Document:

EX-10.3

EXHIBIT 10.3

SENIOR SECURED CONVERTIBLE NOTE

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

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

Stinger Systems, Inc.

Senior Secured Convertible Note

			
	 	 	 
	Original Issuance Date: July 14, 2009
	 	Original Principal Amount: U.S. $300,000     

          FOR VALUE RECEIVED, Stinger Systems, Inc., a Nevada corporation (the “Company”), hereby
promises to pay to the order of DEBT OPPORTUNITY FUND, LLLP or registered assigns (“Holder”) the
amount set out above as the Original Principal Amount or so much thereof as may from time to time
be advanced hereunder (without deduction by the Company for the original issue discount taken by
the Holder pursuant to Section 1(c) of the Securities Purchase Agreement, the “Advance”) (as
reduced pursuant to the terms hereof

 

 

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

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

          (2) INTEREST; INTEREST RATE. (a) Interest on this Note shall commence accruing on
the date the Advance is made to the Company as indicated on Schedule A attached hereto and
shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months
and shall be payable in arrears for each Calendar Quarter on the first day of the succeeding
Calendar Quarter during the period beginning on the Issuance Date and ending on, and including, the
Maturity Date (each, an “Interest Date”) with the first Interest Date being October 1, 2009.
Interest shall be payable on each Interest Date, to the record holder of this Note on the
applicable Interest Date, in shares of Common Stock (“Interest Shares”) so long as there has been
no Equity Conditions Failure; provided however, that the Company may, at its option following
notice to the Holder, pay Interest on any Interest Date in cash (“Cash Interest”) or in a
combination of Cash Interest and Interest Shares. The Company shall deliver a written notice
(each, an “Interest Election Notice”) to each holder of the Notes on or prior to the Interest
Notice Due Date (the date such notice is delivered to all of the holders, the “Interest Notice
Date”) which notice (1) either (A) confirms that Interest to be paid on such Interest Date shall be
paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest or a combination of
Cash Interest and Interest Shares and specifies the amount of Interest that shall be paid as Cash
Interest and the amount of Interest, if any, that shall be paid in Interest Shares and (2)
certifies

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that there has been no Equity Conditions Failure; provided, however, that the Company shall
not be entitled to pay any portion of Interest on an Interest Date in Interest Shares in excess of
the Holder Pro Rata Amount of the applicable Volume Limitation. If any portion of Interest for a
particular Interest Date shall be paid in Interest Shares, then the Company shall pay to the
Holder, in accordance with Section 2(b), a number of shares of Common Stock equal to (x) the amount
of Interest payable on the applicable Interest Date in Interest Shares divided by (y) the
applicable Interest Conversion Price. Interest to be paid on an Interest Date in Interest Shares
shall be paid in a number of fully paid and nonassessable shares of Common Stock (rounded to the
nearest whole share) which are eligible for sale under Rule 144. If the Equity Conditions are not
satisfied as of the Interest Notice Date, then unless the Company has elected to pay such Interest
in cash, the Interest Notice shall indicate that unless the Holder waives the Equity Conditions,
the Interest shall be paid in cash. If the Equity Conditions were satisfied as of the Interest
Notice Date but the Equity Conditions are no longer satisfied at any time prior to the Interest
Date, the Company shall provide the Holder a subsequent notice to that effect indicating that
unless the Holder waives the Equity Conditions, the Interest shall be paid in cash.

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

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

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

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

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

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

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

               (c) Mechanics of Conversion.

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

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in the Conversion Notice, a certificate, registered in the name of the Holder or its designee,
for the number of shares of Common Stock (including any Interest Shares) to which the Holder shall
be entitled. If this Note is physically surrendered for conversion as required by Section
3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable and in no event
later than three (3) Business Days after receipt of this Note and at its own expense, issue and
deliver to the holder a new Note (in accordance with Section 20(d)) representing the outstanding
Principal not converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.

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

                    (iii) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of each Note and the
principal amount of the Notes held by such holders (the “Registered Notes”). The entries in the
Register shall be conclusive and binding for all purposes absent manifest error.

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The Company and the holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation, the right to
receive payments of Principal and Interest hereunder, notwithstanding notice to the contrary. A
Registered Note may be assigned or sold in whole or in part only by registration of such assignment
or sale on the Register. Upon its receipt of a request to assign or sell all or part of any
Registered Note by a Holder, the Company shall record the information contained therein in the
Register and issue one or more new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 20. Notwithstanding anything to the contrary set forth herein, upon conversion
of any portion of this Note in accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless (A) the full Conversion Amount represented
by this Note is being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note
upon physical surrender of this Note. The Holder and the Company shall maintain records showing
the Principal, Interest and Late Charges, if any, converted and the dates of such conversion or
shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to
require physical surrender of this Note upon conversion.

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

               (d) Limitations on Conversions.

                    (i) Beneficial Ownership. The Company shall not effect any conversion of this Note,
and the Holder of this Note shall not have the right to convert any portion of this Note pursuant
to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”)
of the number of shares of Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned
by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without limitation, any
Other Notes or warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the

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Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended (the “1934 Act”). For purposes of this Section
3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form
10-K, Form 10-Q, Form 8-K or other public filing with the Securities Exchange Commission, as the
case may be (y) a more recent public announcement by the Company or (z) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For
any reason at any time, upon the written or oral request of the Holder, the Company shall within
one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of the Company,
including this Note, by the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may
increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99%
specified in such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder and not to any other holder of Notes.

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

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respective Exchange Cap Allocations of the remaining holders of Notes on a pro rata basis in
proportion to the aggregate principal amount of the Notes then held by each such holder.

          (4) RIGHTS UPON EVENT OF DEFAULT.

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

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

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

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

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

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

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

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

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

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

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

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

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

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determined by a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. The parties hereto agree that in the
event of the Company’s redemption of any portion of the Note under this Section 4(b), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’ inability to predict
future interest rates and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Redemption Premium due under this Section 4(b) is
intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual
loss of its investment opportunity and not as a penalty.

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

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

               (b) Redemption Right. (i) No sooner than fifteen (15) Trading Days nor later than
ten (10) Trading Days prior to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier to the Holder (a “Change of Control Notice”). At any time during
the period beginning after the Holder’s receipt of a Change of Control Notice and ending twenty
(20) Trading Days after the date of the consummation of such Change of Control, the Holder may
require the Company to redeem all or any portion of this Note by

10

 

delivering written notice thereof (“Change of Control Redemption Notice”) to the Company,
which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is
electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5
shall be redeemed by the Company in cash at a price equal to the greater of (i) 130% of the
Conversion Amount being redeemed and (ii) the product of (a) the Equity Value Redemption Premium
and (b) the product of (1) the Conversion Amount being redeemed multiplied by (2) the quotient
determined by dividing (I) the aggregate cash consideration and the aggregate cash value of any
non-cash consideration per Common Share to be paid to the holders of the Common Shares upon
consummation of the Change of Control (any such non-cash consideration consisting of marketable
securities to be valued at the higher of the Closing Sale Price of such securities as of the
Trading Day immediately prior to, the Closing Sale Price as of the Trading Day immediately
following the public announcement of such proposed Change of Control and the Closing Sale Price of
the Common Stock immediately prior to the public announcement of such proposed Change of Control)
by (y) the Conversion Price (the “Change of Control Redemption Price”). Redemptions required by
this Section 5 shall be made in accordance with the provisions of Section 14 and shall have
priority to payments to stockholders in connection with a Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to
Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section 5(b) (together with
any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. The parties hereto agree that in the event of the Company’s redemption of
any portion of the Note under this Section 5(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Change of Control redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.

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

11

 

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

                    (iii) Subject to Section 3(d), if the Successor Entity delivers a Successor Change of Control
Notice and elects a Successor Conversion in accordance with Section 5(b)(ii), then the applicable
Change of Control Redemption Price shall be converted by converting such Change of Control
Redemption Price at the Successor Conversion Price (A) on the date of the consummation of the
Change of Control if the Change of Control Redemption Notice is received prior to the consummation
of the Change of Control or (B) within five (5) Business Days after the Company’s receipt of such
Change of Control Redemption Notice otherwise (the “Change of Control Conversion Date”); provided
that the Equity Conditions have been satisfied (or waived in writing by the Holder). If the Equity
Conditions are not satisfied (or waived in writing by the Holder), then at the option of the Holder
designated in writing to the Company and the Successor Entity, the Holder may require the Company
to do any one or more of the following: (i) the Company shall redeem all or any part designated by
the Holder of the unconverted Successor Conversion Amount (such designated amount is referred to as
the “First Redemption Amount”) on the Change of Control Conversion Date and the Company shall pay
to the Holder on the Change of Control Conversion Date, by wire transfer of immediately available
funds, an amount in cash equal to 130% of such First Redemption Amount, and/or (ii) the Successor
Conversion shall be null and void with respect to all or any part designated by the Holder of the
unconverted Change of Control Redemption Price and the Holder shall be entitled to all the rights
of a holder of this Note with respect to such amount of the Change of Control Redemption Price;
provided, however, that the Conversion Price for such unconverted Change of Control
Redemption Price shall thereafter be adjusted to equal the lesser of (A) the Successor Conversion
Price as in effect on the date on which the Holder voided the Successor Conversion and (B) the
Successor Conversion Price that would be in effect as if the Change of Control was consummated on
the date on which the Holder delivers a Conversion Notice. If the Company fails to redeem any
First Redemption Amount on or before the Change of Control Conversion Date by payment of such
amount on the Change of Control Conversion

12

 

Date, then the Holder shall have the rights set forth in Section 14 (a) as if the Company
failed to pay the applicable Redemption Price and all other rights under this Note (including,
without limitation, such failure constituting an Event of Default described in Section 4(a)).
Notwithstanding anything to the contrary in this Section 5(b)(iii), but subject to 3(d), until the
Company or the Successor Entity, as applicable, delivers the Change of Control Redemption Price to
the Holder, the Change of Control Redemption Price may be converted by the Holder into Common Stock
pursuant to Section 3. Notwithstanding the foregoing, if the Change of Control Conversion Date
occurs after the consummation of the Change of Control, the Successor Entity shall be obligated, in
lieu of the Company, to deliver the Change of Control Redemption Price, whether by delivery of the
Successor Conversion Amount at the Successor Conversion Price or by delivery of the Change of
Control Redemption Amount.

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

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

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

          (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

13

 

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

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

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

14

 

Price had been or are to be made pursuant to other provisions of this Section 7(a), no
further adjustment of the Conversion Price shall be made by reason of such issue or sale.

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

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

15

 

                    (v) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (A) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.

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

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

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

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

16

 

the Company shall file a Current Report on Form 8-K describing the terms of the applicable
Holder Optional Redemption.

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

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

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

17

 

transfer of immediately available funds, an amount in cash equal to 125% of such Holder
Designated Redemption Amount, and/or (B) the Holder Optional Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Holder Optional Conversion
Amount and the Holder shall be entitled to all the rights of a holder of this Note with respect to
such amount of the Holder Optional Conversion Amount; provided, however, that the Conversion Price
for such unconverted Holder Optional Conversion Amount shall thereafter be adjusted to equal the
lowest the Optional Conversion Price as in effect during the period beginning on the date on which
the Holder voided the Holder Optional Conversion and ending on the date on which the Holder
delivers a Conversion Notice relating thereto. If the Company fails to redeem the Holder
Designated Redemption Amount on or before the Holder Optional Conversion/Redemption Date by payment
of such amount on such Holder Optional Conversion/Redemption Date then the Holder shall have the
rights set forth in Section 14(a) as if the Company failed to pay the applicable Holder Optional
Redemption Price and all other rights under this Note (including, without limitation, such failure
constituting an Event of Default described in Section 4(a)(v)).

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

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

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

          (12) RESERVATION OF AUTHORIZED SHARES.

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

18

 

reserved shares, as the case may be (the “Authorized Share Allocation”). In the event that a
holder shall sell or otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common
Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the
remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such
holders.

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

          (13) HOLDER’S REDEMPTIONS.

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

19

 

redeemed together with accrued and unpaid Interest with respect to such Conversion Amount and
accrued and unpaid Late Charges with respect to such Conversion Amount and Interest and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the applicable Redemption Notice is voided and
(B) the lowest Closing Bid Price of the Common Stock during the period beginning on and including
the date on which the applicable Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Redemption Notice is voided. The Holder’s delivery of a
notice voiding a Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which have accrued prior to
the date of such notice with respect to the Conversion Amount subject to such notice.

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

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

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

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

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

               (c) Existence of Liens. The Company shall not, and the Company shall not permit any
of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property or

20

 

assets (including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, “Liens”) other than Permitted Liens.

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

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

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

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

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

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

          (19) REISSUANCE OF THIS NOTE.

               (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note
to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder
a new Note (in accordance with Section 20(d)), registered as the Holder may request, representing
the outstanding Principal being transferred by the Holder and, if less then the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 20(d)) to the Holder
representing the outstanding Principal not being transferred. The

21

 

Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note,
the outstanding Principal represented by this Note may be less than the Principal stated on the
face of this Note.

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

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

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

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

22

 

          (21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed
in the hands of an attorney for collection or enforcement or is collected or enforced through any
legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’ rights and involving
a claim under this Note, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

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

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

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

          (25) NOTICES; PAYMENTS.

               (a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section 10(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of the

23

 

Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B)
with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

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

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

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

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

24

 

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

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

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

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

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

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

               (e) “Bloomberg” means Bloomberg Financial Markets.

25

 

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

               (g) “Calendar Quarter” means each of: the period beginning on and including January 1 and
ending on and including March 31; the period beginning on and including April 1 and ending on and
including June 30; the period beginning on and including July 1 and ending on and including
September 30; and the period beginning on and including October 1 and ending on and including
December 31.

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

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

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

26

 

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

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

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

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

27

 

without restriction or limitation, including without the requirement to be subject to Rule
144(c)(1) and any applicable state securities laws; (viii) the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant, representation or warranty of
any Transaction Document and (ix) if required by the terms of the Securities Purchase Agreement,
the Company shall have obtained the Stockholder Approval on or before the applicable Stockholder
Meeting Deadline.

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

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

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

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

28

 

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

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

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

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

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

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

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

29

 

               (z) “Optional Conversion Price” means, the lower of (i) the applicable Conversion Price and
(ii) that price which shall be computed as 90% of the Average Market Price ending on the Trading
Day immediately prior to the Optional Conversion/Redemption Date. All such determinations shall be
appropriately adjusted for any stock split, stock dividend, stock combination during or other
similar transaction that proportionately decreases or increases the price of the Common Stock
during the applicable period during which the Average Market Price is calculated.

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

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

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

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

30

 

such equipment, or (B) existing on such equipment at the time of its acquisition, provided
that the Lien is confined solely to the property so acquired and improvements thereon, and the
proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clauses (i) and (iv)
above, provided that any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses
granted to others in the ordinary course of the Company’s business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in
favor of customs and revenue authorities arising as a matter of law to secure payments of custom
duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under Section 4(a)(ix), (ix)
Liens securing the Company’s obligations under the Notes, (x) Liens securing the Company’s
obligations under the Amended and Restated Exchanged Notes.

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

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

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

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

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

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

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

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

               (mm) “Successor Conversion Price” means, (i) on or prior to the consummation of the Change of
Control, the lower of (A) the applicable Conversion Price and (B) that price which shall be
computed as 90% of the Average Market Price of the Common Stock of the Company immediately
preceding the consummation of the applicable Change of Control and (ii) after the consummation of
the Change of Control, 90% of the lesser of the Average Market Price of the Successor Entities
common stock on (A) the time of the

31

 

consummation of the Change of Control and (B) the date the Change of Control Redemption Notice
is delivered by the applicable Holder. All such determinations to be appropriately adjusted for
any stock split, stock dividend, stock combination or other similar transaction that
proportionately decreases or increases the Successor’s common stock during the applicable measuring
period.

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

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

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

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

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

               (ss) “Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during the period beginning
at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is
the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading) as reported by Bloomberg
through its “Volume at Price” functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of trading), and ending at
4:00:00 p.m., New York Time (or such other time as such market publicly

32

 

announces is the official close of trading) as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for such hours, the
average of the highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 25. All such determinations are to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.

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

[Signature Page Follows]

33

 

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

	 	 	 	 	 
	 	Stinger Systems, Inc.

 	 
	 	By:  	/s/ Robert Gruder
 	 
	 	 	Name:  	Rober Gruder 	 
	 	 	Title:  	CEOEX-10.4

EXHIBIT 10.4

WARRANT

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.

Stinger Systems, Inc.

Warrant To Purchase Common Stock

Warrant No.: 2009-1

Number of Shares of Common Stock: 2,187,500

Date of Issuance: July 14, 2009 (“Issuance Date”)

          Stinger Systems, Inc., a Nevada corporation, (the “Company”), hereby certifies that, for good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
CASTLERIGG MASTER INVESTMENTS LTD., the registered holder hereof or its permitted assigns (the
“Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common
Stock (including any Warrants to purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof, but not after 11:59 p.m.,
New York time, on the Expiration Date (as defined below), two million one hundred eighty-seven
thousand five hundred (2,187,500) fully paid nonassessable shares of Common Stock (as defined
below) (the “Warrant Shares”) calculated in accordance with the Purchase Formula (as defined below). Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section 16. The number of Warrant Shares obtainable by the Holder
under this Warrant shall be limited to the aggregate amount of the Advance (as defined in the SPA Securities) multiplied by One Hundred Twenty-Five Percent (125%) divided by the
Exercise Price in effect at the time of the purchase (the “Purchase Formula”). This Warrant is one of an issue of Warrants to Purchase
Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated
as of July 14, 2009, by and between the Buyers (as defined in the Securities Purchase Agreement) and the Company (the “Securities Purchase Amendment”).

          1. EXERCISE OF WARRANT.

               (a) Mechanics of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof in whole or in part, by (i) delivery

 

 

of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”),
of the Holder’s election to exercise this Warrant and (ii) (A) payment to the Company of an amount
equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the “Aggregate Exercise Price”) in cash or wire transfer of immediately
available funds or (B) by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). 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 with respect to less than all of the Warrant Shares 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. On or before the first Business Day following the date on
which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (or
notice of a Cashless Exercise) (the “Exercise Delivery Documents”), the Company shall transmit by
facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the
Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third Trading Day
following the date on which the Company has received all of the Exercise Delivery Documents (the
“Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in
The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request
of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, deliver to be received no
later than the Share Delivery Date, to the address as specified in the Exercise Notice, a
certificate, registered in the Company’s share register in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.
Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii)(A)
above or notification to the Company of a Cashless Exercise referred to in Section 1(d), the Holder
shall be deemed for all corporate purposes to have become the holder of record of the Warrant
Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by
this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired
upon an exercise, then the Company shall as soon as practicable and in no event later than three
Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of Warrant Shares with
respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued
upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued
shall be rounded up to the nearest whole number. The Company shall pay any and all taxes which may
be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.

               (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.20,
subject to adjustment as provided herein.

               (c) Company’s Failure to Timely Deliver Securities. If the Company shall fail for any
reason or for no reason to issue to the Holder within three (3) Trading Days of

2

 

receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common
Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s
share register or to credit the Holder’s balance account with DTC for such number of shares of
Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, then, in
addition to all other remedies available to the Holder, the Company shall pay in cash to the Holder
on each day after such third Trading Day that the issuance of such shares of Common Stock is not
timely effected an amount equal to 1.5% of the product of (A) the sum of the number of shares of
Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled and (B)
the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding the
last possible date which the Company could have issued such shares of Common Stock to the Holder
without violating Section 1(a). In addition, if within three (3) Trading Days after the Company’s
receipt of the facsimile copy of a Exercise Notice the Company shall fail to issue and deliver a
certificate to the Holder and register such shares of Common Stock on the Company’s share register
or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which
the Holder is entitled upon such Holder’s exercise hereunder, and if on or after such Trading Day
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 shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
three Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash
to the Holder in 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 shares of Common
Stock) or credit such Holder’s balance account with DTC shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such shares of
Common Stock or credit such Holder’s balance account with DTC 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
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.

               (d) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
a registration statement covering the resale of the Warrant Shares that are the subject of the
Exercise Notice (the “Unavailable Warrant Shares”) is not available for the resale of such
Unavailable 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.

3

 

          B= the Closing Sale Price of the shares of Common Stock (as reported by Bloomberg) on the date
immediately preceding the date of the Exercise Notice.

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

               (e) Disputes. In the case of a dispute as to the determination of the Exercise Price
or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder
the number of Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.

               (f) Limitations on Exercises. The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person’s affiliates) would
beneficially own in excess of 9.99% (the “Maximum Percentage”) of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and (B) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without limitation, any
convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For
purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the
Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with
the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement
by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the
number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including the SPA Securities and the SPA Warrants, by the
Holder and its affiliates since the date as of which such number of outstanding shares of Common
Stock was reported. By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice;
provided that (i) any such increase will not be effective until the sixty-first (61st)
day after such notice is delivered to the Company, and (ii) any such increase or decrease will
apply only to the Holder and not to any other holder of SPA Warrants. The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 1(f) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to such limitation.

4

 

          2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and
the number of Warrant Shares shall be adjusted from time to time as follows:

               (a) Adjustment upon Issuance of shares of Common Stock. If and whenever on or after
the Subscription Date the Company issues or sells, or in accordance with this Section 2 is deemed
to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded Securities) for a
consideration per share (the “New Issuance Price”) less than the Exercise Price (the “Applicable
Price”) in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing
a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in
effect shall be reduced to an amount equal to the New Issuance Price. Upon each such adjustment of
the Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the number of
shares of Common Stock determined by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment. For purposes of determining the adjusted Exercise Price under this
Section 2(a), the following shall be applicable:

     (i) Issuance of Options. If the Company in any manner grants
any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by
the Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the “lowest price
per share for which one share of Common Stock is issuable upon exercise of
such Options or upon conversion, exercise or exchange of such Convertible
Securities issuable upon exercise of any such Options” shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon the
granting or sale of the Option, upon exercise of the Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Exercise Price or
number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise
of such Options or upon the actual issuance of such shares of Common Stock
upon conversion, exercise or exchange of such Convertible Securities.

     (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price,

5

 

then such share of Common Stock shall be deemed to be outstanding and
to have been issued and sold by the Company at the time of the issuance or
sale of such Convertible Securities for such price per share. For the
purposes of this Section 2(a)(ii), the “lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange
thereof” shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to one share of
Common Stock upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares shall be made
upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities, and if any such issue
or sale of such Convertible Securities is made upon exercise of any Options
for which adjustment of this Warrant has been or is to be made pursuant to
other provisions of this Section 2(a), no further adjustment of the Exercise
Price or number of Warrant Shares shall be made by reason of such issue or
sale.

     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be,
at the time initially granted, issued or sold. For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security that were
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the shares of Common Stock
deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a)(iii) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect
or a decrease in the number of Warrant Shares.

     (iv) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for a consideration of $0.01. If
any shares of Common Stock, Options or Convertible Securities

6

 

are issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net amount received
by the Company therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than
cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists
of publicly traded securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such security on
the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other
than cash or publicly traded securities will be determined jointly by the
Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth day following
the Valuation Event by an independent, reputable appraiser jointly selected
by the Company and the Required Holders. The determination of such
appraiser shall be final and binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the Company.

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

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

               (b) Adjustment upon Subdivision or Combination of shares of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect

7

 

immediately prior to such subdivision will be proportionately reduced and the number of
Warrant Shares will be proportionately increased. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination will be proportionately increased and the number of
Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or combination becomes
effective.

               (c) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 2 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise Price or decrease
the number of Warrant Shares as otherwise determined pursuant to this Section 2.

          3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares
of Common Stock, by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a dividend, spin
off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

               (a) any Exercise Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good faith by the Company’s
Board of Directors) applicable to one share of Common Stock, and (ii) the denominator shall be the
Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such
record date; and

               (b) the number of Warrant Shares shall be increased to a number of shares equal to the number
of shares of Common Stock obtainable immediately prior to the close of business on the record date
fixed for the determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding
paragraph (a); provided that in the event that the Distribution is of shares of common stock
(“Other Shares of Common Stock”) of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder may elect to receive
a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except that such warrant
shall be exercisable into the number of shares of Other Shares of Common Stock that would have been
payable to the Holder pursuant to the Distribution had

8

 

the Holder exercised this Warrant immediately prior to such record date and with an aggregate
exercise price equal to the product of the amount by which the exercise price of this Warrant was
decreased with respect to the Distribution pursuant to the terms of the immediately preceding
paragraph (a) and the number of Warrant Shares calculated in accordance with the first part of this
paragraph (b).

          4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

               (a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if
at any time the Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record holders of any class
of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations on the exercise of this
Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

               (b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i)  the Successor Entity assumes in writing all of the obligations
of the Company under this Warrant and the other Transaction Documents in accordance with the
provisions of this Section (4)(b) pursuant to written agreements in form and substance satisfactory
to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Warrants in exchange for such Warrants a security
of the Successor Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant, including, without limitation, an adjusted exercise price equal to the
value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (ii) the Successor Entity (including its Parent Entity) is
a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to,
and be substituted for (so that from and after the date of such Fundamental Transaction, the
provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of the obligations of
the Company under this Warrant with the same effect as if such Successor Entity had been named as
the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or subscription rights) which
the Holder would have been entitled to receive upon the happening of such Fundamental Transaction

9

 

had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted
in accordance with the provisions of this Warrant. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash,
assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had the Warrant been
exercised immediately prior to such Fundamental Transaction. Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory to the Required
Holders. The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.

               (c) Notwithstanding the foregoing and the provisions of Section 4(b) above, in the event of a
Fundamental Transaction, at the request of the Holder delivered before the 90th day after such
Fundamental Transaction, the Holder shall have the right to require the Company (or the Successor
Entity), to purchase this Warrant from the Holder by paying to the Holder, within five (5) Business
Days after such request (or, if later, on the effective date of the Fundamental Transaction), in
lieu of the warrant referred to in Section 4(b), 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 and Scholes Option Pricing Model as obtained from the
“OV” function on Bloomberg determined as of the day of closing of the applicable Fundamental
Transaction for pricing purposes 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 100% and the 100 day volatility
obtained from the HVT function on Bloomberg as of the day immediately following the public
announcement of the applicable Fundamental Transaction.

          5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided
herein, 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 shareholder
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, 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 shareholder of the Company, whether such liabilities
are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the
Company shall provide the

10

 

Holder with copies of the same notices and other information given to the shareholders of the
Company generally, contemporaneously with the giving thereof to the shareholders.

          6. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will
not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, and will at all times in good faith carry out all the provisions of this
Warrant and take all action as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) shall not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then
in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take
all action necessary to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, 130% of the
number of shares of Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on exercise).

          7. REISSUANCE OF WARRANTS.

               (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder
may request, representing the right to purchase the number of Warrant Shares being transferred by
the Holder and, if less then the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the
right to purchase the number of Warrant Shares not being transferred.

               (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying
this Warrant.

               (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the
right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of
such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be
given.

11

 

               (d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant
pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this
Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants issued in
connection with such issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is
the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

          8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at
least fifteen days prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to
any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

          9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this
Warrant may be amended and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained the written consent
of the Required Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon exercise of any SPA
Warrant without the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then outstanding.

          10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in
accordance with, and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

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

12

 

          12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two Business Days of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within two Business
Days submit via facsimile (a) the disputed determination of the Exercise Price 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 Business Days from the time it receives the disputed determinations or calculations.
Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be
binding upon all parties absent demonstrable error.

13

 

          13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant and the other Transaction Documents, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall limit the right of
the Holder right to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach or threatened
breach, the holder of this Warrant shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing economic loss and without
any bond or other security being required.

          14. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by Section 2(g) of the
Securities Purchase Agreement.

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

          16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have
the following meanings:

               (a) “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, consultant, officer or director for services provided to the Company.

               (b) “Bloomberg” means Bloomberg Financial Markets.

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

               (d) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market

14

 

begins to operate on an extended hours basis and does not designate the closing bid price or
the closing trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or,
if the Principal Market is not the principal securities exchange or trading market for such
security, the last closing bid price or last trade price, respectively, of such security on the
principal securities exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask
prices, respectively, of any market makers for such security as reported in the “pink sheets” by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on
such date shall be the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 12. All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.

               (e) “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share,
and (ii) any share capital into which such Common Stock shall have been changed or any share
capital resulting from a reclassification of such Common Stock.

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

               (g) “Eligible Market” means the Principal Market, the American Stock Exchange, The New York
Stock Exchange, Inc., The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ
Capital Market.

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

               (i) “Expiration Date” means the date five years after the Subscription Date.

               (j) “Fundamental Transaction” means that the Company shall directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the

15

 

Company to another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50% of either the outstanding
shares of Common Stock (not including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme
of arrangement) with another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock held by the other
Person or other Persons making or party to, or associated or affiliated with the other Persons
making or party to, such stock purchase agreement or other business combination), or (v)
reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act), become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

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

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

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

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

               (o) “Required Holders” means the holders of the SPA Warrants representing at least a majority
of shares of Common Stock underlying the SPA Warrants then outstanding.

               (p) “Securities Purchase Agreement” means that certain securities purchase agreement dated as
of the Subscription Date by and among the Company and the initial holders of the Warrants pursuant
to which the Company issued, among other things, the Warrants, as amended from time to time in
accordance with its terms.

               (q) “SPA Securities” means the Notes issued pursuant to the Securities Purchase Agreement, as
amended from time to time in accordance with its terms.

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

               (s) “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent
Entity) formed by, resulting from or surviving any Fundamental

16

 

Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with
which such Fundamental Transaction shall have been entered into.

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

[Signature Page Follows]

17

 

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

	 	 	 	 	 
	 

	STINGER SYSTEMS, INC.	 	 
	 
	 	 	 	 
	 

	 	By: /s/ Robert Gruder	 	 
	 

	 	 

Name: Robert Gruder
	 	 
	 

	 	Title: CEO

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