Document:

Filed by Bowne Pure Compliance

Exhibit 4.4

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of June 30, 2006
among Pure Earth, Inc., a Delaware corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively the “Purchasers”).

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

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

ARTICLE I.

DEFINITIONS

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

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

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

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

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

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

 

 

 

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $.001 per
share, and any other class of securities into which such securities may hereafter be
reclassified or changed into.

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

“Company Counsel” means Blank Rome LLP.

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

“Debentures” means, the 9% Secured Convertible Debentures due, subject to the
terms therein, 2 years from their date of issuance, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A hereto.

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

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

“Escrow Agent” means Signature Bank, a New York State chartered bank and having
an office at, 261 Madison Avenue, New York, New York 10016.

“Escrow Agreement” shall mean the Escrow Agreement, entered into prior to the
date hereof, by and among vFinance, the Company and the Escrow Agent pursuant to which the
Purchasers, prior to the date hereof, deposited Subscription Amounts with the Escrow Agent
to be applied to the transactions contemplated hereunder.

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

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

 

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“Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any stock, option or other
equity incentive plan duly adopted by the Board of Directors and stockholders of the
Company, (b) securities issued upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise, exchange or
conversion price of any such securities, (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested directors, provided any
such issuance shall only be to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in securities and (d)
for purposes of Sections 4.13 only and with the prior written consent of the
placement agent, up to an amount of debentures and warrants equal to the difference between
$7,800,000 and the aggregate Subscription Amounts hereunder, on substantially the same terms
and conditions hereunder, which investors shall execute definitive agreements for the
purchase of such securities and such transactions shall have closed on or before the date
the Registration Statement is initially filed with the Commission.

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

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

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

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

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

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

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

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

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

 

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

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.13.

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

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

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

“Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.

“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of
 shares of Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Debentures (including Underlying Shares issuable as payment of
interest), ignoring any conversion or exercise limits set forth therein, and assuming that
the Conversion Price is at all times on and after the date of determination 80% of the then
Conversion Price on the Trading Day immediately prior to the date of determination.

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

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

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

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

 

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

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

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

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

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

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

“Transaction Documents” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement, the Security Agreement, the Security Documents, the Escrow
Agreement and any other documents or agreements executed in connection with the transactions
contemplated hereunder.

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Debentures and upon exercise of the Warrants and issued and
issuable in lieu of the cash payment of interest on the Debentures in accordance with the
terms of the Debentures.

“vFinance” shall mean vFinance Investments, Inc., the placement agent for the
transaction.

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02
p.m. New York City time); (b) if the Common Stock is not then listed or quoted on the OTC
Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent
bid price per share of the Common Stock so reported; or (c) in all other cases, the
fair market value of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to the Company.

 

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“Warrants” means collectively the Common Stock purchase warrants, in the form
of Exhibit C delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise
equal to 5 years.

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

ARTICLE II.

PURCHASE AND SALE

2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and each Purchaser agrees to purchase in the aggregate,
severally and not jointly, up to $800,000 principal amount of the Debentures. Each Purchaser shall
deliver to the Escrow Agent via wire transfer or a certified check immediately available funds
equal to their Subscription Amount and the Company shall deliver to each Purchaser their respective
Debenture and Warrants as determined pursuant to Section 2.2(a) and the other items set forth in
Section 2.2 issuable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2
and 2.3, the Closing shall occur at the offices of FWS, or such other location as the parties shall
mutually agree.

2.2 Deliveries.

(a) On the Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:

(i) this Agreement duly executed by the Company;

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

(iii) a Debenture with a principal amount equal to such Purchaser’s
Subscription Amount, registered in the name of such Purchaser;

(iv) a Warrant registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 100% of such Purchaser’s Subscription
Amount divided by the initial Conversion Price, with an exercise price equal to
$4.50, subject to adjustment therein;

(v) Lock-up Agreements in the form of Exhibit E hereto from each officer,
director and greater than 5% shareholder of the Company; and

 

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

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

(i) this Agreement duly executed by such Purchaser;

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

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

2.3 Closing Conditions.

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

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

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

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

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

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

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

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

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

 

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(v) from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to the
Closing Date, trading in securities generally as reported by Bloomberg L.P. shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of each Purchaser,
makes it impracticable or inadvisable to purchase the Debentures at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

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

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

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

 

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

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the other transactions
contemplated hereby and thereby do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject (including federal
and state securities laws and regulations), or by which any property or asset of the Company
or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii),
such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

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(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by the Company of
the Transaction Documents, other than (i) filings required pursuant to Section 4.6, (ii) the
filing with the Commission of the Registration Statement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale of the Securities
and the listing of the Underlying Shares for trading thereon in the time and manner required
thereby and (iv) the filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws (collectively, the “Required
Approvals”).

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

(g) Capitalization. The issued and outstanding capitalization of the Company
immediately prior to the Closing is as set forth on Schedule 3.1(g). The Company
has not issued any capital stock other than as set forth on Schedule 3.1(g). No Person
has any right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction Documents. Except
as a result of the purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of
Common Stock, or contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s capital stock to
which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders. A complete list of
stockholders of record, with their shareholdings immediately prior to the Closing, is
included in Schedule 3.1(g).

 

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(h) Financial Statements. The audited financial statements of the Company and
its Subsidiairies for the past two fiscal years and its most recent fiscal quarter are
attached hereto as Schedule 3.1(h). Such financial statements of the Company comply
in all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect as of the date hereof. Such
financial statements have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”), except as may be otherwise specified in such financial statements or the
notes thereto and except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

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

 

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(j)
Litigation. Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state securities laws
or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. The Commission has
not issued any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the Securities
Act.

(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect. Except as set forth on
Schedule 3.1(k), none of the Company’s or its Subsidiaries’ employees is a member of
a union that relates to such employee’s relationship with the Company, and neither the
Company or any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their employees are good.
Schedule 3.1(k) sets forth: (i) each union with which the Company or any Subsidiary has a
collective bargaining agreement and the number of employees covered by each such agreement
as of a recent date, (ii) the current term of each such agreement, (iii) the current status
of any negotiations to amend, extend or negotiate a new collective bargaining agreement,
(iv) whether the entity subject to such collective bargaining agreement has been subject to
any strike or other organized work stoppage in the last 5 calendar years, (v) a summary list
of grievances filed under each agreement in the last 24 months, and (vi) whether the entity
subject to such collective bargaining agreement is subject to any order, decree or is a
participant in any ongoing proceeding of the United States Department of Labor, National
Labor Relations Board or other governmental agency respecting such collective bargaining
agreement, and if so, the particulars thereof. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and wages and hours,
except where the failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Schedule 3.1(k), the Company is not a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or agreement. To the
Company’s knowledge, no employee of the Company, nor any consultant with whom the Company
has contracted, is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the business to be
conducted by the Company; and to the Company’s knowledge the continued employment by the
Company of its present employees, and the performance of the Company’s contracts with its
independent contractors, will not result in any such violation. The Company has not
received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination of
employment with the Company. The Company is not aware that any officer, key employee or
group of employees intends to terminate his, her or their employment with the Company nor
does the Company have a present intention to terminate the employment of any officer, key
employee or group of employees.

 

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(l)
Compliance. Except as set forth on Schedule 3.1(1), neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws applicable to its business and
all such laws that affect the environment, except in each case as could not have or
reasonably be expected to result in a Material Adverse Effect.

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

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

(o) Intellectual Property.

(i) The Company and the Subsidiaries have, or have rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights necessary or material for use in connection with their
respective business and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). Neither the
Company nor any Subsidiary has received a notice (written or otherwise) that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing infringement
by another Person of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

13

 

(ii) Agreements. Neither the Company nor its Subsidiaries has paid
or received any royalties. Further, neither the Company nor its
Subsidiaries has any contracts relating to the Intellectual Property Rights
to which the Company or any Subsidiary is a party or by which the Company or
any Subsidiary is bound, except for any license implied by the sale of a
product and perpetual, paid-up licenses for commonly available software
programs with a value of less than $5,000 under which the Company or any
Subsidiary is the licensee.

(iii) Know-How Necessary for the Business. The Intellectual
Property Rights are all those necessary for the operation of the Company’s
businesses as it is currently conducted or as reflected in the business plan
given to the Purchaser. The Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Rights, free and clear
of all liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without payment to a third party
all of the Intellectual Property Rights. Neither the Company nor any
Subsidiary has received a written notice that the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person. Except as set forth in Schedule 3.1(o), all
former and current employees of the Company have executed written contracts
with the Company that assign to the Company all rights to any inventions,
improvements, discoveries, or information relating to the business of the
Company. No employee of the Company has entered into any contract that
restricts or limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than the Company.

 

14

 

(iv) Trade Secrets. As used herein, “Trade Secrets” means all know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, “Trade Secrets”); owned, used, or licensed by the
Company or any Subsidiary as licensee or licensor. With respect to each Trade Secret, the
documentation relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the knowledge or memory of any
individual. The Company has taken all reasonable precautions to protect the
secrecy, confidentiality, and value of its Trade Secrets. The Company has
good title and an absolute (but not necessarily exclusive) right to use the
Trade Secrets. The Trade Secrets are not part of the public knowledge or
literature, and, to the Company’s knowledge, have not been used, divulged,
or appropriated either for the benefit of any Person (other the Company) or
to the detriment of the Company. No Trade Secret is subject to any adverse
claim or has been challenged or threatened in any way.

(p)
Insurance. Except as set forth in Schedule 3.1(e), the Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance coverage at least
equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.

(q) Transactions With Affiliates and Employees. Except as set forth on
Schedule 3.1(q), none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or personal property
to or from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer, director, trustee or partner,
in each case in excess of $60,000 other than (i) for payment of salary or consulting fees
for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any stock option
plan of the Company.

 

15

 

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

(s) Certain Fees. Other than fees payable to vFinance as set forth on
Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payable
by the Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated by the Transaction Documents.

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

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

 

16

 

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

(w) [RESERVED].

(x)
Application of Takeover Protections. There is no control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.

(y) Disclosure. Other than Purchasers that have executed a written
confidentiality agreement, except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms that neither it
nor any other Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that it believes constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the Purchasers will rely
on the foregoing representation in effecting transactions in securities of the Company. All
disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Disclosure Schedules to
this Agreement, with respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3.2 hereof.

(z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable shareholder
approval provision of any Trading Market on which any of the securities of the Company are
listed or designated.

 

17

 

(aa) Solvency. Based on the financial condition of the Company as of the
Closing Date after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the
amount that will be required to be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its business as
now conducted and as proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof; and (iii) the current cash
flow of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of the cash,
would be sufficient to pay all amounts on or in respect of its liabilities when such amounts
are required to be paid. The Company does not intend to incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts of cash to be
payable on or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 3.1(aa) sets forth as of the dates thereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in
excess of $10,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $10,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.

(bb) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material
Adverse Effect, or as set forth on Schedule 3.1(bb), the
Company and each Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been asserted or threatened against
the Company or any Subsidiary.

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

 

18

 

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

(ee) Accountants. The name of the Company’s accountants are set forth on
Schedule 3.1(ee) of the Disclosure Schedule. To the knowledge of the Company, such
accountants, who the Company expects will express their opinion with respect to the
financial statements to be included in the Registration Statement are a registered public
accounting firm as required by the Securities Act.

(ff) Seniority. Except as set forth on Schedule 3.1(ff), as of the
Closing Date, no Indebtedness or other claim against the Company is senior to the Debentures
in right of payment, whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).

(gg) No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to arise, between
the Company and the accountants and lawyers formerly or presently employed by the Company
and the Company is current with respect to any fees owed to its accountants and lawyers.

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

 

19

 

(ii) Acknowledgement Regarding Purchasers’ Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f)
and 4.16 hereof), it is understood and acknowledged by the Company (i) that none of the
Purchasers have been asked by the Company to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of the
Company, or “derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market or other
transactions by any Purchaser, including Short Sales, and specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the closing of this or
future private placement transactions, may negatively impact the market price of the
Company’s publicly-traded securities; (iii) that any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or indirectly,
presently may have a “short” position in the Common Stock, and (iv) that each Purchaser
shall not be deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging activities at various
times during the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Underlying Shares deliverable with respect to
Securities are being determined and (b) such hedging activities (if any) could reduce the
value of the existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the Transaction
Documents.

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

(kk) Manufacturing and Marketing Rights. The Company has not granted rights to
manufacture, produce, assemble, license, market, or sell its products to any other Person
and is not bound by any agreement that affects the Company’s exclusive right to develop,
manufacture, assemble, distribute, market or sell its products.

(ll) Obligations of Management. Each officer and key employee of the Company is
currently devoting substantially all of his or her business time to the conduct of business
of the Company. The Company is not aware that any officer or key employee of the Company is
planning to work less than full time at the Company in the future. No officer or key
employee is the currently working or, to the Company’s knowledge, plans to work for an
enterprise competitive with the Company, whether or not such officer of key employee is or
will be compensated by such enterprise.

(mm) Environmental and Safety Laws.

 

20

 

(i) The Company is, and at all times has been, in full compliance with, and
has not been and is not in violation of or liable under, any Environmental
Law. The Company has no basis to expect, nor has it or any other Person for
whose conduct it is or may be held to be responsible received, any actual or
threatened order, notice, or other communication from (i) any governmental
body or private citizen acting in the public interest, or (ii) the current
or prior owner or operator of any facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual
or threatened obligation to undertake or bear the cost of any environmental,
health, and safety liabilities with respect to any of the facilities or any
other properties or assets (whether real, personal, or mixed) in which the
Company has had an interest, or with respect to any property or facility at
or to which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, or processed by the Company, or any other
Person for whose conduct it are or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.

(ii) Except as set forth on Schedule 3.1(mm), there are no pending
or, to the knowledge of the Company, threatened claims, encumbrances, or
other restrictions of any nature, resulting from any environmental, health,
and safety liabilities or arising under or pursuant to any Environmental
Law, with respect to or affecting any of the facilities or any other
properties and assets (whether real, personal, or mixed) in which the
Company has or had an interest.

(iii) The Company has no knowledge of any basis to expect, nor has it or any
other Person for whose conduct it is or may be held responsible, received,
any citation, directive, inquiry, notice, order, summons, warning, or other
communication that relates to Hazardous Materials, or any alleged, actual,
or potential violation or failure to comply with any Environmental Law, or
of any alleged, actual, or potential obligation to undertake or bear the
cost of any environmental, health, and safety liabilities with respect to
any of the facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company had an interest, or with respect to
any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by the
Company, or any other Person for whose conduct it is or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.

 

21

 

(iv) Neither the Company nor any other Person for whose conduct it is or may
be held responsible, had any environmental, health, and safety liabilities
with respect to the facilities or, to the knowledge of the
Company, with respect to any other properties and assets (whether real,
personal, or mixed) in which the Company (or any predecessor), has or had an
interest, or at any property geologically or hydrologically adjoining the
facilities or any such other property or assets.

(v) Except as set forth on Schedule 3.1(mm), there are no Hazardous
Materials present on or in the environment at the facilities or at any
geologically or hydrologically adjoining property, including any Hazardous
Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or
other containers, either temporary or permanent, and deposited or located in
land, water, sumps, or any other part of the facilities or such adjoining
property, or incorporated into any structure therein or thereon. Neither the
Company nor any other Person for whose conduct it is or may be held
responsible, or to the knowledge of the Company, any other Person, has
permitted or conducted, or is aware of, any hazardous activity conducted
with respect to the facilities or any other properties or assets (whether
real, personal, or mixed) in which the Company has or had an interest except
in full compliance with all applicable Environmental Laws.

(vi) There has been no release or, to the knowledge of the Company, threat
of release, of any Hazardous Materials at or from the facilities or at any
other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the
facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which the Company has or had an interest, or to the
knowledge of the Company any geologically or hydrologically adjoining
property, whether by the Company, or any other Person.

(vii) The Company has delivered to the Purchasers true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by the Company pertaining to Hazardous Materials in,
on, or under the facilities, or concerning compliance by the Company, or any
other Person for whose conduct they are or may be held responsible, with
Environmental Laws.

(viii) For the purpose of this Section, Hazardous Material shall mean (i)
materials which are listed or otherwise defined as “hazardous” or “toxic”
under any applicable federal, local or stated and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control
of the hazardous wastes, or other activities involving hazardous substances,
including building materials or (b) petroleum products or nuclear materials.

 

22

 

(ix) For the purpose of this Section, “Environmental Law” shall mean any
applicable statute, law or regulation relating to the environment,
including, without limitation, statutes, laws or regulations relating to:

	 	1.	 	advising appropriate authorities,
employees, and the public intended or actual releases of pollutants
or hazardous substances or material, violations of discharge limits,
or other prohibitions and of the commencements of activities, such
as resource extraction or construction, that could have significant
impact on the environment;

	 
	 	2.	 	preventing or reducing to acceptable
levels the release of pollutants or hazardous substances or
materials into the environment;

	 
	 	3.	 	reducing the quantities, preventing the
release, or minimizing the hazardous characteristic of waste that
are generated;

	 
	 	4.	 	assuring that products are designed,
formulated, packaged, and used so that they do not present
unreasonable risks to human health or the environment when used or
disposed of;

	 
	 	5.	 	protecting resources, species or
ecological amenities;

	 
	 	6.	 	reducing to acceptable levels the risk
inherent in the transportation of hazardous substances, pollutants,
oil or other potentially harmful substances;

	 
	 	7.	 	cleaning up pollutants that have been
released, preventing the threat of release or paying the costs of
such clean up or prevention; or

	 
	 	8.	 	making responsible parties pay private
parties, or groups of them, for damages done to their health or to
the environment, or permitting self appointed representatives of the
public interest to recover for injuries done to public assets.

(nn) Minute Books. The minute books of the Company made available to the
Purchasers contain a complete summary of all meetings of directors and stockholders since
the time of incorporation.

(oo) Elections. To the Company’s knowledge, all elections and notices
permitted by Section 83(b) of the Code and any analogous provisions of applicable state tax
laws have been timely filed by all employees who have purchased shares of the Common Stock
under agreements that provide for the vesting of such shares of Common Stock.

 

23

 

(pp) Accounts Receivable.
Section 3.1(pp) sets forth any material accounts receivable of the Company and its Subsidiaries.

(qq) Inventory. All inventory of the Company and the Subsidiaries, whether or
not reflected in the balance sheet or interim balance sheet, consists of a quality and
quantity usable and salable in the ordinary course of business, except for obsolete items
and items of below standard quality, all of which have been written off or written down to
net realizable value in the balance sheet or interim balance sheet or on the accounting
records of the Company and the Subsidiaries as of the Closing Date, as the case may be. All
inventories not written off have been priced at the lower of cost or market on the last in,
first out basis. The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the present
circumstances of the Company and the Subsidiaries.

(rr) Employee Benefits.

(i) Definitions. As used in this Section, the following terms shall
have the meanings set forth below.

“Company Other Benefit Obligation” means an Other Benefit
Obligation owed, adopted, or followed by the Company or an ERISA
Affiliate of the Company.

“Company Plan” means all Plans of which the Company or an ERISA
Affiliate. If the Company is or was a Plan Sponsor, or to which the
Company or an ERISA Affiliate of the Company otherwise contributes or
has contributed, or in which the Company or an ERISA Affiliate of the
Company otherwise participates or as participated. All references to
Plans are to Company Plans unless the context requires there wise.

“Company VEBA” means a VEBA whose members include employees of
the Company or any ERISA Affiliate of the Company.

“ERISA” means the Employee Retirement Income Security Act of
1974 or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.

“ERISA Affiliate” means, with respect to the Company, any other
person that, together with the Company, would be treated as a single
employer under the Internal Revenue Code Section 414.

“Multi-Employer Plan” has the meaning given in ERISA § 3(37)(A).

 

24

 

“Other Benefit Obligations” means all obligations, arrangements,
or customary practices, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, or agents, other than
obligations, arrangements, and practices that are Plans. Other Benefit
Obligations include consulting agreements under which the compensation
paid does not depend upon the amount of service rendered, sabbatical
policies, severance payment policies, and fringe benefits within the
meaning of the Internal Revenue Code Section 132.

“Plan Sponsor” has the meaning given in ERISA § 3(16)(B).

“PBGC” means the Pension Benefit Guaranty Corporation or any
successor thereto.

“Pension Plan” has the meaning given in ERISA § 3(2)(A).

“Plan” has the meaning given in ERISA § 3(3).

“Qualified Plan” means any Plan that meets or purports to meet
the requirements of the Internal Revenue Code Section 40l(a).

“Title IV Plans” means. all pension Plans that are subject to
Title IV of ERISA, 29 U.S.C. § 1301 et seq., other than Multi-Employer
Plans.

“VEBA” means a voluntary employees’ beneficiary association
under the Internal Revenue Code Section 501(c)(9).

“Welfare Plan” has the meaning given in ERISA § 3(1).

(ii) Disclosure Schedules. Schedule 3.1(ss) contains a
complete and accurate list of all outstanding options as well as the
following:

	 	1.	 	all Company Plans, Company Other Benefit
Obligations, and Company VEBAs, and identifies as such all Company
Plans that are (A) defined benefit Pension Plans, (B) Qualified
Plans, (C) Title IV Plans, or (D) Multi-Employer Plans;

	 
	 	2.	 	(A) all ERISA Affiliates of the Company,
and (B) all Plans of which any such ERISA Affiliate is or was a Plan
Sponsor, in which any such ERISA Affiliate participates or has
participated, or to which any such ERISA Affiliate contributes or
has contributed;

	 
	 	3.	 	for each Multiemployer Plan, as of its
last valuation date, the amount of potential withdrawal liability of
the Company and the Company’s other ERISA Affiliates, calculated
according to
information made available pursuant to ERISA § 4221(e);

 

25

 

	 	4.	 	a calculation of the liability of the
Company for post-retirement benefits other than pensions, made in
accordance with Financial. Accounting Statement 106 of the Financial
Accounting Standards Board, regardless of whether the Company is
required by this Statement to disclose such information; and

	 
	 	5.	 	the financial cost of all obligations
owed under any Company Plan or Company Other Benefit Obligation that
is not subject to the disclosure and reporting requirements of
ERISA.

(iii) Deliverables under ERISA. The Company has delivered to the
Purchasers, or will deliver to the Purchasers within ten days of the date of
this Agreement:

	 	1.	 	all documents that set forth the terms
of each Company Plan, Company Other Benefit Obligation, or Company
VEBA and of any related trust, including (A) all plan descriptions
and summary plan descriptions of Company Plans for which the
Company are required to prepare, file, and distribute plan
descriptions and summary plan descriptions, and (B) all summaries
and descriptions furnished to. participants and beneficiaries
regarding Company Plans, Company Other Benefit Obligations, and
Company VEBAs for which a plan description or summary plan
description is not required;

	 
	 	2.	 	all personnel, payroll, and employee
manuals and policies;

	 
	 	3.	 	all collective bargaining agreements
pursuant to which contributions have been made or obligations
incurred (including both pension and welfare benefits) by the
Company and the ERISA Affiliates of the Company, and all collective
bargaining agreements pursuant to which contributions are being
made or obligations are owed by such entities;

	 
	 	4.	 	a written description of any Company
Plan or Company Other Benefit Obligation that is not otherwise in
writing;

	 
	 	5.	 	all registration statements filed with
respect to any Company Plan;

	 
	 	6.	 	all insurance policies purchased by or
to provide benefits under the Company Plan;

	 
	 	7.	 	all contracts with third party
administrators, actuaries, investment managers, consultants, and
other independent contractors that
relate to any Company Plan, Company Other Benefit Obligation, or
Company VEBA;

 

26

 

	 	8.	 	all reports submitted within the four
years preceding the date to this Agreement by a third party
administrators, actuaries, investment managers, consultants, or
other independent contractors with respect to any Company Plan,
Company Other Benefit Obligation, or Company VEBA;

	 
	 	9.	 	all notifications to employees of their
rights under ERISA § 601 et seq. and Section 4980B of the Internal
Revenue Code;

	 
	 	10.	 	the Form 5500 filed in each of the most
recent three plan years with respect to each Company Plan,
including all schedules thereto and the opinions of independent
accountants;

	 
	 	11.	 	all notices that were given by the
Company or any ERISA Affiliate of the Company or any Company Plan
to the Internal Revenue Service, the PBGC, or any participant or
beneficiary, pursuant to statute, within the four years preceding
the date of this Agreement, including notices that are expressly
mentioned elsewhere in this Section;

	 
	 	12.	 	all notices that were given by the
Internal Revenue Service, the PBGC, or the Department of Labor to
the Company, any ERISA Affiliate of the Company, or any Company
Plan within the four years preceding the date of this Agreement;

	 
	 	13.	 	with respect to Qualified Plans and
VEBAs, the most recent determination letter for each Plan of the
Company that is a Qualified Plan; and

	 
	 	14.	 	with respect to Title IV Plans the Form
PBGC-l filed for each of the three most recent plan years.

(iv) Representations. Except as set forth in Schedule
3.1(rr):

	 	1.	 	The Company has performed all of its
respective obligations under all Company Plans, Company Other
Benefit Obligations, and Company VEBAs. The Company has made
appropriate entries in its financial records and statements for
all obligations and liabilities under such Plans, VEBAs, and
Obligations that have accrued but are not due.

	 
	 	2.	 	No statement, either written or oral,
bas been made by the Company to any Person with regard to any Plan
or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit
Obligation and that could have an adverse economic consequence to
the Company or to Purchaser.

 

27

 

	 	3.	 	The Company, with respect to all
Company Plans, Company Other Benefits Obligations, and Company
VEBAs, are, and each Company Plan, Company Other Benefit
Obligation, and Company VEBA is, in full compliance with ERISA,
the Internal Revenue Code, and other applicable law including the
provisions of such law expressly mentioned in this Section, and
with any applicable collective bargaining agreement.

	 	a.	 	No
transaction prohibited by ERISA § 406 and no
“prohibited transaction” under the Internal Revenue
Code Section 4975(c) have occurred with respect to
any Company Plan.

	 
	 	b.	 	The
Company has no liability to the Internal Revenue
Service with respect to any Plan, including any
liability imposed by Chapter 43 of the Internal
Revenue Code.

	 
	 	c.	 	The
Company has no any liability to the PBGC with
respect to any Plan or has any liability under ERISA
§ 502 or §4071.

	 
	 	d.	 	All
filings required by ERISA and the Internal Revenue
Code as to each Plan have been timely filed, and all
notices and disclosures to participants required by
either ERISA or the Internal Revenue Code have been
timely provided.

	 
	 	e.	 	All
contributions and payments made or accrued with
respect to all Company Plans, Company Other Benefit
Obligations and Company VEBAs are deductible under
Sections § 162 or § 404 of the Internal Revenue
Code. No amount, or any asset of any Company Plan or
Company VEBA, is subject to tax as unrelated
business taxable income.

	 	4.	 	Each Company Plan can be terminated
within 30 calendar days, without payment of any additional
contribution or amount and without the vesting or acceleration ‘of
any benefits promised by such Plan.

	 
	 	5.	 	Since the formation of the Company,
there has been no
establishment or amendment of any Company Plan, Company VEBA, or
Company Other Benefit Obligation.

 

28

 

	 	6.	 	No event has occurred or circumstance
exists that could result in a material increase in premium costs
of Company Plans and Company Other Benefit Obligations that are
insured, or a material increase in benefit costs of such Plans and
Obligations that are self-insured.

	 
	 	7.	 	Other than claims for benefits
submitted by participants or beneficiaries, no claim against or
legal proceeding involving, any Company Plan, Company Other
Benefit Obligation or Company VEBA is pending or, to the
Company’s knowledge is threatened.

	 
	 	8.	 	No Company Plan is a stock bonus,
pension, or profit-sharing plan within the meaning Section 401 (a)
of the Internal Revenue Code.

	 
	 	9.	 	Each Qualified Plan of the Company is
qualified in form and operation under Section 401(a) of the
Internal Revenue Code; each trust for each such Plan is exempt
from federal income tax under Section 501(a) of the Internal
Revenue Code. Each Company VEBA is exempt from federal income tax.
No event has occurred or circumstance exists that will or could
give rise to disqualification or loss of tax-exempt status of any
such Plan or trust.

	 
	 	10.	 	The Company and each ERISA Affiliate
of the Company has met the minimum funding standard, and has made
all contributions required, under ERISA § 302 and Section 402 of
the Internal Revenue Code.

	 
	 	11.	 	No Company Plan is subject to Title
IV of ERISA

	 
	 	12.	 	The Company has paid all amounts due
to the PBGC pursuant to ERISA § 4007.

	 
	 	13.	 	Neither the Company nor any ERISA
Affiliate of the Company has ceased operations at any facility or
has withdrawn from any Title IV Plan in a manner that would
subject to any entity or Company to liability under ERISA § 4062(
e), § 4063, or § 4064.

 

29

 

	 	14.	 	Neither the Company nor any ERISA
Affiliate of the Company has filed a notice of intent to terminate
any Plan or has adopted any amendment to treat a Plan as
terminated. The PBGC
has not instituted proceedings to treat any Company Plan as
terminated. No event has occurred or circumstance exists that may
constitute grounds under ERISA § 4042 for the termination of, or the
appointment of a trustee to administer, any Company Plan.

	 
	 	15.	 	No amendment has been made, or is
reasonably expected to be made to any Plan that has required or
could require the provision of security under ERISA § 307 or
Section 401(a)(29) of the Internal Revenue Code.

	 
	 	16.	 	No accumulated funding deficiency,
whether or not waived, exists with respect to any Company Plan; no
event has occurred or circumstance exists that may result in an
accumulated funding deficiency as of the last day of the current
plan year of any such Plan.

	 
	 	17.	 	The actuarial report for each pension
plan of the Company and each ERISA Affiliate of the Company fairly
presents the financial condition and the results of operations of
each such Plan in accordance with GAAP.

	 
	 	18.	 	Since the last valuation date for
each pension plan of the Company and each ERISA Affiliate of the
Company, no event has occurred or circumstance exists that would
increase the amount of benefits under any such Plan or that would
cause the excess of Plan assets over benefit liabilities (as
defined in ERISA § 4001) to decrease, or the amount by which
benefit liabilities exceed assets to increase.

	 
	 	19.	 	No reportable event (as defined in
ERISA § 4043 and in regulations issued thereunder) has occurred.

	 
	 	20.	 	The Company does not have any
knowledge of any facts or circumstances that may give rise to any
liability of any Company or the Purchasers to the PBGC under Title
IV of ERISA.

	 
	 	21.	 	Neither the Company nor any ERISA
Affiliate of the Company has ever established, maintained, or
contributed to or otherwise participated in, or had an obligation
to maintain, contribute to, or otherwise participate in, any
Multi-Employer Plan.

	 
	 	22.	 	Neither the Company nor any ERISA
Affiliate of the Company has withdrawn from any Multi-Employer
Plan with respect to which there is any outstanding liability as
of the date of this Agreement. No event has occurred or
circumstance exists that
presents a risk of the occurrence of any withdrawal from, or the
participation, termination, reorganization. or insolvency of, any
Multi-Employer Plan that could result in any liability of either the
Company or any purchaser to a Multi-Employer Plan.

 

30

 

	 	23.	 	Neither the Company nor any ERISA
Affiliate of the Company has received notice from any
Multi-Employer Plan that it is in reorganization or is insolvent,
that increased contributions may be required to avoid a reduction
in plan benefits or the imposition of any excise tax, or that such
Plan intends to terminate or has terminated.

	 
	 	24.	 	No Multi-Employer Plan to which the
Company or any ERISA Affiliate of the Company contributes or has
contributed is a party to any pending merger or asset or liability
transfer or is subject to any proceeding brought by the PBGC.

	 
	 	25.	 	Except to the extent required under
ERISA § 601 et seq. and Section 4980B of the Internal Revenue
Code, the Company does not provide health or welfare benefits for
any retired or former employee or is obligated to provide health
or welfare benefits to any active employee following such
employee’s retirement or other termination of service.

	 
	 	26.	 	The Company has the right to modify
and terminate benefits to retirees (other than pensions) with
respect to both retired and active employees.

	 
	 	27.	 	The Company has complied with the
provisions of ERISA § 601 et seq. and Section 4980B of the
Internal Revenue Code.

	 
	 	28.	 	No payment that is owed or may become
due to any director, officer, employee, or agent of the Company
will be non-deductible to the Company or subject to tax under
Sections 2800 or 4999 of the Internal Revenue Code; nor will the
Company be required to “gross up” or otherwise compensate any such
person because of the imposition of any excise tax on a payment to
such person.

	 
	 	29.	 	The consummation of the transaction
contemplated under the Transaction Documents will not result in
the payment, vesting, or acceleration of any benefit.

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

 

31

 

(a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization
with full right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution, delivery and performance by
such Purchaser of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate or similar action on the part of such Purchaser. Each
Transaction Document to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be limited by applicable
law.

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

(c) Purchaser Status. At the time such Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any Warrants or
converts any Debentures it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

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

 

32

 

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

(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, such Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Purchaser,
executed any disposition, including Short Sales, in the securities of the Company during the
period commencing from the time that such Purchaser first received a term sheet (written or
oral) from the Company or any other Person setting forth the material terms of the
transactions contemplated hereunder until the date hereof (“Discussion Time”).
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s
assets and the portfolio managers have no direct knowledge of the investment decisions made
by the portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of this transaction).

(g) ERISA Matters. Except as otherwise indicated on its signature page hereto,
such Purchaser is not an “employee benefit plan” as defined in Section 3(3) of ERISA (as
defined in Section 3.1(rr) above) that is subject to Title I of ERISA. Except as otherwise
indicated on its signature page hereto, such Purchaser is not purchasing the Securities with
funds that constitute, directly or indirectly, the assets of an employee benefit plan
subject to Title I of ERISA or assets of a plan or individual retirement account subject to
Section 4975 of the U.S. Internal Revenue Code of 1986, as
amended (“Code”). As to any Purchaser that affirmatively indicates either of the foregoing circumstances on its
signature page, such Purchaser (i) acknowledges that such Purchaser has evaluated for itself the
merits of such investment; (ii) has not solicited and has not received from the Company, its
Affiliate, any placement agent, or any Affiliate thereof any evaluation or other investment advice
on any basis in respect of the advisability of these or any other investments in light of the
plan’s assets, cash needs, investment policies or strategy, overall portfolio composition or plan
for diversification of assets; (iii) is not relying and has not relied on the Company, its
Affiliates, any placement agent, or any Affiliate thereof for any such advise; (iv) represents that
neither the execution and deliver of the Transaction Documents not the purchase and holding of the
Securities constitutes a prohibited transaction under Section 406 of ERISA or Section 4975 of the
Code; (v) represents that an acquisition of the Securities has been duly authorized in accordance
with its governing documents, (vi) in addition, if such Purchaser is subject to Part 4 of Subtitle
B of Title I of ERISA, such Purchaser acknowledges that none of the Company or any Affiliate
thereof is a “fiduciary” (within the meaning of ERISA) of the Purchaser in connection with the
Purchaser’s investment in the Securities.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1 Transfer Restrictions.

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

 

33

 

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

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

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

 

34

 

(c) Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a registration
statement (including the Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to the
Company’s transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying Shares, or if such
Underlying Shares may be sold under Rule 144(k) or if such legend is not otherwise required
under applicable requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then such Underlying Shares shall be
issued free of all legends. The Company agrees that following the Effective Date or at such
time as such legend is no longer required under this Section 4.1(c), it will, no later than
three Trading Days following the delivery by a Purchaser to the Company or the Company’s
transfer agent of a certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or
cause to be delivered to such Purchaser a certificate representing such shares that is free
from all restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section. Certificates for Underlying Shares
subject to legend removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchasers by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company System.

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

(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that
the removal of the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance on such Purchaser’s warranty
that the Purchaser will sell any Securities pursuant to either the registration requirements
of the Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, and that if Securities are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of distribution
set forth therein.

 

35

 

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

4.3 Furnishing of Information. Within three Business Days of the Effective Date, the
Company agrees to file a form 8-A registering the Common Stock under the Exchange Act. As long as
any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c)
such information as is required for the Purchasers to sell the Securities under Rule 144. The
Company further covenants that it will take such further action as any holder of Securities may
reasonably request, to the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the requirements of the exemption
provided by Rule 144.

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

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

 

36

 

4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern
time on the Trading Day following the date hereof, issue a press release disclosing the material
terms of the transactions contemplated hereby. In addition, if not earlier filed, the Company
shall attach all of the Transaction Documents as exhibits to the Registration Statement when
it is initially filed with the Commission. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except (i) as required by federal securities law in connection with (A)
any registration statement contemplated by the Registration Rights Agreement and (B) the filing of
final Transaction Documents (including signature pages thereto) with the Commission and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in which case the Company
shall provide the Purchasers with prior notice of such disclosure permitted under this subclause
(ii).

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

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

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

 

37

 

4.10
[RESERVED].

4.11 Indemnification of Purchasers. Subject to the provisions of this Section 4.11,
the Company will indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any other title), each
Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of such controlling
person (each, a “Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or federal securities
laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense thereof with counsel
of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have
the right to employ separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the
extent that (i) the employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material
issue between the position of the Company and the position of such Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (i)
for any settlement by a Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement
or in the other Transaction Documents.

 

38

 

4.12 Reservation and Listing of Securities.

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

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

(c) If the Company applies to have the Common Stock traded on any
other Trading Market, it will include in such application all of the Underlying Shares in an
amount equal to at least the Required Minimum as of the date of such application, and will
take such other action as is necessary to cause all of the Underlying Shares to be listed on
such other Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.

4.13 Participation in Future Financing.

(a) From the date hereof until the date that is the 12 month anniversary of the
Effective Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock
or Common Stock Equivalents (a “Subsequent Financing”), each Purchaser shall have
the right to participate in up to an amount of the Subsequent Financing equal to 100% of the
Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and
price provided for in the Subsequent Financing.

 

39

 

(b) At least 10 Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it
wants to review the details of such financing (such additional notice, a “Subsequent
Financing Notice”). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than
1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.
The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of
such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the
Person or Persons through or with whom such Subsequent Financing is proposed to be effected,
and attached to which shall be a term sheet or similar document relating thereto.

(c) Any Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time) on the
10th Trading Day after all of the Purchasers have received the Pre-Notice that
the Purchaser is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 10th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to
participate.

(d) If by 5:30 p.m. (New York City time) on the 10th Trading Day after all
of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their
willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing,
then the Company may effect the remaining portion of such Subsequent Financing on the terms
and with the Persons set forth in the Subsequent Financing Notice.

(e) If by 5:30 p.m. (New York City time) on the 10th Trading Day after all
of the Purchasers have received the Pre-Notice, the Company receives responses to a
Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate
amount of the Participation Maximum, each such Purchaser shall have the right to purchase
the greater of (a) their Pro Rata Portion (as defined below) of the Participation Maximum
and (b) the difference between the Participation Maximum and the aggregate amount of
participation by all other Purchasers. “Pro Rata Portion” is the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating
under this Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities
purchased on the Closing Date by all Purchasers participating under this Section 4.13.

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

 

40

 

(g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an
Exempt Issuance or in respect of an underwritten public offering of the Company’s equity
securities.

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

 

41

 

4.15 Short Sales and Confidentiality After The Date Hereof. Each Purchaser severally
and not jointly with the other Purchasers covenants that neither it nor any Affiliate acting on its
behalf or pursuant to any understanding with it will execute any Short Sales during the period
commencing at the Discussion Time and ending at the time that the transactions contemplated by this
Agreement are first publicly announced as described in Section 4.6. Each Purchaser, severally and
not jointly with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.6,
such Purchaser will maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each Purchaser
understands and acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares of the Common Stock
“against the box” prior to the Effective Date of the Registration Statement with the Securities is
a violation of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the Manual
of Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Notwithstanding the foregoing, in the case
of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers have no direct
knowledge of the investment decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement.

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

4.17 Directors and Officers Insurance. On or before the later of the 150th
calendar day following the date hereof or the 30th calendar day following the date the
Common Stock is listed or quoted on the OTC Bulletin Board, the Company shall have obtained
directors and officers insurance coverage in an amount equal to at least $2,000,000, and shall
deliver each Purchaser a certificate of insurance with respect hereto within five calendar days of
obtaining such insurance.

 

42

 

ARTICLE V.

MISCELLANEOUS

5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before July 31, 2006, or such later date as mutually agreed to by the
Company and vFinance but in no event after August 15, 2006; provided, however, that
no such termination will affect the right of any party to sue for any breach by the other party (or
parties).

5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse vFinance
the non-accountable sum of $45,000, for its legal fees and expenses, $10,000 of which has been paid
prior to the Closing. Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery
of any Securities to the Purchasers.

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

5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto on a day that is not a Trading Day or later than
5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached hereto.

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

 

43

 

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

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

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.11.

5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by
law. The parties hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

5.10 Survival. The representations, warranties, covenants and other agreements
contained herein shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.

 

44

 

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

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

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

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

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

 

45

 

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

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

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

 

46

 

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

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

(Signature Pages Follow)

 

47

 

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

	 	 	 	 	 
	PURE EARTH, INC.	 	Address for Notice:
	 
	 	 	 	 
	 

	 	 	 	One Neshaminy Interplex, Ste 201

Trevose, PA 19053
	By:

	 	/s/ Brent Kopenhaver	 	 
	 

	 	 	 	 
	 

	 	Name: Brent Kopenhaver

Title: CFO	 	 

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

48

 

[PURCHASER SIGNATURE PAGES TO PREA SECURITIES PURCHASE AGREEMENT]

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

			
	Name of Purchaser:	 	     DD Growth Premium
 

			
	Signature of Authorized Signatory of Purchaser:	 	     /s/ Alberto Micalizzi
 

			
	Name of Authorized Signatory:	 	     Alberto Micalizzi
 

			
	Title of Authorized Signatory:	 	     Chairman of the Board
 

			
	Email Address of Purchaser:	 	     claudio.defilippo@morganstanley.com
 

			
	Facsimile Number of Purchaser:	 	     442074252315
 

Address for Notice of Purchaser:

c/o Claudio de filippo

Morgan Stanley

25 Cabot Square, London

E14   4QA, UK

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

Subscription Amount: $500,000.00

Warrant Shares: 166,666

Purchasers that are either an employee benefit plan or that are purchasing the Securities hereunder
with funds that constitute (directly or indirectly) the assets of an employee benefit plan or a
plan or individual retirement account subject to Section 4975 of the Internal Revenue Code please
so indicate by checking here:                     

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

49Filed by Bowne Pure Compliance

Exhibit 4.5

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

COMMON STOCK PURCHASE WARRANT

To Purchase                      Shares of Common Stock of

PURE EARTH, INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
DD Growth Premium (the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on or after the date
hereof (the “Initial Exercise Date”) and on or prior to the close of business on the five
year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter,
to subscribe for and purchase from Pure Earth, Inc., a Delaware corporation (the
“Company”), up to                      shares (the “Warrant Shares”) of Common Stock, par value
$.001 per share, of the Company (the “Common Stock”). The purchase price of one share of
Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase Agreement (the
“Purchase Agreement”), dated                      among the Company and the purchasers signatory
thereto.

Section 2. Exercise.

a) Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office
or agency of the Company as it may designate by notice in writing to the registered Holder
at the address of such Holder appearing on the books of the Company);
and, within 3 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise Price of the
 shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank.

 

1

 

Notwithstanding anything herein to the contrary, the Holder shall not be required to
physically surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full, in which
case, the Holder shall surrender this Warrant to the Company for cancellation within 3
Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant
Shares purchased. The Holder and the Company shall maintain records showing the number of
Warrant Shares purchased and the date of such purchases. The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day of receipt of such notice.
The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion of the
Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at
any given time may be less than the amount stated on the face hereof.

b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall be $4.50, subject to adjustment hereunder (the “Exercise Price”).

c) Cashless Exercise. If at any time after one year from the date of issuance
of this Warrant there is no effective Registration Statement registering, or no current
prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant
may also be exercised at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A), where:

	 	(A)	 	=	 	 the VWAP on the Trading Day immediately preceding the date
of such election;

	 	(B)	 	=	 	 the Exercise Price of this Warrant, as adjusted; and

	 	(X)	 	=	 	the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of a cash
exercise rather than a cashless exercise.

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant,
to the extent unexercised, shall be automatically exercised via cashless exercise pursuant
to this Section 2(c).

 

2

 

d) Exercise Limitations.

i. Holder’s Restrictions. The Company shall
not effect any exercise of this Warrant, and a Holder shall not have the
right to exercise any portion of
this Warrant, pursuant to Section 2(c) or otherwise, to the extent that
after giving effect to such issuance after exercise as set forth on the
applicable Notice of Exercise, such Holder (together with such Holder’s
Affiliates, and any other person or entity acting as a group together with
such Holder or any of such Holder’s Affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below).  For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned
by such Holder and its Affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which
such determination is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by such 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 Debentures or other Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by such Holder or any of its affiliates.  Except
as set forth in the preceding sentence, for purposes of this Section
2(d)(i), beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by a Holder that the Company is not
representing to such Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and such Holder is solely responsible for
any schedules required to be filed in accordance therewith. To the extent
that the limitation contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder together with any Affiliates) and of which a
portion of this Warrant is exercisable shall be in the sole discretion of a
Holder, and the submission of a Notice of Exercise shall be deemed to be
each Holder’s determination of whether this Warrant is exercisable (in
relation to other securities owned by such Holder together with any
Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to such aggregate percentage limitation, and the Company shall
have no obligation to verify or confirm the accuracy of such determination.
In addition, a determination as to any group status as contemplated above
shall be determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. For purposes of this
Section 2(d), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock
as reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as
the case may be, (y) a more recent public announcement by the Company or (z)
any other notice by the Company or the Company’s Transfer Agent setting
forth the number of shares of Common Stock outstanding. Upon the written or
oral request of a Holder, the Company shall within two Trading
Days confirm orally and in writing to such Holder the number of shares of
Common Stock then outstanding.

 

3

 

 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 Warrant,
by such Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of
Common Stock issuable upon exercise of this Warrant. The Beneficial
Ownership Limitation provisions of this Section 2(d)(i) may be waived by
such Holder, at the election of such Holder, upon not less than 61 days’
prior notice to the Company to change the Beneficial Ownership Limitation to
9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise
of this Warrant, and the provisions of this Section 2(d) shall continue to
apply. Upon such a change by a Holder of the Beneficial Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the
Beneficial Ownership Limitation may not be further waived by such Holder.
The provisions of this paragraph shall be construed and implemented in a
manner otherwise than in strict conformity with the terms of this Section
2(d)(i) 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. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant.

e) Mechanics of Exercise.

i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges
created by the Company in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).

ii. Delivery of Certificates Upon Exercise. Certificates for
 shares purchased hereunder shall be transmitted by the transfer agent of the
Company to the Holder by crediting the account of the Holder’s prime broker
with the Depository Trust Company through its Deposit Withdrawal Agent
Commission (“DWAC”) system if the Company is a participant in such
system, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise within 3 Trading Days from the delivery to
the Company of the Notice of Exercise Form, surrender of this Warrant (if
required) and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery
Date”).

 

4

 

This Warrant shall be deemed to have been exercised on the date
the Exercise Price is received by the Company. The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated to
be named therein shall be deemed to have become a holder of record of such
 shares for all purposes, as of the date the Warrant has been exercised by
payment to the Company of the Exercise Price (or by cashless exercise, if
permitted) and all taxes required to be paid by the Holder, if any, pursuant
to Section 2(e)(vii) prior to the issuance of such shares, have been paid.

iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request of a
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.

iv. Rescission Rights. If the Company fails to cause its
transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(iv) by the
Warrant Share Delivery Date, then the Holder will have the right to rescind
such exercise at any time on or before its receipt of such certificate or
certificates, in which event the Company shall promptly return to the Holder
any original Warrant and payment received in respect of such exercise and
the Holder shall promptly return any Common Stock subject to any such
rescinded exercise notice.

v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause its transfer agent to transmit
to the Holder a certificate or certificates representing the Warrant Shares
pursuant to an exercise on or before the Warrant Share Delivery Date, and if
after such date the Holder is required by its broker to purchase (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (B)
the price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for which
such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued
had the Company timely complied with its exercise and delivery obligations
hereunder.

 

5

 

For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise
to such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000.
The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In and, upon request of the
Company, evidence of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at
law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure
to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

vi. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall at its election,
either pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price or round up to the
next whole share.

vii. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company
(other than taxes in respect of any transfer occurring contemporaneously
with such issue), and such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by the Holder;
provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company
may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.

viii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

 

6

 

Section 3. Certain Adjustments.

a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding: (A) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this Warrant), (B)
subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issues by reclassification of shares of the Common Stock any shares
of capital stock of the Company, then in each case the Exercise Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding immediately after such
event and the number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.

b) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(A) the Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its assets in one or
a series of related transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property (in any such case, a “Fundamental Transaction”),
then, upon any subsequent exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such exercise immediately
prior to the occurrence of such Fundamental Transaction, at the option of the Holder, (a)
upon exercise of this Warrant, the number of shares of Common Stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation, and any
additional consideration (the “Alternate Consideration”) receivable upon or as a
result of such reorganization, reclassification, merger, consolidation or disposition of
assets by a Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is acquired in an all cash
transaction, cash equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula. For purposes of any such exercise, the determination
of the Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect of one
share of Common Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If holders of
Common Stock are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such Fundamental
Transaction.

 

7

 

To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall
issue to the Holder a new warrant consistent with the foregoing provisions and evidencing
the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions of this
Section 3(e) and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

c) Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding treasury
 shares, if any) issued and outstanding.

d) 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.

e) Notice to Holders.

i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company shall
promptly mail to each Holder a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment. If the Company issues a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the Company shall be deemed
to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction (as
defined in the Purchase Agreement).

ii. Notice to Allow Exercise by Holder. If (A) the Company
shall declare a dividend (or any other distribution in whatever form) on the
Common Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any rights; (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be mailed to the
Holder at its last address as it shall appear upon the Warrant Register of

 

8

 

the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
The Holder is entitled to exercise this Warrant during the 20-day period
commencing on the date of such notice to the effective date of the event
triggering such notice.

Section 4. Transfer of Warrant.

a) Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of
the Purchase Agreement, this Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.

b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any
transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.

c) Warrant Register. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name
of the record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.

 

9

 

d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as a condition
of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities Act and
under applicable state securities or blue sky laws, (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

Section 5. Miscellaneous.

a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(ii).

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

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

d) Authorized Shares.

The Company covenants that during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Common Stock a sufficient number of
 shares to provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant.

 

10

 

The Company further covenants that its issuance
of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or regulation, or
of any requirements of the Trading Market upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, 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, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate to
protect the rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will (a) not increase
the par value of any Warrant Shares above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (b) take all such action
as may be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant,
and (c) use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction thereof
as may be necessary to enable the Company to perform its obligations under this
Warrant.

Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon resale imposed
by state and federal securities laws.

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that
all rights hereunder terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys’ fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.

 

11

 

h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance with the
notice provisions of the Purchase Agreement.

i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.

j) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific performance of
its rights under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.

k) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.

l) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.

m) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

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

 

12

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized.

Dated:

	 	 	 	 	 
	 	PURE EARTH, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

13

 

NOTICE OF EXERCISE

TO: PURE EARTH, INC.

(1) The undersigned hereby elects to purchase                      Warrant Shares of the Company pursuant
to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

	 	o	 	in lawful money of the United States; or

	 
	 	o	 	[if permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

 

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery
of a certificate to:

 

 

 

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

	 	 	 
	Name of Investing Entity:
	 	 
	 

	 	 

	 	 	 
	Signature of Authorized Signatory of Investing Entity:
	 	 
	 

	 	 

	 	 	 
	Name of Authorized Signatory:
	 	 
	 

	 	 

	 	 	 
	Title of Authorized Signatory:
	 	 
	 

	 	 

	 	 	 
	Date:
	 	 
	 

	 	 

 

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED,
[____] all of or [                    ] shares of the foregoing Warrant and all rights
evidenced thereby are hereby assigned to

	 	 	 	 	 	 	 	 	 
	 
	 	whose address is	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 
	 
	 	 	.	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 

	 	 	 
	 

	 	Dated:                                         ,                     

	 	 	 	 	 	 	 
	 

	 	Holder’s Signature:
	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Holder’s Address:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 
	Signature Guaranteed:
	 	 
	 

	 	 	 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the
face of the Warrant, without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign the foregoing
Warrant.

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