Document:

EX-10.1

EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

     SECURITIES
PURCHASE AGREEMENT (the “Agreement”), dated as of July 14, 2009, by and among
Stinger Systems, Inc., a Nevada corporation, with headquarters located at 5505 Johns Road, Suite
702, Tampa, Florida 33634 (the “Company”), and the investors listed on the Schedule of Buyers
attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

     WHEREAS:

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

     B. The Company has authorized a new series of senior secured convertible notes of the Company
which notes shall be convertible into the Company’s common stock, par value $0.001 per share
(the “Common Stock”), in accordance with the terms of the New Notes (as defined below).

     C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of senior secured
convertible notes, in substantially the form attached hereto as Exhibit A (together with
any convertible notes issued in replacement or exchange thereof in accordance with the terms
thereof, the “New Notes”, as converted, collectively, the “New Conversion Shares”), set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers attached hereto (which aggregate
amount for all Buyers shall be $650,000), and (ii) warrants, in substantially the form attached
hereto as Exhibit B (the “Warrants”), to acquire up to that number of additional shares of
Common Stock set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers (as
exercised, collectively, the “Warrant Shares”).

     D. The Company and Castlerigg Master Investments, Ltd., a company organized under the laws of
the British Virgin Islands (“Castlerigg”), entered into (i) that certain Securities Purchase
Agreement, dated as of August 2, 2007 (as amended from time to time in accordance with its terms,
the “August 2007 Securities Purchase Agreement”), whereby the Company, among other things, issued
to Castlerigg, at the Closing (as defined in the August 2007 Securities Purchase Agreement), senior
secured convertible notes (the “August 2007 Notes”) and warrants (the “August 2007 Warrants”) to
acquire shares of Common Stock and (ii) that certain Securities Purchase Agreement, dated as of
February 29, 2008 (as amended from time to time in accordance with its terms, the “February 2008
Securities Purchase Agreement”), whereby the Company, among other things, issued to Castlerigg at
the Closing (as defined in the February 2008 Securities Purchase Agreement), senior secured
convertible notes (the “February 2008 Notes”) and warrants (as such warrants have been amended and
amended and restated from time to time, the “ February 2008 Warrants”) to acquire shares of Common
Stock.

     E. The Company and the Buyers entered into that certain Securities Purchase Agreement, dated
as of September 12, 2008 (as amended form time to time in accordance with

 

 

its terms, the “September 2008 Securities Purchase Agreement”), whereby the Company, among
other things, issued Senior Secured Convertible Notes in the principal amount of $3,000,000 (the
“Vicis Notes”) and warrants (the “September 2008 Warrants”) currently held by Vicis Capital Master
Fund.

     F. Contemporaneously with the consummation of the transactions contemplated by the August 2007
Securities Purchase Agreement, the Company entered into a Security Agreement, dated as of August 3,
2007, by the Company in favor of Castlerigg, in its capacity as collateral agent for the Buyers (as
defined in the August 2007 Securities Purchase Agreement), and, contemporaneously with the
consummation of the transactions contemplated by the February 2008 Securities Purchase Agreement,
the Company amended and restated the Security Agreement (the “Castlerigg Amended and Restated
Security Agreement”).

     G. Contemporaneously with the consummation of the transactions contemplated by the September
2008 Securities Purchase Agreement, the Company entered into a Security Agreement, dated as of
September 12, 2008, by the Company in favor of Debt Opportunity Fund, LLLP (“DOF”), in its capacity
as collateral agent for the Buyers (as defined in the September 2008 Securities Purchase Agreement)
(the “DOF Security Agreement”).

     H. The Company and Castlerigg entered into that certain Amendment and Exchange Agreement,
dated as of September 12, 2008 (as amended from time to time in accordance with its terms, the
“Exchange Agreement”), whereby the Company, among other things, (i) amended and restated the August
2007 Notes and exchanged them for senior secured convertible notes in the principal amount of
$2,741,200 (the “Exchanged 2007 Notes”) and (ii) amended and restated the February 2008 Notes and
exchanged them for senior secured convertible notes in the principal amount of $2,150,000 (the
“Exchanged 2008 Notes”, together with the Exchanged 2007 Notes and the Vicis Notes, the “Exchanged
Notes”).

     I. The Company and the Buyers desire to amend and restate as of the Closing (as defined
below), upon the terms and conditions stated in this Agreement, (i) the Exchanged 2007 Notes in the
principal amount of $2,799,450.50 (which shall include as principal, the accrued and unpaid
interest as of the Closing Date (as defined below) on such notes) (the “Amended and Restated
Exchanged 2007 Notes”), (ii) the Exchanged 2008 Notes in the principal amount of $2,150,000.00
(which shall include as principal, the accrued and unpaid interest as of the Closing Date on such
notes) (the “Amended and Restated Exchanged 2008 Notes”) and (iii) the Vicis Notes in the principal
amount of $3,075,000.00 (which shall include as principal, the accrued and unpaid interest as of
the Closing Date on such notes) (the “Amended and Restated Vicis Notes”), in the form attached
hereto as Exhibit C (together with any convertible note issued in replacement or exchange
thereof in accordance with the terms thereof, the “Amended and Restated Exchanged Notes”, and the
Amended and Restated Exchanged Notes together with the New Notes, the “Notes”) (as converted,
collectively, the “Amended and Restated Conversion Shares”, and the Amended and Restated Conversion
Shares together with the New Conversion Shares, the “Conversion Shares”).

     J. The Notes bear interest, which at the option of the Company, subject to certain conditions,
may be paid in shares of Common Stock (the “Interest Shares”).

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     K. The issuance of the Amended and Restated Exchanged Notes pursuant to this Agreement in
exchange for the surrender (and cancellation) of the Exchanged Notes and the Vicis Notes is being
made in reliance upon the exemption from registration provided by Section 3(a)(9) of the 1933 Act.

     L. The Notes, the Conversion Shares, the Interest Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the “Securities”.

     M. The Notes will rank senior to all outstanding and future indebtedness of the Company and
will be secured by a first priority, perfected security interest in all of the assets of the
Company and the stock and assets of each of the Company’s subsidiaries and in connection therewith
(i) the Castlerigg Amended and Restated Security Agreement will be amended and restated in the form
attached hereto as Exhibit D (the “Second Amended and Restated Security Agreement”) and
(ii) the DOF Security Agreement will be amended and restated in the form attached hereto as
Exhibit I (the “First Amended and Restated Security Agreement”, and together with the
Second Amended and Restated Security Agreement, the “Security Agreements”). All payments due under
the New Notes and the Amended and Restated Exchanged Notes shall rank pari passu.

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

     1. AMENDED AND RESTATED EXCHANGED NOTES, PURCHASE AND SALE OF NEW NOTES AND WARRANTS.

          (a) Amended and Restated Exchanged Notes, Purchase of New Notes and Warrants. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6(a) and 7(a) below, (i)
the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees
to purchase from the Company on the Closing Date (as defined below), (A) a principal amount of New
Notes as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, and (B)
Warrants to acquire that number of Warrant Shares as is set forth opposite such Buyer’s name in
column (4) on the Schedule of Buyers, and (ii) the Company shall issue and deliver to each Buyer a
principal amount of Amended and Restated Exchanged Notes (A) for the Exchanged 2007 Notes, as is
set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers, (B) for the Exchanged
2008 Notes, as is set forth opposite such Buyer’s name in column (6) on the Schedule of Buyers and
(C) for the Vicis Notes, as set forth opposite such Buyer’s name in Column (7) on the Schedule of
Buyers and each Buyer shall surrender to the Company for cancellation each such Exchanged Notes
(the “Closing”).

          (b) Closing. The Closing shall occur on the Closing Date at the offices of Nixon
Peabody LLP, 437 Madison Avenue, New York, New York 10022.

          (c) [Intentionally left blank.] 

          (d) Purchase Price. The Amended and Restated Exchanged Notes shall be issued to each
Buyer and the Exchanged Notes shall be cancelled without the payment of any additional
consideration. The purchase price for each Buyer of the New Notes and the Warrants to be purchased
by each such Buyer at the Closing shall be the amount set forth opposite such Buyer’s name in
column (7) of the Schedule of Buyers (the “Purchase Price”). Each Buyer shall

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pay $0.98 for each $1.00 of principal amount of New Notes and the related Warrants to be
purchased at the Closing. The Buyers and the Company agree that the New Notes and the Warrants
constitute an “investment unit” for purposes of Section 1273(c)(2) of the Internal Revenue Code of
1986, as amended (the “Code”). The Buyers and the Company mutually agree that the allocation of
the issue price of such investment unit between the New Notes and the Warrants in accordance with
Section 1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall be an aggregate
amount of $99,125 allocated to the Warrants and the balance of the Purchase Price allocated to the
New Notes, and neither the Buyers nor the Company shall take any position inconsistent with such
allocation in any tax return or in any judicial or administrative proceeding in respect of taxes.

          (e) Closing Date. The date and time of the Closing (the “Closing Date”) shall be
10:00 a.m., New York City Time, on the date hereof after notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6(a) and 7(a) below (or such later date as
is mutually agreed to by the Company and each Buyer).

          (f) Form of Payment. On the Closing Date, (i) (A) each Buyer shall deliver, or cause
to be delivered, for cancellation, a principal amount of Exchanged Notes as is set forth opposite
such Buyer’s name in columns (5) and (6) of the Schedule of Buyers to the Company, and (B) each
Buyer shall pay its Purchase Price to the Company for the New Notes and the Warrants to be issued
and sold to such Buyer at the Closing less, in the case of Castlerigg, the amounts withheld
pursuant to Section 4(f), by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions, and (ii) the Company shall deliver to each Buyer (A) the New
Notes (in the principal amounts as such Buyer shall request) which such Buyer is purchasing, (B)
the Warrants (allocated in the amounts as such Buyer shall request) to acquire up to an aggregate
number of Warrant Shares which such Buyer is purchasing, and (C) a principal amount of Amended and
Restated Exchanged Notes (in the principal amounts as such Buyer shall request) which such Buyer is
exchanging, in each case duly executed on behalf of the Company and registered in the name of such
Buyer or its designee. Notwithstanding anything herein to the
contrary, the parties hereto acknowledge and agree that (i) on the date
hereof, each of Castlerigg and DOF shall pay $150,000 to the Company
towards the Purchase Price for the New Notes and the Warrants by wire
transfer of immediately available funds in accordance with the
Company’s written wire instructions and (ii) each of Castlerigg and
DOF shall pay the remainder of its respective Purchase Price to the
Comapany for the New Notes and the Warrants by wire transfer of
immediately available funds in accordance with the Comapny’s written
wire instructions no later than 12:00 p.m., New York City time, on
July 15, 2009; provided, however, that Castlerigg is not obligated to
pay the remainder of its respective Purchase Price pursuant to this
clause (ii) unless and until DOF pays the remainder of its respective
Purchase Price pursuant to this clause (ii).

          (g) Holding Period. For the purposes of Rule 144 (as defined in Section 2(f)), the
Company acknowledges that the Buyers may tack the holding period of (i) the August 2007 Notes held
by the Buyers to the holding period of the Amended and Restated Exchanged 2007 Notes (such that the
holding period for the Amended and Restated Exchanged 2007 Notes for purposes of Rule 144 shall
commence from the date of issuance of the August 2007 Notes), (ii) the February 2008 Notes held by
the Buyers to the holding period of the Amended and Restated Exchanged 2008 Notes (such that the
holding period for the Amended and Restated Exchanged 2008 Notes for purposes of Rule 144 shall
commence from the date of issuance of the February 2008 Notes) and (iii) the Vicis Notes held by
Vicis Capital Master Fund to the holding period of the Amended and Restated Vicis Notes (such that
the holding period for the Amended and Restated Vicis Notes for purposes of Rule 144 shall
commence from the date of issuance of the Vicis Notes) and the Company agrees not to take a
position contrary to this Section 1(g),

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including, without limitation, with respect to the application of the terms and conditions set
forth in Section 2(g) below.

          (h) Ratification. The August 2007 Securities Purchase Agreement, the February 2008
Securities Purchase Agreement, the September 2008 Securities Purchase Agreement and each other
Transaction Document (as defined therein) in effect in accordance with its terms as of the Closing
Date and not otherwise amended and restated in accordance with the terms of this Agreement, is, and
shall continue to be, in full force and effect and effective as of the Closing, the August 2007
Securities Purchase Agreement, the February 2008 Securities Purchase Agreement and each other
Transaction Document (as therein) in effect in accordance with its terms as of the Closing Date and
not terminated or amended and restated in accordance with the terms of this Agreement, is hereby
ratified and confirmed in all respects.

     2. BUYER’S REPRESENTATIONS AND WARRANTIES.

          Each Buyer represents and warrants with respect to only itself that:

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

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

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

          (d) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors,
if any, or its representatives shall modify, amend or affect such Buyer’s

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right to rely on the Company’s representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Securities.

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

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

          (g) Legends. Such Buyer understands that the certificates or other instruments
representing the Notes and the Warrants and, until such time as the resale of the Conversion Shares
and the Warrant Shares have been registered under the 1933 Act as contemplated by Section 4(t)
hereof, the stock certificates representing the New Conversion Shares and the Warrant Shares,
except as set forth below, shall bear any legend as required by the “blue sky” laws of any state
and a restrictive legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED

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BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.

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

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

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

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

     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

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

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

          (b) Authorization; Enforcement; Validity. The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Notes, the Security
Agreements, the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the Warrants,
and each of the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction Documents”) and to
issue the Securities in accordance with the terms hereof and thereof. The execution and delivery
of the Transaction Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of the Notes and the
Warrants, the reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion of the Notes, the reservation for issuance and issuance of Warrant Shares issuable upon
exercise of the Warrants, the reservation for issuance and issuance of Interest Shares, if any, and
the granting of a security interest in the Collateral (as defined in the Security Agreements) have
been duly authorized by the Company’s Board of Directors and (other than (i) the filing of
appropriate UCC financing statements with the appropriate states and other authorities pursuant to
the Security Agreements, and (ii) the filing with the SEC of one or more registration statements in
accordance with the requirements of Section 4(t) hereof) no further filing, consent, or
authorization is required by the Company, its Board of Directors or its stockholders. This
Agreement and the other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium,

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liquidation or similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

          (c) Issuance of Securities. The issuance of the Notes and the Warrants are duly
authorized and are free from all taxes, liens and charges with respect to the issue thereof. As of
the applicable Closing, a number of shares of Common Stock shall have been duly authorized and
reserved for issuance which equals at least 130% of the sum of the maximum number of shares Common
Stock issuable (i) as Interest Shares pursuant to the terms of the Notes, (ii) upon conversion of
the Notes issued at such Closing and issued at all prior Closings and (iii) upon exercise of the
Warrants. Upon conversion or payment in accordance with the Notes or exercise in accordance with
the Warrants, as the case may be, the Conversion Shares, the Interest Shares and the Warrant
Shares, respectively, will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The offer and issuance
by the Company of the Securities is exempt from registration under the 1933 Act.

          (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Notes and the Warrants, the
granting of a security interest in the Collateral and reservation for issuance and issuance of the
New Conversion Shares, the Interest Shares and the Warrant Shares) will not (i) result in a
violation of the Articles of Incorporation (as defined in Section 3(r)) of the Company or any of
its Subsidiaries, any capital stock of the Company or Bylaws (as defined in Section 3(r)) of the
Company or any of its Subsidiaries or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the OTC Bulletin Board (the
“Principal Market”)) applicable to the Company or any of its Subsidiaries or by which any property
or asset of the Company or any of its Subsidiaries is bound or affected.

          (e) Consents. Neither the Company nor any of its Subsidiaries is required to obtain
any consent, authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other Person in order for it
to execute, deliver or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required to obtain pursuant
to the preceding sentence have been obtained or effected on or prior to the Closing Date, and the
Company and its Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or filings pursuant to the
preceding sentence. The Company is not in violation of the listing requirements of the Principal
Market and has no knowledge of any facts which would reasonably lead to delisting or suspension of
the Common Stock in the foreseeable future.

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          (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect
to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer
is (i) an officer or director of the Company, (ii) an “affiliate” of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a “beneficial owner” of more than 10% of the
shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of
1934, as amended (the “1934 Act”)). The Company further acknowledges that no Buyer is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by
a Buyer or any of its representatives or agents in connection with the Transaction Documents and
the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of
the Securities. The Company further represents to each Buyer that the Company’s decision to enter
into the Transaction Documents has been based solely on the independent evaluation by the Company
and its representatives.

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

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

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

10

 

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

          (k) SEC Documents; Financial Statements. Except as disclosed in Schedule
3(k), during the two (2) years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).
The Company has delivered to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the EDGAR system. As of their respective
dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act
and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with respect thereto.
Such financial statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position of the Company as of
the dates thereof and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not included in the SEC
Documents, including, without limitation, information referred to in Section 2(d) of this
Agreement, contains any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the circumstance under which
they are or were made, not misleading.

          (l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
December 31, 2008, there has been no material adverse change and no material adverse development in
the business, properties, operations, condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries. Except as disclosed in Schedule 3(l), since
December 31, 2008, the Company has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business
or (iii) had capital expenditures, individually or in the aggregate, in excess of $100,000. The
Company has not taken any steps to seek protection pursuant to any bankruptcy law nor

11

 

does the Company have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead
a creditor to do so. The Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below).
For purposes of this Section 3(l), “Insolvent” means with respect to any Person, (i) such Person
is unable to pay its debts and liabilities, subordinated, contingent or otherwise (other than the
Notes), as such debts and liabilities become absolute and matured, (ii) the Company intends to
incur or believes that it will incur debts (other than the Notes) that would be beyond its ability
to pay as such debts mature or (iii) such Person has unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted and is proposed to be
conducted.

          (m) No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is contemplated to occur with
respect to the Company, its Subsidiaries or their respective business, properties, prospects,
operations or financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to
an issuance and sale by the Company of its Common Stock and which has not been publicly announced.

          (n) Conduct of Business; Regulatory Permits. Neither the Company nor its Subsidiaries
is in violation of any term of or in default under any certificate of designations of any
outstanding series of preferred stock of the Company, its Articles of Incorporation or Bylaws or
their organizational charter or certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither
the Company nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which would not, individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances which would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future. During the two years prior to
the date hereof, the Common Stock has been designated for quotation on the Principal Market. During
the two years prior to the date hereof, (i) trading in the Common Stock has not been suspended by
the SEC or the Principal Market and (ii) the Company has received no communication, written or
oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common
Stock from the Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such certificates, authorizations
or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither
the Company nor any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.

          (o) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor
any director, officer, agent, employee or other Person acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the

12

 

Company or any of its Subsidiaries (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic government official or
employee.

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

          (q)  Transactions With Affiliates. Except as set on Schedule 3(q), none of
the officers, directors or employees of the Company is presently a party to any transaction with
the Company or any of its Subsidiaries (other than for ordinary course services as employees,
officers or directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any such officer, director or employee or, to the knowledge
of the Company or any of its Subsidiaries, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

          (r) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 150,000,000 shares of Common Stock, of which as of the date hereof,
4,001,832 are issued and outstanding, 10,000,000 shares are reserved for issuance pursuant to the
Company’s stock option and purchase plans and 10,417,586 shares are reserved for issuance pursuant
to securities (other than the aforementioned options, the New Notes and the Warrants) exercisable
or exchangeable for, or convertible into, shares of Common Stock. All of such outstanding shares
have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except
as disclosed in Schedule 3(r): (i) none of the Company’s capital stock is subject to
preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by
the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights convertible into,
or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by
which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing
statements securing obligations in any material amounts, either singly or in the aggregate, filed
in connection with the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act (except pursuant to Section 4(t)

13

 

hereof); (vi) there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or
may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar provisions that will be triggered by
the issuance of the Securities; (viii) the Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents but
not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the
Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect. The Company has furnished to the Buyers true,
correct and complete copies of the Company’s Articles of Incorporation, as amended and as in effect
on the date hereof (the “Articles of Incorporation”), and the Company’s Bylaws, as amended and as
in effect on the date hereof (the “Bylaws”), and the terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the material rights of the holders
thereof in respect thereto.

          (s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined
below), (ii) is a party to any contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract, agreement or instrument would result
in a Material Adverse Effect, (iii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv)
is a party to any contract, agreement or instrument relating to any Indebtedness, the performance
of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse
Effect. Schedule 3(s) provides a detailed description of the material terms of any such
outstanding Indebtedness. For purposes of this Agreement: (x) “Indebtedness” of any Person means,
without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D) all obligations
evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness
created or arising under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all monetary
obligations under any leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through

14

 

(G) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of
such liability that such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be protected (in whole or
in part) against loss with respect thereto; and (z) “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

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

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

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

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

15

 

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

          (x) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property rights (“Intellectual
Property Rights”) necessary to conduct their respective businesses as now conducted. Except as set
forth in Schedule 3(x), none of the Company’s Intellectual Property Rights have expired or
terminated, or are expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the Company or its
Subsidiaries of Intellectual Property Rights of others. There is no claim, action or proceeding
being made or brought, or to the knowledge of the Company, being threatened, against the Company or
its Subsidiaries regarding its Intellectual Property Rights. The Company is unaware of any facts
or circumstances which might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties.

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

          (z) [Intentionally left blank.]

16

 

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

          (bb) Tax Status. The Company and each of its Subsidiaries (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

          (cc) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to maintain asset and
liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in
accordance with management’s general or specific authorization and (iv) the recorded accountability
for assets and liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that
are effective in ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within
the time periods specified in the rules and forms of the SEC, including, without limitation,
controls and procedures designed in to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is accumulated and communicated
to the Company’s management, including its principal executive officer or officers and its
principal financial officer or officers, as appropriate, to allow timely decisions regarding
required disclosure.

          (dd) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.

          (ee) Ranking of Notes. Except as set forth on Schedule (ee), no Indebtedness
of the Company is senior to or ranks pari passu with the Notes in right of payment, whether with
respect of payment of redemptions, interest, damages or upon liquidation or dissolution or
otherwise. The New Notes and the Amended and Restated Exchanged Notes shall rank pari passu with
each other.

17

 

          (ff) Form S-1 Eligibility. The Company is eligible to register the New Conversion
Shares and the Warrant Shares for resale by the Buyers using Form S-1 promulgated under the 1933
Act.

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

          (hh) 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) other than the Placement Agent, sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii)
other than the Placement Agent, paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.

          (ii) Acknowledgement Regarding Buyers’ Trading Activity. It is understood and
acknowledged by the Company that, except as provided in Section 4(r), (i) none of the Buyers have
been asked to agree, nor has any Buyer 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) any Buyer, and counter parties in
“derivative” transactions to which any such Buyer is a party, directly or indirectly, presently may
have a “short” position in the Common Stock, and (iii) each Buyer 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 Buyers may engage in hedging
and/or trading activities at various times during the period that the Securities are outstanding,
including, without limitation, during the periods that the value of the New Conversion Shares, the
Warrant Shares and any Interest Shares deliverable with respect to Securities are being determined
and (b) such hedging and/or trading activities, if any, can reduce the value of the existing
stockholders’ equity interest in the Company both at and after the time the hedging and/or trading
activities are being conducted. The Company acknowledges that such aforementioned hedging and/or
trading activities do not constitute a breach of this Agreement, the New Notes, the Warrants or any
of the documents executed in connection herewith.

          (jj) U.S. Real Property Holding Corporation. The Company is not, nor has ever been, a
U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company shall so certify upon Buyer’s request.

          (kk) Bank Holding Company Act Neither the Company nor any of its Subsidiaries or
affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or
indirectly, five percent or more of the outstanding shares of any class of

18

 

voting securities or twenty-five percent or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any
of its Subsidiaries or affiliates exercises a controlling influence over the management or policies
of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

          (ll) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic information other
than as set forth in the following sentence. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Buyers regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on
behalf of the Company is true and correct and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. Each press release
issued by the Company during the twelve (12) months preceding the date of this Agreement did not at
the time of release contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. No event or circumstance has
occurred or information exists with respect to the Company or any of its Subsidiaries or its or
their business, properties, prospects, operations or financial conditions, which, under applicable
law, rule or regulation, requires public disclosure or announcement by the Company but which has
not been so publicly announced or disclosed.

     4. COVENANTS.

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

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

          (c) Reporting Status. Until the date on which all of the Buyers and their permitted
assignees (together, the “Investors”) shall have sold all the New Conversion Shares, Interest
Shares and Warrant Shares and none of the Notes or Warrants is outstanding (the “Reporting
Period”), the Company shall file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to

19

 

file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.

          (d) Financial Information. The Company agrees to send the following to each Investor
during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one (1) Business Day (as defined below)
after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, any interim
reports or any consolidated balance sheets, income statements, stockholders’ equity statements
and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act,
(ii) on the same day as the release thereof, facsimile or e-mailed copies of all press releases
issued by the Company or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the stockholders of the Company generally, contemporaneously
with the making available or giving thereof to the stockholders. As used herein, “Business Day”
means any day other than Saturday, Sunday or other day on which commercial banks in The City of New
York are authorized or required by law to remain closed.

          (e) Listing. The Company shall, upon request by a Buyer, promptly secure the listing
of all of the Interest Shares, New Conversion Shares and Warrant Shares (the “Registrable
Securities”) upon each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance) and shall maintain
such listing of all Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stocks’ authorization for quotation
on the Principal Market. Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of the Common Stock on
the Principal Market. The Company shall pay all fees and expenses in connection with satisfying
its obligations under this Section 4(f).

          (f) Fees. The Company shall reimburse Castlerigg or its designee(s) (in addition to
any other expense amounts paid to any Buyer prior to the date of this Agreement) for all reasonable
costs and expenses incurred in connection with the transactions contemplated by the Transaction
Documents (including all reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the Transaction Documents and
due diligence in connection therewith), which amount shall be withheld by such Buyer from its
Purchase Price at the Closing. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by
any Buyer) relating to or arising out of the transactions contemplated hereby, including, without
limitation, any fees or commissions payable to the Placement Agent. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection with any claim
relating to any such payment. Except as otherwise set forth in the Transaction Documents, each
party to this Agreement shall bear its own expenses in connection with the sale of the Securities
to the Buyers.

          (g) Pledge of Securities. The Company acknowledges and agrees that the Securities may
be pledged by an Investor in connection with a bona fide margin agreement or

20

 

other loan or financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder,
and no Investor effecting a pledge of Securities shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of Section 2(f) hereof in
order to effect a sale, transfer or assignment of Securities to such pledgee. The Company hereby
agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an Investor.

          (h)
Disclosure of Transactions and Other Material Information. On
or before 5:30 p.m., New York City time, on July 17, 2009,
the Company shall file a Current Report on Form 8-K describing the terms of
the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and
attaching the material Transaction Documents (including, without limitation, this Agreement (and
all schedules to this Agreement), the form of the New Notes, the form of Warrant and the Security
Agreements) as exhibits to such filing (including all attachments, the “8-K Filing”). From and
after the filing of the 8-K Filing with the SEC, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any of their respective
officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company
shall not, and shall cause each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with
the SEC without the express written consent of such Buyer. If a Buyer has, or believes it has,
received any such material, nonpublic information regarding the Company or any of its Subsidiaries,
it shall provide the Company with written notice thereof. The Company shall, within two (2)
Trading Days of receipt of such notice, make public disclosure of such material, nonpublic
information. In the event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the Transaction Documents, a Buyer shall have
the right to make a public disclosure, in the form of a press release, public advertisement or
otherwise, of such material, nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees or agents. No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, stockholders or agents for any such disclosure. Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or
any other public statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other public disclosure prior
to its release). Without the prior written consent of any applicable Buyer, neither the Company
nor any of its Subsidiaries or affiliates shall disclose the name of such Buyer in any filing,
announcement, release or otherwise.

21

 

          (i) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on the Common Stock without the prior express written consent of the
holders of the Notes representing not less than a majority of the aggregate principal amount of the
then outstanding Notes.

          (j) Additional Notes; Variable Securities; Dilutive Issuances. So long as any Buyer
beneficially owns any Securities, the Company will not issue any Notes other than to the Buyers as
contemplated hereby and the Company shall not issue any other securities that would cause a breach
or default under the Notes. For so long as any Notes or Warrants remain outstanding, the Company
shall not, in any manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price unless the conversion, exchange or
exercise price of any such security cannot be less than the then applicable Conversion Price (as
defined in the Notes) with respect to the Common Stock into which any Note is convertible or the
then applicable Exercise Price (as defined in the Warrants) with respect to the Common Stock into
which any Warrant is exercisable. For so long as any Notes or Warrants remain outstanding, the
Company shall not, in any manner, enter into or affect any Dilutive Issuance (as defined in the
Notes) if the effect of such Dilutive Issuance is to cause the Company to be required to issue upon
conversion of any Note or exercise of any Warrant any shares of Common Stock in excess of that
number of shares of Common Stock which the Company may issue upon conversion of the Notes and
exercise of the Warrants without breaching the Company’s obligations under the rules or regulations
of the Principal Market or any applicable Eligible Market. “Eligible Market” means any of the The
New York Stock Exchange, the American Stock Exchange, The NASDAQ Global Select Market, The NASDAQ
Global Market, The NASDAQ Capital Market or OTC Bulletin Board.

          (k) Corporate Existence. So long as any Buyer beneficially owns any Securities, the
Company shall not be party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental Transactions set
forth in the Notes and the Warrants.

          (l) Reservation of Shares. So long as any Buyer owns any Securities, the Company
shall take all action necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 130% of the sum of the number of shares of Common Stock issuable (i) as
Interest Shares pursuant to the terms of the Notes, (ii) upon conversion of the Notes, and (iii)
upon exercise of the Warrants then outstanding (without taking into account any limitations on the
conversion of the Notes or exercise of the Warrants set forth in the Notes and Warrants,
respectively).

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

22

 

          (n) Additional Issuances of Securities.

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

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

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

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

               (ii) From the date hereof until the date that is 30 Business Days following the date upon
which all Registrable Securities have been registered or eligible for resale under Rule 144 without
the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or
limitation pursuant to Rule 144 (the “Trigger Date”), the Company will not, (i) directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition of) any of its debt, equity or
equity equivalent securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any circumstances,
convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being referred to as a
“Subsequent Placement”) or (ii) be party to any solicitations, negotiations or discussions with
regard to the foregoing.

               (iii) From the Trigger Date until the third anniversary of the Trigger Date, the Company will
not, directly or indirectly, effect any Subsequent Placement unless the Company shall have first
complied with this Section 4(o)(iii).

               (1) The Company shall deliver to each Buyer written notice (the “Offer Notice”) of any
proposed or intended issuance or sale or exchange (the “Offer”) of the securities being
offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or entities (if known)
to which or with which the Offered Securities are to be offered, issued, sold or exchanged
and (z) offer to issue and sell to or exchange with such Buyers all of the Offered
Securities, allocated among such Buyers (a) based on such Buyer’s pro rata portion of the
aggregate principal amount of Notes purchased hereunder (the “Basic Amount”), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any additional portion of
the Offered Securities attributable to the Basic Amounts of other Buyers as such Buyer shall
indicate it will purchase or acquire should the other Buyers subscribe for less than their
Basic Amounts (the “Undersubscription Amount”).

23

 

               (2) To accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the tenth (10th) Business Day after such
Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such
Buyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Buyer
elects to purchase (in either case, the “Notice of Acceptance”). If the Basic Amounts
subscribed for by all Buyers are less than the total of all of the Basic Amounts, then each
Buyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Buyer who has subscribed for any Undersubscription Amount shall be entitled
to purchase only that portion of the Available Undersubscription Amount as the Basic Amount
of such Buyer bears to the total Basic Amounts of all Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the extent its deems
reasonably necessary.

               (3) The Company shall have five (5) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered Securities as
to which a Notice of Acceptance has not been given by the Buyers (the “Refused Securities”),
but only to the offerees described in the Offer Notice (if so described therein) and only
upon terms and conditions (including, without limitation, unit prices and interest rates)
that are not more favorable to the acquiring person or persons or less favorable to the
Company than those set forth in the Offer Notice.

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

               (5) Upon the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company shall issue
to the Buyers, the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above

24

 

if the Buyers have so elected, upon the terms and conditions specified in the Offer.
The purchase by the Buyers of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Buyers of a purchase agreement
relating to such Offered Securities reasonably satisfactory in form and substance to the
Buyers and their respective counsel.

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

               (iv) The restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall not
apply in connection with the issuance of any Excluded Securities (as defined in the Notes).

          (o) Additional Registration Statements. Until the Trigger Date, the Company will not
file a registration statement under the 1933 Act relating to securities that are not the Securities
or the shares of Common Stock issuable upon exercise of the Prior Warrants (as defined below),
without the prior written consent of the Buyer.

          (p) Collateral Agents.

               (i) Each Buyer hereby (a) appoints Castlerigg, as the collateral agent hereunder and under the
Second Amended and Restated Security Agreement (in such capacity, the “Castlerigg Collateral
Agent”), (b) appoints DOF, as the collateral agent hereunder and under the First Amended and
Restated Security Agreement (in such capacity, the “DOF Collateral Agent”, and together with the
Castlerigg Collateral Agent, the “Collateral Agents”) and (c) authorizes the Collateral Agents (and
its officers, directors, employees and agents) to take such action on such Buyer’s behalf in
accordance with the terms hereof and thereof. The Collateral Agents shall not have, by reason
hereof or the Security Agreements, a fiduciary relationship in respect of any Buyer. Neither the
Collateral Agents nor any of their officers, directors, employees and agents shall have any
liability to any Buyer for any action taken or omitted to be taken in connection hereof or the
Security Agreements except to the extent caused by their own gross negligence or willful
misconduct, and each Buyer agrees to defend, protect, indemnify and hold harmless the respective
Collateral Agents and all of their officers, directors, employees and agents (collectively, the
“Indemnitees”) from and against any losses, damages, liabilities, obligations, penalties, actions,
judgments, suits, fees, costs and expenses (including, without limitation, reasonable attorneys’
fees, costs and expenses) incurred by such Indemnitee, whether direct, indirect or consequential,
arising from or in connection with the performance by such Indemnitee of the duties and obligations
of Collateral Agents pursuant hereto or the Security Agreements.

               (ii) The Collateral Agents shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it in good faith to be
genuine and correct and to have been signed, sent or made by the proper Person, and with respect to
all matters pertaining to this Agreement or any of the other

25

 

Transaction Documents and its duties hereunder or thereunder, upon advice of counsel selected
by it.

               (iii) The Collateral Agents may resign from the performance of all their functions and duties
hereunder and under the New Notes and the Agreement at any time by giving at least ten (10)
Business Days prior written notice to the Company and each holder of the New Notes. Such
resignation shall take effect upon the acceptance by a successor Collateral Agent of appointment as
provided below. Upon any such notice of resignation, the holders of a majority of the outstanding
principal under the respective New Notes shall appoint a successor Collateral Agent, respectively.
Upon the acceptance of the appointment as Collateral Agent, such successor Collateral Agent shall
succeed to and become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and
obligations under this Agreement, the New Notes and the Security Agreement. After any Collateral
Agents’ resignation hereunder, the provisions of this Section 4(q) shall inure to its benefit. If
a successor Collateral Agent shall not have been so appointed within such ten (10) Business Day
period, the retiring Collateral Agent shall then appoint a successor Collateral Agent who shall
serve until such time, if any, as the holders of a majority of the outstanding principal under the
New Notes appoint a successor Collateral Agent as provided above.

          (q) Stockholder Approval. If the Common Stock is listed on an Eligible Market other
than the Principal Market (the “New Principal Market”) and the issuance of the New Conversion
Shares, the Interest Shares and Warrant Shares as contemplated under the Transaction Documents
would exceed that number of shares of Common Stock which the Company may issue without breaching
the Company’s obligations under the rules or regulations of the New Principal Market, then the
Company shall obtain the approval of its stockholders as required by the applicable rules of the
New Principal Market for issuances of the New Conversion Shares, Warrant Shares and Interest Shares
in excess of such amount. At such time, the Company shall provide each stockholder entitled to
vote at a special or annual meeting of stockholders of the Company (the “Stockholder Meeting”),
which shall be promptly called and held not later than 75 days after the earlier of (i) the New
Principal Market indication of and (ii) the Company becoming aware of, any limitation imposed by
the New Principal Market on the issuance of New Conversion Shares or Warrant Shares (the
“Stockholder Meeting Deadline”), a proxy statement, substantially in the form which has been
previously reviewed by the Buyers and Nixon Peabody LLP at the expense of the Company, soliciting
each such stockholder’s affirmative vote at the Stockholder Meeting for approval of resolutions
providing for the Company’s issuance of all of the Securities as described in the Transaction
Documents in accordance with applicable law and the rules and regulations of the New Principal
Market and such affirmative approval being referred to herein as the “Stockholder Approval”), and
the Company shall use its reasonable best efforts to solicit its stockholders’ approval of such
resolutions and to cause the Board of Directors of the Company to recommend to the stockholders
that they approve such resolutions. The Company shall be obligated to use its reasonable best
efforts to obtain the Stockholder Approval by the Stockholder Meeting Deadline. If, despite the
Company’s reasonable best efforts the Stockholder Approval is not obtained on or prior to the
Stockholder Meeting Deadline, the Company shall cause an additional Stockholder Meeting to be held
every six (6) months thereafter until such Stockholder Approval is obtained or the New Notes are no
longer outstanding.

26

 

          (r) Trading in Common Stock. For the period commencing on the date hereof and ending
on the earlier of (i) the date that the New Conversion Shares and Warrant Shares (upon cashless
exercise) may be resold without restriction pursuant to Rule 144 without the requirement to be in
compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to
Rule 144, or (ii) a registration statement for the resale of the New Conversion Shares and Warrant
Shares is declared effective by the SEC, each Buyer, severally and not jointly with the other
Buyers, covenants that neither it nor any affiliate acting on its behalf or pursuant to any
understanding with it will execute any “short sales” as defined in Rule 200 of Regulation SHO under
the Exchange Act), whether or not against the box, establish any “put equivalent position” (as
defined in Rule 16a-l(h) under the 1934 Act) with respect to the Common Stock, or grant any other
right (including any put or call option) with respect to the Common Stock or with respect to any
security that includes, relates to or derived any significant part of its value from the Common
Stock. For so long as each Buyer owns any Notes, such Buyer shall not maintain a Net Short
Position. For purposes of this Section, a “Net Short Position” by a person means a position
whereby such person has executed one or more sales of Common Stock that is marked as a short sale
and that is executed at a time when such Buyer has no equivalent offsetting long position in the
Common Stock or contract for the foregoing. For purposes of determining whether a Buyer has an
equivalent offsetting long position in the Common Stock, all Common Stock (i) that is owned by such
Buyer, (ii) that may be issued as Interest Shares pursuant to the terms of the Notes to the Buyer,
or (iii) that would be issuable upon conversion or exercise in full of all Securities then held by
such Buyer (assuming that such Securities were then fully convertible or exercisable,
notwithstanding any provisions to the contrary, and giving effect to any conversion or exercise
price adjustments that would take effect given only the passage of time) shall be deemed to be held
long by such Buyer.

          (s) Closing Documents. On or prior to fourteen (14) calendar days after the Closing
Date, the Company agrees to deliver, or cause to be delivered, to each Buyer and Nixon Peabody LLP
executed copies of the Transaction Documents, Securities and any other document required to be
delivered to any party pursuant to Section 7 hereof.

          (t) Piggy-Back Registrations.

               (i) If at any time the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the account of others under
the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee or director benefit plans), then the
Company shall send to each Buyer written notice of such determination and, if within twenty days
after receipt of such notice, any such Holder shall so request in writing, the Company shall
include in such registration statement all or any part of such Registrable Securities such holder
requests to be registered, subject to customary underwriter cutbacks applicable to all holders of
registration rights on a pro rata basis (along with other holders of piggyback registration rights
with respect to the Company); provided, that (A) the Company shall not be required to register any
Registrable Securities pursuant to this Section 4(t) that are (I) eligible for resale under Rule
144 without the requirement to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, or (II) that are the

27

 

subject of a then effective registration statement and (B) if at any time after giving written
notice of its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company shall determine for
any reason not to register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to such Holder and, thereupon, (i) in the case
of a determination not to register, shall be relieved of its obligation to register any Registrable
Securities pursuant to this Section 4(t) in connection with such registration (but not from its
obligation to pay expenses in accordance with Section 4(t) hereof), and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 4(t) for the same period as the delay in
registering such other securities.

               (ii) Registration Expenses. All fees and expenses incident to the Company’s
performance of or compliance with its obligations under this Agreement (excluding any underwriting
discounts and selling commissions and all legal fees and expenses of legal counsel for any Buyer)
shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing sentence shall include,
without limitation, (i) all registration and filing fees (including, without limitation, fees and
expenses (A) with respect to filings required to be made with any Trading Market on which the
Common Stock is then listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws (including, without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as requested by the Holders) and (C) with respect to any filing that may be
required to be made by any broker through which a Holder intends to make sales of Registrable
Securities with the Corporate Financing Department of Financial Industry Regulatory Authority, Inc.
(“FINRA”) pursuant NASD Rule 2710(b)(10)(A)(i), so long as the broker is receiving no more than a
customary brokerage commission in connection with such sale, (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority
of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act
liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all
other Persons retained by the Company in connection with the consummation of the transactions
contemplated by this Section. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the transactions contemplated by
this Section (including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Registrable Securities on any securities
exchange as required hereunder. In no event shall the Company be responsible for any broker or
similar commissions of any Holder.

          (u) Public Information. At any time during the period commencing on the six (6) month
anniversary of the Closing Date and ending at such time that all of the Securities can be sold
without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction
or limitation pursuant to Rule 144, if a registration statement is not available for the

28

 

resale of all of the Securities and the Company shall fail for any reason to satisfy the
current public information requirement under Rule 144 (a “Public Information Failure”) then, as
partial relief for the damages to any holder of Securities by reason of any such delay in or
reduction of its ability to sell the Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each such holder an amount in
cash equal to two percent (2.0%) of the aggregate Purchase Price of such holder’s Securities on the
day of a Public Information Failure and on every thirtieth day (pro rated for periods totaling less
than thirty days) thereafter until the earlier of (i) the date such Public Information Failure is
cured and (ii) such time that such public information is no longer required pursuant to Rule 144.
The payments to which a holder shall be entitled pursuant to this Section 4(w) are referred to
herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid
on the earlier of (I) the last day of the calendar month during which such Public Information
Failure Payments are incurred and (II) the third Business Day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the Company fails to make
Public Information Failure Payments in a timely manner, such Public Information Failure Payments
shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full.
Notwithstanding anything herein to the contrary, no Public Information Failure Payments shall be
due and payable hereunder for any date after the first anniversary of the Closing Date.

     5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

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

          (b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of
each Buyer or its respective nominee(s), for the Interest Shares, the New Conversion Shares and the
Warrant Shares issued at the Closing or upon conversion of the Notes or exercise of the Warrants in
such amounts as specified from time to time by each Buyer to the Company upon conversion of the
Notes or exercise of the Warrants in the form of Exhibit E attached hereto (the
“Irrevocable Transfer Agent Instructions”). The Company warrants that no instruction other than
the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop transfer
instructions to give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the other Transaction Documents.
If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section
2(f), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue
one or more certificates or credit shares to the applicable balance

29

 

accounts at DTC in such name and in such denominations as specified by such Buyer to effect
such sale, transfer or assignment. In the event that such sale, assignment or transfer involves
Interest Shares, New Conversion Shares or Warrant Shares sold, assigned or transferred pursuant to
an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer
shall be entitled, in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.

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

          (a) Closing Date. The obligation of the Company hereunder to (A) issue the Amended
and Restated Exchanged Notes in exchange for the cancellation of the Exchanged Notes and (B) issue
and sell the New Notes and Warrants to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that these conditions are
for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion
by providing each Buyer with prior written notice thereof:

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

               (ii) Such Buyer and each other Buyer shall have delivered to the Company (A) the Exchanged
Notes for cancellation and (B) the Purchase Price less, in the case of Castlerigg, the amounts
withheld pursuant to Section 4(f) for the Notes and the Warrants being purchased by such Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.

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

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

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

               (i) The Company shall have executed and delivered to such Buyer (A) each of the Transaction
Documents, (B) the New Notes (in such principal amounts as such

30

 

Buyer shall request) being purchased by such Buyer at the Closing pursuant to this Agreement,
(C) the Amended and Restated Exchanged Notes (in such principal amounts as such Buyer shall
request) being exchanged by such Buyer at the Closing pursuant to this Agreement and (D) the
Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at the Closing
pursuant to this Agreement.

               (ii) Such Buyer shall have received the opinions of DLA Piper LLP (US) and Jones Vargas, the
Company’s outside counsel and special Nevada counsel, respectively, dated as of the Closing Date,
in substantially the form of Exhibit F attached hereto.

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

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

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

               (vi) The Company shall have delivered to such Buyer a certified copy of the Articles of
Incorporation as certified by the Secretary of State (or comparable office) of the State of Nevada
within ten (10) days of the Closing Date.

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

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

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

31

 

               (x) The Company shall have obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the sale of the Securities.

               (xi) In accordance with the terms of the Security Agreements, the Company shall have delivered
to the Collateral Agents appropriate financing statements on Form UCC-1 to be duly filed in such
office or offices as may be necessary or, in the opinion of the Collateral Agents, desirable to
perfect the security interests purported to be created by each Security Agreement.

               (xii) Within three (3) Business Days prior to the Closing, the Company shall have delivered or
caused to be delivered to each Buyer (A) certified copies of UCC search results, listing all
effective financing statements which name as debtor the Company or any of its Subsidiaries filed in
the prior five years to perfect an interest in any assets thereof, together with copies of such
financing statements, none of which, except as otherwise agreed in writing by the Buyers, shall
cover any of the Collateral (as defined in the Security Agreements) and the results of searches for
any tax lien and judgment lien filed against such Person or its property, which results, except as
otherwise agreed to in writing by the Buyers shall not show any such Liens (as defined in the
Security Agreements); and (B) a perfection certificate, duly completed and executed by the Company
and each of its Subsidiaries, in form and substance satisfactory to the Buyers.

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

     8. TERMINATION. In the event that the Closing shall not have occurred with respect to
a Buyer on or before five (5) Business Days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching
party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the close of business on
such date without liability of any party to any other party; provided, however,
this if this Agreement is terminated pursuant to this Section 8, the Company shall remain obligated
to reimburse the non-breaching Buyers for the expenses described in Section 4(g) above.

     9. MISCELLANEOUS.

          (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such court, that such suit,

32

 

action or proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

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

          (d) Severability. If any provision of this Agreement is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the
provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and enforceable, and the invalidity or
unenforceability of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not substantially
impair the respective expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties. The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as possible to that of
the prohibited, invalid or unenforceable provision(s).

          (e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of Registrable Securities
issued and issuable hereunder, and any amendment to this Agreement made in conformity with the
provisions of this Section 9(e) shall be binding on

33

 

all Buyers and holders of Securities, as applicable. No provision hereof may be waived other
than by an instrument in writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all of the holders of the
applicable Securities then outstanding. No consideration shall be offered or paid to any Person to
amend or consent to a waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the Transaction Documents,
holders of New Notes or holders of the Warrants, as the case may be. The Company has not, directly
or indirectly, made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in the Transaction
Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any
financing to the Company or otherwise.

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

               If to the Company:

Stinger Systems, Inc.

5505 Johns Road

Suite 702

Tampa, Florida 33634

Telephone:     (410) 281-1061

Facsimile:       (813) 288-9148

Attention:       Chief Financial Officer

               With a copy to:

DLA Piper LLP (US)

6225 Smith Avenue

Baltimore, Maryland 21209-3600

Telephone:     (410) 580-4170

Facsimile:      (410) 580-3170

Attention:       Jason Harmon, Esq.

               If to the Transfer Agent:

Colonial Stock Transfer

66 Exchange Place

Salt Lake City, UT 84111

34

 

Telephone:       (801) 355-5740

Facsimile:       (801) 355-6505

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

               with a copy, in the case of Castlerigg (for informational purposes only) to:

Nixon Peabody LLP

437 Madison Avenue

New York, New York 10022

Telephone:     (212) 212-3773

Facsimile:       (866) 402-1171

Attention:       Bradley Vaiana, Esq.

or to such other address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.

          (g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Notes or the Warrants. The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the holders of at least a majority of the aggregate
number of Registrable Securities issued and issuable hereunder, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Notes and the Warrants). A Buyer may assign some or all
of its rights hereunder without the consent of the Company, in which event such assignee shall be
deemed to be a Buyer hereunder with respect to such assigned rights.

          (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

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

          (j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request

35

 

in order to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

          (k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or indirect investors
and any of the foregoing Persons’ agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby, (ii) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure made by such
Buyer pursuant to Section 3(i), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by the Transaction Documents. To
the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth
herein, the mechanics and procedures with respect to the rights and obligations under this Section
10(k) shall be the same as those set forth in Section 5 of that certain registration rights
agreement entered into in connection with the August 2007 Securities Purchase Agreement.

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

          (m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it fails
to perform, observe, or discharge any or all of its

36

 

obligations under the Transaction Documents, any remedy at law may prove to be inadequate
relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek
temporary and permanent injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.

          (n) Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
any Buyer exercises a right, election, demand or option under a Transaction Document and the
Company does not timely perform its related obligations within the periods therein provided, then
such Buyer 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.

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

          (p) Consent and Waiver. The Buyers hereby (i) waive the first sentence of Section
4(k) of each of the August 2007 Securities Purchase Agreement, the February 2008 Securities
Purchase Agreement and the September 2008 Securities Purchase Agreement (collectively, the “Prior
Purchase Agreements”) with respect to the New Notes, the Warrants and the offering of the
securities contemplated by this Agreement, (ii) consent to the issuance of the New Notes and the
Warrants and to the offering of the securities contemplated by this Agreement and waive Section
4(o) of each of the Prior Purchase Agreements with the effect that the offering of the securities
contemplated by this Agreement shall not trigger any rights of the Buyers under the Purchase
Agreements, (iii) waive any Default or Event of Default (as defined in the Amended and Restated
Exchanged Notes) that occurred prior to the date hereof and (iv) waive Section 4(i) of the Prior
Purchase Agreements with respect to the offering of the securities contemplated by this Agreement.

          (q) Warrant Adjustments. The parties hereto acknowledge and agree that,
notwithstanding the anti-dilution provisions set forth in the August 2007 Warrants, the February
2008 Warrants and the September 2008 Warrants (collectively, the “Prior Warrants”), after giving
effect to the transactions contemplated by this Agreement, the exercise price of the Prior Warrants
shall be reduced to $0.20 per share and the number of shares of Common Stock issuable upon exercise
of such warrants shall be 2,586,207 shares, 3,296,337 shares and 2,586,207 shares, respectively.

[Signature Page Follows]

37

 

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

	 	 	 	 	 
	 	COMPANY:

STINGER SYSTEMS, INC.

 	 
	 	By:  	/s/ Robert Gruder
 	 
	 	 	Name:  	Robert Gruder 	 
	 	 	Title:  	CEO 	 
	 

 

 

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

	 	 	 	 	 
	 	BUYERS:

CASTLERIGG MASTER INVESTMENTS LTD.

 	 
	 	By:  	/s/
Ken Glassman	 
	 	 	Name:  	Ken Glassman	 
	 	 	Title:  	Senior Managing Director	 
	 

 

 

	 	 	 	 	 
	 	DEBT OPPORTUNITY FUND LLP

 	 
	 	By:  	/s/ Sean Lyons
 	 
	 	 	Name:  	Sean Lyons 	 
	 	 	Title:  	Managing Member 	 
	 

 

 

	 	 	 	 	 
	ACKNOWLEDGED AND AGREED:

 

VICIS CAPITAL MASTER FUND LTD.,

As successor in interest to Debt Opportunity

Fund LLP under the Vicis Notes	 
	 
	 
	By:  	 	/s/  Chris
Phillips
 	 
	 	 	Name:   Chris
Phillips  	 	 
	 	 	Title:     Managing Director, Vicis Capital, LLC  	 	 
	 

Signature
Page to Securities Purchase AgreementEX-10.2

EXHIBIT 10.2

SENIOR SECURED CONVERTIBLE NOTE

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS
NOTE, INCLUDING SECTIONS 3(c)(iii) AND 20(a) HEREOF. THE HOLDER OF THIS NOTE AGREES TO THE TERMS
AND PROVISIONS SET FORTH IN SECTION 4(q) OF THE SECURITIES PURCHASE AGREEMENT REGARDING THE
COLLATERAL AGENT (AS DEFINED IN THE SECURITIES PURCHASE AGREEMENT). THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). PURSUANT TO TREASURY REGULATION
§1.1275-3(b)(1), BRIAN GANNON, A REPRESENTATIVE OF THE BORROWER HEREOF WILL, BEGINNING TEN DAYS
AFTER THE ISSUE DATE OF THIS NOTE, PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE
INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i). BRIAN GANNON MAY BE REACHED AT
TELEPHONE NUMBER (813) 221-1061.

Stinger Systems, Inc.

Senior Secured Convertible Note

			
	 	 	 
	Original Issuance Date: July 14, 2009
	 	Original Principal Amount: U.S. $350,000     

          FOR VALUE RECEIVED, Stinger Systems, Inc., a Nevada corporation (the “Company”), hereby
promises to pay to the order of CASTLERIGG MASTER
INVESTMENTS LTD. or registered assigns (“Holder”) the amount set out above as the Original
Principal Amount or so much thereof as may from time to time be
advanced hereunder (without deduction by the Company for the original
issue discount taken by the Holder pursuant to Section 1(c) of the
Securities Purchase Agreement, the “Advance”) (as reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined below),
acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to

 

 

pay
interest (“Interest”) on any outstanding Principal at the applicable Interest Rate from the date
set out above as the Original Issuance Date (the “Issuance Date”) until the same becomes due and
payable, whether upon an Interest Date (as defined below) or the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms hereof). This
Senior Secured Convertible Note (including all Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this “Note”) is one of an issue of notes issued pursuant to Section
1(a) of the Securities Purchase Agreement on the date hereof (collectively, the “Notes” and such
other Senior Secured Convertible Notes, the “Other Notes”). The Advance made to the Company shall be recorded by the holder hereof on Schedule A attached to this Note, which schedule is incorporated herein by reference and made a part hereof. Certain capitalized terms used herein
are defined in Section 29.

          (1) PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder
an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued
and unpaid Late Charges, if any, on such Principal and Interest. The
“Maturity Date” shall be July 14, 2011, as may be extended at the option of the Holder (i) in the event that, and for so long
as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing on the
Maturity Date (as may be extended pursuant to this Section 1 or any event shall have occurred and
be continuing on the Maturity Date (as may be extended pursuant to this Section 1 that with the
passage of time and the failure to cure would result in an Event of Default and (ii) through the
date that is ten (10) Business Days after the consummation of a Change of Control in the event that
a Change of Control is publicly announced or a Change of Control Notice (as defined in Section
5(b)) is delivered prior to the Maturity Date. Other than as specifically permitted by this Note,
the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or
accrued and unpaid Late Charges on Principal and Interest, if any.

          (2) INTEREST; INTEREST RATE. (a) Interest on this Note shall commence accruing on the date the Advance is made to the Company as indicated on Schedule A attached hereto and shall be computed on the basis of a 360-day year comprised of twelve (12) thirty
(30) day months and shall be payable in arrears for each Calendar Quarter on the first day of the
succeeding Calendar Quarter during the period beginning on the Issuance Date and ending on, and
including, the Maturity Date (each, an “Interest Date”) with the first Interest Date being October 1, 2009. Interest shall be payable on each Interest Date, to the record holder of this Note on
the applicable Interest Date, in shares of Common Stock (“Interest Shares”) so long as there has
been no Equity Conditions Failure; provided however, that the Company may, at its option following
notice to the Holder, pay Interest on any Interest Date in cash (“Cash Interest”) or in a
combination of Cash Interest and Interest Shares. The Company shall deliver a written notice
(each, an “Interest Election Notice”) to each holder of the Notes on or prior to the Interest
Notice Due Date (the date such notice is delivered to all of the holders, the “Interest Notice
Date”) which notice (1) either (A) confirms that Interest to be paid on such Interest Date shall be
paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest or a combination of
Cash Interest and Interest Shares and specifies the amount of Interest that shall be paid as Cash
Interest and the amount of Interest, if any, that shall be paid in Interest Shares and (2)
certifies that there has been no Equity Conditions Failure; provided, however, that the Company
shall not be entitled to pay any portion of Interest on an Interest Date
in Interest Shares in excess of the Holder Pro Rata Amount of the applicable Volume
Limitation. If any portion of Interest for a particular Interest Date shall be paid in Interest
Shares, then the Company shall pay to the Holder, in accordance with Section 2(b), a number of
shares of Common Stock equal to (x) the amount of Interest payable on the applicable Interest Date
in

2

 

Interest Shares divided by (y) the applicable Interest Conversion Price. Interest to be paid on
an Interest Date in Interest Shares shall be paid in a number of fully paid and nonassessable
shares of Common Stock (rounded to the nearest whole share) which are eligible for sale under Rule
144. If the Equity Conditions are not satisfied as of the Interest Notice Date, then unless the
Company has elected to pay such Interest in cash, the Interest Notice shall indicate that unless
the Holder waives the Equity Conditions, the Interest shall be paid in cash. If the Equity
Conditions were satisfied as of the Interest Notice Date but the Equity Conditions are no longer
satisfied at any time prior to the Interest Date, the Company shall provide the Holder a subsequent
notice to that effect indicating that unless the Holder waives the Equity Conditions, the Interest
shall be paid in cash.

               (b) When any Interest Shares are to be paid on an Interest Date, the Company shall (i) (A)
provided that the Company’s transfer agent (the “Transfer Agent”) is participating in the
Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program and such action is not
prohibited by applicable law or regulation or any applicable policy of DTC, credit such aggregate
number of Interest Shares to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission system, or (B) if the
foregoing shall not apply, issue and deliver on the applicable Interest Date, to the address set
forth in the register maintained by the Company for such purpose pursuant to the Securities
Purchase Agreement or to such address as specified by the Holder in writing to the Company at least
two (2) Business Days prior to the applicable Interest Date, a certificate, registered in the name
of the Holder or its designee, for the number of Interest Shares to which the Holder shall be
entitled and (ii) with respect to each Interest Date, pay to the Holder, in cash by wire transfer
of immediately available funds, the amount of any Cash Interest. Notwithstanding the foregoing,
the Company shall not be entitled to pay Interest in Interest Shares and shall be required to pay
such Interest in cash as Cash Interest on the applicable Interest Date if, unless waived in writing
by the Holder, there has been an Equity Conditions Failure. If an Event of Default or Equity
Conditions Failure occurs during the Interest Measuring Period, then on the Interest Date, at the
Holder’s option, the Holder may require the Company to pay all or any specified portion of the
Interest due on the applicable Interest Date as Cash Interest.

               (c) From and after the occurrence and during the continuance of an Event of Default, the
Interest Rate shall be increased to fifteen percent (15.0%) per annum. In the event that such
Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as calculated and
unpaid at such increased rate during the continuance of such Event of Default shall continue to
apply to the extent relating to the days after the occurrence of such Event of Default through and
including the date of cure of such Event of Default. The Company shall pay any and all taxes that
may be payable with respect to the issuance and delivery of Interest Shares.

          (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), on the terms and conditions set
forth in this Section 3.

3

 

               (a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times
on or after the Issuance Date, the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable
shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below).
The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall
round such fraction of a share of Common Stock up to the nearest whole share. The Company shall
pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance
and delivery of Common Stock upon conversion of any Conversion Amount.

               (b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of
any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion
Amount by (y) the Conversion Price (the “Conversion Rate”).

                    (i) “Conversion Amount” means the sum of (A) the portion of the Principal to be converted,
redeemed or otherwise with respect to which this determination is being made, (B) accrued and
unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect
to such Principal and Interest.

                    (ii) “Conversion Price” means, as of any Conversion Date (as defined below) or other date of
determination, $0.20, subject to adjustment as provided herein.

               (c) Mechanics of Conversion.

                    (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock
on any date (a “Conversion Date”), the Holder shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed
notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to
the Company and (B) if required by Section 3(c)(iii), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an indemnification
undertaking with respect to this Note in the case of its loss, theft or destruction). On or before
the first (1st) Business Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation (the “Conversion Confirmation”) of receipt of
such Conversion Notice to the Holder and the Company’s Transfer Agent. On or before the
(2nd) second Business Day following the date of receipt of a Conversion Notice (the
“Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in
the DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock (including any Interest Shares) to which the Holder shall be entitled to the Holder’s
or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system
or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and deliver to the address as specified
in the Conversion
Notice, a certificate, registered in the name of the Holder or its designee,
for the number of shares of Common Stock (including any Interest Shares) to which the Holder shall
be entitled. If this Note is physically surrendered for conversion as required by Section
3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the
Conversion

4

 

Amount being converted, then the Company shall as soon as practicable and in no event
later than three (3) Business Days after receipt of this Note and at its own expense, issue and
deliver to the holder a new Note (in accordance with Section 20(d)) representing the outstanding
Principal not converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.

                    (ii) Company’s Failure to Timely Convert. If the Company shall fail to issue a
certificate to the Holder or credit the Holder’s balance account with DTC, as applicable, for the
number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion
Amount on or prior to the date which is three (3) Trading Days after the Conversion Date (a
“Conversion Failure”), then (A) the Company shall pay damages to the Holder for each Trading Day of
such Conversion Failure in an amount equal to 1.5% of the product of (I) the sum of the number of
shares of Common Stock not issued to the Holder on or prior to the Share Delivery Date and to which
the Holder is entitled, and (II) the Closing Sale Price of the Common Stock on the Share Delivery
Date and (B) the Holder, upon written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any portion of this Note that has not
been converted pursuant to such Conversion Notice; provided that the voiding of a
Conversion Notice shall not affect the Company’s obligations to make any payments which have
accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In
addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of the
facsimile copy of a Conversion Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder’s balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon such holder’s conversion of any Conversion Amount, and if on
or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such
conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company
shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion,
either (A) pay cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out of pocket expenses, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to issue and
deliver such certificate or to credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any
Conversion Amount shall terminate, or (B) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the Holder in an amount
equal to the excess (if any) of the Buy-In Price over the product of (1) such number of shares of
Common Stock, times (2) the Closing Bid Price on the Conversion Date.

                    (iii) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of each Note and the
principal amount of the Notes held by such holders (the “Registered Notes”). The entries in the
Register shall be conclusive and binding for all purposes absent manifest error.
The Company and the holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation, the right to
receive payments of Principal and Interest hereunder, notwithstanding notice to the contrary. A
Registered Note may be assigned or sold in whole or in part only by registration of such

5

 

assignment
or sale on the Register. Upon its receipt of a request to assign or sell all or part of any
Registered Note by a Holder, the Company shall record the information contained therein in the
Register and issue one or more new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 20. Notwithstanding anything to the contrary set forth herein, upon conversion
of any portion of this Note in accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless (A) the full Conversion Amount represented
by this Note is being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note
upon physical surrender of this Note. The Holder and the Company shall maintain records showing
the Principal, Interest and Late Charges, if any, converted and the dates of such conversion or
shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to
require physical surrender of this Note upon conversion.

                    (iv) Pro Rata Conversion; Disputes. In the event that the Company receives a
Conversion Notice from more than one holder of Notes for the same Conversion Date and the Company
can convert some, but not all, of such portions of the Notes submitted for conversion, the Company,
subject to Section 3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder’s portion of its Notes submitted for conversion based
on the principal amount of Notes submitted for conversion on such date by such holder relative to
the aggregate principal amount of all Notes submitted for conversion on such date. In the event of
a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock
not in dispute and resolve such dispute in accordance with Section 25.

               (d) Limitations on Conversions.

                    (i) Beneficial Ownership. The Company shall not effect any conversion of this Note,
and the Holder of this Note shall not have the right to convert any portion of this Note pursuant
to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”)
of the number of shares of Common Stock outstanding immediately after giving effect to such
conversion. For 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 Note 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 Note 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 Notes or 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 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended (the “1934 Act”). For purposes of this Section
3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely

6

 

on
the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form
10-K, Form 10-Q, Form 8-K or other public filing with the Securities Exchange Commission, as the
case may be (y) a more recent public announcement by the Company or (z) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For
any reason at any time, upon the written or oral request of the Holder, the Company shall within
one (1) Business Day 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 Note, by the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may
increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99%
specified in such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder and not to any other holder of Notes.

                    (ii) Principal Market Regulation. The Company shall not be obligated to issue any
shares of Common Stock upon conversion of this Note if the issuance of such shares of Common Stock
would exceed the aggregate number of shares of Common Stock which the Company may issue upon
conversion or exercise, as applicable, of the Notes and Warrants without breaching the Company’s
obligations under the rules or regulations of any applicable Eligible Market (the “Exchange Cap”),
except that such limitation shall not apply in the event that the Company (A) obtains the approval
of its stockholders as required by the applicable rules of such Eligible Market for issuances of
Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be reasonably satisfactory to the
Required Holders. Until such approval or written opinion is obtained, no purchaser of the Notes
pursuant to the Securities Purchase Agreement (each, a “Purchaser” and collectively the
“Purchasers”) shall be issued in the aggregate, upon conversion or exercise or otherwise, as
applicable, of Notes or Warrants, shares of Common Stock in an amount greater than the product of
the Exchange Cap multiplied by a fraction, the numerator of which is the principal amount of Notes
issued to any Purchaser pursuant to the Securities Purchase Agreement on the Closing Date and the
denominator of which is the aggregate principal amount of all Notes issued to all of the Purchasers
pursuant to the Securities Purchase Agreement on the Closing Date (with respect to each Purchaser,
the “Exchange Cap Allocation”). In the event that any Purchaser shall sell or otherwise transfer
any of such Purchaser’s Notes, the transferee shall be allocated a pro rata portion of such
Purchaser’s Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee.
In the event that any holder of Notes shall convert all of such holder’s Notes into a number of
shares of Common Stock which, in the aggregate, is less than such holder’s Exchange Cap Allocation,
then the difference between such holder’s Exchange Cap Allocation and the number of shares of
Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of Notes on a pro rata basis in
proportion to the aggregate principal amount of the Notes then held by each such holder.

          (4) RIGHTS UPON EVENT OF DEFAULT.

7

 

               (a) Event of Default. Each of the following events shall constitute an “Event of
Default”:

                    (i) the suspension from trading or failure of the Common Stock to be listed on an Eligible
Market for a period of five (5) consecutive Trading Days or for more than an aggregate of ten (10)
Trading Days in any 365-day period;

                    (ii) the Company’s (A) failure to cure a Conversion Failure by delivery of the required number
of shares of Common Stock within ten (10) Business Days after the applicable Conversion Date or (B)
notice, written or oral, to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a request for
conversion of any Notes into shares of Common Stock that is tendered in accordance with the
provisions of the Notes, other than pursuant to Section 3(d);

                    (iii) at any time following the tenth (10th) consecutive Business Day that the
Holder’s Authorized Share Allocation is less than the number of shares of Common Stock that the
Holder would be entitled to receive upon a conversion of the full Conversion Amount of this Note
(without regard to any limitations on conversion set forth in Section 3(d) or otherwise);

                    (iv) the Company’s failure to pay to the Holder any amount of Principal, Interest, Late
Charges or other amounts when and as due under this Note (including, without limitation, the
Company’s failure to pay any redemption payments or amounts hereunder) or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the transactions contemplated hereby
and thereby to which the Holder is a party, except, in the case of a failure to pay Interest and
Late Charges when and as due, in which case only if such failure continues for a period of at least
five (5) Business Days;

                    (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness of
the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement) other than with respect to any Other Notes;

                    (vi) the Company or any of its Subsidiaries, pursuant to or within the meaning of Title 11,
U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively,
“Bankruptcy Law”), (A) commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “Custodian”), (D) makes a general assignment for the
benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as
they become due;

                    (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law
that (A) is for relief against the Company or any of its Subsidiaries in an involuntary case, (B)
appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the liquidation of the
Company or any of its Subsidiaries;

8

 

                    (viii) a final judgment or judgments for the payment of money aggregating in excess of (A)
$100,000 are rendered against the Company or any of its Subsidiaries or (B) $50,000 are rendered
against any of the officers or directors of the Company or any of its Subsidiaries, and which
judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within sixty (60) days after the expiration of such stay;
provided, however, that any judgment which is covered by insurance or an indemnity from a credit
worthy party shall not be included in calculating the amounts set forth above so long as the
Company provides the Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment
is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance
or indemnity within thirty (30) days of the issuance of such judgment;

                    (ix) the Company breaches any representation, warranty, covenant or other term or condition of
any Transaction Document, except, in the case of a breach of a covenant or other term or condition
of any Transaction Document which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days;

                    (x) any breach or failure in any respect to comply with either of Sections 8 or 16 of this
Note; or

                    (xi) any Event of Default (as defined in the Other Notes or the Amended and Restated Exchanged
Notes) occurs with respect to any Other Notes or Amended and Restated Exchanged Notes.

               (b) Redemption Right. Upon the occurrence of an Event of Default, the Company shall
within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (an
“Event of Default Notice”) to the Holder. At any time after the earlier of the Holder’s receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may
require the Company to redeem all or any portion of this Note by delivering written notice thereof
(the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the
Company at a price equal to the greater of (i) the product of (A) Conversion Amount to be redeemed
and (B) the Redemption Premium and (ii) the product of (A) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the Holder delivers an Event of Default Redemption
Notice and (B) the product of (1) the Equity Value Redemption Premium and (2) the greatest Closing
Sale Price of the Common Stock beginning on the date immediately preceding such Event of Default
and ending on the date the Holder delivers the Event of Default Redemption Notice (the “Event of
Default Redemption Price”). Redemptions required by this Section 4(b) shall be made in accordance
with the provisions of Section 14. To the extent redemptions required by this Section 4(b) are
deemed or
determined by a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. The parties hereto agree that in the
event of the Company’s redemption of any portion of the Note under this Section 4(b), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’ inability to predict
future interest rates and the uncertainty of the availability of a suitable substitute

9

 

investment
opportunity for the Holder. Accordingly, any Redemption Premium due under this Section 4(b) is
intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual
loss of its investment opportunity and not as a penalty.

          (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

               (a) Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless (i)  the Successor Entity assumes in writing all of the obligations of the
Company under this Note and the other Transaction Documents in accordance with the provisions of
this Section 5(a) pursuant to written agreements in form and substance reasonably satisfactory to
the Required Holders and approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Notes in exchange for such Notes a security of
the Successor Entity evidenced by a written instrument substantially similar in form and substance
to the Notes, including, without limitation, having a principal amount and interest rate equal to
the principal amounts and the interest rates of the Notes then outstanding held by such holder,
having similar conversion rights and having similar ranking to the Notes, and satisfactory to the
Required Holders and (ii)  the Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible Market (a “Public
Successor Entity”). Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and shall assume all of
the obligations of the Company under this Note with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or
redemption of this Note at any time after the consummation of the Fundamental Transaction, in lieu
of the shares of the Company’s Common Stock (or other securities, cash, assets or other property)
issuable upon the conversion or redemption of the Notes prior to such Fundamental Transaction, such
shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including
its Parent Entity), as adjusted in accordance with the provisions of this Note. The provisions of
this Section shall apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of this Note.

               (b) Redemption Right. (i) No sooner than fifteen (15) Trading Days nor later than
ten (10) Trading Days prior to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier to the Holder (a “Change of Control Notice”). At any time during
the period beginning after the Holder’s receipt of a Change of Control Notice and ending twenty
(20) Trading Days after the date of the consummation of such Change of Control, the Holder may
require the Company to redeem all or any portion of this Note by
delivering written notice thereof (“Change of Control Redemption Notice”) to the Company,
which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is
electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5
shall be redeemed by the Company in cash at a price equal to the greater of (i) 130% of the
Conversion Amount being redeemed and (ii) the product of (a) the Equity Value Redemption

10

 

Premium
and (b) the product of (1) the Conversion Amount being redeemed multiplied by (2) the quotient
determined by dividing (I) the aggregate cash consideration and the aggregate cash value of any
non-cash consideration per Common Share to be paid to the holders of the Common Shares upon
consummation of the Change of Control (any such non-cash consideration consisting of marketable
securities to be valued at the higher of the Closing Sale Price of such securities as of the
Trading Day immediately prior to, the Closing Sale Price as of the Trading Day immediately
following the public announcement of such proposed Change of Control and the Closing Sale Price of
the Common Stock immediately prior to the public announcement of such proposed Change of Control)
by (y) the Conversion Price (the “Change of Control Redemption Price”). Redemptions required by
this Section 5 shall be made in accordance with the provisions of Section 14 and shall have
priority to payments to stockholders in connection with a Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to
Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section 5(b) (together with
any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. The parties hereto agree that in the event of the Company’s redemption of
any portion of the Note under this Section 5(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Change of Control redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.

                    (ii) Notwithstanding anything to the contrary contained above, if the Successor Entity in a
Change of Control transaction is a Public Successor Entity and has a market capitalization in
excess of $350 million as of the Change of Control Notice Due Date (as defined below) and the
consideration being paid to the holders of Common Stock in such Change of Control consists solely
of its publicly traded common stock, the Successor Entity may, in lieu of paying the Change of
Control Redemption Price in cash, elect to pay some or all of the Conversion Amount to be redeemed
(the “Change of Control Redemption Amount”) to the Holder of this Note by causing the conversion of
such Change of Control Redemption Amount, provided there has been no Equity Conditions Failure
(other than with respect to clause (vi)(A) of the definition of Equity Condition), in accordance
with this Section 5(b) (a “Successor Conversion”). On or prior to the date which is the tenth
(10th) Trading Day prior to the date of the consummation of the Change of Control
transaction (the “Change of Control Notice Due Date”), the Successor Entity shall deliver written
notice (each, a “Successor Change of Control Notice” and the date all of the holders receive such
notice is referred to as to the “Successor Change of Control Notice Date”), to each holder of
Notes, which Successor Change of Control Notice shall (A) state, if applicable, what portion of the
Change of Control Redemption Amount
of such holder’s Note the Successor Entity elects to have converted upon receipt of a Change
of Control Redemption Notice, pursuant to a Successor Conversion (such amount to be converted, the
“Successor Conversion Amount”) and (B) state, if applicable, what portion of the Change of Control
Redemption Amount the Successor Entity elects to have redeemed, upon receipt of a Change of Control
Redemption Notice, or would be required to be redeemed in accordance with

11

 

the provisions of the
Notes and (ii) if some or all of the Change of Control Redemption Amount is to be paid pursuant to
a Successor Conversion, certify that the Equity Conditions (other than with respect to clause
(vi)(A) of the definition of Equity Condition) have been satisfied as of the date of the Successor
Change of Control Notice. Each Successor Change of Control Notice shall be irrevocable. If the
Successor Entity does not timely deliver a Successor Change of Control Notice in accordance with
this Section 5(b), then the Successor Entity shall be deemed to have delivered an irrevocable
Successor Change of Control Notice stating that the entire Change of Control Redemption Price shall
be paid in cash. Except as expressly provided in this Section 5(b)(ii), the Company shall convert
or redeem the applicable Change of Control Redemption Amount of this Note pursuant to this Section
5(b) and the corresponding Change of Control Redemption Amounts of the Other Notes in the same pro
rata proportion pursuant to the corresponding provisions of the Other Notes in the same manner.
The Successor Conversion Amount (whether set forth in the Successor Change of Control Notice or by
operation of this Section 5(b)) shall be converted in accordance with Section 5(b)(iii) and the
Successor Entity Redemption Amount shall be redeemed in accordance with Section 5(b)(i).

                    (iii) Subject to Section 3(d), if the Successor Entity delivers a Successor Change of Control
Notice and elects a Successor Conversion in accordance with Section 5(b)(ii), then the applicable
Change of Control Redemption Price shall be converted by converting such Change of Control
Redemption Price at the Successor Conversion Price (A) on the date of the consummation of the
Change of Control if the Change of Control Redemption Notice is received prior to the consummation
of the Change of Control or (B) within five (5) Business Days after the Company’s receipt of such
Change of Control Redemption Notice otherwise (the “Change of Control Conversion Date”); provided
that the Equity Conditions have been satisfied (or waived in writing by the Holder). If the Equity
Conditions are not satisfied (or waived in writing by the Holder), then at the option of the Holder
designated in writing to the Company and the Successor Entity, the Holder may require the Company
to do any one or more of the following: (i) the Company shall redeem all or any part designated by
the Holder of the unconverted Successor Conversion Amount (such designated amount is referred to as
the “First Redemption Amount”) on the Change of Control Conversion Date and the Company shall pay
to the Holder on the Change of Control Conversion Date, by wire transfer of immediately available
funds, an amount in cash equal to 130% of such First Redemption Amount, and/or (ii) the Successor
Conversion shall be null and void with respect to all or any part designated by the Holder of the
unconverted Change of Control Redemption Price and the Holder shall be entitled to all the rights
of a holder of this Note with respect to such amount of the Change of Control Redemption Price;
provided, however, that the Conversion Price for such unconverted Change of Control
Redemption Price shall thereafter be adjusted to equal the lesser of (A) the Successor Conversion
Price as in effect on the date on which the Holder voided the Successor Conversion and (B) the
Successor Conversion Price that would be in effect as if the Change of Control was consummated on
the date on which the Holder delivers a Conversion Notice. If the Company fails to redeem any
First Redemption Amount on or before the Change of Control Conversion Date by payment of such
amount on the Change of Control Conversion
Date, then the Holder shall have the rights set forth in Section 14 (a) as if the Company
failed to pay the applicable Redemption Price and all other rights under this Note (including,
without limitation, such failure constituting an Event of Default described in Section 4(a)).
Notwithstanding anything to the contrary in this Section 5(b)(iii), but subject to 3(d), until the
Company or the Successor Entity, as applicable, delivers the Change of Control Redemption

12

 

Price to
the Holder, the Change of Control Redemption Price may be converted by the Holder into Common Stock
pursuant to Section 3. Notwithstanding the foregoing, if the Change of Control Conversion Date
occurs after the consummation of the Change of Control, the Successor Entity shall be obligated, in
lieu of the Company, to deliver the Change of Control Redemption Price, whether by delivery of the
Successor Conversion Amount at the Successor Conversion Price or by delivery of the Change of
Control Redemption Amount.

          (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

               (a) Purchase Rights. If at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which the Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into account any limitations
or restrictions on the convertibility of this Note) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for the grant, issue
or sale of such Purchase Rights.

               (b) Other Corporate Events. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right to receive upon a
conversion of this Note, at the Holder’s option, (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the Holder would have
been entitled with respect to such shares of Common Stock had such shares of Common Stock been held
by the Holder upon the consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of
Common Stock otherwise receivable upon such conversion, such securities or other assets received by
the holders of shares of Common Stock in connection with the consummation of such Corporate Event
in such amounts as the Holder would have been entitled to receive had this Note initially been
issued with conversion rights for the form of such consideration (as opposed to shares of Common
Stock) at a conversion rate for such consideration commensurate with the Conversion Rate.
Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to
the Required Holders. The provisions of this Section shall apply similarly and equally to
successive Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Note.

          (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

               (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on
or after the Subscription Date, the Company issues or sells, or in accordance with this Section
7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale
of shares of Common Stock owned or held by or for the account of the

13

 

Company, but excluding shares
of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded
Securities) for a consideration per share (the “New Issuance Price”) less than a price (the
“Applicable Price”) equal to the Conversion Price in effect immediately prior to such issue or sale
or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such
Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to the
New Issuance Price. For purposes of determining the adjusted Conversion Price under this Section
7(a), the following shall be applicable:

                    (i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 7(a)(i), the “lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities issuable upon exercise of
such Option” shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion or exchange
or exercise of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of such share of
Common Stock or of such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange or exercise of such
Convertible Securities.

                    (ii) Issuance of Convertible Securities. If the Company in any manner issues
or sells any Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or exercise thereof is less than
the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and
to have been issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii),
the “lowest price per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any one share
of Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible Security. No further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of Common Stock
upon conversion or exchange or exercise of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any Options for which
adjustment of the Conversion
Price had been or are to be made pursuant to other provisions of this Section 7(a), no
further adjustment of the Conversion Price shall be made by reason of such issue or sale.

14

 

                    (iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or exercisable for Common Stock
increases or decreases at any time, the Conversion Price in effect at the time of such
increase or decrease shall be adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities provided for such increased
or decreased purchase price, additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold. For purposes of this Section
7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued
as of the date of such increase or decrease. No adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in effect.

                    (iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is allocated to such Options
by the parties thereto, the Options will be deemed to have been issued for a consideration
of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the Closing Sale Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value of such consideration will be determined within five (5)
Business Days after the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the Required Holders.
The determination of such appraiser shall be deemed binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by the Company.

                    (v) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (A) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (B)

15

 

to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.

                    (vi) Voluntary Adjustment By Company. The Company may at any time during the
term of this Note reduce the then current  Conversion Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company.

               (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock.
If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately increased.

               (c) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 7 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7.

          (8) HOLDER’S RIGHT OF OPTIONAL REDEMPTION. Following each of the one (1) year
anniversary of the Issuance Date and the two (2) year anniversary of the Issuance Date, the Holder
shall have the right (the “Holder Optional Redemption”), in its sole discretion, to require that
the Company to redeem a Principal amount of this Note in an amount up to the Available Redemption
Amount plus accrued and unpaid Interest on such Available Redemption Amount plus accrued and unpaid
Late Charges with respect to such Principal and Interest (the “Redemption Amount”) by delivering
written notice thereof to the Company within five (5) Business Days following each of the above
mentioned anniversary dates (a “Holder Optional Redemption Notice” and the date the Holder delivers
such notice, the “Holder Optional Redemption Notice Date. The Company shall redeem any Redemption
Amounts within five (5) Trading Days of the Holder Optional Redemption Notice Date (the “Optional
Redemption Date”) in cash at a price equal to the Redemption Amount (the “Holder Redemption
Price”). Redemptions made pursuant to this Section 9 shall be made in accordance with Section 14.
No later than one (1) Trading Day following any Optional Redemption Date,
the Company shall file a Current Report on Form 8-K describing the terms of the applicable
Holder Optional Redemption.

          (9) HOLDER’S RIGHT OF OPTIONAL CONVERSION/REDEMPTION

16

 

               (a) General. At any time and from time to time after the date which is six (6)
months after the Issuance Date, the Holder shall have the right, in its sole discretion, to require
that the Company, convert, or, at the Company’s election, redeem all or a portion of the Conversion
Amount (the “Conversion/Redemption Amount”) by delivering written notice thereof (a “Holder
Optional Conversion/Redemption Notice” and the date the Holder delivers such notice, the “Holder
Optional Conversion/Redemption Notice Date”). Within one (1) Business Day of the Holder Optional
Conversion/Redemption Notice Date, the Company shall deliver to the Holder a written notice (a
“Company Conversion/Redemption Notice” and the date the Holder receives such written notice, the
“Company Conversion/Redemption Notice Date”) which notice shall (i) either (A) confirm that the
Conversion/Redemption Amount shall be converted (an “Optional Conversion”) in whole or in part or
(B)(1) state that the Company elects to redeem (an “Optional Redemption”), in whole or in part, the
Conversion/Redemption Amount and (2) specify the portion which the Company elects to redeem
pursuant to an Optional Redemption (such amount to be redeemed, the “Optional Redemption Amount”)
and the portion, if any, that the Company elects to convert pursuant to an Optional Conversion
(such amount also, an “Optional Conversion Amount”) and (ii) if the Conversion/Redemption Amount is
to be paid, in whole or in part, pursuant to an Optional Conversion, certify that there has been no
Equity Conditions Failure (other than with respect to clause (iv)(A) of the definition of Equity
Conditions). Each Company Conversion/Redemption Notice shall be irrevocable. The Company shall
redeem and convert any Optional Redemption Amounts and Optional Conversion Amounts within five (5)
Trading Days of the Company Conversion/Redemption Notice Date (the “Optional Conversion/Redemption
Date”) and shall make the same conversion and redemption decisions as to all the Notes for which
the Company has received a Holder Optional Conversion/Redemption Notice. The portion of this Note
subject to redemption pursuant to this Section 10 shall be redeemed by the Company in cash at a
price equal to the Optional Redemption Amount (the “Holder Optional Redemption Price”).

               (b) Mechanics of Holder Optional Conversion. If the Company delivers a Company
Conversion/Redemption Notice electing an Optional Conversion in accordance with Section 10(a),
then, on the Optional Conversion/Redemption Date, the Company shall, or shall direct the Transfer
Agent to, deliver to the Holder’s account with DTC, or issue the Holder a certificate for, a number
of shares of Common Stock equal to the quotient of (A) such Optional Conversion Amount divided by
(B) the Optional Conversion Price (the “Optional Conversion Shares”) on the Optional
Conversion/Redemption Date. If the Company has elected an Optional Conversion, in whole or in
part, and there is an Equity Conditions Failure (other than with respect to clause (iv)(A) of the
definition of Equity Conditions) at the Holder Optional Conversion/Redemption Date, then at the
option of the Holder designated in writing to the Company, the Holder may require the Company to do
either one or both of the following: (A) the Company shall redeem all or any part designated by the
Holder of the unconverted Holder Optional Conversion Amount (such designated amount is referred to
as the “Holder Designated Redemption Amount”) on such Holder Optional Conversion/Redemption Date
and the Company shall pay to the Holder on such Holder Optional Conversion/Redemption Date by wire
transfer of immediately available funds, an amount in cash equal to 125% of such Holder
Designated Redemption Amount, and/or (B) the Holder Optional Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Holder Optional Conversion
Amount and the Holder shall be entitled to all the rights of a holder of this Note with respect to
such amount of the Holder Optional Conversion Amount; provided, however, that the

17

 

Conversion Price
for such unconverted Holder Optional Conversion Amount shall thereafter be adjusted to equal the
lowest the Optional Conversion Price as in effect during the period beginning on the date on which
the Holder voided the Holder Optional Conversion and ending on the date on which the Holder
delivers a Conversion Notice relating thereto. If the Company fails to redeem the Holder
Designated Redemption Amount on or before the Holder Optional Conversion/Redemption Date by payment
of such amount on such Holder Optional Conversion/Redemption Date then the Holder shall have the
rights set forth in Section 14(a) as if the Company failed to pay the applicable Holder Optional
Redemption Price and all other rights under this Note (including, without limitation, such failure
constituting an Event of Default described in Section 4(a)(v)).

               (c) Mechanics of Holder Optional Redemption. Optional Redemptions made pursuant to
this Section 10 shall be made in accordance with Section 14.

          (10) SECURITY. This Note and the Other Notes are secured to the extent and in the
manner set forth in the Security Agreement (as defined in the Securities Purchase Agreement).

          (11) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Note, and will at all times in good faith carry out all of the provisions
of this Note and take all action as may be required to protect the rights of the Holder of this
Note.

          (12) RESERVATION OF AUTHORIZED SHARES.

               (a) Reservation. The Company shall initially reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock for each of the Notes equal to 130% of the
Conversion Rate with respect to the Conversion Amount of each such Note as of the Issuance Date.
So long as any of the Notes are outstanding, the Company shall take all action necessary to reserve
and keep available out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Notes, 130% of the number of shares of Common Stock as shall from
time to time be necessary to effect the conversion of all of the Notes then outstanding; provided
that at no time shall the number of shares of Common Stock so reserved be less than the number of
shares required to be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”). The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares so reserved shall
be allocated pro rata among the holders of the Notes based on the principal amount of the Notes
held by each holder at the Closing (as defined in the Securities Purchase Agreement) or increase in
the number of
reserved shares, as the case may be (the “Authorized Share Allocation”). In the event that a
holder shall sell or otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common
Stock reserved and allocated to any Person which ceases to hold any Notes shall be

18

 

allocated to the
remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such
holders.

               (b) Insufficient Authorized Shares. If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at
least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share
Failure”), then the Company shall immediately take all action necessary to increase the Company’s
authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the
Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share
Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in
the number of authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board
of directors to recommend to the stockholders that they approve such proposal.

          (13) HOLDER’S REDEMPTIONS.

               (a) Mechanics. The Company shall deliver the applicable Event of Default Redemption
Price to the Holder within five (5) Business Days after the Company’s receipt of the Holder’s Event
of Default Redemption Notice. If the Holder has submitted a Change of Control Redemption Notice in
accordance with Section 5(b), other than with respect to any Successor Conversion Amount, which
shall be governed by Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and within five (5) Business
Days after the Company’s receipt of such notice otherwise. The Company shall deliver the
applicable Holder Optional Redemption Price on the applicable Redemption Date. In the event of a
redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section 20(d)) representing
the outstanding Principal which has not been redeemed. In the event that the Company does not pay
the applicable Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have
the option, in lieu of redemption, to require the Company to promptly return to the Holder all or
any portion of this Note representing the Conversion Amount that was submitted for redemption and
for which the applicable Redemption Price (together with any Late Charges thereon) has not been
paid. Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall immediately return or
reinstate this Note, or issue a new Note (in accordance with Section 20(d)) to the Holder
representing the sum of such Conversion Amount to be
redeemed together with accrued and unpaid Interest with respect to such Conversion Amount and
accrued and unpaid Late Charges with respect to such Conversion Amount and Interest and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the applicable Redemption Notice is voided

19

 

and
(B) the lowest Closing Bid Price of the Common Stock during the period beginning on and including
the date on which the applicable Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Redemption Notice is voided. The Holder’s delivery of a
notice voiding a Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which have accrued prior to
the date of such notice with respect to the Conversion Amount subject to such notice.

               (b) Redemption by Other Holders. Upon the Company’s receipt of notice from any of the
holders of the Other Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 4(b), Section 5(b) or
Section 9 (each, an “Other Redemption Notice”), the Company shall immediately, but no later than
one (1) Business Day of its receipt thereof, forward to the Holder by facsimile a copy of such
notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices,
during the seven (7) Business Day period beginning on and including the date which is three (3)
Business Days prior to the Company’s receipt of the Holder’s Redemption Notice and ending on and
including the date which is three (3) Business Days after the Company’s receipt of the Holder’s
Redemption Notice and the Company is unable to redeem all principal, interest and other amounts
designated in such Redemption Notice and such Other Redemption Notices received during such seven
(7) Business Day period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during
such seven Business Day period.

          (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this
Note, except as required by law, including, but not limited to, the Nevada Business Corporation
Act, and as expressly provided in this Note.

          (15) COVENANTS. So long as this Note is outstanding:

               (a) Rank. All payments due under this Note (a) shall rank pari passu with the other
Pari Passu Notes and (b) shall be senior to all other Indebtedness of the Company and its
Subsidiaries.

               (b) Incurrence of Indebtedness. The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to
exist any Indebtedness, other than the Indebtedness evidenced by this Note and the Other Notes and
other Permitted Indebtedness.

               (c) Existence of Liens. The Company shall not, and the Company shall not permit any
of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property or
assets (including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, “Liens”) other than Permitted Liens.

20

 

               (d) Restricted Payments. The Company shall not, and the Company shall not permit any
of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any
payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by
way of open market purchases, tender offers, private transactions or otherwise), all or any portion
of any Permitted Indebtedness (other than the Pari Passu Notes), whether by way of payment in
respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such payment, an event constituting,
or that with the passage of time and without being cured would constitute, an Event of Default has
occurred and is continuing.

               (e) Restriction on Redemption and Cash Dividends. Until all of the Notes have been
converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not,
directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on
its capital stock without the prior express written consent of the Required Holders.

               (f) Use of Proceeds. The Company will use the proceeds from the sale of the Notes
substantially as set forth in Section 4(d) of the Securities Purchase Agreement.

          (16) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to
receive such dividends paid and distributions made to the holders of Common Stock to the same
extent as if the Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and distributions. Payments under the preceding sentence shall be
made concurrently with the dividend or distribution to the holders of Common Stock.

          (17) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting of the Required Holders shall
be required for any change or amendment to this Note or the Other Notes.

          (18) TRANSFER. This Note and any shares of Common Stock issued upon conversion of
this Note may be offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement.

          (19) REISSUANCE OF THIS NOTE.

               (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note
to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder
a new Note (in accordance with Section 20(d)), registered as the Holder may request, representing
the outstanding Principal being transferred by the Holder and, if less then the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 20(d)) to the Holder
representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this

21

 

Note,
the outstanding Principal represented by this Note may be less than the Principal stated on the
face of this Note.

               (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note,
and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon surrender and cancellation of
this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with
Section 20(d)) representing the outstanding Principal.

               (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes
(in accordance with Section 20(d) representing in the aggregate the outstanding Principal of this
Note, and each such new Note will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.

               (d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii)
shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or
in the case of a new Note being issued pursuant to Section 20(a) or Section 20(c), the Principal
designated by the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining outstanding under
this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as
indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges, if any, on the Principal and Interest of this Note, from the Issuance
Date.

          (20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Note shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction Documents at law or in equity (including
a decree of specific performance and/or other injunctive relief), and nothing herein shall limit
the Holder’s right to pursue actual and consequential damages for any failure by the Company to
comply with the terms of this Note. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of showing economic loss
and without any bond or other security being required.

          (21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed
in the hands of an attorney for collection or enforcement or is collected or enforced through any
legal proceeding or the Holder otherwise takes action to

22

 

collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’ rights and involving
a claim under this Note, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

          (22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the
Company and all the Purchasers and shall not be construed against any person as the drafter hereof.
The headings of this Note are for convenience of reference and shall not form part of, or affect
the interpretation of, this Note.

          (23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder
in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

          (24) DISPUTE RESOLUTION. In the case of a dispute as to the determination of (a) the
Closing Bid Price, the Closing Sale Price or the Weighted Average Price or (b) the arithmetic
calculation of the Conversion Rate or any Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon
such determination or calculation within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within one (1)
Business Day submit via facsimile (a) the disputed determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Conversion Rate or any Redemption Price to the Company’s independent, outside accountant. The
Company, at the Company’s expense, shall cause the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the disputed determinations
or calculations. Such investment bank’s or accountant’s determination or calculation, as the case
may be, shall be binding upon all parties absent demonstrable error.

          (25) NOTICES; PAYMENTS.

               (a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section 10(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon the Common Stock,

23

 

(B)
with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

               (b) Payments. Whenever any payment of cash is to be made by the Company to any Person
pursuant to this Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier service to such
Person at such address as previously provided to the Company in writing (which address, in the case
of each of the Purchasers, shall initially be as set forth on the Schedule of Buyers attached to
the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash
via wire transfer of immediately available funds by providing the Company with prior written notice
setting out such request and the Holder’s wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a Business Day, the
same shall instead be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the extension of the
due date thereof shall not be taken into account for purposes of determining the amount of Interest
due on such date. Any amount of Principal or other amounts due under the Transaction Documents,
other than Interest, which is not paid when due shall result in a late charge being incurred and
payable by the Company in an amount equal to interest on such amount at the rate of eighteen
percent (18%) per annum from the date such amount was due until the same is paid in full (“Late
Charge”).

          (26) CANCELLATION. After all Principal, accrued Interest and other amounts at any
time owed on this Note have been paid in full, this Note shall automatically be deemed canceled,
shall be surrendered to the Company for cancellation and shall not be reissued.

          (27) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement.

          (28) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and performance of this Note
shall be governed by, the internal laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions other than the
State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law.
In the event that any provision of this Note is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the extent that it may

24

 

conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any
such provision which may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any
collateral or any other security for such obligations, or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

          (29) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have
the following meanings:

               (a) “Amended and Restated Exchanged Notes” has the meaning set forth in the July 2009
Securities Purchase Agreement.

               (b) “Approved Stock Plan” means any employee benefit plan or other agreement which has been
approved by the Board of Directors of the Company, pursuant to which the Company’s securities may
be issued to any employee, consultant, officer or director for services provided to the Company.

               (c) “Available Redemption Amount” means on each of the one (1) year anniversary and the two
(2) year anniversary of the Issuance Date, if there has been an Equity Conditions Failure and/or
the arithmetic average of the Weighted Average Price of the Common Stock for the five (5)
consecutive Trading Days ending on such date is equal to or less than 150% of the initial
Conversion Price, subject to adjustment as provided herein (a “Pricing Failure”), an amount equal
to one-third of the original Principal amount of this Note on the Issuance Date.

               (d) “Average Market Price” means, for any given date, the lesser of (i) the arithmetic average
of the lowest Weighted Average Price of the Common Stock during the fifteen (15) consecutive
Trading Days ending on the Trading Day immediately prior to such given date (the “Measuring
Period”) and (ii) the arithmetic average of the lowest Weighted Average Price of the Common Stock
during any three (3) consecutive Trading Day period during the Measuring Period; provided, that all
such determinations shall be appropriately adjusted for any stock split, stock dividend, stock
combination or other similar transaction that proportionately decreases or increases the Common
Stock during such periods.

               (e) “Bloomberg” means Bloomberg Financial Markets.

               (f) “Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.

               (g) “Calendar Quarter” means each of: the period beginning on and including January 1 and
ending on and including March 31; the period beginning on and including April 1 and ending on and

25

 

including April 1 and ending on and
including June 30; the period beginning on and including July 1 and ending on and including
September 30; and the period beginning on and including October 1 and ending on and including
December 31.

               (h) “Change of Control” means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock in which holders of the Company’s voting
power immediately prior to such reorganization, recapitalization or reclassification continue after
such reorganization, recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other than a corporation)
of such entity or entities, or (ii) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

               (i) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or last trade price, respectively, of such security prior
to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 25. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.

               (j) “Closing Date” shall have the meaning set forth in the Securities Purchase Agreement which
corresponds to the date this Note and the Other Notes were initially issued pursuant to the terms
of the Securities Purchase Agreement.

               (k) “Contingent Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee of such liability
that such liability will be paid or discharged, or that any agreements relating thereto

26

 

will be
complied with, or that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.

               (l) “Convertible Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for Common Stock.

               (m) “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the
American Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ
Capital Market, or any market that is a successor to any of the foregoing.

               (n) “Equity Conditions” means that each of the following conditions is satisfied: (i) on each
day during the period beginning six (6) month prior to the applicable date of determination and
ending on and including the applicable date of determination (the “Equity Conditions Measuring
Period”), all shares of Common Stock issuable upon conversion of the Notes and cashless exercise of
the Warrants shall be eligible for sale pursuant to Rule 144 without restriction or limitation,
including without requirement to be subject to Rule 144(c)(1), and without the need for
registration under any applicable federal or state securities laws; (ii) on each day during the
Equity Conditions Measuring Period, the Common Stock is designated for quotation on the Principal
Market or any other Eligible Market and shall not have been suspended from trading on such exchange
or market (other than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company) nor shall delisting
or suspension by such exchange or market been threatened or pending either (A) in writing by such
exchange or market or (B) by falling below the then effective minimum listing maintenance
requirements of such exchange or market; (iii) during the one (1) year period ending on and
including the date immediately preceding the applicable date of determination, the Company shall
have delivered shares of Common Stock upon conversion of the Notes and upon exercise of the
Warrants to the holders on a timely basis as set forth in Section 3(c)(ii) hereof (and analogous
provisions under the Other Notes) and Section 1(a) of the Warrants; (iv) any applicable shares of
Common Stock to be issued in connection with the event requiring determination may be issued in
full without violating (A) Section 3(d)(i) hereof, (B) Section 3(d)(ii) and (C) the rules or
regulations of the Principal Market or any applicable Eligible Market; (v) the Company shall not
have failed to timely make any payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document; (vi) during the Equity Conditions Measuring Period, there
shall not have occurred either (A) the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated, or (B) an Event of
Default or (C) an event that with the passage of time or giving of notice would constitute an Event
of Default; (vii) the Company shall have no knowledge of any fact that would cause any shares of
Common Stock issuable upon conversion of the Notes and shares of Common Stock issuable upon
cashless exercise of the Warrants not to be eligible for sale pursuant to Rule 144
without restriction or limitation, including without the requirement to be subject to Rule
144(c)(1) and any applicable state securities laws; (viii) the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant, representation or warranty of
any Transaction Document and (ix) if required by the terms of the Securities

27

 

Purchase Agreement,
the Company shall have obtained the Stockholder Approval on or before the applicable Stockholder
Meeting Deadline.

               (o) “Equity Conditions Failure” means that (i) on any day during the period commencing ten
(10) Trading Days prior to the applicable Interest Notice Date through the applicable Interest
Date, (ii) on any day during the period commencing ten (10) Trading Days prior to the applicable
Mandatory Conversion Notice Date through the applicable Mandatory Conversion Date, (iii) on any day
during the period commencing ten (10) Trading Days prior to the applicable Holder Optional
Redemption Notice Date through the applicable Optional Redemption Date, the Equity Conditions have
not been satisfied (or waived in writing by the Holder) or (iv) on any day during the period
commencing ten (10) Trading Days prior to the applicable Change of Control Notice Date through the
applicable Change of Control Conversion Date.

               (p) “Equity Value Redemption Premium” means for any Change of Control Notice or Event of
Default Notice, as applicable, delivered or required to be delivered in connection with a Change of
Control or Event of Default, as applicable, 130%.

               (q) “Excluded Securities” means any Common Stock issued or issuable: (i) in connection with
any Approved Stock Plan; (ii) upon conversion of the Notes or the exercise of the Warrants; (iii)
in connection with the payment of any Interest Shares on the Notes; and (iv) upon exercise of any
Options or Convertible Securities which are outstanding on the day immediately preceding the
Subscription Date, provided that the terms of such Options or Convertible Securities are not
amended, modified or changed on or after the Subscription Date.

               (r) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of Voting Stock (not including any shares
of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with
the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than the 50% of the outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the other Person or other Persons making or party to,
or associated or affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Common
Stock or (vi) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the
Company.

               (s) “GAAP” means United States generally accepted accounting principles, consistently applied.

28

 

               (t) “Holder Pro Rata Amount” means a fraction (i) the numerator of which is the Principal
amount of this Note on the applicable Closing Date and (ii) the denominator of which is the
aggregate principal amount of all Notes issued to the initial purchasers pursuant to the Securities
Purchase Agreement on the applicable Closing Date.

               (u) “Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in accordance with GAAP
(other than trade payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (v) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any leasing or similar
arrangement which, in connection with GAAP, consistently applied for the periods covered thereby,
is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi)
above secured by (or for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not assumed or become liable
for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

               (v) “Interest Conversion Price” means, with respect to any Interest Date that price which
shall be the price computed as 90% of the Average Market Price immediately preceding the applicable
Interest Date or Share Delivery Date, as applicable (each, an “Interest Measuring Period”). All
such determinations to be appropriately adjusted for any stock split, stock dividend, stock
combination or other similar transaction that proportionately decreases or increases the Common
Stock during the applicable Interest Measuring Period.

               (w) “Interest Notice Due Date” means the tenth (10th) Trading Day prior to the
applicable Interest Date.

               (x) “Interest Rate” means, 10% per annum, subject to adjustment as set forth in Section 2
hereof.

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

               (z) “Optional Conversion Price” means, the lower of (i) the applicable Conversion Price and
(ii) that price which shall be computed as 90% of the Average Market Price ending on the Trading
Day immediately prior to the Optional Conversion/Redemption Date. All such determinations shall be
appropriately adjusted for any

29

 

stock split, stock dividend, stock combination during or other
similar transaction that proportionately decreases or increases the price of the Common Stock
during the applicable period during which the Average Market Price is calculated.

               (aa) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

               (bb) “Pari Passu Notes” means this Note, the Other Notes and the Amended and Restated
Exchanged Notes.

               (cc) “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and the Other
Notes; (ii) Indebtedness evidenced by the Amended and Restated Exchanged Notes; (iii) Indebtedness
described on Schedule 3(s) to the July 2009 Securities Purchase Agreement; (iv) Indebtedness
incurred solely for the purpose of financing the acquisition or lease of any Equipment (as defined
in the Security Agreement) by the Company or any of its Subsidiaries, including Capital Lease
Obligations with no recourse other than to such Equipment; (v) Indebtedness solely between the
Company and/or one of its domestic Subsidiaries, on the one hand, and the Company and/or one of its
domestic Subsidiaries, on the other which Indebtedness is not secured by any assets of the Company
or any of its Subsidiaries, provided that (x) in each case a majority of the equity of any such
domestic Subsidiary is directly or indirectly owned by the Company, such domestic Subsidiary is
controlled by the Company and such domestic Subsidiary has executed a guaranty in the form of the
Guaranty and a security agreement in the form of the Security Agreement and (y) any such loan shall
be evidenced by an intercompany note that is pledged by the Company or its Subsidiary, as
applicable, as Collateral (as defined in the Security Agreement) pursuant to the Security Documents
(as defined in the Securities Purchase Agreement); (vi) at any time after the eight (8) month
anniversary of the Issuance Date, other Indebtedness in an amount not to exceed $250,000 at any one
time outstanding; and (vii) renewals, extensions and refinancing of any Indebtedness described in
clauses (i) or (iii) of this subsection.

               (dd) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or delinquent, (iii)
any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other
similar liens, arising in the ordinary course of business with respect to a liability that is not
yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv)
Liens (A) upon or in any equipment (as defined in the Security Agreement) acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of
such equipment, or (B) existing on such equipment at the time of its acquisition, provided
that the Lien is confined solely to the property so acquired and improvements thereon, and the
proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clauses (i) and (iv)

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above, provided that any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses
granted to others in the ordinary course of the Company’s business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in
favor of customs and revenue authorities arising as a matter of law to secure payments of custom
duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under Section 4(a)(ix), (ix)
Liens securing the Company’s obligations under the Notes, (x) Liens securing the Company’s
obligations under the Amended and Restated Exchanged Notes.

               (ee) “Person” means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other entity and a government
or any department or agency thereof.

               (ff) “Principal Market” means the OTC Bulletin Board.

               (gg) “Redemption Notices” means, collectively, any Event of Default Redemption Notices, any
Change of Control Redemption Notices, and any Holder Optional Redemption Notices (if an Optional
Redemption has been elected) each of the foregoing, individually, a Redemption Notice.

               (hh) “Redemption Premium” means (i) in the case of the Events of Default described in Section
4(a)(i) — (vi) and (ix) — (xiii), 125% or (ii) in the case of the Events of Default described in
Section 4(a)(vii) — (viii), 100%.

               (ii) “Required Holders” means the holders of Notes representing at least a majority of the
aggregate principal amount of the Notes then outstanding.

               (jj) “SEC” means the United States Securities and Exchange Commission.

               (kk) “Securities Purchase Agreement” means that certain Securities Purchase Agreement dated as
of the Subscription Date by and among the Company and the investors listed on the Schedule of
Buyers attached thereto.

               (ll) “Subscription
Date” means July 14, 2009.

               (mm) “Successor Conversion Price” means, (i) on or prior to the consummation of the Change of
Control, the lower of (A) the applicable Conversion Price and (B) that price which shall be
computed as 90% of the Average Market Price of the Common Stock of the Company immediately
preceding the consummation of the applicable Change of Control and (ii) after the consummation of
the Change of Control, 90% of the lesser of the Average Market Price of the Successor Entities
common stock on (A) the time of the
consummation of the Change of Control and (B) the date the Change of Control Redemption Notice
is delivered by the applicable Holder. All such determinations to be appropriately adjusted for
any stock split, stock dividend, stock combination or other similar transaction that

31

 

proportionately decreases or increases the Successor’s common stock during the applicable measuring
period.

               (nn) “Successor Entity” means the Person, which may be the Company, formed by, resulting from
or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided that if such Person is not a publicly traded entity whose common
stock or equivalent equity security is quoted or listed for trading on an Eligible Market,
Successor Entity shall mean such Person’s Parent Entity.

               (oo) “Trading Day” means any day on which the Common Stock is traded on the Principal Market,
or, if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York Time).

               (pp) “Volume Limitation” means 20% of the aggregate dollar trading volume (as reported on
Bloomberg) of the Common Stock on the Principal Market over the twenty (20) consecutive Trading Day
period immediately prior to the applicable Interest Notice Date.

               (qq) “Voting Stock” of a Person means capital stock of such Person of the class or classes
pursuant to which the holders thereof have the general voting power to elect, or the general power
to appoint, at least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or classes shall have
or might have voting power by reason of the happening of any contingency).

               (rr) “Warrants” has the meaning ascribed to such term in the Securities Purchase Agreement,
and shall include all warrants issued in exchange therefor or replacement thereof.

               (ss) “Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during the period beginning
at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is
the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading) as reported by Bloomberg
through its “Volume at Price” functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of trading), and ending at
4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for such hours, the
average of the highest closing bid price and the lowest closing ask price of any of the market
makers for

32

 

such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 25. All such determinations are to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.

          (30) DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information relating to the Company
or its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or
delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains material, nonpublic
information relating to the Company or its Subsidiaries, the Company so shall indicate to such
Holder contemporaneously with delivery of such notice, and in the absence of any such indication,
the Holder shall be allowed to presume that all matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries.

[Signature Page Follows]

33

 

          IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance
Date set out above.

	 	 	 	 	 
	 	Stinger Systems, Inc.

 	 
	 	By:  	/s/ Robert Gruder
 	 
	 	 	Name:  	Robert Gruder 	 
	 	 	Title:  	CEO

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