which shall be free of restrictive legends and trading restrictions (other
than those required by the Purchase Agreement) representing the number of shares of
Common Stock being acquired upon the conversion of this Debenture, or in lieu
thereof electronic delivery via DWAC. The Company shall, if available and if allowed
under applicable securities laws, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions.

     iii. Failure to Deliver Certificates. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after a Conversion Date, the Holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such conversion,
in which event the Company shall immediately return the certificates representing
the principal amount of this Debenture tendered for conversion.

     iv. Obligation Absolute; Partial Liquidated Damages. If the Company
fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, for each $1000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day after 5 Trading Days after such damages begin to
accrue) for each Trading Day after such third Trading Day until such certificates
are delivered. The Company’s obligations to issue and deliver the Conversion Shares
upon conversion of this Debenture in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the recovery
of any judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or

10

 

termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by the
Holder or any other person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares; provided, however, such delivery
shall not operate as a waiver by the Company of any such action the Company may have
against the Holder. In the event the Holder of this Debenture shall elect to
convert any or all of the outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or any one associated or
affiliated with the Holder has been engaged in any violation of law, agreement or
for any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of this Debenture shall have been sought and
obtained and the Company posts a surety bond for the benefit of the Holder in the
amount of 150% of the principal amount of this Debenture outstanding, which is
subject to the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable to
such Holder to the extent it obtains judgment. In the absence of an injunction
precluding the same, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. Nothing herein shall limit a Holder’s
right to pursue actual damages or declare an Event of Default pursuant to Section 8
herein for the Company’s failure to deliver Conversion Shares within the period
specified herein and such Holder 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. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.

     v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third Trading Day after the
Conversion Date, and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise) Common Stock
to deliver in satisfaction of a sale by such Holder of the Conversion Shares which
the Holder anticipated receiving upon such conversion (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder (in addition to any remedies available
to or elected by the Holder) the amount by which (x) the Holder’s total purchase
price (including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock that
such Holder anticipated receiving from the conversion at issue multiplied by (2) the
actual sale price of the Common Stock at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation and (B) at the option
of the Holder, either reissue (if surrendered) this Debenture in a principal amount
equal to the principal amount of the attempted conversion or deliver to the Holder
the number of shares of Common Stock that

11

 

would have been issued had the Company timely complied with its delivery
requirements under Section 4(d)(ii). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Debenture with respect to which the actual sale price
of the Conversion Shares at the time of the sale (including brokerage commissions,
if any) giving rise to such purchase obligation was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the Company to make payment
in respect of a Buy-In for the failure to timely deliver certificates hereunder and
the Company timely pays in full such payment, the Company shall not be required to
pay such Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.

     vi. Reservation of Shares Issuable Upon Conversion. The Company
covenants that, subject to the receipt of Shareholder Approval for all amounts in
excess of the Issuable Maximum, it will at all times reserve and keep available out
of its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Debenture free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder (and the other
holders of the Debentures), not less than such number of shares of the Common Stock
as shall (subject to the terms and conditions set forth in the Purchase Agreement)
be issuable (taking into account the adjustments and restrictions of Section 5) upon
the conversion of the outstanding principal amount of this Debenture. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and, if
the Registration Statement is then effective under the Securities Act, registered
for public sale in accordance with such Registration Statement.

     vii. Fractional Shares. Upon a conversion hereunder the Company shall
not be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the VWAP at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common Stock.

     viii. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Debenture shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any transfer

12

 

involved in the issuance and delivery of any such certificate upon conversion
in a name other than that of the Holder of this Debenture so converted and the
Company shall not be required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

     Section 5. Certain Adjustments.

     a) Stock Dividends and Stock Splits. If the Company, at any time while this
Debenture is outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company pursuant to this Debenture), (B)
subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issues by reclassification of shares of the Common Stock any shares
of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and of which the denominator shall
be the number of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

     b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as
applicable, at any time while this Debenture is outstanding, shall offer, sell, grant any
option to purchase or offer, sell or grant any right to reprice its securities, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the then Conversion Price
(such lower price, the “Base Conversion Price” and such issuances collectively, a
“Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or
Common Stock Equivalents so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which is issued in connection
with such issuance, be entitled to receive shares of Common Stock at an effective price per
share which is less than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the
Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall
be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding
the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. The Company shall notify the

13

 

Holder in writing, no later than the Business Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this section, indicating therein the applicable
issuance price, or of applicable reset price, exchange price, conversion price and other
pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to
this Section 5(b), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Conversion Shares based upon
the Base Conversion Price regardless of whether the Holder accurately refers to the Base
Conversion Price in the Notice of Conversion.

     c) Pro Rata Distributions. If the Company, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the holders of the
Debenture) evidences of its indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security, then in each such case the
Conversion Price shall be adjusted by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of Directors in good faith. In either
case the adjustments shall be described in a statement provided to the Holder of the portion
of assets or evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned above.

     d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the Company with or into
another Person, (B) the Company effects any sale of all or substantially all of its assets
in one or a series of related transactions, (C) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property (in any such case, a “Fundamental Transaction”),
then upon any subsequent conversion of this Debenture, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in

14

 

respect of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary to effectuate the
foregoing provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder’s right to convert such debenture into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (d) and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

     e) Calculations. All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding treasury
shares, if any) issued and outstanding.

     f) Notice to the Holder.

     i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any of this Section 5, the Company shall promptly mail to each
Holder a notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. If the Company
issues a variable rate security, despite the prohibition thereon in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise price at which such
securities may be converted or exercised in the case of a Variable Rate Transaction
(as defined in the Purchase Agreement).

     ii. Notice to Allow Conversion by Holder. If (A) the Company shall
declare a dividend (or any other distribution) on the Common Stock; (B) the Company
shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of all
or substantially all of the assets of the Company, of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property; (E)
the Company shall authorize the voluntary or

15

 

involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of this Debenture, and shall cause
to be mailed to the Holder at its last addresses as it shall appear upon the stock
books of the Company, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the date
on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to exchange
their shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share exchange;
provided, that the failure to mail such notice or any defect therein or in
the mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. The Holder is entitled to convert this Debenture
during the 20-day period commencing the date of such notice to the effective date of
the event triggering such notice.

     Section 6. Monthly Redemption and Forced Conversion.

     a) Monthly Redemption. On each Monthly Redemption Date, the Company shall
redeem in cash the Monthly Redemption Amount plus a 10% premium (which premium shall not be
applied to the reduction of the principal amount of this Debenture) on such Monthly
Redemption Amount, the sum of all liquidated damages and any other amounts then owing to
such Holder in respect of this Debenture (the “Monthly Redemption”). The amount due
on each Monthly Redemption Date shall be paid in cash; provided, however, as
to any Monthly Redemption and upon 22 Trading Days’ prior written irrevocable notice (the
“Monthly Redemption Notice” and the 22 Trading Day period immediately following the
Monthly Redemption Notice, the “Monthly Redemption Period”), in lieu of a cash
redemption payment the Company may elect to pay all or part of such amount in Conversion
Shares (such dollar amount to be paid on a Monthly Redemption Date in Conversion Shares, the
“Monthly Redemption Share Amount”) based on a conversion price equal to 95% of the
average of the 5 VWAPs immediately prior to the applicable Monthly Redemption Date (subject
to adjustment for any stock dividend, stock split, stock combination or other similar event
affecting the Common Stock during such 5 Trading Day period) (the price calculated during
the 5 Trading Day period immediately prior to the Monthly Redemption Date, the “Monthly
Conversion Price” and such period, the “Monthly Conversion Period”);
provided, further, that the Company may not pay the Monthly Redemption
Amount in Conversion Shares unless, (x) from the date the Holder receives the duly delivered
Monthly Redemption Notice through and until the date such Monthly Redemption is paid in
full, the Equity Conditions, unless waived in writing by the Holder, have been satisfied,
(y) unless

16

 

waived in writing to the Holder by the Company prior to the applicable Monthly
Redemption Period, the Monthly Conversion Price is equal to or greater than $0.50, subject
to adjustment for reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date of this Amendment
and (z) as to such Monthly Redemption, prior to such Monthly Redemption Period (but not more
than 5 Trading Days prior to the commencement of the Monthly Redemption Period), the Company
shall have delivered to the Holder’s account with The Depository Trust Company a number of
shares of Common Stock to be applied against such Monthly Redemption Share Amount equal to
the quotient of (x) the applicable Monthly Redemption Share Amount divided by (y) the then
Conversion Price (the “Pre-Redemption Conversion Shares”). The Holder may convert,
pursuant to Section 4(a), any principal amount of this Debenture subject to a Monthly
Redemption at any time prior to the date that the Monthly Redemption Amount and all amounts
owing thereon are due and paid in full. Unless otherwise indicated by the Holder in the
applicable Notice of Conversion, any principal amount of this Debenture converted during the
applicable Monthly Redemption Period until the date the Monthly Redemption Amount is paid in
full shall be first applied to the principal amount subject to the Monthly Redemption Amount
payable in cash and then to the Monthly Redemption Share Amount. Any principal amount of
this Debenture converted during the applicable Monthly Redemption Period in excess of the
Monthly Redemption Amount shall be applied against the last principal amount of this
Debenture scheduled to be redeemed hereunder, in reverse time order from the Maturity Date;
provided, however, if any such conversion is applied to such Monthly
Redemption Amount, the Pre-Redemption Conversion Shares, if any were issued in connection
with such Monthly Redemption or were not already applied to such conversions, shall be first
applied against such conversion. The Company covenants and agrees that it will honor all
Notice of Conversions tendered up until such amounts are paid in full. The Company’s
determination to pay a Monthly Redemption in cash, shares of Common Stock or a combination
thereof shall be applied ratably to all of the holders of the Debentures based on their (or
their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement. At
any time the Company delivers a notice to the Holder of its election to pay the Monthly
Redemption Amount in shares of Common Stock, the Company shall file a prospectus supplement
pursuant to Rule 424 disclosing such election.

     b) Redemption Procedure. The payment of cash pursuant to the Monthly
Redemption shall be made on the Monthly Redemption Date. If any portion of the cash payment
for a Monthly Redemption shall not be paid by the Company by the respective due date,
interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the payment of the Monthly Redemption Amount plus
all amounts owing thereon is paid in full. Alternatively, if any portion of the Monthly
Redemption Amount remains unpaid after such date, the Holders subject to such redemption may
elect, by written notice to the Company given at any time thereafter, to invalidate
ab initio such redemption. The Holder may elect to convert the outstanding
principal amount of the Debenture pursuant to Section 4 prior to actual

17

 

payment in cash for any redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company.

     c) Forced Conversion. Notwithstanding anything herein to the contrary, if
after the later of the date that Shareholder Approval is obtained and deemed effective and
the Effective Date, each of the VWAPs for any 20 consecutive Trading Days (such period
commencing only after the later of the date Shareholder Approval is obtained and deemed
effective and the Effective Date, such period the “Threshold Period”)) exceeds $2.00
(subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the
Original Issue Date), the Company may, within 1 Trading Day of the end of any such period,
deliver a notice to the Holder (a “Forced Conversion Notice” and the date such
notice is received by the Holder, the “Forced Conversion Notice Date”) to cause the
Holder to immediately convert all or part of the then outstanding principal amount of
Debentures pursuant to Section 4. The Company may only effect a Forced Conversion Notice if
all of the Equity Conditions are met through the applicable Threshold Period until the date
of the applicable Forced Conversion and through and including the date such shares of Common
Stock are issued to the Holder. Any Forced Conversion shall be applied ratably to all
Holders based on their initial purchases of Debentures pursuant to the Purchase Agreement.
For purposes of clarification, a Forced Conversion shall be subject to all of the provisions
of Section 4, including, without limitation, the provision requiring payment of liquidated
damages and limitations on conversions.

     Section 7. Negative Covenants. Commencing on the date hereof, and continuing
for so long as any portion of this Debenture is outstanding, the Company will not and will not
permit any of its Subsidiaries to directly or indirectly:

     a) except for Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including but not limited
to, a guarantee, on or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom;

     b) except for Permitted Liens, enter into, create, incur, assume or suffer to exist any
liens of any kind, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom;

     c) amend its certificate of incorporation, bylaws or other charter documents so as to
materially and adversely affect any rights of the Holder;

     d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Common Stock or Common Stock Equivalents other
than as to the Conversion Shares to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;

     e) enter into any agreement with respect to any of the foregoing; or

18

 

     f) pay cash dividends or distributions on any equity securities of the Company.

     Section 8. Events of Default.

     a) “Event of Default”, wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):

     i. any default in the payment of the principal amount of any Debenture or
liquidated damages in respect of, any Debenture, as and when the same shall become
due and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise);

     ii. the Company shall fail to observe or perform any other covenant or
agreement contained in this Debenture or any other Debenture (other than a breach by
the Company of its obligations to deliver shares of Common Stock to the Holder upon
conversion which breach is addressed in clause [(xi) below) which failure is not
cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after
notice of such default sent by the Holder or by any other Holder and (B)10 Trading
Days after the Company shall become or should have become aware of such failure;

     iii. a default or event of default (subject to any grace or cure period
provided for in the applicable agreement, document or instrument) shall occur under
(A) any of the Transaction Documents, or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is bound;

     iv. any representation or warranty made herein, in any other Transaction
Documents, in any written statement pursuant hereto or thereto, or in any other
report, financial statement or certificate made or delivered to the Holder or any
other holder of Debentures shall be untrue or incorrect in any material respect as
of the date when made or deemed made;

     v. (i) the Company or any of its Subsidiaries shall commence a case, as debtor,
a case under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company or any Subsidiary commences any
other proceeding under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
Subsidiary thereof or (ii) there is commenced a case against the Company or any
Subsidiary thereof, under any applicable bankruptcy or

19

 

insolvency laws, as now or hereafter in effect or any successor thereto which
remains undismissed for a period of 60 days; or (iii) the Company or any Subsidiary
thereof is adjudicated by a court of competent jurisdiction insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or (iv) the Company or any Subsidiary thereof suffers any appointment of
any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or (v) the Company or
any Subsidiary thereof makes a general assignment for the benefit of creditors; or
(vi) the Company shall fail to pay, or shall state that it is unable to pay, or
shall be unable to pay, its debts generally as they become due; or (vii) the Company
or any Subsidiary thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or (viii) the
Company or any Subsidiary thereof shall by any act or failure to act expressly
indicate its consent to, approval of or acquiescence in any of the foregoing; or
(ix) any corporate or other action is taken by the Company or any Subsidiary thereof
for the purpose of effecting any of the foregoing;

     vi. the Company or any Subsidiary shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there may
be secured or evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount exceeding
$150,000, whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable;

     vii. the Common Stock shall not be eligible for quotation on or quoted for
trading on a Trading Market and shall not again be eligible for and quoted or listed
for trading thereon within five Trading Days;

     viii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction, shall agree to sell or dispose of all or in excess of 33%
of its assets in one or more transactions (whether or not such sale would constitute
a Change of Control Transaction) or shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or other equity securities
of the Company (other than redemptions of Conversion Shares and repurchases of
shares of Common Stock or other equity securities of departing officers and
directors of the Company; provided such repurchases shall not exceed $100,000, in
the aggregate, for all officers and directors during the term of this Debenture);

     ix. a Registration Statement shall not have been declared effective by the
Commission on or prior to the 180th calendar day after the Closing Date;

20

 

     x. if, during the Effectiveness Period (as defined in the Registration Rights
Agreement), the effectiveness of the Registration Statement lapses for any reason or
the Holder shall not be permitted to resell Registrable Securities (as defined in
the Registration Rights Agreement) under the Registration Statement, in either case,
for more than 10 consecutive Trading Days or 15 non-consecutive Trading Days during
any 12 month period; provided, however, that in the event that the
Company is negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction and in the written opinion
of counsel to the Company, the Registration Statement would be required to be
amended to include information concerning such transactions or the parties thereto
that is not available or may not be publicly disclosed at the time, the Company
shall be permitted an additional 10 consecutive Trading Days during any 12 month
period relating to such an event;

     xi. the Company shall fail for any reason to deliver certificates to a Holder
prior to the third Trading Day after a Conversion Date [or any Forced Conversion
Date] pursuant to and in accordance with Section 4(d) or the Company shall provide
notice to the Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any Debentures in
accordance with the terms hereof;

     xii. the Company shall have failed to increase the authorized capital of the
Company on or before November 30, 2005; or

     xiii. any Person shall breach the agreements delivered to the initial Holders
pursuant to Section 2.2(a)(iv) of the Purchase Agreement and the Company does not
obtain Shareholder Approval.

     b) Remedies Upon Event of Default. If any Event of Default occurs, the full
principal amount of this Debenture, together with other amounts owing in respect thereof, to
the date of acceleration shall become, at the Holder’s election, immediately due and payable
in cash. The aggregate amount payable upon an Event of Default shall be equal to the
Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default
that results in the eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower maximum amount of
interest permitted to be charged under applicable law. Upon the payment in full of the
Mandatory Default Amount on this entire Debenture the Holder shall promptly surrender this
Debenture to or as directed by the Company. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any kind, and the Holder
may immediately and without expiration of any grace period enforce any and all of its rights
and remedies hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any time prior to payment hereunder
and the Holder shall have all rights as a Debenture holder until such time, if any, as the
full payment under this Section shall have been

21

 

received by it. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.

     Section 9. Miscellaneous.

     a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set forth above,
facsimile number                                         , Attn:                                                                                  or such other
address or facsimile number as the Company may specify for such purposes by notice to the
Holder delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight courier
service addressed to each Holder at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 5:30 p.m. (New York City
time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later
than 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by the party to
whom such notice is required to be given.

     b) Absolute Obligation. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and liquidated damages (if any) on, this Debenture
at the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct obligation of the Company. This Debenture ranks pari
passu with all other Debentures, now or hereafter issued under the terms set forth
herein, and $20 million principal amount of convertible notes of the Company due 2006, now
or hereafter issued under the terms set forth therein.

     c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for
and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft
or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested,
all reasonably satisfactory to the Company.

22

 

     d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture 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
any of the Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York, Borough of Manhattan (the
“New York Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts 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, or such New York
Courts are improper or 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 Debenture and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to this
Debenture or the transactions contemplated hereby. If either party shall commence an action
or proceeding to enforce any provisions of this Debenture, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     e) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this Debenture. The
failure of the Company or the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.

     f) Severability. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain applicable to all
other persons and circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates applicable laws governing usury, the applicable rate
of interest due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or

23

 

take the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the principal of or
interest on this Debenture as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of this indenture,
and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits
or advantage of any such law, and covenants that it will not, by resort to any such law,
hinder, delay or impeded the execution of any power herein granted to the Holder, but will
suffer and permit the execution of every such as though no such law has been enacted.

     g) Next Business Day. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the next succeeding
Business Day.

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

     i) Assumption. Any successor to the Company or surviving entity in a
Fundamental Transaction shall (i) assume in writing all of the obligations of the Company
under this Debenture and the other Transaction Documents pursuant to written agreements in
form and substance satisfactory to the Holder (such approval not to be unreasonably withheld
or delayed) prior to such Fundamental Transaction and (ii) to issue to the Holder a new
debenture of such successor entity evidenced by a written instrument substantially similar
in form and substance to this Debenture, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates of the
Debentures held by the Holder and having similar ranking to this Debenture, and satisfactory
to the Holder (any such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of this Debenture.

*********************

24

 

     IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly
authorized officer as of the date first above indicated.

	 	 	 	 	 
	 	VIRAGEN, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

25

 

	 	 	 	 	 

ANNEX A

NOTICE OF CONVERSION

     The undersigned hereby elects to convert principal under the Amortizing Convertible Debenture
of Viragen, Inc., a Delaware corporation (the “Company”), into shares of common stock, par
value $0.01 per share (the “Common Stock”), of the Company according to the conditions
hereof, as of the date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion, except for such
transfer taxes, if any.

     By the delivery of this Notice of Conversion the undersigned represents and warrants to the
Company that its ownership of the Common Stock does not exceed the amounts determined in accordance
with Section 13(d) of the Exchange Act, specified under Section 4 of this Debenture.

     The undersigned agrees to comply with the prospectus delivery requirements under the
applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

	 	 	 	 	 
	Conversion calculations:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	Date to Effect Conversion:
	 
	 	 	 	 
	 

	 	 	 	Principal Amount of Debenture to be Converted:
	 
	 	 	 	 
	 

	 	 	 	Number of shares of Common Stock to be issued:
	 
	 	 	 	 
	 

	 	 	 	Signature:
	 
	 	 	 	 
	 

	 	 	 	Name:
	 
	 	 	 	 
	 

	 	 	 	Address:

26

 

Schedule 1

CONVERSION SCHEDULE

The Amortizing Convertible Debentures in the aggregate principal amount of $                                         issued by
Viragen, Inc. This Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.

Dated:

	 	 	 	 	 	 	 
	 	 	 	 	Aggregate	 	 
	 	 	 	 	Principal	 	 
	 	 	 	 	Amount	 	 
	 	 	 	 	Remaining	 	 
	 	 	 	 	Subsequent to	 	 
	Date of Conversion	 	 	 	Conversion	 	 
	(or for first entry, Original	 	 	 	(or original	 	 
	Issue Date)	 	Amount of Conversion	 	Principal Amount)	 	Company Attest
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 

27

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