Document:

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of September 26,
2006, by and among MathStar, Inc., a Delaware corporation (the “Company”), and each purchaser identified
on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

RECITALS

A.            The Company and each Purchaser 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 “Securities Act”), and Rule
506 of Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission under
the Securities Act.

B.            Each Purchaser, severally and not jointly,
wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of shares of
common stock, par value $0.01 per share (the “Common
Stock”), of the Company set forth below such Purchaser’s name on the
signature page of this Agreement (which aggregate amount for all Purchasers
together shall be                           
shares of Common Stock and shall be collectively referred to herein as the “Shares”) and (ii) warrants, in substantially
the form attached hereto as Exhibit A (the “Warrants”), to acquire up to that number of additional
shares of Common Stock equal to 40.0% of the number of Shares purchased by such
Purchaser (the shares of Common Stock issuable upon exercise of or otherwise
pursuant to the Warrants, collectively, the “Warrant
Shares”). The Shares, the Warrants and the Warrant Shares issued
pursuant to this Agreement are collectively referred to herein as the “Securities”.

C.            The Company has engaged Piper Jaffray &
Co. as its placement agent (the “Placement
Agent”) for the offering of the Securities on a “best efforts”
basis.

D.            Contemporaneously with the execution and
delivery of this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, in the form attached hereto as Exhibit B
(the “Registration Rights Agreement”),
pursuant to which, among other things, the Company will agree to provide
certain registration rights with respect to the Shares and the Warrant Shares
under the Securities Act and applicable state securities laws.

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

ARTICLE I.

DEFINITIONS

1.1           Definitions. In addition to the terms defined
elsewhere in this Agreement, for all purposes of this Agreement, the following
terms shall have the meanings indicated in this Section 1.1:

“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or, to the
Company’s Knowledge, threatened in writing against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.

 

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

“Business Day”
means a day, other than a Saturday or Sunday, on which banks in New York City
are open for the general transaction of business.

“Buy-In”
has the meaning set forth in Section 4.1(f).

“Buy-In Price”
has the meaning set forth in Section 4.1(f).

“Cash Placement
Agent Fee” means the cash fee to be paid to the Placement Agent for
services rendered to the Company in connection with the offering of the
Securities.

“Closing”
means the closing of the purchase and sale of the Shares and the Warrants
pursuant to this Agreement.

“Closing Date”
means the Trading Day when all of the Transaction Documents have been executed
and delivered by the applicable parties thereto, and all of the conditions set
forth in Sections 2.1 and 2.2 hereof are satisfied, or such other date as the
parties may agree.

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

“Common Stock”
has the meaning set forth in the Recitals, and also includes any securities
into which the Common Stock may hereafter be reclassified or changed.

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

“Company Counsel” means Winthrop & Weinstine, P.A.

“Company Deliverables” has the meaning set forth in Section
2.2(a).

“Company’s Knowledge” means with respect to any statement
made to the knowledge of a party, that the statement is based upon the actual
knowledge of the officers of such party having responsibility for the matter or
matters that are the subject of the statement.

“Control”
(including the terms “controlling”, “controlled by” or “under common control
with”) means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

“Disclosure
Materials” has the meaning set forth in Section 3.1(h).

“Effective Date”
means the date on which the initial Registration Statement required by Section
2(a) of the Registration Rights Agreement is first declared effective by the
Commission.

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“Effectiveness
Deadline” means the date on which the initial Registration Statement
is required to be declared effective by the Commission under the terms of the
Registration Rights Agreement.

“Environmental
Laws” has the meaning set forth in Section 3.1(l).

“Evaluation Date”
has the meaning set forth in Section 3.1(v).

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

“GAAP”
means U.S. generally accepted accounting principles, as applied by the Company.

“Indemnified
Person” has the meaning set forth in Section 4.7(b).

“Intellectual
Property” has the meaning set forth in Section 3.1(r).

“Irrevocable
Transfer Agent Instructions”
means, with respect to the Company, the Irrevocable Transfer Agent
Instructions, in the form of Exhibit D, executed by the Company and
delivered to and acknowledged in writing by the Transfer Agent.

“Lien”
means any lien, charge, claim, encumbrance, security interest, right of first
refusal, preemptive right or other restrictions of any kind.

“Losses”
has the meaning set forth in Section 4.7(a).

“Material Adverse
Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or financial condition of the Company and the Subsidiaries, taken as a
whole, or (iii) any material adverse impairment to the Company’s ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document.

“Material Contract” means any contract of the Company that
was filed as an exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item
601(b)(10) of Regulation S-K.

“Material Permits”
has the meaning set forth in Section 3.1(p).

“New York Courts”
means the state and federal courts sitting in the City of New York, Borough of
Manhattan.

“Outside Date”
means October 15, 2006.

“Person”
means an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, sole
proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

“Principal
Trading Market” means the Trading Market on which the Common Stock
is primarily listed on and quoted for trading, which, as of the Closing Date,
shall be the Nasdaq Global Market.

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

“Purchaser
Deliverables” has the meaning set forth in Section 2.2(b).

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“Purchaser Party”
has the meaning set forth in Section 4.7(a).

“Registration
Rights Agreement” has the meaning set forth in the Recitals.

“Registration
Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Purchasers of the Registrable Securities (as defined in the Registration Rights
Agreement).

“Required
Approvals” has the meaning set forth in Section 3.1(e).

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

“SEC Reports”
has the meaning set forth in Section 3.1(h).

“Secretary’s
Certificate” has the meaning set forth in Section 2.2(a)(vi).

“Securities Act”
means the Securities Act of 1933, as amended.

“Short Sales”
include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Exchange Act, whether or not against
the box, and all types of direct and indirect stock pledges, forward sale
contracts, options, puts, calls, short sales, swaps, “put equivalent positions”
(as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements
(including on a total return basis), and sales and other transactions through
non-US broker dealers or foreign regulated brokers.

“Subscription
Amount” means with respect to each Purchaser, the aggregate amount
to be paid for the Shares and the Warrants purchased hereunder as indicated on
such Purchaser’s signature page to this Agreement next to the heading “Aggregate
Purchase Price (Subscription Amount)”.

“Subsidiary”
means any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X
promulgated by the Commission under the Exchange Act and any other entity
required to be disclosed in the SEC Reports pursuant to Item 601(b)(21) of
Regulation S-K.

“Trading
Affiliate” has the meaning set forth in Section 3.2(h).

“Trading Day”
means (i) a day on which the Common Stock is listed or quoted and traded on its
primary Trading Market (other than the OTC Bulletin Board), or (ii) if the
Common Stock is not listed on a Trading Market (other than the OTC Bulletin
Board), a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is
not quoted on any Trading Market, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided,
that in the event that the Common Stock is not listed or quoted as set forth in
(i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

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

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“Transaction
Documents” means this Agreement, the schedules and exhibits attached
hereto,  the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

“Transfer Agent”
means Wells Fargo Bank N.A., or any successor transfer agent for the Company.

“Warrants”
has the meaning set forth in the Preamble to this Agreement. The Placement
Agent and/or its designees are also receiving placement agent warrants as
compensation for services rendered in connection with the transactions set
forth herein, which warrants shall also constitute “Warrants” for all purposes
hereunder.

ARTICLE II.

PURCHASE AND SALE

2.1           Closing. Subject to the terms and conditions set forth in this Agreement, at
the Closing, the Company shall issue and sell to each Purchaser, and each
Purchaser shall, severally and not jointly, purchase from the Company, such
number of shares of Common Stock and a Warrant to purchase a number of Warrant
Shares, each as indicated below such Purchaser’s name on the signature page of
this Agreement, for an aggregate purchase price for such Purchaser as indicated
below such Purchaser’s name on the signature page of this Agreement  Upon confirmation that the other
conditions to closing specified herein have been satisfied or duly waived by
the Purchasers, the Company shall deliver to Lowenstein Sandler PC (“Placement Agent Counsel”), in trust, a certificate or
certificates, registered in such name or names as the Purchasers may designate,
representing the Shares and Warrants, with instructions that such certificates
are to be held for release to the Purchasers only upon payment in full of the
Subscription Amount to the Company by all the Purchasers. Unless otherwise
agreed to by the Company and any Purchaser, upon such receipt by Placement
Agent Counsel of the certificates, each Purchaser shall promptly, but no more
than one Business Day thereafter, cause a wire transfer in same day funds to be
sent to the account of the Company as instructed in writing by the Company, in
an amount representing the purchase
price for such Purchaser as indicated below such Purchaser’s name on the
signature page of this Agreement. On the date (the “Closing Date”)
the Company receives the aggregate Subscription Amounts, the certificates
evidencing the Shares and Warrants shall be released to the Purchasers (the “Closing”). The
Closing of the purchase and sale of the Shares and Warrants shall take place at
the offices of Lowenstein Sandler PC, 1251 Avenue of the Americas, New York,
New York on the Closing Date or at such other locations or remotely by
facsimile transmission or other electronic means as the parties may mutually
agree.

2.2           Closing Deliveries.   (a)  On or prior to the Closing, the Company shall
issue, deliver or cause to be delivered to each Purchaser the following (the “Company Deliverables”):

(i)            this Agreement, duly executed by the
Company;

(ii)           one or more stock certificates, free and clear of all restrictive and
other legends (except as provided in Section 4.1(b) hereof), evidencing a
number of Shares indicated below such Purchaser’s name on the signature page of
this Agreement, registered in the name of such Purchaser;

(iii)          a Warrant, executed by the Company and registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to acquire
such number of Warrant Shares equal to 40.0% of the number of Shares issuable
to such Purchaser pursuant to Section 2.2(a)(ii) on the terms set forth
therein;

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(iv)          a legal opinion of Company Counsel, in the form attached hereto as Exhibit
C, executed by such counsel and addressed to the Purchasers and the
Placement Agent;

(v)           the Registration Rights Agreement, duly executed by the Company;

(vi)          duly executed Irrevocable Transfer Agent Instructions acknowledged in
writing by the Transfer Agent;

(vii)         a certificate of the Secretary of the Company (the “Secretary’s Certificate”), dated as of the
Closing Date, certifying the resolutions adopted by the Board of Directors of
the Company approving the transactions contemplated by this Agreement and the
other Transaction Documents and the issuance of the Securities, certifying the
current versions of the certificate or articles of incorporation, as amended
and by-laws of the Company and certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of
the Company; and

(viii)        the Compliance Certificate referred to in Section 5.1(h).

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

(i)            this Agreement, duly executed by such
Purchaser;

(ii)           its Subscription Amount, in United States dollars and in immediately
available funds, in the amount set forth as the “Purchase Price” indicated
below such Purchaser’s name on the applicable signature page hereto by wire transfer
to an account designated in writing by the Company for such purpose, as set
forth on Exhibit F attached hereto;

(iii)          the Registration Rights Agreement, duly executed by such Purchaser;

(iv)          a fully completed and duly executed Selling Securityholder Notice and
Questionnaire in the form attached as Annex B to the Registration Rights
Agreement; and

(v)           a
fully completed and duly executed Accredited Investor Questionnaire and Stock
Certificate Questionnaire in the forms attached hereto as Exhibits E-1
and E-2, respectively.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1           Representations and Warranties of the
Company. The Company
hereby represents and warrants to the Purchasers and to the Placement Agent
that, except as set forth in the Schedules delivered herewith:

(a)           Subsidiaries. The Company has no direct or indirect
Subsidiaries other than those listed in Schedule 3.1(a) hereto. Except
as disclosed in Schedule 3.1(a) hereto, the Company owns, directly or
indirectly, all of the capital stock or comparable equity interests of each
Subsidiary free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive
and similar rights to subscribe for or purchase securities.

(b)           Organization and Qualification. The Company and each Subsidiary is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction

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of its incorporation or organization (as
applicable), with the requisite power and authority to own or lease and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the Subsidiaries
is duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case
may be, could not have or reasonably be expected to have, individually or in
the aggregate, resulted in a Material Adverse Effect, and no Proceeding has
been instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or qualification.

(c)           Authorization; Enforcement; Validity. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of each of the Transaction Documents to which it is a party by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including, but not limited to, the sale and delivery of the Shares and
the Warrants and the subsequent issuance of the Warrant Shares upon exercise of
the Warrants) have been duly authorized by all necessary corporate action on
the part of the Company, and no further corporate action is required by the
Company, its Board of Directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each of the Transaction
Documents to which it is a party has been (or upon delivery will have been)
duly executed by the Company and is, or when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application. Except as set forth on Schedule
3.1(c) hereto, there are no shareholder agreements, voting agreements, or
other similar arrangements with respect to the Company’s capital stock to which
the Company is a party or, to the Company’s Knowledge, between or among any of
the Company’s shareholders.

(d)           No Conflicts. The execution, delivery and performance
by the Company of the Transaction Documents to which it is a party and the
consummation by the Company of the transactions contemplated hereby or thereby
(including, without limitation, the issuance of the Shares and the reservation
for issuance and issuance of the Warrant Shares) do not and will not (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound, or affected, or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations and the rules and
regulations, assuming the correctness of the representations and warranties
made by the Purchasers herein, of any self-regulatory organization to which the
Company or its securities are subject, including all applicable Trading Markets),
or by which any property or asset of the Company or a Subsidiary is bound or
affected, except in the case of clauses (ii) and (iii) such as would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.

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(e)           Filings, Consents and Approvals. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents (including the issuance of the Securities), other than (i) the filing
with the Commission of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (ii) filings required by
applicable state securities laws, (iii) the filing of a Notice of Sale of
Securities on Form D with the Commission under Regulation D of the Securities
Act, (iv) the filing of any requisite notices and/or application(s) to the
Principal Trading Market for the issuance and sale of the Common Stock and the
Warrants and the listing of the Common Stock for trading or quotation, as the
case may be, thereon in the time and manner required thereby, (v) the filings
required in accordance with Section 4.6 of this Agreement and (vi) those that
have been made or obtained prior to the date of this Agreement (collectively,
the “Required Approvals”).

(f)            Issuance of the Securities. The Shares and the Warrant Shares have
been duly authorized and, when issued and paid for in accordance with the terms
of the Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens, other than restrictions on transfer
provided for in the Transaction Documents or imposed by applicable securities
laws, and shall not be subject to preemptive or similar rights of stockholders.
Assuming the accuracy of the representations and warranties of the Purchasers
in this Agreement, the Shares and the Warrant Shares will be issued in
compliance with all applicable federal and state securities laws. The Company
has reserved from its duly authorized capital stock the maximum number of shares
of Common Stock issuable upon exercise of the Warrants.

(g)           Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock, options and other securities
of the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is specified in Schedule
3.1(g) hereto. All of the outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and non-assessable,
have been issued in compliance in all material respects with all applicable
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase any capital stock of the Company. Except as specified in Schedule
3.1(g) hereto, there are no outstanding options, warrants or scrip rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of the
Company’s capital stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of capital stock of the Company, or options, securities
or rights convertible or exchangeable into shares of capital stock of the
Company. Except for customary adjustments as a result of stock dividends, stock
splits, combinations of shares, reorganizations, recapitalizations,
reclassifications or other similar events, or as disclosed in Schedule
3.1(g) hereto or in any Schedule 13D or Schedule 13G or Company report on
file with the Commission, there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders), and the issuance and sale of the
Securities will not, immediately or with the passage of time, obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
securities to adjust the exercise, conversion, exchange or reset price under
such securities.

(h)           SEC Reports. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the “SEC Reports”

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and together with this Agreement and the
Schedules to this Agreement (if any), the “Disclosure
Materials”), on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of the date hereof, the Company is not aware of any
event occurring on or prior to the Closing Date (other than the transactions
contemplated by the Transaction Documents) that requires the filing of a Form
8-K after the Closing. As of their respective dates, or to the extent corrected
by a subsequent restatement, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.

(i)            Financial Statements.          The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing (or to the extent corrected by a subsequent restatement). Such financial
statements have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present
in all material respects the financial position of the Company and its
consolidated subsidiaries taken as a whole as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal, year-end audit adjustments. All
material agreements to which the Company or any Subsidiary is a party or to which
the property or assets of the Company or any Subsidiary are subject are
included as part of or specifically identified in the SEC Reports.

(j)            Tax Matters. Each of the Company and its Subsidiaries
(i) has accurately and timely prepared and 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, with respect to which adequate reserves have
been set aside on the books of the Company and (iii) has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply,
except, in the case of clauses (i) and (ii) above, where the failure to so pay
or file any such tax, assessment, charge or return would not result in a
Material Adverse Effect. There are no unpaid taxes in any material amount
claimed to be due from the Company or any of its Subsidiaries by the taxing
authority of any jurisdiction.

(k)           Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports or as set forth in Schedule 3.1(k) hereto,
(i) there have been no events, occurrences or developments that have had or
that could reasonably be expected to result, either individually or in the
aggregate, in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the manner in which it keeps its accounting
books and records, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock (other than in connection with repurchases of unvested stock issued to
employees of the Company), (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except Common Stock issued in the
ordinary course as dividends on outstanding preferred stock or pursuant to
existing Company stock option or stock purchase plans or executive and director
corporate arrangements disclosed in the SEC Reports and (vi) there has not

 9
 

 

been any material change or amendment to, or
any waiver of any material right under, any contract under which the Company,
any subsidiary thereof, or any of their assets is bound or subject. Except for
the issuance of the Securities contemplated by this Agreement or as set forth
in Schedule 3.1(k) hereto, no event, liability or development has
occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition that would
be required to be disclosed by the Company under applicable securities laws at
the time this representation is made that has not been publicly disclosed at
least one Trading Day prior to the date that this representation is made.

(l)            Environmental Matters. To the Company’s Knowledge, neither the
Company nor any Subsidiary (i) is in violation of any statute, rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or
toxic substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), (ii) owns or
operates any real property contaminated with any substance that is in violation
of any Environmental Laws, (iii) is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, and (iv) is subject to any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or,
to the Company’s Knowledge, threatened investigation that might lead to such a
claim.

(m)          Litigation. There is no Action which (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) except as specifically
disclosed in the SEC Reports, could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor, to the
Company’s Knowledge, any current director or officer thereof (in his or her
capacity thereof), is or has been during the five-year period prior to the
Closing Date the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been and, to the Company’s Knowledge, there is
not pending or contemplated, any investigation by the Commission involving the
Company or, to the Company’s Knowledge, any current or former director or
officer of the Company (in his or her capacity as such). The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any subsidiary under the
Exchange Act or the Securities Act.

(n)           Employment Matters. No material labor dispute exists or, to
the Company’s Knowledge, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a member of a
union that relates to such employee’s relationship with the Company, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
Company’s Knowledge, is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each
such executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters. The Company and
its Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where the
failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

(o)           Compliance. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit

 10
 

 

agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body having
jurisdiction over the Company or its properties or assets, or (iii) is or has
been in violation of, or in receipt of notice that it is in violation of, any
statute, rule or regulation of any governmental authority applicable to the
Company, except in each case as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.

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

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

(r)            Patents and Trademarks. The Company and its Subsidiaries own,
possess, license or have other rights to use all foreign and domestic patents,
patent applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets,
technology, Internet domain names, know-how and other intellectual property
necessary for the conduct of their respective businesses as now conducted or
proposed to be conducted (collectively, the “Intellectual
Property”). Except as set forth in the SEC Reports and except where
such violations or infringements would not reasonably be expected to result,
either individually or in the aggregate, in a Material Adverse Effect,
(a)  there are no rights of third parties to any such Intellectual
Property; (b) to the Company’s Knowledge, there is no infringement by third
parties of any such Intellectual Property; (c) there is no pending or, to the
Company’s Knowledge, threatened action, suit, proceeding or claim by others
challenging the Company’s and its Subsidiaries’ rights in or to any such
Intellectual Property, and the Company is unaware of any facts which would form
a reasonable basis for any such claim; (d) there is no pending or, to the
Company’s Knowledge, threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property; and (e)
there is no pending or, to the Company’s Knowledge, threatened action, suit,
proceeding or claim by others that the Company and/or any of its Subsidiaries
infringe or otherwise violate any patent, trademark, copyright, trade secret or
other proprietary rights of others, and the Company is unaware of any other
fact which would form a reasonable basis for any such claim.

(s)           Insurance. The Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses and location in which the Company
and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has
any knowledge that it will be unable to renew its existing insurance coverage
for the Company and the Subsidiaries as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.

 11

 

(t)            Transactions With Affiliates and Employees. Except as set forth in the SEC Reports
made on or prior to the date hereof, none of the officers or directors of the
Company and, to the Company’s Knowledge, none of the employees of the Company,
is presently a party to any transaction with the Company or any Subsidiary or
to a presently contemplated transaction (other than for services as employees,
officers and directors) that would be required to be disclosed pursuant to Item
404 of Regulation S-K promulgated under the Securities Act.

(u)           Internal Accounting Controls. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general
or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(v)           Sarbanes-Oxley; Disclosure Controls. The Company is in compliance in all
material respects with all of the provisions of the Sarbanes-Oxley Act of 2002
which are applicable to it as of the Closing Date. The Company has established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company is made
known to the certifying officers by others within those entities, particularly
during the period in which the Company’s most recently filed periodic report
under the Exchange Act is being prepared. The Company’s certifying officers
have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the most recent periodic reporting period under the
Exchange Act (such date, the “Evaluation
Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company’s internal controls over financial
reporting (as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) or, to the Company’s Knowledge, in other factors that could
reasonably be expected to materially affect the Company’s internal controls
over financial reporting.

(w)          Certain Fees. No person or entity will have, as a
result of the transactions contemplated by this Agreement, any valid right,
interest or claim against or upon the Company or a Purchaser for any
commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company, other than Piper
Jaffray & Co. as placement agent with respect to the offer and sale of the
Securities (which placement agent fees are being paid by the Company). The
Company shall pay, and hold each Purchaser harmless against, any liability,
loss or expense (including, without limitation, attorneys’ fees and
out-of-pocket expenses) arising in connection with any such right, interest or
claim.

(x)            Private Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers under the Transaction Documents. As
of October 26, 2006, the Company will be eligible to register the Shares and
the Warrant Shares for resale by the Purchasers using Form S-3 promulgated
under the Securities Act. Other than each of the Purchasers or as set forth in Schedule
3.1(x) hereto, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company other
than those securities which are currently registered on an effective
registration statement on file with the Commission.

(y)           No Directed Selling Efforts or General
Solicitation. Neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has conducted any “general solicitation” or

 12
 

 

“general advertising” (as those terms are
used in Regulation D) in connection with the offer or sale of any of the
Securities.

(z)            No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
its Subsidiaries nor any of their Affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, at any time within the past six
months, made any offers or sales of any Company security or solicited any
offers to buy any security under circumstances that would (i) eliminate the
availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale by the Company of the
Securities as contemplated hereby or (ii) cause the offering of the Securities
pursuant to the Transaction Documents to be integrated with prior offerings by
the Company for purposes of any applicable law, regulation or shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the Company
are listed or designated.

(aa)         Listing and Maintenance Requirements. The Company’s Common Stock is registered
pursuant to Section 12(g) of the Exchange Act, and the Company has taken no
action designed to terminate the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. Except as specified in the SEC
Reports, the Company has not, in the two years preceding the date hereof,
received written notice from any Trading Market on which the Common Stock is or
has been listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance in all material respects with the listing
and maintenance requirements for continued trading of the Common Stock on the
Principal Trading Market.

(bb)         Investment Company. Neither the Company nor any of its Subsidiaries
is required to be registered as, and is not an Affiliate of, and immediately
following the Closing will not be required to register as, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

(cc)         Questionable Payments. Neither the Company nor any of its
Subsidiaries, nor, to the Company’s Knowledge, any directors, officers,
employees, agents or other Persons acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the
Company: (a) directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
foreign or domestic political activity; (b) made any direct or indirect
unlawful payments to any foreign or domestic governmental officials or
employees or to any foreign or domestic political parties or campaigns from
corporate funds; (c) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (d) made any other
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.

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

(ee)         Disclosure. The Company confirms that neither it nor
any of its officers or directors nor any other Person acting on its or their
behalf has provided, and it has not authorized the Placement Agent

 13
 

 

to provide, any Purchaser with any
information that it believes constitutes or could reasonably be expected to
constitute material, non-public information except insofar as the existence,
provisions and terms of the Transaction Documents and the proposed transactions
hereunder may constitute such information, all of which will be disclosed by
the Company in the Press Release as contemplated by Section 4.6 hereof. The
Company understands and confirms that the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby furnished by the Company or authorized by
the Company and furnished by the Placement Agent on behalf of the Company
(including the Company’s representations and warranties set forth in this
Agreement) are true and correct in all material respects and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were 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, 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, except for the announcement of this Agreement
and related transactions.

(ff)           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.

(gg)         Consultation with Auditors. The Company has consulted its independent
auditors concerning the accounting treatment of the transactions contemplated
by the Transaction Documents and in connection therewith has furnished such
auditors complete copies of the Transaction Documents. The Company intends to
account for the gross proceeds raised from the financing which is the subject
of this Agreement as equity in its financial statements.

(hh)         No Additional Agreements. The Company does not have any agreement
or understanding with any Purchaser with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.

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

(a)           Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or, if such
Purchaser is not a corporation, such partnership, limited liability company or
other applicable like action, on the part of such Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

(b)           Investment Intent. Such Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is

 14
 

 

acquiring the Securities and, upon exercise
of the Warrants, will acquire the Warrant Shares issuable upon exercise thereof
as principal for its own account and not with a view to, or for distributing or
reselling such Securities or any part thereof in violation of the Securities
Act or any applicable state securities laws, without prejudice, however, to
such Purchaser’s right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities or Warrant Shares pursuant to an effective
registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws. Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business. Such Purchaser does not presently have any agreement,
plan or understanding, directly or indirectly, with any Person to distribute or
effect any distribution of any of the Securities (or any securities which are
derivatives thereof) to or through any person or entity; provided, however,
that by making the representations herein, such Purchaser does not agree to
hold any of the Securities for any minimum period of time.

(c)           Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date on which
it exercises the Warrants it will be, an “accredited investor” as defined in
Rule 501(a) under the Securities Act. Such Purchaser is not a registered
broker-dealer under Section 15 of the Exchange Act.

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

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

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

(g)           Residency. Such Purchaser has, if an entity, its principal place of business or,
if an individual, its primary residence in the jurisdiction set forth
immediately below such Purchaser’s name on the signature pages hereto.

(h)           Certain Trading Activities. Other than with respect to the transactions
contemplated herein, since the earlier to occur of (1) the time that such
Purchaser was first contacted by the Company, the Placement Agent or any other
Person regarding this investment in the Company and (2) the tenth (10th) day prior to the date of this Agreement,
neither the Purchaser nor any Affiliate of such Purchaser which (x) had

 15
 

 

knowledge of the transactions contemplated
hereby, (y) has or shares discretion relating to such Purchaser’s investments
or trading or information concerning such Purchaser’s investments, including in
respect of the Securities, or (z) is subject to such Purchaser’s review or
input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser or Trading Affiliate, effected or agreed to
effect any transactions in the securities of the Company (including, without
limitation, any Short Sales involving the Company’s securities). Notwithstanding
the foregoing, in the case of a Purchaser or Trading Affiliate that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s or Trading Affiliate’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s or Trading
Affiliate’s assets, the representation set forth above shall apply only with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement. Other
than to other Persons party to this Agreement, such Purchaser has maintained
the confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6.

(i)            Brokers and Finders. No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or any Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Purchaser.

(j)            Limited Ownership. The purchase by such Purchaser of the
Securities issuable to it at the Closing will not result in such Purchaser
(individually or together with other Person with whom such Purchaser has
identified, or will have identified, itself as part of a “group” in a public
filing made with the Commission involving the Company’s securities) acquiring,
or obtaining the right to acquire, in excess of 19.99% of the outstanding
shares of Common Stock or the voting power of the Company on a post transaction
basis that assumes that the Closing shall have occurred. Such Purchaser does
not presently intend to, alone or together with others, make a public filing
with the Commission to disclose that it has (or that it together with such
other Persons have) acquired, or obtained the right to acquire, as a result of
the Closing (when added to any other securities of the Company that it or they
then own or have the right to acquire), in excess of 19.99% of the outstanding
shares of Common Stock or the voting power of the Company on a post transaction
basis that assumes that the Closing shall have occurred.

(k)           Independent Investment Decision. Such Purchaser has independently
evaluated the merits of its decision to purchase Securities pursuant to the
Transaction Documents, and such Purchaser confirms that it has not relied on
the advice of any other Purchaser’s business and/or legal counsel in making
such decision. Such Purchaser understands that nothing in this Agreement or any
other materials presented by or on behalf of the Company to the Purchaser in
connection with the purchase of the Securities constitutes legal, tax or
investment advice. Such Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Securities. Such Purchaser understands that
the Placement Agent has acted solely as the agent of the Company in this
placement of the Securities and such Purchaser has not relied on the business
or legal advice of the Placement Agent or any of its agents, counsel or
Affiliates in making its investment decision hereunder, and confirms that none
of such Persons has made any representations or warranties to such Purchaser in
connection with the transactions contemplated by the Transaction Documents.

(l)            Reliance on Exemptions. Such Purchaser understands that the
Securities 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

 16
 

 

such Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgements and understandings of
such Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of such Purchaser to acquire the Securities.

(m)          No Governmental Review.  Such
Purchaser 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.

The Company acknowledges and agrees that no
Purchaser has made or makes any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
this Section 3.2.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1           (a)           Compliance with Laws. Notwithstanding any other provision of
this Article IV, each Purchaser covenants that the securities may be disposed
of only pursuant to an effective registration statement under, and in
compliance with the requirements of, the Securities Act, or pursuant to an
available exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, and in compliance with any applicable state
and federal securities laws. In connection with any transfer of the Securities
other than (i) pursuant to an effective registration statement, (ii) to the
Company, (iii) to an Affiliate of a Purchaser, (iv) pursuant to Rule 144 or (v)
in connection with a bona fide pledge as contemplated in Section 4.1(b), except
as otherwise provided herein, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement and the Registration Rights Agreement.

(b)           Legends. Certificates evidencing the Securities shall bear any legend as
required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form, until such time as they are not required
under Section 4.1(c):

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

 17
 

 

The Company acknowledges and
agrees that a Purchaser may from time to time pledge, and/or grant a security
interest in, some or all of the legended Securities in connection with
applicable securities laws, pursuant to a bona fide margin agreement in
compliance with a bona fide margin loan. Such a pledge would not be subject to
approval or consent of the Company and no legal opinion of legal counsel to the
pledgee, secured party or pledgor shall be required in connection with the
pledge, but such legal opinion shall be required in connection with a
subsequent transfer or foreclosure following default by the Purchaser
transferee of the pledge. No notice shall be required of such pledge, but
Purchaser’s transferee shall promptly notify the Company of any such subsequent
transfer or foreclosure. Each Purchaser acknowledges that the Company shall not
be responsible for any pledges relating to, or the grant of any security
interest in, any of the Securities or for any agreement, understanding or
arrangement between any Purchaser and its pledgee or secured party. At the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including the preparation and filing of any required prospectus supplement
under Rule 423(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Shareholders
thereunder. Each Purchaser acknowledges and agrees that, except as otherwise
provided in Section 4.1(c), any Securities subject to a pledge or security
interest as contemplated by this Section 4.1(b) shall continue to bear the
legend set forth in this Section 4.1(b) and be subject to the restrictions on
transfer set forth in Section 4.1(a).

(c)           Removal of Legends. The legend set forth in Section 4.1(b)
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 The
Depository Trust Company (“DTC”),
if (i) such Securities are registered for resale under the Securities Act, (ii)
such Securities are sold or transferred pursuant to Rule 144 (assuming the
transferor is not an Affiliate of the Company), or (iii) such Securities are
eligible for sale under Rule 144(k). The Company shall cause its counsel to
issue the legal opinion referred to in the Irrevocable Transfer Agent
Instructions to the Company’s transfer agent on the Effective Date. Any fees
(with respect to the Transfer Agent, counsel to the Company or otherwise)
associated with the issuance of such opinion or the removal of such legend
shall be borne by the Company. If any portion of the Warrant is exercised at a
time when there is an effective registration statement to cover the resale of
the Warrant Shares, or if such Warrant Shares may be sold under Rule 144(k),
then such Warrant Shares shall be issued free of all legends. Following the
Effective Date, or at such earlier time as a legend is no longer required for
certain Securities, the Company will no later than three (3) Trading Days
following the delivery by a Purchaser to the Company or the Transfer Agent
(with notice to the Company) of (i) a legended certificate representing such
Shares or Warrant Shares (endorsed or with stock powers attached, signatures
guaranteed, and otherwise in form necessary to affect the reissuance and/or
transfer) or (ii) an Exercise Notice in the manner stated in the Warrants to
effect the exercise of such Warrant in accordance with its terms, and an
opinion of counsel to the extent required by Section 4.1(a), deliver or cause to
be delivered to such Purchaser a certificate representing such Securities that
is free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this Section.

(d)           Irrevocable 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 DTC, registered in the name of each
Purchaser or its respective nominee(s), for the Shares and the Warrant Shares
in such amounts as specified from time to time by each Purchaser to the Company
in the form of Exhibit D 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 4(d) will be given by the
Company to its transfer agent in connection with this Agreement, and that the
Shares and Warrant Shares 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. The Company acknowledges that a breach
by it of its obligations under this Section 4(d) will cause irreparable

 18
 

 

harm to a Purchaser. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 4(d) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 4(d), that a Purchaser
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.

(e)           Acknowledgement. Each Purchaser hereunder acknowledges its
primary responsibilities under the Securities Act and accordingly will not sell
the Securities or any interest therein without complying with the requirements
of the Securities Act. While the above-referenced registration statement
remains effective, each Purchaser hereunder may sell the shares in accordance
with the plan of distribution contained in the registration statement and if it
does so it will comply therewith and with the related prospectus delivery
requirements unless an exemption therefrom is available. Each Purchaser,
severally and not jointly with the other Purchasers, agrees that if it is
notified by the Company at any time after the date any legend is removed
pursuant to Section 4.1(c) hereof that the registration statement registering
the resale of the Securities is not effective or that the prospectus included
in such registration statement no longer complies with the requirements of
Section 10 of the Securities Act, the Purchaser will refrain from selling such
Securities until such time as the Purchaser is notified by the Company that
such registration statement is effective or such prospectus is compliant with
Section 10 of the Exchange Act, unless such Purchaser is able to, and does,
sell such Securities pursuant to an available exemption from the registration
requirements of Section 5 of the Securities Act.

(f)            Buy-In. If the Company shall fail for any reason or
for no reason to issue to the holder of the Securities within three (3) Trading
Days after the occurrence of any of (c)(i) through (c)(iii) above a certificate
without such legend to the holder or to issue such Securities to such holder by
electronic delivery at the applicable balance account at DTC, and if on or
after such Trading Date the Purchaser purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
the Purchaser of shares of Common Stock that the Purchaser anticipated
receiving from the Company without any restrictive legend (a “Buy-In”), then the Company shall, within
three (3) Trading Days after the Purchaser’s request and in the Purchaser’s
sole discretion, either (i) pay cash to the Purchaser in an amount equal to the
Purchaser’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate shall terminate and such shares shall be cancelled, or (ii)
promptly honor its obligation to deliver to the Purchaser a certificate or
certificates representing such number of shares of Common Stock that would have
been issued if the Company timely complied with its obligations hereunder and
pay cash to the Purchaser in an amount equal to the excess (if any) of the
Buy-In Price over the product of (a) such number of shares of Common Stock that
the Company was required to deliver to the Purchaser on the Delivery Date,
times (b) the closing bid price of the Common Stock on the date of (i) exercise
or (ii) the event giving rise to the Company’s obligation to deliver such
certificate, as the case may be.

4.2           Reservation of Common Stock. The Company shall maintain a reserve from
its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. In the event that at any
time the then authorized shares of Common Stock are insufficient for the
Company to satisfy its obligations in full under the Transaction Documents, the
Company shall promptly take such actions as may be required to increase the
number of authorized shares.

4.3           Furnishing of Information. Until all of the Securities are eligible
for sale under Rule 144(k) promulgated under the Securities Act, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. Until all of the
Securities are eligible for sale under Rule 144(k)

 19
 

 

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

4.4           No Integration. The Company shall not, and shall use its
best efforts to ensure that no Affiliate of the Company shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that will be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Purchasers, or that will be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market such that it
would require shareholder approval prior to the closing of such other
transaction unless shareholder approval is obtained before the closing of such
subsequent transaction.

4.5           Subsequent Registrations. Other than pursuant to the Registration
Statement, and other than any amendment filed to the Registration Statement
converting it to a Form S-3 Registration Statement, prior to the date occurring
sixty (60) days after the Effective Date, the Company shall not file any
registration statement (other than on Form S-8 or, in connection with an
acquisition, on Form S-4) with the Commission with respect to any securities of
the Company.

4.6           Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York City time) on the
Trading Day immediately following the execution of this Agreement, the Company
shall issue a press release (the “Press
Release”) reasonably
acceptable to the Placement Agent disclosing all material terms of the
transactions contemplated hereby. On or before 9:00 a.m. (New York City time)
on the Trading Day following the Closing Date, the Company will file a Current
Report on Form 8-K with the Commission describing the terms of the Transaction
Documents (and including as exhibits to such Current Report on Form 8-K the
material Transaction Documents (including, without limitation, this Agreement
and the Registration Rights Agreement)). Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser or an Affiliate
of any Purchaser, or include the name of any Purchaser or an Affiliate of any
Purchaser in any press release or filing with the Commission (other than the
Registration Statement) or any regulatory agency or Trading Market, without the
prior written consent of such Purchaser, except to the extent such disclosure
is required by law, request of the Staff of the Commission or Trading Market
regulations. From and after the issuance of the Press Release, no Purchaser
shall be in possession of any material, non-public information received from
the Company, any of its Subsidiaries or any of its respective officers,
directors, employees or agents, that is not disclosed in the Press Release. The
Company shall not, and shall cause each of its Subsidiaries and each of their
respective officers, directors, employees and agents, not to, provide any
Purchaser with any material, non-public information regarding the Company or
any of its Subsidiaries from and after the filing of the Press Release without
the express written consent of such Purchaser. In the event of a breach of the
foregoing covenant by the Company, any Subsidiary, or each of their respective
officers, directors, employees and agents, and provided that the Company shall
have failed (following proper written request therefor) to make an appropriate
public disclosure promptly following such written request consistent with the
requirements of Regulation FD, in addition to any other remedy provided herein
or in the Transaction Documents, a Purchaser shall have the right to make a
public disclosure, in the form of a press release, public advertisement or
otherwise, of such material non-public information without the prior approval
by the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Purchaser shall have any liability to the
Company, its Subsidiaries, or any of their respective officers, directors,
employees or agents for any such disclosure. Each Purchaser, severally and not
jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this

 20
 

 

Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).

4.7           Indemnification.

(a)           Indemnification of Purchasers. In addition to the indemnity provided in
the Registration Rights Agreement, the Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, members,
managers, employees and agents (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation (collectively, “Losses”),
that any such Purchaser Party may suffer or incur as a result of or relating to
any misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Purchaser Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred. If and to the extent
that such indemnification is unenforceable for any reason, the Company shall
make the maximum contribution to the payment and satisfaction of such losses
permissible under applicable law.

(b)           Conduct of Indemnification Proceedings. Promptly after receipt by any Person (the “Indemnified Person”) of notice of any
demand, claim or circumstances which would or might give rise to a claim or the
commencement of any action, proceeding or investigation in respect of which
indemnity may be sought pursuant to Section 4.7(a), such Indemnified
Person shall promptly notify the Company in writing and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall assume the payment of all
fees and expenses; provided, however, that
the failure of any Indemnified Person so to notify the Company shall not
relieve the Company of its obligations hereunder except to the extent that the
Company is actually and materially prejudiced by such failure to notify. In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person
shall have mutually agreed to the retention of such counsel; or (ii) in the
reasonable judgment of counsel to such Indemnified Person, representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Company shall not be liable for
any settlement of any proceeding effected without its written consent, which
consent shall not be unreasonably withheld, delayed or conditioned. Without the
prior written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, delayed or conditioned, the Company shall not effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Person from all liability arising out
of such proceeding.

4.8           Listing of Securities. Promptly following the date hereof, the
Company shall take all necessary action to cause the Shares, the Warrant Shares
and the shares of Common Stock issuable upon exercise of the warrants issued to
the Placement Agent to be listed upon the Principal Trading Market, if any,
upon which shares of Common Stock are then listed (subject to official notice
of issuance) and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing. Further, if the Company applies to have its
Common Stock or other securities listed on any other Trading Market, it shall
include in such application the Shares and the Warrant Shares (including the
shares of Common Stock issuable upon exercise of the warrants issued to the
Placement Agent) and will take such other action as is necessary to cause the
Shares, and the Warrant Shares (including the shares of Common Stock issuable
upon

 21
 

 

exercise of the warrants issued to the
Placement Agent) to be listed on such other Trading Market as promptly as
practicable.

4.9           Use
of Proceeds. The Company intends to use the net proceeds from the sale of
the Securities hereunder for working capital and general corporate purposes and
not for the satisfaction of any portion of the Company’s debt (other than
payment of trade payables and accrued expenses in the ordinary course of the
Company’s business and consistent with prior practices), or to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding Action.

4.10         Short
Sales and Confidentiality After The Date Hereof. Each Purchaser shall not,
and shall cause its Trading Affiliates not to, engage, directly or indirectly,
in any Short Sales involving the Company’s securities during the period from
the date hereof until such time as (i) the transactions contemplated by this
Agreement are first publicly announced as described in Section 4.6 or (ii) this
Agreement is terminated in full pursuant to Section 6.18. Notwithstanding the
foregoing, in the case of a Purchaser or Trading Affiliate that is a
multi-managed investment vehicle whereby separate portfolio managers manage separate
portions of such Purchaser’s or Trading Affiliate’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s or Trading
Affiliate’s assets, the representation set forth above shall apply only with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement. Each
Purchaser understands and acknowledges, severally and not jointly with any
other Purchaser, that the Commission currently takes the position that covering
a short position established prior to effectiveness of a resale registration
statement with shares included in such registration statement would be a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section
5 under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance.

4.11         Additional
Issuances of Securities.

(a)           For
purposes of this Section 4.11, the following definitions shall apply.

(1)           “Approved Stock Plan” means any employee benefit plan 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, officer, director or
other service provider for services provided to the Company.

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

(3)           “Excluded Securities” means Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan, (ii) upon exercise of the
Warrants, (iii) upon conversion of any Options or Convertible Securities which
are outstanding on the day immediately preceding the Closing Date, provided
that the terms of such Options or Convertible Securities are not amended,
modified or changed on or after the Closing Date, (iv) the issuance of
securities in connection with a Strategic Transaction and (v) in connection
with any acquisition by the Company, whether through an acquisition of stock or
a merger of any business, assets or technologies the primary purpose of which
is not to raise equity capital in an amount not to exceed, in the aggregate,
10% of the outstanding shares of Common Stock in any calendar year.

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

(5)           “Strategic Transaction” means a transaction or relationship
in which (i) the Company issues shares of Common Stock to a Person which the
Board of Directors of the Company

 22
 

 

determined in good
faith is, itself or through its Subsidiaries, an operating company in a
business synergistic with the business of the Company (or a stockholder
thereof) and (ii) the Company expects to receive benefits in addition to the
investment of funds, but shall not include (x) a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or
to a Person whose primary business is investing in securities or (y) issuances
to lenders.

(b)           From
the date hereof until the date that is 45 Trading Days following the effective
date of the Registration Statement (the “Trigger Date”),
the Company will not, 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 or its subsidiaries’
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”).

(c)           From
the Closing Date until the eighteen (18) month anniversary thereof, as such
date may be extended by one Trading Day for each Trading Day beyond the
Effectiveness Deadline until the Effective Date, the Company will not, directly
or indirectly, effect any Subsequent Placement unless the Company shall have
first complied with this Section 4.11(c).

(1)           The
Company shall deliver to each Purchaser an irrevocable 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 (if known) and other terms upon
which they are to be issued, sold or exchanged, and the number or amount (if
known) 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 Purchasers 30% of the Offered Securities,
allocated among such Purchasers (a) based on such Purchaser’s pro rata portion
of Common Stock purchased hereunder (the “Basic Amount”),
and (b) with respect to each Purchaser that elects to purchase its Basic
Amount, any additional portion of the Offered Securities attributable to the
Basic Amounts of other Purchasers as such Purchaser shall indicate it will
purchase or acquire should the other Purchasers subscribe for less than their
Basic Amounts (the “Undersubscription Amount”).

(2)           To
accept an Offer, in whole or in part, such Purchaser must deliver a written
notice to the Company prior to the end of the fourth (4th) Business Day after
such Purchaser’s receipt of the Offer Notice (the “Offer Period”),
setting forth the portion of such Purchaser’s Basic Amount that such Purchaser
elects to purchase and, if such Purchaser shall elect to purchase all of its
Basic Amount, the Undersubscription Amount, if any, that such Purchaser elects
to purchase (in either case, the “Notice of Acceptance”).
If the Basic Amounts subscribed for by all eligible Purchasers are less than
the total of all of the Basic Amounts, then each Purchaser 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 Purchaser 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 Purchaser bears to the total Basic Amounts of all eligible Purchasers that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.

 23

 

(3)           The
Company shall have ten (10) 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
eligible Purchasers (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 4.11(c)(3) above), then each Purchaser 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 Purchaser elected to
purchase pursuant to Section 4.11(c)(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 Purchasers pursuant to Section 4.11(c)(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 Purchaser 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 Purchasers in accordance with Section
4.11(c)(1) above.

(5)           Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Purchasers shall acquire from the Company, and the
Company shall issue to the Purchasers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4.11(c)(4) above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer. Notwithstanding anything to the contrary
contained in this Agreement, if the Company does not consummate the closing of
the issuance, sale or exchange of all or less than all of the Refused
Securities within ten (10) business days of the expiration of the Offer Period,
the Company shall issue to the Purchasers the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4.11(c)(4) above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Purchasers of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement relating to
such Offered Securities reasonably satisfactory in form and substance to the
Purchasers and their respective counsel.

(6)           Any
Offered Securities not acquired by the Purchasers or other persons in
accordance with Section 4.11(c)(3) above may not be issued, sold or exchanged
until they are again offered to the eligible Purchasers under the procedures
specified in this Agreement.

(d)           The
restrictions contained in Sections 4.11(b) and 4.11(c) shall not apply in
connection with the issuance of any Excluded Securities.

ARTICLE
V.

CONDITIONS PRECEDENT TO CLOSING

5.1           Conditions Precedent to the Obligations of
the Purchasers to Purchase Securities. The obligation of each Purchaser to acquire Securities at the Closing
is subject to the fulfillment to such Purchaser’s satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by such Purchaser (as to itself only):

(a)           Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects
(except to the extent that any such

 24
 

 

representation or warranty is already
qualified by materiality, in which case it shall be true and correct in all
respects) as of the date when made and as of the Closing Date, as though made
on and as of such date;

(b)           Performance. The Company and each other Purchaser
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction Documents to
be performed, satisfied or complied with by it at or prior to the Closing;

(c)           No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;

(d)           Consents. The Company shall have obtained in a timely fashion any and all
consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities, all of
which shall be and remain so long as necessary in full force and effect;

(e)           Adverse Changes. Since the date of execution of this
Agreement, no event or series of events shall have occurred that reasonably
could have or result in a Material Adverse Effect;

(f)            No Suspensions of Trading in Common Stock;
Listing. Trading in the
Common Stock shall not have been suspended by the Commission or any Trading
Market (except for any suspensions of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company)
at any time since the date of execution of this Agreement, and the Common Stock
shall have been at all times since such date listed for trading on a Trading
Market;

(g)           Company Deliverables. The Company shall have delivered the
Company Deliverables in accordance with Section 2.2(a);

(h)           Compliance Certificate. The Company shall have delivered to each
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1(a),
(b), (c), (d) and (f);

(i)            Nasdaq Listing. If applicable, the Nasdaq Global Market
shall have (i) waived application of the 15 day prior notice contained in NASD
Marketplace Rule 4310(c)(17)(D) or such timeframe shall have expired without
objection, (ii) confirmed to the Company that the issuance and sale of the
Securities as contemplated hereby will not require approval by the shareholders
of the Company pursuant to the requirements of Nasdaq Marketplace Rule 4350(i);
and

(j)            Termination. This Agreement shall not have been
terminated as to such Purchaser in accordance with Section 6.18 herein.

5.2           Conditions Precedent to the Obligations of
the Company to Sell Securities. The Company’s obligation to sell and issue the Securities at the
Closing is subject to the fulfillment to the satisfaction of the Company on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:

(a)           Representations and Warranties. The representations and warranties made
by the Purchasers in Section 3.2 hereof shall be true and correct in all
material respects as of the date when made, and as of the Closing Date as
though made on and as of such date;

 25
 

 

(b)           Performance. The Purchasers shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing;

(c)           No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;

(d)           Purchasers Deliverables. Each Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b);

(e)           Nasdaq Listing. If applicable, the Nasdaq Global Market
shall have (i) waived application of the 15 day prior notice contained in NASD
Marketplace Rule 4310(c)(17)(D) or such timeframe shall have expired without
objection, (ii) confirmed to the Company that the issuance and sale of the
Securities as contemplated hereby will not require approval by the shareholders
of the Company pursuant to the requirements of Nasdaq Marketplace Rule 4350(i);
and

(f)            Termination. This Agreement shall not have been
terminated as to such Purchaser in accordance with Section 6.18 herein.

ARTICLE VI.

MISCELLANEOUS

6.1           Fees and Expenses. At Closing, the Company shall reimburse
the Placement Agent for the reasonable fees and expenses in connection with the
transactions contemplated by this Agreement, which the Company agrees shall
include the reasonable fees and expenses of the Placement Agent Counsel (which
fees shall include, without limitation, the fees and expenses associated with
the negotiation, preparation and execution and delivery of this Agreement and
the other Transaction Documents and any amendments, modifications or waivers
thereto), in an amount not to exceed Fifty Thousand Dollars ($50,000) in the
aggregate without the Company’s approval, which approval shall not be
unreasonably withheld. The Company and the Purchasers shall each pay the fees
and expenses of their respective advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other
taxes and duties levied in connection with the sale and issuance of the
Securities to the Purchasers. Each party acknowledges that Lowenstein Sandler
PC has rendered legal advice to the Placement Agent and not to such party in
connection with the transactions contemplated hereby, and that such party has
relied for such matters on the advice of its own respective counsel.

6.2           Entire Agreement. The Transaction Documents, together with
the Exhibits and Schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements, understandings, discussions and representations, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules. At or after the Closing, and
without further consideration, the Company and the Purchasers will execute and
deliver to the other such further documents as may be reasonably requested in
order to give practical effect to the intention of the parties under the
Transaction Documents.

6.3           Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile (provided the sender receives

 26
 

 

a machine-generated confirmation of
successful transmission) at the facsimile number specified in this Section
prior to 5:00 p.m. (New York City time) on a Trading Day, (b) the next Trading
Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section on a
day that is not a Trading Day or later than 5:00 p.m. (New York City time) on
any Trading Day, (c) the Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service with next day delivery
specified, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:

	
  If to the Company:

  	
  MathStar, Inc.

  
	
   

  	
  19075 N.W.
  Tanasbourne Drive

  
	
   

  	
  Suite 200

  
	
   

  	
  Hillsboro,
  Oregon 97124

  
	
   

  	
  Telephone No.:
  (503) 726-5500

  
	
   

  	
  Facsimile No.:
  (503) 726-5501

  
	
   

  	
  Attention: Chief
  Financial Officer

  
	
   

  	
   

  
	
  With a copy to:

  	
  Winthrop & Weinstine, P.A.

  
	
   

  	
  Suite 3500

  
	
   

  	
  225 South Sixth
  Street

  
	
   

  	
  Minneapolis,
  Minnesota 55402-4629

  
	
   

  	
  Telephone No.:
  (612) 604-6400

  
	
   

  	
  Facsimile No.:
  (612) 604-6800

  
	
   

  	
  Attention:
  Michele D. Vaillancourt, Esq.

  
	
   

  	
   

  
	
  If to a
  Purchaser:

  	
  To the address set forth under such Purchaser’s name
  on the signature page hereof;

  

 

or such other address as may be designated in
writing hereafter, in the same manner, by such Person.

6.4           Amendments; Waivers; No Additional
Consideration. No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and each of the
Purchasers or, in the case of a waiver, by the party against whom enforcement
of any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. No consideration shall be offered or
paid to any Purchaser to amend or consent to a waiver or modification of any
provision of any Transaction Document unless the same consideration is also
offered to all Purchasers who then hold Securities.

6.5           Construction. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party. This Agreement shall be construed as if drafted jointly by
the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement or any of the Transaction Documents.

6.6           Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of and be binding upon the parties and their successors
and permitted assigns. This Agreement, or any rights or obligations hereunder,
may not be assigned by the Company without the prior written consent of the
Purchasers. Any Purchaser may assign its rights hereunder in whole or in part
to any Person to whom such

 27
 

 

Purchaser assigns or transfers any Securities
in compliance with this agreement and applicable law, provided such transferee
shall agree in writing to be bound, with respect to the transferred Securities,
by the terms and conditions of this Agreement that apply to the “Purchasers”.

6.7           No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except (i) each Purchaser Party is an intended third
party beneficiary of Section 4.7, and (ii) Placement Agent is an intended third
party beneficiary of Article III hereof, and each Purchaser Party or the
Placement Agent, as the case may be, may enforce the provisions of such
Sections directly against the parties with obligations thereunder.

6.8           Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating
to this Agreement or the transactions contemplated hereby. If either party
shall commence a Proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such Proceeding shall be reimbursed by
the other party for its reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such
Proceeding.

6.9           Survival. Subject to applicable statute of limitations, the representations,
warranties, agreements and covenants contained herein shall survive the Closing
and the delivery of the Securities.

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

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

 28
 

 

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

6.13         Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company and the Transfer Agent of such loss, theft or
destruction and the execution by the holder thereof of a customary lost
certificate affidavit of that fact and an agreement to indemnify and hold
harmless the Company and the Transfer Agent for any losses in connection
therewith or, if required by the Transfer Agent, a bond in such form and amount
as is reasonably required by the Transfer Agent. The applicants for a new
certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities. If a replacement certificate or instrument evidencing any
Securities is requested due to a mutilation thereof, the Company may require
delivery of such mutilated certificate or instrument as a condition precedent
to any issuance of a replacement.

6.14         Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and
the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agree to waive in any action for
specific performance of any such obligation (other than in connection with any
action for a temporary restraining order) the defense that a remedy at law
would be adequate.

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

6.16         Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per
share shall be amended to appropriately account for such event.

6.17         Independent Nature of Purchasers’
Obligations and Rights.
The obligations of each Purchaser under any Transaction Document are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under any Transaction Document. The decision of each Purchaser
to purchase Securities pursuant to the Transaction Documents has been made by
such Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects

 29
 

 

of the Company or any Subsidiary which may
have been made or given by any other Purchaser or by any agent or employee of
any other Purchaser, and no Purchaser and any of its agents or employees shall
have any liability to any other Purchaser (or any other Person) relating to or
arising from any such information, materials, statement or opinions. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Documents. Each Purchaser acknowledges that no other Purchaser
has acted as agent for such Purchaser in connection with making its investment
hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. The Company acknowledges
that each of the Purchasers has been provided with the same Transaction
Documents for the purpose of closing a transaction with multiple Purchasers and
not because it was required or requested to do so by any Purchaser. The Company’s
obligations to each Purchaser under this Agreement are identical to its
obligations to each other Purchaser other than such differences resulting
solely from the number of Securities purchased by such Purchaser, but
regardless of whether such obligations are memorialized herein or in another
agreement between the Company and a Purchaser.

6.18         Termination. This Agreement may be terminated and the
sale and purchase of the Shares and the Warrants abandoned at any time prior to
the Closing by either the Company or any Purchaser (with respect to itself
only) upon written notice to the other, if the Closing has not been consummated
on or prior to 5:00 p.m. (New York City time) on the Outside Date; provided, however, that the right to terminate this
Agreement under this Section 6.18 shall not be available to any Person whose
failure to comply with its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such time.
Nothing in this Section 6.18 shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of any
party to compel specific performance by any other party of its obligations
under this Agreement or the other Transaction Documents. In the event of a
termination pursuant to this Section, the Company shall promptly notify all
non-terminating Purchasers. Upon a termination in accordance with this Section,
the Company and the terminating Purchaser(s) shall not have any further
obligation or liability (including arising from such termination) to the other,
and no Purchaser will have any liability to any other Purchaser under the
Transaction Documents as a result therefrom.

 

 30

 

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

	
   

  	
  MATHSTAR, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 

 

	
   

  	
  NAME OF PURCHASER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Purchase Price Per Share/Warrant: $4.00

  
	
   

  	
   

  	
   

  
	
   

  	
  Aggregate Purchase Price (Subscription Amount): $

  
	
   

  	
   

  	
   

  
	
   

  	
  Number of Shares to be acquired:

  
	
   

  	
   

  	
   

  
	
   

  	
  Underlying Shares subject to Warrant:

  
	
   

  	
  (40.0% of the number of Shares to be acquired)

  
	
   

  	
   

  	
   

  
	
   

  	
  Tax ID No.:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Residency:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Telephone No.:

  	
   

  	
   

  
	
   

  	
  Facsimile No.:

  	
   

  	
   

  
	
   

  	
  Attention:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Delivery Instructions:

  	
   

  	
   

  
	
  (if different than above)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  c/o

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Street:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  City/State/Zip:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone No.:

  	
   

  	
   

  
																		

 

 

 

	
  EXHIBITS:

  
	
   

  	
   

  
	
  A:

  	
  Form of Warrant

  
	
   

  	
   

  
	
  B:

  	
  Form of Registration Rights Agreement

  
	
   

  	
   

  
	
  C:

  	
  Form of Opinion of Company Counsel

  
	
   

  	
   

  
	
  D:

  	
  Irrevocable Transfer Agent Instructions

  
	
   

  	
   

  
	
  E-1:

  	
  Accredited Investor Questionnaire

  
	
   

  	
   

  
	
  E-2:

  	
  Stock Certificate Questionnaire

  
	
   

  	
   

  
	
  F:

  	
  Wire Instructions

  
	
   

  	
   

  
	
  SCHEDULES:

  
	
   

  
	
  3.1(a)
  Subsidiaries

  	
   

  
	
   

  	
   

  
	
  3.1(c)
  Authorization; Enforcement

  	
   

  
	
   

  	
   

  
	
  3.1(g)
  Capitalization

  	
   

  
	
   

  	
   

  
	
  3.1(k) Material
  Changes

  	
   

  
	
   

  	
   

  
	
  3.1(x) Registration
  Rights

  	
   

  
			

 

 

 

EXHIBIT A

Form of Warrant

 

EXHIBIT B

Form of Registration Rights Agreement

 

EXHIBIT C

Form of Opinion of Company Counsel

1.                                       The
Company is a corporation duly incorporated and validly existing under, and by
virtue of, the laws of the State of Delaware and is in good standing under such
laws. The Company has requisite corporate power to own and operate its
properties and assets and to carry on its business as presently conducted. The
Company is qualified to do business as a foreign corporation in the states of                 ,
                
and                 .

2.                                       The
Company has all requisite legal and corporate power to execute and deliver the
Agreement, to sell and issue the Shares and the Warrants under the Agreement,
to issue the Warrant Shares issuable upon the proper exercise of the Warrants
in accordance with the terms of the Warrants and to carry out and perform its
obligations under the terms of the Agreement.

3.                                       The
Shares and the Warrants have been duly authorized and when issued, delivered
and paid for in accordance with the terms of the Agreement, will be validly
issued, fully paid and nonassessable. The Warrant Shares have been duly and
validly reserved, and, when issued in accordance with the terms of the
Agreement, the Warrant and the Company’s Certificate of Incorporation, will be
validly issued, fully paid and nonassessable.

4.                                       All
corporate action on the part of the Company necessary for the authorization,
execution and delivery of the Agreement and the Registration Rights Agreement
by the Company, the authorization, sale, issuance and delivery of the Shares,
the Warrants and the Warrant Shares and the performance by the Company of its
obligations under such agreements has been taken. Such agreements have been duly
and validly executed and delivered by the Company and each of them constitutes
a valid and binding obligation of the Company, enforceable against the Company
in accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.

5.                                       The
execution and delivery by the Company of the Agreement and the Registration
Rights Agreement, the performance by the Company of its obligations under the
Agreement and the Registration Rights Agreement, and the issuance of the Shares
and the Warrants does not violate any provision of the Certificate of
Incorporation or Bylaws, or any provision of any applicable federal or state
law, rule or regulation known to us to be customarily applicable to
transactions of this nature. The execution and delivery by the Company of such
agreements, the performance by the Company of its obligations under such
agreements, and the issuance of the Shares, the Warrants and the Warrant Shares
does not violate, or constitute a default under, any contract or agreement to
which the Company is a party or by which the Company is bound filed as an
exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 2005
or any filing thereafter with the Securities and Exchange Commission pursuant
to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K.

6.                                       Except
as identified in the Agreement, to our knowledge, there are no actions, suits,
proceedings or investigations pending against the Company or its properties
before any court or governmental agency nor, to our knowledge, has the Company
received any written threat thereof.

7.                                       No
consent, approval or authorization of or designation, declaration or filing
with any federal governmental authority on the part of the Company is required
in connection with the valid execution and delivery of the Agreement and the
Registration Rights Agreement, the offer, sale or issuance of the Shares or the
Warrants or the consummation by the Company of any other

 

transaction contemplated by the Agreement except the
filing of a Form D pursuant to Regulation D under the Securities Act of 1933,
as amended.

8.                                       Subject
to the accuracy of the Purchasers’ representations in Section 3.2 of the
Agreement, the offer, sale and issuance of the Shares and the Warrants in
conformity with the terms of the Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended.

 

EXHIBIT D

Form
of Irrevocable Transfer Agent Instructions

As
of                   ,
        

                                    

                                    

                                    

Attn:                                    

Ladies and Gentlemen:

Reference is made to that certain Securities
Purchase Agreement, dated as of September 26, 2006 (the “Agreement”), by and among MathStar, Inc.,
a Delaware corporation (the “Company”),
and the purchasers named on the signature pages thereto (collectively, the “Holders”), pursuant to which the Company
is issuing to the Holders shares (the “Shares”)
of common stock of the Company, par value $0.01 per share (the “Common Stock”), and warrants (the “Warrants”), which are exercisable into
shares of Common Stock

This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time):

(i)            to
issue shares of Common Stock upon transfer or resale of the Shares; and

(ii)           to
issue shares of Common Stock upon the exercise of the Warrants (the “Warrant Shares”) to or upon the order of a
Holder from time to time upon delivery to you of a properly completed and duly
executed Exercise Notice, in the form attached hereto as Annex I, which
has been acknowledged by the Company as indicated by the signature of a duly
authorized officer of the Company thereon together with indication of receipt
of the exercise price therefor.

You acknowledge and agree that so long as you have
previously received (a) written confirmation from the Company’s legal counsel
that either (1) a registration statement covering resales of the Shares and the
Warrant Shares has been declared effective by the Securities and Exchange
Commission (the “Commission”)
under the Securities Act of 1933, as amended (the “Securities Act”), or (2) sales of the Shares and the Warrant
Shares may be made in conformity with Rule 144(k) under the Securities Act (“Rule 144”) and (b) if applicable, a copy
of such registration statement, then, unless otherwise required by law, within
three (3) business days of your receipt of the notice referred to in (ii)
above, you shall issue the certificates representing the Shares and the Warrant
Shares so sold to the transferees registered in the names of such transferees,
and such certificates shall not bear any legend restricting transfer of the
Shares and the Warrant Shares thereby and should not be subject to any
stop-transfer restriction.

A form of written confirmation (to be used in
connection with any sale) from the Company’s outside legal counsel that a
registration statement covering resales of the Shares and the Warrant Shares
has been declared effective by the Commission under the Securities Act is
attached hereto as Annex II.

Please be advised that the Holders are relying upon
this letter as an inducement to enter into the Agreement and, accordingly, each
Holder is a third party beneficiary to these instructions.

 

Please execute this letter in the space indicated to
acknowledge your agreement to act in accordance with these instructions.

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  MATHSTAR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
  Acknowledged and
  Agreed:

  
	
   

  
	
   

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
  Date:                                 ,
  2006

  
									

 

 

Annex I

Form of Exercise Notice

(To be executed by the
Holder to exercise the right to purchase shares 

of Common Stock under the foregoing Warrants)

To:          MathStar, Inc.

(1)           The
undersigned hereby elects to purchase                   
shares of Common Stock pursuant to the above-referenced Warrant. Capitalized
terms used herein and not otherwise defined herein have the respective meanings
set forth in the Warrant.

(2)           The Holder intends that payment of the Exercise Price shall be made as
(check one):

o            Cash Exercise

o            “Cashless Exercise” under Section 10 in
accordance with the terms of the Warrant.

(3)           If the
Holder has elected a Cash Exercise, the Holder shall pay the sum of $              
to the Company in accordance with the terms of the Warrant.

(4)           Pursuant to
this Exercise Notice, the Company shall deliver to the Holder                           
Warrant Shares in accordance with the terms of the Warrant.

(5)           By its
delivery of this Exercise Notice, the undersigned represents and warrants to
the Company that in giving effect to the exercise evidenced hereby, the Holder
will not beneficially own in excess of the number of shares of Common Stock (as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934) permitted to be owned under Section 11 of this Warrant to which this
notice relates.

	
  Dated:                              ,

  
	
   

  
	
  Name of Holder:

  	
   

  	
   

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
							

(Signature must conform in all respects to name of Holder as specified on
the face of the Warrant)

 

Acknowledgement

The Company hereby acknowledges this Exercise Notice
and receipt of the appropriate exercise price and hereby directs                                       
to issue the above indicated number of shares of Common Stock in accordance
with the Irrevocable Transfer Agent Instructions dated                     ,
2006, from the Company and acknowledged and agreed to by                                   .

	
  

  	
  MATHSTAR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

Annex II

Form of Notice of
Effectiveness of Registration Statement 

	
   

  	
   

  
	
  

  	
   

  
	
  Attn:

  	
   

  
	
   

  	
   

  
	
   

  	
  Re: MathStar, Inc.

  

 

Ladies and Gentlemen:

We are counsel to MathStar, Inc., a Delaware
corporation (the “Company”), and
have represented the Company in connection with that certain Securities
Purchase Agreement, dated as of September 26, 2006, entered into by and among
the Company and the buyers named therein (collectively, the “Purchasers”) pursuant to which the Company
issued to the Purchasers shares of the Company’s Common Stock, par value $0.01
per share (the “Common Stock”),
and warrants exercisable for shares of Common Stock (the “Warrants”). Pursuant to that certain
Registration Rights Agreement of even date, the Company agreed to register the resale
of the Common Stock, including the shares of Common Stock issuable upon
exercise of the Warrants (collectively, the “Registrable
Securities”), under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the
Company’s obligations under the Registration Rights Agreement, on                     ,
2006, the Company filed a Registration Statement on [Form S-3 (File
No. 333-                    )]
(the “Registration Statement”)
with the Securities and Exchange Commission (the “Commission”) relating to the Registrable Securities which
names each of the Purchasers as a selling stockholder thereunder.

In connection with the foregoing, we advise you that
a member of the Commission’s staff has advised us by telephone that the
Commission has entered an order declaring the Registration Statement effective
under the Securities Act at         
[a.m.][p.m.] on                     ,
2006, and we have no knowledge, after telephonic inquiry of a member of the
staff, that any stop order suspending its effectiveness has been issued or that
any proceedings for that purpose are pending before, or threatened by, the
Commission and the Registrable Securities are available for resale under the
Securities Act pursuant to the Registration Statement.

This letter shall serve as our standing notice to
you that the Common Stock may be freely transferred by the Purchasers pursuant
to the Registration Statement so long as the Holders certify they have complied
with the plan of distribution description in connection with their sales or
transfer of the Common Stock set forth in the Registration Statement and with
the prospectus delivery requirements of the Securities Act. You need not
require further letters from us to effect any future legend-free issuance or reissuance
of shares of Common Stock to the transferees of the Purchasers as contemplated
by the Company’s Irrevocable Transfer Agent Instructions dated                     ,
2006. This letter shall serve as our standing instructions with regard to this
matter. 

	
  

  	
   

  
	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [                                          ]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  

 

 

Instruction Sheet for Exhibits E thru F

(to be read in conjunction
with the entire Securities Purchase Agreement and Registration Rights Agreement)

A.            Complete the following items in the
Securities Purchase Agreement and/or Registration Rights Agreement:

1.                                       Provide the information regarding the
Purchaser requested on the signature page. The Securities Purchase Agreement
must be executed by an individual authorized to bind the Purchaser.

2.                                     Exhibit E-1 – Accredited Investor Questionnaire:

Provide the information
requested by Exhibit E-1-1 (the Certificate for Corporations,
Partnerships, Trusts, Foundations, Joint Purchasers (other than married
couples) and Other Entities) or Exhibit E-1-2 (the Certificate for
Individuals (including married couples)), as applicable.

3.                                     Exhibit E-2 – Stock Certificate Questionnaire:

Provide the information
requested by the Stock Certificate Questionnaire.

4.                                     Annex B to the Registration Rights
Agreement-Selling Securityholder Notice and Questionnaire

Provide the information
requested by the Selling Securityholder Notice and Questionnaire

5.                                     Return the signed Securities Purchase
Agreement and Registration Rights Agreement to:

David W. Stadinski

Piper Jaffray & Co.

The Chrysler Building

405 Lexington Avenue, 58th Floor

New York, New York 10174

Tel: (212) 284-9572

Fax: (212) 284-9579

Email:  david.w.stadinski@pjc.com

B.                                     Instructions regarding the transfer of funds
for the purchase of Securities is set forth on Exhibit F to the
Securities Purchase Agreement.

 4
 

 

EXHIBIT E-1

Accredited Investor
Questionnaire

Note
to Purchasers:

For Corporations,
Partnerships, Trusts, Foundations, Joint Purchasers (other than married
couples) and Other Entities, please provide the information requested by Exhibit
E-1-1.

For Individuals (including
married couples), please provide the information requested by Exhibit E-1-2.

 5

 

EXHIBIT E-1-1

Accredited Investor Questionnaire

Corporations, Partnerships, Trusts,
Foundations, 

Joint Purchasers (other than married couples) and Other Entities

If the Purchaser is a
corporation, partnership, trust, pension plan, foundation, joint purchaser
(other than a married couple) or other entity, an authorized officer, partner,
or trustee must complete, date and sign this Certificate.

CERTIFICATE

The undersigned certifies
that the representations and responses below are true and accurate:

(a)           The Purchaser has been duly formed and is validly existing
and has full power and authority to invest in the Company. The person signing
on behalf of the undersigned has the authority to execute and deliver the
Securities Purchase Agreement on behalf of the Purchaser and to take other
actions with respect thereto.

(b)           Indicate the form of entity of the undersigned:

___  Limited Partnership

___  General Partnership

___  Corporation

___  Revocable Trust (identify each
grantor and indicate under what circumstances the trust is revocable by the
grantor:

(Continue
on a separate piece of paper, if necessary.)

___  Other Type of Trust (indicate type of
trust and, for trusts other than pension trusts, name the grantors and
beneficiaries:

(Continue
on a separate piece of paper, if necessary.)

___  Other
form of organization (indicate form of organization (                           )).

(c)           Indicate the
approximate date the undersigned entity was formed:

(d)           In order for the Company to offer and sell the Securities
in conformance with state and federal securities laws, the following
information must be obtained regarding your investor status. Please initial
each category applicable to
you as a Purchaser of Securities of the Company.

___ (1)          A
bank as defined in Section 3(a)(2) of the Securities Act, or any savings and
loan association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity;

___ (2)          A
broker or dealer registered pursuant to Section 15 of the Securities Exchange
Act of 1934;

 6
 

 

___ (3)          An
insurance company as defined in Section 2(13) of the Securities Act;

___ (4)          An
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that Act;

___ (5)          A
Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;

___ (6)          A
plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000;

___ (7)          An
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary,
as defined in Section 3(21) of such act, which is either a bank, savings and
loan association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;

___ (8)          A
private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;

___ (9)          An
organization described in Section 501(c)(3) of the Internal Revenue Code, a
corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the Securities, with total assets
in excess of $5,000,000;

___ (10)    A
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Securities, whose purchase is directed by a
sophisticated person who has such knowledge and experience in financial and
business matters that such person is capable of evaluating the merits and risks
of investing in the Company;

___ (11)    An
entity in which all of the equity owners qualify under any of the above
subparagraphs. If the undersigned belongs to this investor category only, list
the equity owners of the undersigned, and the investor category which each such
equity owner satisfies:

(Continue on a separate
piece of paper, if necessary.)

	
  Dated:                  ,
  2006

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name of
  Purchaser

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Signature and title of authorized officer, partner
  or trustee

  

 

 7
 

 

EXHIBIT E-1-2

Individuals (including married couples)

If the Purchaser is an
Individual (or married couple) the Purchaser must complete, date and sign this
Certificate.

CERTIFICATE

I certify that the
representations and responses below are true and accurate:

(a)           In order for the Company to offer and sell the Securities
in conformance with state and federal securities laws, the following
information must be obtained regarding your investor status. Please initial
each category applicable to you as a Purchaser of Securities of the
Company.

___         (1)           A natural person whose individual net
worth, or joint net worth with that person’s spouse, at the time of his
purchase exceeds $1,000,000;

___         (2)           A natural person who had an
individual income in excess of $200,000 in each of the two most recent years,
or joint income with that person’s spouse in excess of $300,000, in each of
those years, and has a reasonable expectation of reaching the same income level
in the current year;

___         (3)           An executive officer or director of
the Company.

(b)           Set forth in the space provided below the state(s), if
any, in the U.S. in which you maintained your residence during the past two
years and the dates during which you resided in each state:

                                                                                                                                                                                                  

                                                                                                                                                                                                  

                                                                                                                                                                     .

	
  Dated:                       ,
  2006

  
	
   

  
	
  Name(s) of
  Purchaser

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  
				

 

 8
 

 

EXHIBIT E-2

Stock Certificate Questionnaire

Pursuant to Section 2.2(b) of the Agreement, please provide us with the
following information:

	
  1.

  	
  The exact name that the Securities are to be
  registered in (this is the name that will appear on the stock
  certificate(s)). You may use a nominee name if appropriate:

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  The relationship between the Purchaser of the
  Securities and the Registered Holder listed in response to Item 1 above:

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  The mailing address, telephone and telecopy number
  of the Registered Holder listed in response to Item 1 above:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  The Tax Identification Number of the Registered
  Holder listed in response to Item 1 above:

  	
   

  

 

 9
 

 

EXHIBIT F

Wire
Instructions

	
  Bank:

  	
  Pacific Continental Bank

  
	
   

  	
  717 NE Grand Ave.

  
	
   

  	
  Portland, Oregon 97232

  
	
  ABA No.: 123205135

  
	
  Account No.: 39001193

  
	
  Beneficiary:

  	
  MathStar Inc.

  
	
   

  	
  19075 NW Tanasbourne Dr.

  
	
   

  	
  Suite 200

  
	
   

  	
  Hillsboro, Oregon 97124

  
			

 

 10

 

Schedule 3.1(a)

Subsidiaries

 

None

 

Schedule 3.1(c)

Authorization; Enforcement

 

None

 

Schedule 3.1(g)

Capitalization

	
  Common Stock Authorized:

  	
   

  	
  90,000,000 shares

  
	
   

  	
   

  	
   

  
	
  Common Stock
  Issued and Outstanding:

  	
   

  	
  17,699,567 shares (as of 8/31/06)

  
	
   

  	
   

  	
   

  
	
  Preferred Stock
  Authorized:

  	
   

  	
  10,000,000 shares

  
	
   

  	
   

  	
   

  
	
  Preferred Stock
  Issued and Authorized:

  	
   

  	
  None

  
	
   

  	
   

  	
   

  
	
  Options to
  Purchase Common Stock Outstanding:

  	
   

  	
  2,232,446

  
	
   

  	
   

  	
   

  
	
  Options
  Outstanding Currently Exercisable:

  	
   

  	
  910,306 shares (as of 9/20/06)

  
	
   

  	
   

  	
   

  
	
  Shares of
  Restricted Stock Outstanding:

  	
   

  	
  464,903 shares

  
	
   

  	
   

  	
   

  
	
  Options and/or
  Restricted Stock Available for Issuance:

  	
   

  	
  211,263 shares

  
	
   

  	
   

  	
   

  
	
  Warrants
  Outstanding:

  	
   

  	
  1,722,847 shares

  

 

 

Schedule 3.1(k)

Material Changes

 

None

 

Schedule 3.1(x)

Registration
Rights

 

NoneExhibit 10.2

NEITHER THESE SECURITIES
NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND APPLICABLE
STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
(II) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

MATHSTAR, INC.

WARRANT TO PURCHASE COMMON STOCK

	
  

  	
   

  
	
  Warrant No. P6-            

  	
  Original Issue
  Date:  October 3, 2006

  

 

MATHSTAR, INC., a
Delaware corporation (the “Company”),
hereby certifies that, for value received,                                           
or its permitted registered assigns (the “Holder”),
is entitled to purchase from the Company up to a total of                                           
(                  )
shares of common stock, $0.01 par value per share (the “Common Stock”), of the Company (each such
share, a “Warrant Share” and all
such shares, the “Warrant Shares”)
at an exercise price per share equal to $6.00 (as adjusted from time to time as
provided in Section 9 herein, the “Exercise
Price”), at any time and from time to time from and after six months
after the Closing Date (the “Trigger Date”)
and through and including 5:00 P.M., New York City time, on October 3,
2011 (the “Expiration Date”), and
subject to the following terms and conditions:

This Warrant (this “Warrant”) is one of a series of similar
warrants issued pursuant to that certain Securities Purchase Agreement, dated
as of September 26, 2006, by and among the Company and the Purchasers
identified therein (the “Purchase Agreement”).
All such warrants are referred to herein, collectively, as the “Warrants.”

1.             Definitions. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
Purchase Agreement.

2.             Registration
of Warrants. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the
record Holder (which shall include the initial Holder or, as the case may be,
any registered assignee to which this Warrant is permissibly assigned
hereunder) from time to time. The Company may deem and treat the registered Holder
of this Warrant as the absolute owner hereof for the purpose

 

of any exercise hereof
or any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.

3.             Registration
of Transfers. Subject to the restrictions on transfer
set forth in Section 4.1 of the Purchase Agreement and compliance  with all applicable securities laws, the
Company shall register the transfer of all or any portion of this Warrant in
the Warrant Register, upon (i) surrender of this Warrant, with the Form of
Assignment attached as Schedule 2 hereto duly completed and signed, to
the Company’s transfer agent or to the Company at its address specified herein
and (ii) if the Registration Statement is not effective, (x) delivery, at the
request of the Company, of an opinion of counsel reasonably satisfactory to the
Company to the effect that the transfer of such portion of this Warrant may be
made pursuant to an available exemption from the registration requirements of
the Securities Act and all applicable state securities or blue sky laws and (y)
delivery by the transferee of a written statement to the Company certifying
that the transferee is an “accredited investor” as defined in Rule 501(a) under
the Securities Act and making the representations and certifications set forth
in Section 3.2(b), (c) and (d) of the Purchase Agreement, to the Company at its
address specified in the Purchase Agreement. Upon any such registration or
transfer, a new warrant to purchase Common Stock in substantially the form of this
Warrant (any such new warrant, a “New
Warrant”) evidencing the portion of this Warrant so transferred
shall be issued to the transferee, and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a Holder of a Warrant.

4.             Exercise and
Duration of Warrants.

(a)           All or any
part of this Warrant shall be exercisable by the registered Holder at any time
and from time to time on or after the Trigger Date and through and including
5:00 P.M. New York City time on the Expiration Date. Subject to Section 11
hereof, at 5:00 P.M., New York City time, on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value and this Warrant shall be terminated and no longer outstanding;

(b)           The Holder
may exercise this Warrant by delivering to the Company (i) an exercise notice,
in the form attached as Schedule 1 hereto (the “Exercise Notice”), appropriately completed and duly signed,
and (ii) payment of the Exercise Price for the number of Warrant Shares as to
which this Warrant is being exercised (which may take the form of a “cashless
exercise” if so indicated in the Exercise Notice and if a “cashless exercise”
may occur at such time pursuant to Section 10 below), and the date such items
are delivered to the Company (as determined in accordance with the notice
provisions hereof) is an “Exercise Date.”
The delivery by (or on behalf of) the Holder of the Exercise Notice and the
applicable Exercise Price as provided above shall constitute the Holder’s
certification to the Company that its representations contained in Section
3.2(b), (c) and (d) of the Purchase Agreement are true and correct as of the
Exercise Date as if remade in their entirety (or, in the case of any transferee
Holder that is not a party to the Purchase Agreement, such transferee Holder’s
certification to the Company that such representations are true and correct as
to such assignee Holder as of the Exercise Date). The Holder shall not be
required to deliver the original Warrant in order to effect an exercise
hereunder. Execution and delivery of the Exercise Notice shall have the same
effect as cancellation of the original Warrant and issuance of a New Warrant
evidencing the right to purchase the remaining number of Warrant Shares.

 2
 

 

5.             Delivery of
Warrant Shares.

(a)           Upon
exercise of this Warrant, the Company shall promptly (but in no event later
than three Trading Days after the Exercise Date) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder and in
such name or names as the Holder may designate (provided that, if the
Registration Statement is not effective and the Holder directs the Company to
deliver a certificate for the Warrant Shares in a name other than that of the
Holder or an Affiliate of the Holder, it shall deliver to the Company on the
Exercise Date an opinion of counsel reasonably satisfactory to the Company to
the effect that the issuance of such Warrant Shares in such other name may be
made pursuant to an available exemption from the registration requirements of
the Securities Act and all applicable state securities or blue sky laws), a
certificate for the Warrant Shares issuable upon such exercise, free of
restrictive legends, unless a registration statement covering the resale of the
Warrant Shares and naming the Holder as a selling stockholder thereunder is not
then effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) under the Securities Act. The Holder, or
any Person permissibly so designated by the Holder to receive Warrant Shares,
shall be deemed to have become the holder of record of such Warrant Shares as
of the Exercise Date. If the Warrant Shares are to be issued free of all
restrictive legends, the Company shall, upon the written request of the Holder,
use its best efforts to deliver, or cause to be delivered, Warrant Shares
hereunder electronically through The Depository Trust Company or another
established clearing corporation performing similar functions, if available;
provided, that, the Company may, but will not be required to, change its
transfer agent if its current transfer agent cannot deliver Warrant Shares
electronically through such a clearing corporation.

(b)           If by the
close of the third Trading Day after delivery of an Exercise Notice, the
Company fails to deliver to the Holder a certificate representing the required
number of Warrant Shares in the manner required pursuant to Section 5(a), and
if after such third Trading Day and prior to the receipt of such Warrant
Shares, the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
the Warrant Shares which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Company
shall, within three Trading Days after the Holder’s request and in the Holder’s
sole discretion, either (1) pay in cash to the Holder an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such Warrant Shares) shall terminate or (2) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing  such Warrant Shares and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of Warrant Shares, times (B) the
closing bid price of a share of Common Stock on the date of exercise.

(c)           To the
extent permitted by law, the Company’s obligations to issue and deliver Warrant
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or
any violation or alleged violation of law by the Holder or any other Person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Warrant Shares. Nothing herein shall limit the Holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the

 3
 

 

Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise
of this Warrant as required pursuant to the terms hereof.

6.             Charges,
Taxes and Expenses. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the registration of any certificates for Warrant Shares or Warrants
in a name other than that of the Holder or an Affiliate thereof. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

7.             Replacement
of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction (in
such case) and, in each case, a customary and reasonable indemnity (which may
include a surety bond), if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company as
a condition precedent to the Company’s obligation to issue the New Warrant.

8.             Reservation
of Warrant Shares. The Company covenants that it will
initially reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, one hundred twenty percent (120%) of the number of Warrant Shares
which are initially issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other contingent purchase rights of
persons other than the Holder. The Company further covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with
the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of any securities exchange or automated quotation system upon which the Common
Shares may be listed.

9.             Certain
Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 9.

(a)           Stock
Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock
into a larger number of shares, or (iii) combines its

 4
 

 

outstanding shares of
Common Stock into a smaller number of shares, then in each such case the
Exercise Price shall be multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately before such
event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution, and any adjustment pursuant to clause (ii) or (iii)
of this paragraph shall become effective immediately after the effective date
of such subdivision or combination.

(b)           Pro Rata
Distributions. If the Company, at any time while this
Warrant is outstanding, distributes to all holders of Common Stock (i)
evidences of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (in each case, “Distributed Property”), then, upon any
exercise of this Warrant that occurs after the record date fixed for
determination of stockholders entitled to receive such distribution, the Holder
shall be entitled to receive, in addition to the Warrant Shares otherwise
issuable upon such exercise (if applicable), the Distributed Property that such
Holder would have been entitled to receive in respect of such number of Warrant
Shares had the Holder been the record holder of such Warrant Shares immediately
prior to such record date.

(c)           Fundamental
Transactions. If, at any time while this Warrant is outstanding  (i) the Company effects any merger or
consolidation of the Company with or into another Person, in which the Company
is not the survivor, (ii) the Company effects any sale of all or substantially
all of its assets or a majority of its Common Stock is acquired by a third
party, in each case,  in one or a series
of related transactions, (iii) any tender offer or exchange offer (whether by
the Company or another Person) is completed pursuant to which all or
substantially all of the holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (iv) the
Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than as a result of
a subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a “Fundamental
Transaction”), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant without regard to any
limitations on exercise contained herein (the “Alternate
Consideration”). The Company shall not effect any such Fundamental
Transaction unless prior to or simultaneously with the consummation thereof,
any successor to the Company, surviving entity or the corporation purchasing or
otherwise acquiring such assets or other appropriate corporation or entity
shall assume the obligation to deliver to the Holder, such Alternate Consideration
as, in accordance with the foregoing provisions, the Holder may be entitled to
purchase and/or receive (as the case may be), and the other obligations under
this Warrant. The provisions of this paragraph (c) shall similarly apply to
subsequent transactions analogous to a Fundamental Transaction. Notwithstanding
the foregoing, in the event of a Fundamental Transaction, at the request of the
Holder delivered before the 90th day after such Fundamental Transaction, the
Company (or the successor entity to the Company) shall purchase this Warrant
from the Holder by paying to the Holder, within five Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
cash in an amount equal to the value of the remaining unexercised portion of
this Warrant on the date of such Fundamental Transaction, which value shall be
determined by use of the Black Scholes Option

 5
 

 

Pricing Model obtained from the “OV”
function on Bloomberg determined as of the day immediately following the public
announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of such date of request and (ii)
an expected volatility equal to the greater of 40% and the 100 day volatility
obtained from the HVT function on Bloomberg.

(d)           Number of
Warrant Shares. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraphs (a) and (e) of this Section, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.

(e)           Subsequent
Equity Sales.

(i)            Except as
provided in subsection (e)(iii) hereof, if and whenever the Company shall issue
or sell, or is, in accordance with any of subsections (e)(ii)(l) through
(e)(ii)(4) hereof, deemed to have issued or sold, any shares of Common Stock
for no consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the time of such issue or sale, then and
in each such case (a “Trigger Issuance”)
the then-existing Exercise Price shall be reduced as of the close of business
on the effective date of the Trigger Issuance, to a price determined as
follows:

Adjusted Exercise Price =
(A x B) + D

A+C

where

“A”
equals the number of shares of Common Stock outstanding, including Additional
Shares of Common Stock (as defined below) deemed to be issued hereunder,
immediately preceding such Trigger Issuance;

“B”
equals the Exercise Price in effect immediately preceding such Trigger
Issuance;

“C”
equals the number of Additional Shares of Common Stock issued or deemed issued
hereunder as a result of the Trigger Issuance; and

“D”
equals the aggregate consideration, if any, received or deemed to be received
by the Company upon such Trigger Issuance;

provided,
however, that in no event shall the Exercise Price after
giving effect to such Trigger Issuance be greater than the original Exercise
Price.

For purposes of this
subsection (e), “Additional Shares of Common Stock” shall mean all shares of
Common Stock issued by the Company or deemed to be issued pursuant to this
subsection (e), other than Excluded Issuances (as defined in subsection
(e)(iii) hereof).

(ii)           For purposes
of this subsection 9(e), the following subsections (e)(ii)(l) to
(e)(ii)(4) shall also be applicable:

 6
 

 

(1)           Issuance of
Rights or Options. In case at any time the Company shall
in any manner grant (directly and not by assumption in a merger or otherwise)
any warrants or other rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being called “Options” and such convertible or
exchangeable stock or securities being called “Convertible
Securities”), whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus (y) the aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus (z), in the case of such
Options which relate to Convertible Securities, the aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be
less than the Exercise Price in effect immediately prior to the time of the
granting of such Options, then the total number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of
the total amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for such price per share as of
the date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Exercise Price. Except as otherwise provided in
subsection 9(e)(ii)(3), no adjustment of the Exercise Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities.

(2)           Issuance of
Convertible Securities. In case the Company shall in any manner
issue (directly and not by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount received or receivable
by the Company as consideration for the issue or sale of such Convertible
Securities, plus (y) the aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by
(ii) the total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the Exercise
Price in effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Exercise Price, provided that (a) except as
otherwise provided in subsection 9(e)(ii)(3), no adjustment of the
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further adjustment
of the Exercise Price shall be made by reason of the issue or sale of
Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Exercise Price have been
made pursuant to the other provisions of subsection 9(e).

 7
 

 

(3)           Change in
Option Price or Conversion Rate. Upon the happening of any of the
following events, namely, if the purchase price provided for in any Option
referred to in subsection 9(e)(ii)(l) hereof, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsections 9(e)(ii)(l) or 9(e)(ii)(2),
or the rate at which Convertible Securities referred to in subsections
9(e)(ii)(l) or 9(e)(ii)(2) are convertible into or exchangeable for Common
Stock shall change at any time (including, but not limited to, changes under or
by reason of provisions designed to protect against dilution), the Exercise
Price in effect at the time of such event shall forthwith be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. On the termination of any Option for
which any adjustment was made pursuant to this subsection 9(e) or any
right to convert or exchange Convertible Securities for which any adjustment
was made pursuant to this subsection 9(e) (including, without limitation,
upon the redemption or purchase for consideration of such Convertible
Securities by the Company), the Exercise Price then in effect hereunder shall
forthwith be changed to the Exercise Price which would have been in effect at
the time of such termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such termination, never been issued.

(4)           Stock
Dividends. Subject to the provisions of this Section 9(e), in case the
Company shall declare a dividend or make any other distribution upon any stock
of the Company (other than the Common Stock) payable in Common Stock, Options
or Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.

(5)           Consideration
for Stock. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the gross amount received by the Company therefor. In
case any shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be the
fair value of such consideration as determined in good faith by the Board of
Directors of the Company. In case any Options shall be issued in connection
with the issue and sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have been
issued for such consideration as determined in good faith by the Board of
Directors of the Company. If Common Stock, Options or Convertible Securities
shall be issued or sold by the Company and, in connection therewith, other
Options or Convertible Securities (the “Additional
Rights”) are issued, then the consideration received or deemed to be
received by the Company shall be reduced by the fair market value of the
Additional Rights (as determined using the Black-Scholes option pricing model
or another method mutually agreed to by the Company and the Holder). The Board
of Directors of the Company shall respond promptly, in writing, to an inquiry
by the Holder as to the fair market value of the Additional Rights. In the
event that the Board of Directors of the Company and the Holder are unable to
agree upon the fair market value of the Additional Rights, the Company and the
Holder shall jointly select an appraiser who is experienced in such matters.
The decision of such appraiser shall be final and conclusive, and the cost of
such appraiser shall be borne evenly by the Company and the Holder.

 8
 

 

(6)           Record
Date. In case the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or Convertible Securities or (ii)
to subscribe for or purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of the issue or sale of
the shares of 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.

(7)           Treasury
Shares. The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company or
any of its wholly-owned subsidiaries, and the disposition of any such shares
(other than the cancellation or retirement thereof) shall be considered an
issue or sale of Common Stock for the purpose of this subsection (e).

(iii)          Notwithstanding
the foregoing, no adjustment will be made under this paragraph (e) in
respect of: (i) the issuance of securities upon the exercise or conversion
of any Common Stock or Common Stock Equivalents issued by the Company prior to
the date hereof, (ii) the grant of options, warrants or other Common Stock
Equivalents under any duly authorized Company stock option, restricted stock
plan or stock purchase plan, whether now existing or hereafter approved by the
Company and its stockholders in the future, and the issuance of Common Stock in
respect thereof, (iii) the issuance of securities in connection with a
Strategic Transaction, or (iv) the issuance of securities in a transaction
described in Section 9(a) or 9(b) (“Excluded
Issuances”). For purposes of this paragraph, a “Strategic Transaction” means a transaction
or relationship in which (1) the Company issues shares of Common Stock to
a Person which the Board of Directors of the Company determined in good faith
is, itself or through its Subsidiaries, an operating company in a business
synergistic with the business of the Company (or a stockholder thereof) and
(2) the Company expects to receive benefits in addition to the investment
of funds, but shall not include (x) a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to a Person
whose primary business is investing in securities or (y) issuances to
lenders.

(iv)          Upon any
adjustment to the Exercise Price pursuant to Section 9(e)(i) above, the number
of Warrant Shares purchasable hereunder shall be adjusted by multiplying such
number by a fraction, the numerator of which shall be the Exercise Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Exercise Price in effect immediately thereafter. Notwithstanding any
other provisions in this Section 9 to the contrary, if a reduction in the
Exercise Price pursuant to Section 9(e)(i) would require the Company to obtain
stockholder approval of the transactions contemplated by the Purchase Agreement
pursuant to Nasdaq Marketplace Rule 4350(i) and such stockholder approval has
not been obtained, (i) the Exercise Price shall be reduced to the maximum
extent that would not require stockholder approval under such Rule, and (ii)
the Company shall use its commercially reasonable efforts to obtain such
stockholder approval as soon as reasonably practicable, including by calling a
special meeting of stockholders to vote on such Exercise Price adjustment.

(f)            Calculations. All
calculations under this Section 9 shall be made to the nearest cent or
the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the sale or issuance of
any such shares shall be considered an issue or sale of Common Stock.

 9
 

 

(g)           Notice of
Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will, at the
written request of the Holder, promptly compute such adjustment, in good faith,
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder and to the Company’s transfer
agent.

(h)           Notice of
Corporate Events. If, while this Warrant is outstanding,
the Company (i) declares a dividend or any other distribution of cash, securities
or other property in respect of its Common Stock, including, without
limitation, any granting of rights or warrants to subscribe for or purchase any
capital stock of the Company or any Subsidiary, (ii) authorizes or approves,
enters into any agreement contemplating or solicits stockholder approval for
any Fundamental Transaction or (iii) authorizes the voluntary dissolution,
liquidation or winding up of the affairs of the Company, then, except if such
notice and the contents thereof shall be deemed to constitute material
non-public information, the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction at least ten
(10) Trading Days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Company will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity
to exercise this Warrant prior to such time so as to participate in or vote
with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect
therein shall not affect the validity of the corporate action required to be
described in such notice.

10.           Payment of
Exercise Price.

(a)           The Holder
shall pay the Exercise Price in immediately available funds.

(b)           Notwithstanding
anything contained herein to the contrary, if a Registration Statement covering
the Warrant Shares that are the subject of the Exercise Notice is not available
for the resale of such Warrant Shares, the Holder may, in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the aggregate Exercise Price, elect instead to receive upon such
exercise the “Net Number” of shares of Common Stock determined according to the
following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

B

For purposes of the
foregoing formula:

A=                               the
total number of shares with respect to which this Warrant is then being
exercised.

B=                                 the
average of the Closing Sale Prices of the shares of Common Stock (as reported
by Bloomberg Financial Markets) for the five Trading Days ending on the date
immediately preceding the date of the written notice of exercise.

 10

 

C=                                 the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.

For purposes of
this Warrant, “Closing Sale Price” means, for
any security as of any date, the last trade price for such security on the
principal securities exchange or trading market for such security, as reported
by Bloomberg Financial Markets, or, if such exchange or trading market begins
to operate on an extended hours basis and does not designate the last trade
price, then the last trade price of such security prior to 4:00:00 p.m., New
York Time, as reported by Bloomberg Financial Markets, or if the foregoing do
not apply, the last trade price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg
Financial Markets, or, if no last trade price is reported for such security by
Bloomberg Financial Markets, 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. If the Closing Sale Price cannot be calculated for
a security on a particular date on any of the foregoing bases, the Closing Sale
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 the Company
shall, within two Trading Days submit via facsimile (a) the disputed
determination of the fair market value to an independent, reputable investment
bank selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Warrant Shares to the Company’s independent,
outside accountant. The Company shall cause at its expense 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
ten Trading 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. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

11.           Limitations on Exercise. (a)
Notwithstanding anything to the contrary contained herein, the number of
Warrant Shares that may be acquired by the Holder upon any exercise of this
Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to ensure that, following such exercise (or other issuance), the
total number of shares of Common Stock then beneficially owned by the Holder
and its Affiliates and any other Persons whose beneficial ownership of Common
Stock would be aggregated with the Holder’s for purposes of Section 13(d) of
the Exchange Act, does not exceed 4.999% of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of Common
Stock issuable upon such exercise). For such purposes, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. Each delivery of an Exercise
Notice by the Holder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this Section and determined that issuance
of the full number of Warrant Shares requested in such Exercise Notice is
permitted under this Section. The Company’s obligation to issue shares of
Common Stock in excess of the limitation referred to in this Section shall be
suspended (and, except as provided below, shall not terminate or expire
notwithstanding any contrary provisions hereof) until such time, if any, as
such shares of Common Stock may be issued in compliance with such limitation;
provided, that, if, as of 5:00 p.m., New York City time, on the Expiration
Date, the Company has not received written notice that the shares of Common
Stock may be issued in compliance with such limitation, the Company’s
obligation to issue such shares shall terminate. This provision shall not
restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a Fundamental
Transaction as contemplated in Section 9 of this Warrant. By written

 11
 

 

notice to the Company,
the Holder may waive the provisions of this Section but any such waiver will not
be effective until the 61st day after such notice is delivered to the
Company, nor will any such waiver effect any other Holder.

(b)           Notwithstanding anything to the
contrary contained herein, the number of Warrant Shares that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to ensure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons
whose beneficial ownership of Common Stock would be aggregated with the Holder’s
for purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of
the total number of issued and outstanding shares of Common Stock (including
for such purpose the shares of Common Stock issuable upon such exercise). For
such purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. Each delivery of an Exercise Notice hereunder will constitute a
representation by the Holder that it has evaluated the limitation set forth in
this Section and determined that issuance of the full number of Warrant Shares
requested in such Exercise Notice is permitted under this Section. The Company’s
obligation to issue shares of Common Stock in excess of the limitation referred
to in this Section shall be suspended (and, except as provided below, shall not
terminate or expire notwithstanding any contrary provisions hereof) until such
time, if any, as such shares of Common Stock may be issued in compliance with
such limitation; provided, that, if, as of 5:00 p.m., New York City time, on
the Expiration Date, the Company has not received written notice that the
shares of Common Stock may be issued in compliance with such limitation, the
Company’s obligation to issue such shares shall terminate. This provision shall
not restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a Fundamental
Transaction as contemplated in Section 9 of this Warrant. This restriction may
not be waived.

12.           No Fractional Shares. No
fractional Warrant Shares will be issued in connection with any exercise of
this Warrant. In lieu of any fractional shares which would otherwise be
issuable, subject to Section 11, the number of shares of Warrant Shares to be
issued shall be rounded up to the nearest whole number.

13.           Notices. Any and all notices
or other communications or deliveries hereunder (including, without limitation,
any Exercise Notice) shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
the Purchase Agreement prior to 5:00 p.m. (New York City time) on a Trading
Day, (ii) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified
in the Purchase Agreement on a day that is not a Trading Day or later than 5:00
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of mailing, if sent by nationally recognized overnight courier service
specifying next Trading Day delivery, or (iv) upon actual receipt by the party
to whom such notice is required to be given, if by hand delivery. The address
and facsimile number of a party for such notices or communications shall be as
set forth in the Purchase Agreement unless changed by such party by two Trading
Days’ prior notice to the other party in accordance with this Section 13.

14.           Warrant Agent. The Company
shall serve as warrant agent under this Warrant. Upon thirty (30) days’ notice
to the Holder, the Company may appoint a new warrant agent. Any corporation
into which the Company or any new warrant agent may be merged or any
corporation

 12
 

 

resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further act.
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed (by first class mail, postage prepaid) to the
Holder at the Holder’s last address as shown on the Warrant Register.

15.           Miscellaneous.

(a)           The
Holder, solely in such Person’s capacity as a holder of this Warrant, shall not
be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this Warrant
be construed to confer upon the Holder, solely in such Person’s capacity as the
Holder of this Warrant, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, amalgamation, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance
to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the
Company or by creditors of the Company. Notwithstanding this Section 15(a), the
Company shall provide the Holder with copies of the same notices and other
information given to the shareholders of the Company, contemporaneously with
the giving thereof to the shareholders.

(b)           Subject
to the restrictions on transfer set forth on the first page hereof and in
Section 4.1 of the Purchase Agreement, and compliance with applicable
securities laws, this Warrant may be assigned by the Holder. This Warrant may
not be assigned by the Company except to a successor in the event of a
Fundamental Transaction. This Warrant shall be binding on and inure to
the benefit of the parties hereto and their respective successors and assigns.
Subject to the preceding sentence, nothing in this Warrant shall be construed
to give to any Person other than the Company and the Holder any legal or
equitable right, remedy or cause of action under this Warrant. This Warrant may
be amended only in writing signed by the Company and the Holder, or their
successors and assigns.

(c)           GOVERNING
LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT,

 13
 

 

ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL
RIGHTS TO A TRIAL BY JURY.

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

(e)           In case any one or more of the
provisions of this Warrant shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Warrant shall not in any way be affected or impaired thereby, and the parties
will attempt in good faith to agree upon a valid and enforceable provision
which shall be a commercially reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Warrant.

(f)            Other than as provided in Section
9(h) or otherwise set forth herein, prior to exercise of this Warrant, the
Holder hereof shall not, by reason of by being a Holder, be entitled to any
rights of a stockholder with respect to the Warrant Shares.

 14
 

 

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

	
  

  	
  MATHSTAR, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Douglas M. Pihl

  
	
   

  	
  Title:

  	
  President and Chief Executive

  Officer

  

 

 15
 

 

SCHEDULE
1

FORM
OF EXERCISE NOTICE

(To
be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

Ladies and Gentlemen:

(1)           The undersigned is the Holder of
Warrant No.                     
(the “Warrant”) issued by MathStar, Inc., a Delaware corporation (the “Company”).
Capitalized terms used herein and not otherwise defined herein have the
respective meanings set forth in the Warrant.

(2)           The undersigned hereby exercises its
right to purchase                     
Warrant Shares pursuant to the Warrant.

(3)           The Holder intends that payment of
the Exercise Price shall be made as (check one):

o            Cash Exercise

o            “Cashless Exercise” under Section 10
in accordance with the terms of the Warrant.

(4)           If the Holder has elected a Cash
Exercise, the Holder shall pay the sum of $              
to the Company in accordance with the terms of the Warrant.

(5)           Pursuant to this Exercise Notice, the
Company shall deliver to the Holder                           
Warrant Shares in accordance with the terms of the Warrant.

(6)           By its delivery of this Exercise
Notice, the undersigned represents and warrants to the Company that in giving
effect to the exercise evidenced hereby the Holder will not beneficially own in
excess of the number of shares of Common Stock (as determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934) permitted to be
owned under Section 11 of the Warrant to which this notice relates.

Dated:                              ,
          

	
  Name of Holder:

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
						

(Signature must conform in all respects to name of Holder as specified on
the face of the Warrant)

 16
 

 

SCHEDULE 2

MATHSTAR, INC.

FORM
OF ASSIGNMENT

[To
be completed and signed only upon transfer of Warrant]

FOR VALUE RECEIVED, the
undersigned hereby sells, assigns and transfers unto
                            
(the “Transferee” the right represented by the within Warrant to purchase
                
shares of Common Stock of MathStar, Inc., a Delaware corporation (the “Company”)
to which the within Warrant relates and appoints
                            
attorney to transfer said right on the books of the Company with full power of
substitution in the premises. In connection therewith, the undersigned
represents, warrants, covenants and agrees to and with the Company that:

(a)                                  the
offer and sale of the Warrant contemplated hereby is being made in compliance
with Section 4(1) of the United States Securities Act of 1933, as amended (the “Securities
Act”) or another valid exemption from the registration requirements of Section
5 of the Securities Act and in compliance with all applicable securities laws
of the states of the United States;

(b)                                 the
undersigned has not offered to sell the Warrant by any form of general
solicitation or general advertising, including, but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising;

(c)                                  the
undersigned has read the Transferee’s investment letter included herewith, and
to its actual knowledge, the statements made therein are true and correct; and

(d)                                 the
undersigned understands that the Company may condition the transfer of the
Warrant contemplated hereby upon the delivery to the Company by the undersigned
or the Transferee, as the case may be, of a written opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable securities
laws of the states of the United States.

 17
 

 

 

	
  Dated:             ,

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform in all respects to name

  of holder as specified on the face of the

  Warrant)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address of Transferee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  In the presence of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
				

 

 18

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