Document:

EXECUTION
COPY

         

        
          

          

        

         

      

      PARADIGM
HOLDINGS, INC.

       

      PREFERRED
STOCK PURCHASE AGREEMENT

       

      FEBRUARY
27, 2009

       

      
        

        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Table of
Contents

       

      
        
          
            
              
                	 
      	 
      	 
      	
                        Page

                      
	
                        ARTICLE I.

                      	
                        DEFINITIONS

                      	
                        1

                      
	 
      	
                        1.1

                      	
                        Definitions

                      	
                        1

                      
	
                        ARTICLE II.

                      	
                        PURCHASE
      AND SALE

                      	
                        9

                      
	 
      	
                        2.1

                      	
                        Purchase
      and Sale of the Securities

                      	
                        9

                      
	 
      	
                        2.2

                      	
                        Closing

                      	
                        9

                      
	 
      	
                        2.3

                      	
                        Closing
      Deliveries

                      	
                        9

                      
	
                        ARTICLE III.

                      	
                        REPRESENTATIONS
      AND WARRANTIES

                      	
                        10

                      
	 
      	
                        3.1

                      	
                        Representations
      and Warranties of the Company

                      	
                        10

                      
	 
      	
                        3.2

                      	
                        Representations
      and Warranties of the Purchasers

                      	
                        26

                      
	
                        ARTICLE IV.

                      	
                        OTHER
      AGREEMENTS OF THE PARTIES

                      	
                        28

                      
	 
      	
                        4.1

                      	
                        Transfer
      Restrictions

                      	
                        28

                      
	 
      	
                        4.2

                      	
                        Dilution

                      	
                        29

                      
	 
      	
                        4.3

                      	
                        Furnishing
      of Information

                      	
                        30

                      
	 
      	
                        4.4

                      	
                        Integration

                      	
                        30

                      
	 
      	
                        4.5

                      	
                        Reservation
      and Listing of Securities

                      	
                        30

                      
	 
      	
                        4.6

                      	
                        Subsequent
      Placements

                      	
                        31

                      
	 
      	
                        4.7

                      	
                        Exercise
      Procedures

                      	
                        33

                      
	 
      	
                        4.8

                      	
                        Securities
      Laws Disclosure; Publicity

                      	
                        34

                      
	 
      	
                        4.9

                      	
                        Use
      of Proceeds

                      	
                        35

                      
	 
      	
                        4.10

                      	
                        Covenants

                      	
                        35

                      
	 
      	
                        4.11

                      	
                        Repurchase
      of Securities

                      	
                        39

                      
	 
      	
                        4.12

                      	
                        No
      Impairment

                      	
                        39

                      
	 
      	
                        4.13

                      	
                        [Intentionally
      Omitted.]

                      	
                        39

                      
	 
      	
                        4.14

                      	
                        Indemnification

                      	
                        39

                      
	 
      	
                        4.15

                      	
                        Shareholders
      Rights Plan

                      	
                        40

                      
	 
      	
                        4.16

                      	
                        Delivery
      of Certificates

                      	
                        40

                      
	 
      	
                        4.17

                      	
                        Access

                      	
                        40

                      
	 
      	
                        4.18

                      	
                        Amendments
      to Transaction Documents

                      	
                        41

                      

              

            

          

        

      

      
        
           

        

        
          i

          
            

          

        

        
           

        

      

      

      
        
          
            
              	 
      	
                      4.19

                    	
                      Amended
      Certificate

                    	
                      41

                    
	 
      	
                      4.20

                    	
                      Stock
      Split

                    	
                      41

                    
	 
      	
                      4.21

                    	
                      Shareholder
      Approval

                    	
                      41

                    
	 
      	
                      4.22

                    	
                      Certain
      Rights of the Company

                    	
                      42

                    
	
                      ARTICLE V.

                    	
                      CONDITIONS

                    	
                      43

                    
	 
      	
                      5.1

                    	
                      Conditions
      Precedent to the Obligations of the Purchasers

                    	
                      43

                    
	 
      	
                      5.2

                    	
                      Conditions
      Precedent to the Obligations of the Company

                    	
                      45

                    
	
                      ARTICLE VI.

                    	
                      REGISTRATION
      RIGHTS

                    	
                      45

                    
	 
      	
                      6.1

                    	
                      Demand
      Registration

                    	
                      45

                    
	 
      	
                      6.2

                    	
                      Piggyback
      Registration

                    	
                      47

                    
	 
      	
                      6.3

                    	
                      Demand
      Registration Procedures

                    	
                      48

                    
	 
      	
                      6.4

                    	
                      Piggyback
      Registration Procedures

                    	
                      51

                    
	 
      	
                      6.5

                    	
                      Registration
      Expenses

                    	
                      52

                    
	 
      	
                      6.6

                    	
                      Indemnification

                    	
                      53

                    
	 
      	
                      6.7

                    	
                      Dispositions

                    	
                      56

                    
	 
      	
                      6.8

                    	
                      No
      Piggyback on Registrations

                    	
                      56

                    
	 
      	
                      6.9

                    	
                      Default
      on Registration

                    	
                      57

                    
	
                      ARTICLE VII.

                    	
                      MISCELLANEOUS

                    	
                      58

                    
	 
      	
                      7.1

                    	
                      Termination

                    	
                      58

                    
	 
      	
                      7.2

                    	
                      Fees
      and Expenses

                    	
                      58

                    
	 
      	
                      7.3

                    	
                      Entire
      Agreement

                    	
                      58

                    
	 
      	
                      7.4

                    	
                      Notices

                    	
                      58

                    
	 
      	
                      7.5

                    	
                      Amendments;
      Waivers

                    	
                      59

                    
	 
      	
                      7.6

                    	
                      Construction

                    	
                      59

                    
	 
      	
                      7.7

                    	
                      Successors
      and Assigns

                    	
                      60

                    
	 
      	
                      7.8

                    	
                      No
      Third-Party Beneficiaries

                    	
                      60

                    
	 
      	
                      7.9

                    	
                      Governing
      Law; Venue; Waiver of Jury Trial

                    	
                      60

                    
	 
      	
                      7.10

                    	
                      Survival

                    	
                      61

                    
	 
      	
                      7.11

                    	
                      Execution

                    	
                      61

                    
	 
      	
                      7.12

                    	
                      Severability

                    	
                      61

                    
	 
      	
                      7.13

                    	
                      Rescission
      and Withdrawal Right

                    	
                      61

                    

            

          

        

      

      
        
           

        

        
          ii

          
            

          

        

        
           

        

      

      

      
        
          
            
              	 
      	
                      7.14

                    	
                      Replacement
      of Securities

                    	
                      61

                    
	 
      	
                      7.15

                    	
                      Remedies

                    	
                      61

                    
	 
      	
                      7.16

                    	
                      Payment
      Set Aside

                    	
                      62

                    
	 
      	
                      7.17

                    	
                      Usury

                    	
                      62

                    
	 
      	
                      7.18

                    	
                      Independent
      Nature of Purchasers’ Obligations and Rights

                    	
                      62

                    
	 
      	
                      7.19

                    	
                      Adjustments
      in Share Numbers and Prices

                    	
                      63

                    
	 
      	
                      7.20

                    	
                      Liquidated
      Damages

                    	
                      63

                    
	 
      	
                      7.21

                    	
                      Fundamental
      Transaction

                    	
                      63

                    
	 
      	
                      7.22

                    	
                      Construction

                    	
                      63

                    

            

          

        

      

      
        
           

        

        
          iii

          
            

          

        

        
           

        

      

       

      PREFERRED
STOCK PURCHASE AGREEMENT

       

      This
Preferred Stock Purchase Agreement is entered into and dated as of February 27,
2009 (this “Agreement”),
by and among Paradigm Holdings, Inc., a Wyoming corporation (the “Company”), Hale Capital
Partners, LP, a Delaware limited partnership (“Hale Capital”), and each of
the other purchasers identified on the signature pages hereto (each, a “Purchaser” and, collectively
with Hale Capital, 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, and rules 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,
certain securities of the Company pursuant to the terms set forth
herein.

       

      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, severally and not
jointly, agree as follows:

       

      ARTICLE
I.

      DEFINITIONS

       

      1.1           Definitions.  In
addition to the terms defined elsewhere in this Agreement, the following terms
shall have the meanings set forth in this Section 1.1:

       

      “Affiliate” of a Person means
any other Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
first Person.  Without limiting the foregoing 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.

       

      “Amended Certificate” is
defined in Section
4.19.

       

      “Amendment Date” is defined in
Section
4.19.

       

      “Available Underlying Shares”
is defined in Section
3.1(f).

       

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

       

      “Certificate of
Designations” means the Certificate of
Designations of the Series A-1 Senior Preferred Stock in the form attached
hereto as Exhibit
A.

       

      “Class A Warrant” means
the Class A Warrants to be issued by the Company pursuant to this
Agreement, in the form attached hereto as Exhibit
B.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Class B Warrant” means
the Class B Warrants to be issued by the Company pursuant to this
Agreement, in the form attached hereto as Exhibit
C.

       

      “Closing” is defined in Section
2.2.

       

      “Closing Date” is defined in
Section
2.2.

       

      “Closing Price” 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 an Eligible Market or
any other national securities exchange, the closing bid price per share of the
Common Stock for such date (or the nearest preceding date) on the primary
Eligible Market or exchange on which the Common Stock is then listed or quoted;
(b) if prices for the Common Stock are then reported in the “Pink Sheets”
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of 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 Hale Capital.

       

      “Commission” means the U.S.
Securities and Exchange Commission.

       

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

       

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

       

      “Company” is defined in the
Preamble hereto.

       

      “Company Counsel” means K&L
Gates LLP, counsel to the Company.

       

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

       

      “EBITDA” shall mean, for any
period, net profit before taxes, interest expense (net of capitalized interest
expense), depreciation expense and amortization expense, all in accordance with
GAAP, but excluding any dividends, any cash or non-cash expenses payable or
accrued with respect to any of the transactions contemplated by the Transaction
Documents, any future non-cash income or expenses related to a change in the
accounting treatment of any of the transactions contemplated by the Transaction
Documents, any non-cash based compensation expenses and any income derived from
extraordinary, non-recurring and non-cash events.

       

      “Effective Date” means the date
that a Registration Statement or Registration Statements covering all of the
Registrable Securities have first been declared effective by the
Commission.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      “Eligible Market” means any of
the New York Stock Exchange, the American Stock Exchange, Nasdaq Global Select
Market, the Nasdaq Global Market, the Nasdaq Capital Market or the
over-the-counter bulletin board (“OTC Bulletin
Board”).

       

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

       

      “Excluded Stock” means the
issuance of (i) Common Stock upon the conversion of any Convertible Securities
or Options outstanding as of the date hereof and set forth in Schedule 3.1(g),
pursuant to the terms of such Convertible Securities or Options, as applicable,
as of the date hereof, (ii) Common Stock as a dividend on the Common Stock
distributed pro rata to the holders thereof, (iii) Options (and the issuance of
Common Stock upon exercise thereof) or restricted stock of the Company to
employees, officers, directors or consultants of the Company pursuant to the
Management Pool, (iv) Options (and the issuance of Common Stock upon exercise
thereof) or restricted stock of the Company to employees, officers, directors or
consultants of the Company pursuant to a stock option plan, restricted stock
agreement or other incentive stock plan or pursuant to any employee benefit
plan, in each case as in effect on the Closing Date and specified in Schedule 3.1(g), (v)
Options (and the issuance of Common Stock upon exercise thereof) or restricted
stock of the Company to employees, officers, directors or consultants of the
Company pursuant to a stock option plan, restricted stock agreement or other
incentive stock plan or pursuant to any employee benefit plan, in each case, if
not in effect on the Closing Date, as approved by the Company’s Board of
Directors and, so long as any threshold in clauses (x) through (z) of Section 4.6(a) is
met, as acceptable to Hale Capital; provided that in the cases of clauses (iv)
and (v), in an aggregate amount not to exceed three percent (3%) of the
outstanding Common Stock on a fully diluted basis in any 12 month period, (vi)
Common Stock upon the exercise of the Noble Warrant and (vii) the Underlying
Shares.

       

      “Filing Date” means with
respect to any Registration Statement required to be filed pursuant to Section 6.1, the
60th
day following the date on which the Company receives a Registration
Request.

       

      “Fundamental Transaction” means
the occurrence of any of the following in one or a series of related
transactions: (i) an acquisition after the date hereof by an individual or legal
entity or “group” (as described in Rule 13d-5(b)(1) under the Exchange
Act), other than any Purchaser, of fifty percent (50%) or more of the voting
rights or voting equity interests in the Company; (ii) Continuing Directors (as
defined in the Certificate of Designations) cease to constitute more than
one-half of the members of the Company’s Board of Directors, other than pursuant
to Section 8 or Section 9(c) of the Certificate of Designations and/or the Side
Letter; (iii) a merger or consolidation of the Company or any Subsidiary or a
sale of all or substantially all of the assets of the Company or any Subsidiary
in one or a series of related transactions, unless immediately following such
transaction or series of transactions, the holders of the Company’s securities
immediately prior to the first such transaction continue to hold at least
one-half of the voting rights or voting equity interests in of the surviving
entity or acquirer of such assets; (iv) a recapitalization, reorganization or
other similar transaction involving the Company or any Subsidiary that
constitutes or results in a transfer of more than one-half of the voting rights
or voting equity interests in the Company; (v) consummation of a
“Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange
Act with respect to the Company; (vi) any tender offer or exchange offer
(whether by the Company or another Person, other than any Purchaser) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property and as a result of
which the Persons who own Common Stock immediately prior to the launch of such
tender offer or exchange offer do not own a majority of the outstanding equity
interests of the Company, directly or indirectly, immediately after the
consummation thereof; (vii) 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; or (viii) the execution by the Company of an agreement directly or
indirectly providing for any of the foregoing events.  Notwithstanding
the foregoing, no action taken for the purpose of changing the Corporation’s
jurisdiction of incorporation pursuant to Section 4.19 of this
Agreement or otherwise specifically contemplated by Section 4.19 or Section 4.20 of this
Agreement for the purposes set forth therein shall constitute a Fundamental
Transaction.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      “GAAP” is defined in Section
3.1(h).

       

      “Governmental Authority” shall
mean any government or political subdivision or any agency, authority, bureau,
central bank, commission, department or instrumentality, or any court, tribunal,
grand jury or arbitrator, in each case whether foreign or domestic.

       

      “Government Bid” shall mean any
offer to sell made by the Company or a Subsidiary prior to the Closing Date
which, if accepted, would result in a Government Contract and for which an award
has not been issued 30 days or more prior to the date of this
Agreement.

       

      “Government Contract” shall
mean any prime contract, subcontract, teaming agreement or arrangement, joint
venture, basic ordering agreement, pricing agreement, letter contract, grant,
cooperative agreement or other similar arrangement of any kind, between the
Company or a Subsidiary on one hand, and (i) any Governmental Authority,
(ii) any prime contractor of a Governmental Authority in its capacity as a
prime contractor, or (iii) any subcontractor at any tier with respect to a
contract with a Governmental Authority if such subcontractor is acting in its
capacity as a subcontractor, on the other hand.  A task, purchase or
delivery order under a Government Contract shall not constitute a separate
Government Contract, for purposes of this definition, but shall be part of the
Government Contract to which it relates.

       

      “Hale Capital Partners” is
defined in the Preamble hereto.

       

      “Indebtedness” of any Person
means (i) all indebtedness representing money borrowed which is created,
assumed, incurred or guaranteed in any manner by such Person or for which such
Person is responsible or liable (whether by guarantee of such indebtedness,
agreement to purchase indebtedness of, or to supply funds to or invest in,
others or otherwise), (ii) any direct or contingent obligations of such
Person arising under any letter of credit (including standby and commercial),
bankers acceptances, bank guaranties, surety bonds and similar instruments,
(iii) all Indebtedness secured by any Lien existing on property or assets
owned by such Person and (iv) any shares of capital stock or other
securities having a redemption feature; provided that the Preferred Shares, and
any obligations due in respect thereof in accordance, as applicable, with the
Certificate of Designations, as in effect on the date hereof, shall not be
deemed to be Indebtedness pursuant to this definition.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      “Intellectual Property” means
all U.S. and foreign (a) inventions (whether patentable or whether or not
reduced to practice), all improvements thereto, and all patents (including,
without limitation, all U.S. and foreign patents, patent applications (including
provisional applications) (“Patents”), invention
disclosures and any and all divisions, continuations, continuations-in-part,
reissues, re-examinations and extensions thereof) and design rights,
(b) trademarks, trademark applications (including intent to use filings),
trade names and service marks (whether or not registered), trade dress, logos,
and corporate names, together with all translations, adaptations, derivations,
and combinations thereof and including all goodwill associated therewith, and
all applications, registrations, and renewals in connection therewith,
(c) copyrightable works, registered copyrights, sui generis database rights
and all applications, registrations, and renewals in connection therewith,
(d) mask works and all applications, registrations, and renewals in
connection therewith, (e) trade secrets and confidential business
information (including source code, unpatented inventions, ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, financial information
and business and marketing plans and proposals) (all of the foregoing
collectively, “Trade
Secrets”), (f) computer software programs or applications (including
data and related documentation) in both source and object code forms,
(g) copies and tangible embodiments of all of the foregoing (in whatever
form or medium), and registrations and applications for any of the foregoing
assets listed above in (a) through (g) and all other tangible and intangible
proprietary information, materials and associated goodwill.

       

      “Lien” is defined in Section
3.1(a).

       

      “Losses” means any and all
damages, fines, penalties, deficiencies, liabilities, claims, losses (including
loss of value), judgments, awards, settlements, taxes, actions, obligations and
costs and expenses in connection therewith (including, without limitation,
interest, court costs and reasonable fees and expenses of attorneys, accountants
and other experts, or any other expenses of litigation or other Proceedings or
of any default or assessment).

       

      “Management Pool” means the
management incentive plan of the Company to be established as promptly as
practicable after the Closing which shall provide for the issuance of Options
and/or restricted stock of the Company on terms reasonable satisfactory to Hale
Capital.

       

      “Material Adverse Effect” is
defined in Section
3.1(b).

       

      “Material Contract” means
(A) any agreement which requires future expenditures by the Company or any
Subsidiary in excess of $500,000 or which might result in payments to the
Company or any Subsidiary in excess of $500,000, (B) any purchase or task
order which might result in payments to the Company or any Subsidiary in excess
of $500,000, (C) any employment agreements (not including at-will
employment letters with employees), and (D) any agreement that is or would
be required to be filed as an exhibit to the SEC Reports pursuant to Item
601(b)(10) of Regulation S-K of the Commission.

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      “Meeting” is defined in Section
4.21(b).

       

      “Noble Warrant” means that
certain warrant issued to Noble International Investments, Inc. to purchase
1,602,565 shares of Common Stock at an exercise price of $0.0780 per share, in
the form of Exhibit
H hereto.

       

      “Non-Active Subsidiary” is
defined in Section
3.1(a).

       

      “Options” means any rights,
warrants or options to, directly or indirectly, subscribe for or purchase Common
Stock or Convertible Securities.

       

      “Permitted Indebtedness” is
defined in Section
4.10(b)(vii).

       

      “Permitted Issuances” means any
issuance by the Company of Common Stock, after each Purchaser, together with any
transferee(s) of Preferred Shares by that Purchaser, has realized cash proceeds
in the aggregate equal to or in excess of the Aggregate Purchase Price paid by
that Purchaser as set forth on Schedule A for all
Preferred Shares purchased by such Purchaser at the Closing, which issuance is
made (i) at a price per share of Common Stock not less than 150% of the then
current Exercise Price (as defined in the Class A Warrants) at the time of such
transaction, (ii) with warrant coverage, if any, of not greater than 50% of the
Common Stock issued by the Company in such transaction, and (iii) with respect
to any warrants referred to in clause (ii) above, at an exercise price per share
of Common Stock not less than 150% of the then current Exercise Price (as
defined in the Class A Warrants) at the time of such transaction, and (iv)
pursuant to customary documentation reasonably satisfactory to Hale
Capital.

       

      “Permitted Liens” is defined in
Section
4.10(b)(viii).

       

      “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.

       

      “Preferred Shares” means the
shares of Preferred Stock to be sold and issued by the Company to the Purchasers
in accordance with and subject to the terms and conditions of this
Agreement.

       

      “Preferred Stock” means the
Series A-1 Senior Preferred Stock of the Company, par value $0.01 per share, and
all securities into which such preferred stock may be reclassified or
converted.

       

      “Preferred Stock Exchange
Agreement” means the agreement in the form attached hereto as Exhibit E
between the Company and the Persons holding Series A Preferred Stock of the
Company listed on signature pages thereto

       

      “Preferred Stock Redemption
Agreement” means the agreement in the form attached hereto as Exhibit F
between the Company, Semper Finance and USA Asset Acquisition
Corp.

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      “Proceeding” means an action,
claim, suit, inquiry, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or, to the Company’s knowledge, threatened.

       

      “Proposal” is defined in Section
4.21(a).

       

      “Prospectus” means the
prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by the Registration Statement, and
all other amendments and supplements to the Prospectus including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

       

      “Proxy Materials” means the
Proxy Statement and any exhibits or attachments thereto, together with any
amendments or modifications thereto, required under the Exchange Act to be
transmitted to shareholders of the Company and filed with the Commission in
connection with the Meeting to approve the Proposal.

       

      “Purchase Price” is defined in
Section
2.1.

       

      “Purchasers” is defined in the
Preamble hereto.

       

      “Registrable Securities” means
all Underlying Shares, together with any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing.

       

      “Registration Request” means a
written request that the Company file a Registration Statement under the
Securities Act to register Registrable Securities, from one (1) or more holders
thereof that in the aggregate possess thirty percent (30%) or more of the
Registrable Securities then outstanding as of the date of such request, which
request shall indicate the number of Registrable Securities to be registered
thereunder.

       

      “Registration Statement” means
any registration statements on Forms S-1 or S-3 required to be filed under Sections 6.1 or
6.2, including (in each case) the Prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration
statement.

       

      “Required Approvals” is defined
in Section
3.1(e).

       

      “Required Effectiveness Date”
means with respect to any Registration Statements that may be required pursuant
to Section 6.1, the
180th day
following the date on which the Company receives a Registration Request;
provided, however, in the event the Company is notified by the Commission that
one (1) of the above Registration Statements will not be reviewed or is no
longer subject to further review and comments, the Required Effectiveness Date
as to such Registration Statement shall be the fifth (5th)
Trading Day following the date on which the Company is so notified if such date
precedes the dates required above.

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      “Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule
415 and Rule 424, respectively, promulgated by the Commission pursuant to the
Securities Act, as such Rules may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

       

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

       

      “Securities” means the
Preferred Shares, the Warrants and the Underlying Shares issued or issuable (as
applicable) to the Purchasers pursuant to the Transaction
Documents.

       

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

       

      “Senior Facility” means those
certain existing Loan and Security Agreements, dated March 13, 2007 among
Silicon Valley Bank, the Company, Paradigm Solutions Corporation and the other
parties named therein, or any replacement facility thereof pursuant to the terms
set forth on the term sheet attached hereto as Annex B and pursuant
to documentation reasonably acceptable to Hale Capital, in any case pursuant to
which the Company may incur Indebtedness, together with all other Permitted
Indebtedness pursuant to clauses (A) and (C) of the definition thereof, of no
greater than $4,500,000 at all times after the Closing.

       

      “Shareholder Agreement” means the agreement in
the form attached hereto as Exhibit G
between the Purchasers and the Persons listed on Schedule I attached
thereto.

       

      “Side Letter” means that
certain side letter dated as of the Closing Date between the Company, Hale
Capital and the other Purchasers in the form attached hereto as Exhibit
D.

       

      “Subsequent Placement” means any instance in
which the Company or any Subsidiary offers, sells, grants any option to
purchase, or otherwise disposes of (or announces any offer, sale, grant or any
option to purchase or other disposition of) any of its or any Subsidiary’s
evidence of its Indebtedness (other than Permitted Indebtedness) or equity or
equity equivalent securities, including without limitation any Indebtedness,
common stock or preferred stock of the Company, Common Stock Equivalent or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for, or is issued
as a unit within, any class of common stock or preferred stock of the Company,
or Common Stock Equivalents.

       

      “Subsidiary” is defined in
Section
3.1(a).

       

      “Trading Day” means
(a) any day on which the Common Stock is listed or quoted and traded on its
primary Trading Market, or (b) if the Common Stock is not then listed or
quoted and traded on any Trading Market, then any Business Day.

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      “Trading Market” means the OTC
Bulletin Board or any other primary Eligible Market or any national securities
exchange, market or trading or quotation facility on which the Common Stock is
then listed or quoted.

       

      “Transaction Documents” means
this Agreement, the Certificate of Designations, the Warrants, the Side Letter,
the Shareholder Agreement, the Preferred Stock Exchange Agreement, the Preferred
Stock Redemption Agreement and any other documents, certificates or agreements
executed or delivered in connection with the transactions contemplated
hereby.

       

      “Underlying Shares” means the
shares of Common Stock issued or issuable (i) upon exercise of the
Warrants, and (ii) in satisfaction of any other obligation or right of the
Company to issue shares of Common Stock pursuant to the Transaction Documents,
and in each case, any securities issued or issuable in exchange for or in
respect of such securities.

       

      “Warrants” means, collectively,
the Class A Warrants and the Class B Warrants.

       

      ARTICLE
II.

      PURCHASE
AND SALE

       

      2.1           Purchase and Sale of the
Securities.  Subject to the terms and conditions of this
Agreement, each Purchaser agrees, severally and not jointly, to purchase from
the Company, and the Company agrees to sell and issue to each Purchaser, at the
Closing, the Preferred Shares, a Class A Warrant and a Class B Warrant in
the respective amounts set forth opposite such Purchaser’s name on Schedule A hereto for
the aggregate purchase price set forth opposite such Purchaser’s name on Schedule A hereto
under the headings “Number of Preferred Shares,” “Number of Class A Warrant
Shares” and “Number of Class B Warrant Shares,”
respectively.  The purchase price for each Preferred Share shall be
$1,000 (the “Purchase
Price”).

       

      2.2           Closing.  The
purchase and sale of the Preferred Shares and the Warrants pursuant to the terms
of this Agreement (the “Closing”) shall take place at
the offices of Proskauer Rose LLP in New York City, New York, at 10:00 A.M. (New
York City time) on the date each of the conditions set forth in Section 2.3 and
Article 5 have
been satisfied, or at such other time and place as the Company and the
Purchasers mutually agree upon in writing (the “Closing Date”).

       

      2.3           Closing
Deliveries.

       

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

       

      (i)           a
stock certificate representing the Preferred Shares registered in the name of
such Purchaser (or one or more of its assignees or designees), in the amount
indicated opposite such Purchaser’s name on Schedule A hereto, in
proper form for transfer, and with any required stock transfer stamps affixed
thereto;

       

      (ii)           a
Class A Warrant, registered in the name of such Purchaser, pursuant to
which such Purchaser shall have the right to acquire such number of Underlying
Shares indicated on Schedule A hereto
under the heading “Number of Class A Warrant Shares”;

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      (iii)          a
Class B Warrant, registered in the name of such Purchaser, pursuant to
which such Purchaser shall have the right to acquire such number of Underlying
Shares indicated on Schedule A hereto
under the heading “Number of Class B Warrant Shares”;

       

      (iv)          the
Certificate of Designations, together with confirmation of filing and
effectiveness with the Secretary of State of the State of Wyoming.

       

      (v)           the
legal opinion of Company Counsel, in the form attached hereto as Exhibit G, executed
by such counsel and addressed to the Purchasers;

       

      (vi)          a
certificate dated as of the Closing Date and signed by the Chief Executive
Officer of the Company certifying as to the fulfillment of each of the
conditions set forth in Section 5.1;

       

      (vii)         the
Side Letter duly executed by the Company;

       

      (viii)        certificates
dated the Closing Date and signed by the Secretary of the Company certifying:
(1) that attached thereto is a true and complete copy of all resolutions
adopted by the Board of Directors or the stockholders of the Company or the
Subsidiaries, as applicable, authorizing the execution, delivery and performance
of each of the Transaction Documents, and that all such resolutions are in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement; (2) that attached thereto are
true and complete copies of the articles of incorporation and by-laws (or other
organizational or charter documents) of the Company and each Subsidiary (other
than the Non-Active Subsidiary), and that such documents are in full force and
effect; and (3) the signatures and titles of the officers of the Company and the
Subsidiaries executing each of the Transaction Documents;

       

      (ix)           the
fees and expenses payable by the Company pursuant to Section 7.2, in
United States dollars and in immediately available funds, by wire transfer to
accounts designated in writing by Hale Capital for such purpose;
and

       

      (x)           any
other document reasonably requested by the Purchasers or their
counsel.

       

      (b)          At
the Closing, each Purchaser shall deliver or cause to be delivered to the
Company the following:  (i) the purchase price set forth opposite
such Purchaser’s name on Schedule A hereto
under the heading “Aggregate Purchase Price,” in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing by the Company for such purpose; and (ii) each Transaction Document
to which such Purchaser is a signatory, duly executed by such
Purchaser.

       

      ARTICLE
III.

      REPRESENTATIONS
AND WARRANTIES

       

      3.1           Representations and
Warranties of the Company.  The Company hereby represents and
warrants to, and agrees with, the Purchasers as follows:

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      (a)          Subsidiaries.  The
Company does not directly or indirectly control or own any interest in any other
Person other than those listed in Schedule 3.1(a) (each
a “Subsidiary”, and
collectively, the “Subsidiaries”).  The
jurisdiction of organization of each Subsidiary is as set forth on Schedule
3.1(a).  Except as disclosed in Schedule 3.1(a), the
Company owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction (collectively, “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.  The Company owns 49% of Unified Solutions LLC, a Maryland
limited liability company (the “Non-Active
Subsidiary”).  The Non-Active Subsidiary conducts no business
and has no liabilities or assets contingent or otherwise.

       

      (b)          Organization and
Qualification.  Each of the Company and, except as set forth on
Schedule
3.1(b), the Subsidiaries is an entity duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
with the requisite power and authority to own and use its properties and assets
and to carry on its business as currently conducted.  Except as
disclosed in Schedule
3.1(b), neither the Company nor any Subsidiary is in violation or default
of any of the provisions of its respective certificate or articles of
incorporation or 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 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 reasonably be
expected to, individually or in the aggregate, (i) adversely affect the
legality, validity or enforceability of any Transaction Document, (ii) have
or result in a material adverse effect on the results of operations, assets,
prospects, business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) adversely impair the Company’s or
any Subsidiary’s ability to perform fully on a timely basis its obligations
under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and
no Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

       

      (c)          Authorization;
Enforcement.  The Company and each Subsidiary has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its respective obligations hereunder and thereunder,
subject, with respect to the actions contemplated by the Proposal, to the
Company’s receipt of shareholder approval of the Proposal as contemplated by
Section
4.21.  The execution and delivery by the Company and each
Subsidiary of each of the Transaction Documents to which it is a party and the
consummation by it of the transactions contemplated hereunder and thereunder
have been duly authorized by all necessary action on the part of the Company and
the Subsidiaries and no further consent or action is required by the Company or
any Subsidiary, or their respective Board of Directors or shareholders, subject,
with respect to the actions contemplated by the Proposal, to the Company’s
receipt of shareholder approval of the Proposal as contemplated by Section
4.21.  Each Transaction Document has been (or upon delivery
will have been) duly executed by the Company and/or the Subsidiaries, as
applicable, and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company, and/or the
Subsidiaries, as applicable, enforceable against the Company, and/or the
Subsidiaries, as applicable, in accordance with its terms, subject to (i) laws
of general application relating to bankruptcy, insolvency and the relief of
debtors, or (ii) rules of law governing specific performance, injunctive relief
or other equitable remedies.

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      (d)          No
Conflicts.  Except as set forth on Schedule 3.1(d), the
execution, delivery and performance of the Transaction Documents by the Company
and the Subsidiaries and the consummation by them of the 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,
(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) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any 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 clause (i) or (ii) above, as could not, reasonably be expected to
have or result in, individually or in the aggregate, a Material Adverse
Effect.

       

      (e)          Filings, Consents and
Approvals.  Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization, permit or order of, give any
notice to, or make any filing or registration with, any Governmental Authority
or other Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than the filing by the Company
with the Commission of the Registration Statement, the filing by the Company of
a Notice of Sale of Securities on Form D with the Commission under Regulation D
of the Securities Act, the filing of the Certificate of Designations, the filing
of the Amended Certificate, the obtaining by the Company of shareholder approval
of the Proposal as contemplated by Section 4.21 and
state and applicable Blue Sky filings, and the consents, waivers,
authorizations, permits, orders, notices, filings or registrations set forth on
Schedule 3.1(e)
(collectively, the “Required
Approvals”).

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      (f)          Issuance of the
Securities.  The Preferred Shares and the Warrants, and the
maximum number of Underlying Shares available for issuance pursuant to the
Company’s Articles of Incorporation (provided that shares of Common Stock shall
not be considered available for issuance if they are (i) issued and outstanding
as of the Closing Date, (ii) issuable pursuant to the Preferred Stock Exchange
Agreement, (iii) issuable upon exercise of the Noble Warrant, (iv) issuable upon
the conversion of any Options or Convertible Securities outstanding as of the
Closing Date and set forth on Schedule 3.1(g)
(other than those that shall be deemed repaid as of the Closing pursuant to
Section 4.9) or
(v) reserved for issuance pursuant to any agreements, stock option plans,
restricted stock agreements, incentive stock plans or employee benefit plans as
in effect on the Closing Date and set forth on Schedule 3.1(g)
(other than those that shall be deemed repaid as of the Closing pursuant to
Section 4.9))
(the “Available Underlying
Shares”), shall be duly authorized as of the Closing and all Underlying
Shares shall be duly authorized as of the Amendment Date.  As of the
Closing, the Preferred Shares and the Warrants shall be, and Underlying Shares
when so issued in accordance with the terms of the applicable Transaction
Documents will be, validly issued, fully paid and nonassessable and free of
preemptive or similar rights.  As of the Closing, the Preferred Shares
and the Warrants have been, and the Underlying Shares when so issued in
accordance with the terms of the applicable Transaction Documents will be,
issued in compliance with applicable securities laws, rules and
regulations.  The issuance and sale of the Securities contemplated
hereby does not conflict with or violate any rules or regulations of the Trading
Market.  As of the Closing, the Company shall have reserved from its
duly authorized capital stock the Available Underlying Shares, and, as of the
Amendment Date, shall have reserved from its duly authorized capital stock the
maximum number of shares of Common Stock to be issued as Underlying
Shares.  As of the Closing, all of the Available Underlying Shares
shall be eligible to vote (either by meeting or written consent) to approve the
Proposal.  As of the Closing, the aggregate maximum number of votes in
respect of all securities (including, securities on an as-converted basis) that
shall be eligible to approve the Proposal is 50,000,000.

       

      (g)          Capitalization.  The
number of shares and type of all authorized, issued and outstanding capital
stock of the Company and each Subsidiary is as specified on Schedule
3.1(g).  Immediately following the Closing, there shall be no
preferred stock of the Company or any Subsidiary issued or outstanding, other
than the Preferred Stock.  No securities of the Company or any
Subsidiary are entitled to preemptive or similar rights, and no Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents.  Except as a result of the purchase and sale of the
Securities and except as disclosed in Schedule 3.1(g),
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of 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
securities or rights convertible or exchangeable into shares of Common
Stock.  The issue 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
such securities, or to take any other action punitive to the Company or any
Subsidiary.  Schedule 3.1(g)
contains a list of all stock option plans, stock purchase plans and management
grants, in each case as reflected as of the Closing Date, true and complete
copies of which have been delivered to the Purchasers.  Except as
disclosed on Schedule
3.1(g), there are no existing agreements, arrangements or commitments
relating to any shares of Common Stock that require or permit any shares of
Common Stock to be voted by or at the discretion of anyone other than the record
owner.  Immediately following the Closing, the Company shall have no
Indebtedness other than Permitted Indebtedness.

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      (h)          SEC Reports; Financial
Statements.  The Company has filed all reports, schedules,
forms, applications and other documents, together with any amendments required
to be made with respect thereto, required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the 12 months preceding the date hereof (or such shorter period as
the Company was required by law or regulation to file such materials) (the
foregoing materials being collectively referred to herein as the “SEC Reports”) on a timely
basis or has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension.  As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.  The financial statements of the
Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of
filing.  Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto, and
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 (individually and in the
aggregate), year-end audit adjustments and the absence of
footnotes.

       

      (i)          Taxes.  The
Company and the Subsidiaries have prepared and filed all income tax returns and
other material tax returns that are required to be filed, and have paid, or made
provision in accordance with GAAP for the payment of, all taxes (including any
interest or penalties thereon) that have or may have become due pursuant to said
returns or pursuant to any assessments that have been received by the Company or
the Subsidiaries.  All tax returns are true and correct in all
material respects.  All taxes (including any interest or penalties
thereon) shown to be due and payable by the Company or the Subsidiaries have
been paid or will be paid prior to the time they become
delinquent.  To the Company’s knowledge there is no liability for any
tax to be imposed upon its or any of its Subsidiaries’ properties or assets as
of the date of this Agreement for which adequate provision has not been
made.  Except as set forth on Schedule 3.1(i), no
material tax returns of the Company have been audited, and to the Company’s
knowledge, no deficiency assessment or proposed adjustment of the Company’s or
the Subsidiaries material taxes is pending.

       

      (j)          Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in, individually or
in the aggregate, 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 and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP (including, without limitation, the footnotes
thereto) or required to be disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting or the identity
of its auditors, (iv) except as set forth on Schedule 3.1(j), the
Company has not declared or made any dividend or distribution of cash or other
property to its shareholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock, and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except
as disclosed on Schedule
3.1(j).  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, 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 and regulations at the
time this representation is made that has not been publicly disclosed at least
one Trading Day prior to the date hereof.  Except as set forth in
Schedule
3.1(j), neither the Company nor, to the Company’s knowledge, any
Affiliate of the Company (including, without limitation, any pension plan,
employee stock option plan or similar plan) has purchased or sold any securities
of the Company within the 90 days preceding the date hereof.

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      (k)          Litigation.  Except
as set forth in Schedule 3.1(k),
there is no Proceeding 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 Governmental Authority.  Neither the
Company nor any Subsidiary, nor, to the knowledge of the Company, any director
or officer thereof (in his or her capacity as such), is or has been the subject
of any Proceeding 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 (in his
or her capacity as such).  The Commission has not issued any stop
order or other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the Securities
Act.

       

      (l)          Labor
Relations.  Except as set forth on Schedule 3.1(l), no
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company or any
Subsidiary.  Except as set forth in Schedule 3.1(l), no
collective bargaining agreement is currently in force or is currently being
negotiated by the Company, any Subsidiary or any other Person in respect of the
business of the Company or any Subsidiary or any of the employees of the Company
or any Subsidiary.  To the knowledge of the Company, there are no
threatened or pending union organizing activities involving any of the employees
of the Company or any Subsidiary.  There is no labor strike, dispute,
work slowdown or stoppage pending or involving or, to the knowledge of the
Company, threatened against the Company or any Subsidiary.

       

      (m)          Employee
Benefit Plans.

       

      (i)           Except
as set forth in Schedule 3.1(m)(i),
the Company and the Subsidiaries have no employment agreements, labor or
collective bargaining agreements and there are no material employee benefit or
compensation plans, agreements, arrangements or commitments (including “employee
benefit plans,” as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”)) or any other plans,
policies, trust funds or arrangements (whether written or unwritten, insured or
self-insured) established, maintained, sponsored or contributed to (or with
respect to any obligation that has been undertaken) by the Company, any
Subsidiary or any entity that would be treated as a single employer with the
Company under Section 414(b), (c), (m) or (o) of the Internal Revenue Code
of 1986, as amended (the “Code”) or Section 4001 of
ERISA (an “ERISA
Affiliate”) for any employee, officer, director, consultant or
shareholder or their beneficiaries of the Company or any Subsidiary or with
respect to which the Company or any Subsidiary has liability, or makes or has an
obligation to make contributions on behalf of any such employee, officer,
director, consultant or shareholder or beneficiary (each a “Company Employee Plan” and
collectively the “Company
Employee Plans”).

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      (ii)           Except
for medical reimbursement spending accounts under Code Section 125, each
Company Employee Plan that is an employee welfare benefit plan as defined under
Section 3(l) of ERISA is funded through an insurance company
contract.  Except as set forth in Schedule 3.1(m)(ii),
each Company Employee Plan by its terms and operation is in material compliance
with all applicable laws and all required filings, if any, with respect to such
Company Employee Plan have been timely made.  Neither the Company, any
Subsidiary nor any ERISA Affiliate has at any time maintained, contributed to or
been required to contribute to or has (or has had) any liability with respect
to, any plan subject to Section 412 of the Code, Section 302 of ERISA
or Title IV of ERISA, including, without limitation, any “multiemployer plan”
(within the meaning of Sections 3(37) or 4001(a)(3) of ERISA or
Section 414(f) of the Code) or any single employer pension plan (within the
meaning of Section 4001(a)(15) of ERISA) which is subject to
Sections 4063, 4064 and 4069 of ERISA.  The Company’s various
non-qualified deferred compensation plans satisfy the requirements of
Section 201(2) of ERISA.  Except as set forth in Schedule 3.1(m)(ii),
the events contemplated by this Agreement (either alone or together with any
other event) will not (A) entitle any employees, director or shareholder of
the Company or any Subsidiary (whether current, former or retired) or their
beneficiaries to severance pay, or any other payment pursuant to such Person’s
employment agreement with the Company, unemployment compensation, or other
similar payments under any Company Employee Plan or law, (B) accelerate the
time of payment or vesting or increase the amount of benefits due under any
Company Employee Plan or compensation to any employees of the Company or any
Subsidiary or (C) result in any payments (including any payment that could
be characterized as an “excess parachute payment” (as defined in
Section 280G(b)(1) of the Code)) under any Company Employee Plan or
applicable law becoming due to any employee, director or shareholder of the
Company or any Subsidiary (whether current, former or retired) or their
beneficiaries.  No amount payable under any Company Employee Plan
would fail to be deductible under Code Section 162(m).  No
severance payment or change of control payment or similar payment is currently
payable to any executive officer or director of the Company, whether as a result
of the transactions contemplated hereby or otherwise.

       

      (iii)           With
respect to each of the Company Employee Plans:  (1) each Company
Employee Plan that is intended to be qualified under Section 401(a) of the
Code has received a determination letter, opinion letter, advisory letter or
notification letter, as applicable, from the Internal Revenue Service (the
“IRS”) regarding its
qualified status under the Code for all amendments required prior to the
Economic Growth and Tax Relief Reconciliation Act of 2001 or, if reliance is
permitted, relies on the favorable opinion letter or advisory letter of the
master and prototype or volume submitter plan sponsor of such plan, and nothing
has occurred, whether by action or by failure to act, that caused or could cause
the loss of such qualification or the imposition of any penalty or tax
liability; (2) all payments required by the Company Employee Plans, any
collective bargaining agreement or other agreement, or by applicable law
(including, without limitation, all contributions, insurance premiums or
intercompany charges) with respect to all periods through the date of the
Closing Date shall have been made prior to the Closing Date (on a pro rata basis
where such payments are otherwise discretionary at year end) or provided for by
the Company as applicable, in accordance with the provisions of each of the
Company Employee Plans, applicable law and GAAP; (3) no action has been
instituted or commenced or, to the knowledge of the Company, has been threatened
or is anticipated against any of the Company Employee Plans (other than
non-material routine claims for benefits and appeals of such claims), any
trustee or fiduciaries thereof, the Company, any Subsidiary or any ERISA
Affiliate, any director, officer or employee thereof, or any of the assets of
any trust of any of the Company Employee Plans; and (4) no Company Employee
Plan is or is expected to be under audit or investigation by the IRS, Department
of Labor or any other governmental entity and no such completed audit, if any,
has resulted in the imposition of any tax or penalty.

      
        
           

        

        
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      (n)          Compliance.  Except
as set forth in Schedule 3.1(n),
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 Governmental Authority, 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 relating to taxes,
environmental protection, occupational health and safety, product quality and
safety, employment and labor matters or other laws applicable to its business;
except in each case as could reasonably be expected to have or result in,
individually or in the aggregate, a Material Adverse Effect.

       

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

       

      (p)          Title to
Assets.  Except as set forth on Schedule 3.1(p), the
Company and the Subsidiaries have good and marketable title in fee simple to all
real property owned by them and good and marketable title in all personal
property owned by them that is material in any respect to the business of the
Company and the Subsidiaries, in each case free and clear of all Liens, except
for Liens that do not materially affect the value of such property and do not
materially interfere with the use made of such property by the Company and the
Subsidiaries.  Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in compliance
in all material respects.

      
        
           

        

        
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      (q)          Patents and
Trademarks.  The Company and the Subsidiaries own or possess a
valid and enforceable written license to use all Intellectual Property that is
necessary or material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so own or possess could
reasonably be expected to have or result in, individually or in the aggregate, a
Material Adverse Effect.  To the Company’s knowledge, the operation of
the business of the Company and the Subsidiaries does not, and no product or
service in development or which is marketed or sold (or proposed to be marketed
or sold) by the Company or any Subsidiary, violates or will violate any license
or infringe any Intellectual Property rights of any other
party.  Except as set forth in Schedule 3.1(q),
other than with respect to commercially available software products which the
Company or the Subsidiaries license under standard end-user object code license
agreements, there are no outstanding options, licenses, agreements, claims,
encumbrances or shared ownership interests of any kind relating to any Company
Intellectual Property.  Except as set forth in Schedule 3.1(q),
neither the Company nor any Subsidiary is obligated to make to any third party
any payments related to the Company Intellectual Property.  Neither
the Company nor any Subsidiary has agreed to indemnify any third party with
respect to any Intellectual Property.  No third party has made a
claim, to the Company’s knowledge, that the Company or any Subsidiary has
violated or, by conducting their business, would violate any Intellectual
Property rights of any other person or entity, and to the knowledge of the
Company, no third party has misappropriated or infringed or is misappropriating
or infringing the Company Intellectual Property.  Each employee has
assigned to the Company or the Subsidiaries all Intellectual Property rights he
or she owns that are related to the respective businesses of the Company and the
Subsidiaries as now conducted or as now proposed to be conducted.  All
of the Company Intellectual Property which are registered or have been filed for
registration with any third party are in good standing and all of the fees and
filings due with respect thereto have been duly made, and the Company has
previously provided true and correct copies of all of the foregoing to
Purchasers.  Schedule 3.1(q) lists
all patents, patent applications, registered trademarks, trademark applications,
registered service marks, service mark applications, registered copyrights and
domain names included in the Company Intellectual Property.  No open
source or public library software, including any version of any software
licensed pursuant to any GNU or other public license, is, in whole or in part,
embodied or incorporated in the Company Intellectual Property, and the Company
is not otherwise bound by any terms thereof.  Neither the Company nor
any of its Subsidiaries is or, as a result of the execution or delivery of this
Agreement, or the performance of the Company’s obligations hereunder, will be in
violation of any license, sublicense, agreement or instrument involving Company
Intellectual Property to which the Company or any of its Subsidiaries is a party
or otherwise bound (an “Intellectual Property
Agreement”), nor will the execution or delivery of this Agreement, or the
performance of the Company’s obligations hereunder, cause the diminution,
license, transfer,  termination or forfeiture of the Company’s or any
of its Subsidiaries’ rights in any Company Intellectual
Property.  Each of the Company and the Subsidiaries has taken
commercially reasonable measures to protect the proprietary nature of the
Company Intellectual Property and to maintain in confidence all trade secrets
and confidential information owned or used by the Company or any of its
Subsidiaries and included in the Company Intellectual
Property.  Except as set forth on Schedule 3.1(q), the
source code and system documentation relating to any software programs included
in or developed for inclusion in the Company’s or any of its Subsidiaries’
products (including all software programs embedded or incorporated in the
Company’s or any of its Subsidiaries’ products) (i) have at all times been
maintained in confidence, (ii) have been disclosed by the Company and its
Subsidiaries only to employees or third parties who are bound by appropriate
nondisclosure obligations, (iii) have not been licensed or sold to any
third party, and (iv) are not the subject of any escrow or similar
agreement or arrangement giving any third party rights in or to such source code
and/or system documentation upon the occurrence of certain events, other than
any such rights that (A) are not material, (B) do not impair the use
by the Company or any Subsidiary of any of the Company Intellectual Property or
(C) require the Company to make any payments to such third
parties.

      
        
           

        

        
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      (r)          Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
reasonably prudent and customary in the businesses in which the Company and the
Subsidiaries are engaged.  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 on terms
consistent with the market for the Company’s and such Subsidiaries’ respective
lines of business.

       

      (s)          Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the officers or directors of the Company or any Subsidiary and, to the knowledge
of the Company, none of the employees of the Company or any Subsidiary is
presently a party to any transaction or agreement (other than the Shareholder
Agreement, the Preferred Stock Exchange Agreement and the Preferred Stock
Redemption Agreement) 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.

       

      (t)          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.  The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and
forms.  The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

      
        
           

        

        
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      (u)          Solvency.  The
Company believes that, based on the financial condition of the Company
immediately following the Closing Date, (i) the Company’s fair saleable
value of its assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid.  Following the Closing
Date, 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 Indebtedness).

       

      (v)          Certain
Fees.  Except as set forth in Schedule 3.1(v), 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 this Agreement.  The Purchasers shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by a Purchaser pursuant to written agreements
executed by such Purchaser which fees or commissions shall be the sole
responsibility of such Purchaser) 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 this Agreement.  The Company shall
indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney’s fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.

       

      (w)          Private
Placement.  Assuming the accuracy of each Purchaser’s
representations and warranties set forth in Section 3.2(b)-(e),
(i) no registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers under the Transaction
Documents, and (ii) the issuance and sale of the Securities hereunder does
not contravene the rules and regulations of the Trading Market.

       

      (x)          Listing and Maintenance
Requirements.  The Company has not, in the two (2) years
preceding the date hereof, received notice (written or oral) from any Eligible
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Eligible Market.  The Company is in compliance
with all such listing and maintenance requirements.

      
        
           

        

        
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      (y)          Registration
Rights.  Except as set forth in Schedule 3.1(y),
other than the registration rights granted to each of the Purchasers pursuant to
this Agreement, the Company has not granted or agreed to grant to any Person any
rights (including “piggy back” registration rights) to have any securities of
the Company registered with the Commission or any other Governmental Authority
that have not been satisfied.

       

      (z)          Application of Takeover
Protections.  The Company and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation or the laws of its jurisdiction 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.

       

      (aa)          Disclosure.  All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not
misleading.

       

      (bb)          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 this Agreement and the transactions
contemplated hereby.  The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Purchaser’s
purchase of the Securities.  The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.  The Company further acknowledges that no Purchaser
has made any promises or commitments other than as set forth in this Agreement,
including any promises or commitments for any additional investment by any such
Purchaser in the Company.

       

      (cc)          Investment
Company.  The Company is not, and is not an Affiliate of, an
investment company within the meaning of the Investment Company Act of 1940, as
amended.

       

      (dd)          Sarbanes-Oxley
Act.  The Company is in compliance in all material respects
with all applicable requirements of the Sarbanes-Oxley Act of 2002 and all
applicable rules and regulations promulgated by the Commission thereunder in
effect as of the date of this Agreement.

      
        
           

        

        
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      (ee)         Material
Contracts.

       

      (i)           Assuming
the due execution and delivery by the other parties thereto, each of the
Material Contracts is as of the date hereof legal, valid and binding, and in
full force and effect, and enforceable in accordance with its terms, subject to
(A) laws of general application relating to bankruptcy, insolvency, and
relief of debtors, and (B) rules of law governing specific performance,
injunctive relief, or other equitable remedies.  Except as set forth
in Schedule
3.1(ee), there is no material breach, violation or default by the Company
or any of the Subsidiaries (or, to the Company’s knowledge, any other party)
under any such Material Contract, and no event (including, without limitation,
the transactions contemplated by the Transaction Documents) has occurred which,
with notice or lapse of time or both, would (1) constitute a material
breach, violation or default by the Company or any Subsidiary (or, to the
Company’s knowledge, any other party) under any such Material Contract, or
(2) give rise to any Lien (other than Permitted Liens) or right of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration against the Company or any Subsidiary under any such
Material Contract.  Except as set forth in Schedule 3.1(ee)(i),
neither the Company nor any Subsidiary is and, to the Company’s knowledge, no
other party to any such Material Contract is in arrears in respect of the
performance or satisfaction of any material terms or conditions on its part to
be performed or satisfied under any of such Material Contract, and neither the
Company nor any Subsidiary has and, to the Company’s knowledge, no other party
thereto has granted or been granted any material waiver or indulgence under any
of such Material Contract or repudiated any provision thereof.

       

      (ii)           The
Company has provided or made available to the Purchasers complete copies of each
of the Material Contracts, including all schedules, exhibits and attachments
thereto.

       

      (ff)          Suppliers and
Customers.  Since January 1, 2006 none of the Company’s or any
Subsidiaries’ suppliers, vendors, customers or lenders
has:  (i) terminated or cancelled a Material Contract or business
relationship involving an amount in excess of $250,000; (ii) threatened to
terminate or, in any material respect, diminish a Material Contract or business
relationship involving an amount in excess of $250,000; (iii) expressed
dissatisfaction, in writing to the Company or any Subsidiary, with the
performance of the Company or any Subsidiary with respect to a Material Contract
or business relationship involving an amount in excess of $250,000; or
(iv) demanded any termination or limitation of a Material Contract or
business relationship involving an amount in excess of $250,000 with the Company
or any Subsidiary.  The Company has provided to the Purchasers a list
of the 10 largest suppliers and 10 largest customers of the Company and the
Subsidiaries as of the date hereof, based on the dollar amount of sales for the
period from January 1, 2006 through December 1, 2008.

       

      (gg)        Environmental
Matters.

       

      (i)           The
Company and the Subsidiaries comply and have at all times complied with all
federal, state and local laws, judgments, decrees, orders, consent agreements,
authorizations, permits, licenses, rules, regulations, common or decision law
(including, without limitation, principles of negligence and strict liability)
relating to the protection, investigation or restoration of the environment
(including, without limitation, natural resources) or the health or safety
matters of humans and other living organisms, including the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Federal Clean Water
Act, as amended, the Federal Clean Air Act, as amended, the Toxic Substances
Control Act, or any state and local analogue (hereinafter “Environmental Laws”), except
where the failure to comply could not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse
Effect.

      
        
           

        

        
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      (ii)           (A) The
Company has no knowledge of any claim, and neither it nor any Subsidiary has
received notice of a written complaint, order, directive, claim, request for
information or citation, and to the Company’s knowledge no proceeding has been
instituted raising a claim against the Company or any predecessor or any of
their respective real properties, formerly owned, leased or operated or other
assets indicating or alleging any damage to the environment or any liability or
obligation under or violation of any Environmental Law and (B) neither the
Company nor any Subsidiary is subject to any order, decree, injunction or other
directive of any Governmental Authority.

       

      (iii)           (A) Neither
the Company nor any Subsidiary has used and, to the Company’s knowledge, no
other person has used any portion of any property currently used or formerly
owned, operated or leased by the Company or any Subsidiary for the generation,
handling, processing, treatment, storage or disposal of any hazardous materials
except in accordance with applicable Environmental Laws; (B) neither the
Company nor any Subsidiary owns or operates any underground tank or other
underground storage receptacle for hazardous materials, any asbestos-containing
materials or polychlorinated biphenyls, and, to the Company’s knowledge, no
underground tank or other underground storage receptacle for hazardous
materials, asbestos-containing materials or polychlorinated biphenyls is located
in any portion of any property currently owned, operated or leased by the
Company and (C) to the Company’s knowledge, the Company has not caused or
suffered to occur any releases or threatened releases of hazardous materials on,
at, in, under, above, to, from or about any property currently used or formerly
owned, operated or leased by the Company or any Subsidiary.

       

      (hh)          Export
Controls.  None of the Company, any Subsidiary or, to the
Company’s knowledge, the Company’s or a Subsidiary’s employees have violated any
law pertaining to export controls, technology transfer or industrial security
including, without limitation, the Export Administration Act, as amended, the
International Emergency Economic Powers Act, as amended, the Arms Export Control
Act, as amended, the National Industrial Security Program Operating Manual, as
amended, or any regulation, order, license or other legal requirement issued
pursuant to the foregoing (including, without limitation, the Export
Administration Regulations and the International Traffic in Arms
Regulations).  Neither the Company, any Subsidiary nor, to the
Company’s knowledge, any employee of the Company or any Subsidiary is the
subject of an action by a Governmental Authority that restricts such person’s
ability to engage in export transactions.

       

      (ii)          Foreign Corrupt Practices
Act.  Neither the Company, any Subsidiary nor, to the Company’s
knowledge, any employee of the Company or any Subsidiary has violated the United
States Foreign Corrupt Practices Act, as amended, in any material
respect.  To the Company’s knowledge, no shareholder, director,
officer, employee or agent of the Company or of a Subsidiary has, directly or
indirectly, made or agreed to make, any unlawful or illegal payment, gift or
political contribution to, or taken any other unlawful or illegal action, for
the benefit of any customer, supplier, governmental employee or other Person who
is or may be in a position to assist or hinder the business of the Company or a
Subsidiary.

      
        
           

        

        
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      (jj)          Government
Contracts.

       

      (i)           Schedule 3.1(jj)(i)
accurately lists each Government Contract which is in effect as of the date of
this Agreement and each Government Bid, and with respect to each, as applicable,
lists: (A) the award date, (B) the customer, (C) the contract end date and
option(s) and/or recompetition date(s), (D) the type of pricing, (E) associated
teaming partners, and (F) whether such contract is based on the Company’s small
business status, small disadvantaged business status, protégé status or other
preferential status.

       

      (ii)           (A) The
Company and each Subsidiary has fully complied, in all material respects, with
the terms and conditions of each Government Contract and Government Bid to which
it is a party; (B) the Company and each Subsidiary has complied in all
material respects with all requirements of any law pertaining to such Government
Contract or Government Bid; (C) all representations and certifications made
by the Company and each Subsidiary with respect to such Government Contract or
Government Bid were accurate, current and complete in all material respects as
of their effective date; (D) neither the Company nor any Subsidiary is in
violation, or currently alleged to be in violation, in any material respect of
the False Statements Act, the False Claims Act, the Service Contract Act, the
Contract Disputes Act, the Procurement Integrity Act, the Federal Procurement
Act and the Administrative Services Act, in each case as amended, or any other
federal requirement relating to the communication of false statements or
submission of false claims to a Governmental Authority; and (E) no
termination or default notice, cure notice or show cause notice has been issued
to the Company or any Subsidiary and remains unresolved, and the Company has no
knowledge of any plan or proposal of any entity to issue any such
notice.

       

      (iii)           Except
as set forth on Schedule
3.1(jj)(iii), (A) To the Company’s knowledge, none of the Company’s
or a Subsidiary’s employees, consultants or agents is (or during the last five
(5) years has been) under administrative, civil or criminal investigation or
indictment by any Governmental Authority with respect to the conduct of the
business of the Company or a Subsidiary; (B) to the Company’s knowledge,
there is no pending audit or investigation of the Company or any of its
officers, employees or representatives or a Subsidiary or any of its officers,
employees or representatives nor within the last five years has there been any
audit or investigation of the Company or any of its officers, employees or
representatives or a Subsidiary or any of its officers, employees or
representatives resulting in an adverse finding with respect to any alleged
irregularity, misstatement or omission arising under or relating to any
Government Contract or Government Bid; and (C) during the last five years,
neither the Company nor any Subsidiary has made any voluntary disclosure in
writing to the Government or any other Governmental Authority with respect to
any alleged irregularity, misstatement or omission arising under or relating to
a Governmental Contract or Government Bid that has led to any of the
consequences set forth in clause (A) or (B) of the immediately preceding
sentence or any other material damage, penalty assessment, recoupment of payment
or disallowance of cost.

      
        
           

        

        
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      (iv)          Except
as set forth on Schedule 3.1(jj)(iv),
there are (A) no outstanding audits, investigations or written claims
against the Company, either by any Governmental Authority or by any prime
contractor, subcontractor, vendor or other third party arising under or relating
to any Government Contract or Government Bid, (B) to the Company’s
knowledge, no outstanding disputes (i) between the Company or a Subsidiary,
on the one hand, and the Government or any Governmental Authority, on the other
hand, under the Contract Disputes Act or any other Federal statute, or
(ii) between the Company or a Subsidiary, on the one hand, and any prime
contractor, subcontractor or vendor, on the other hand, arising under or
relating to any Government Contract or Government Bid, or (C) requests for
contract price adjustments, requests for equitable adjustment or claims of
defective pricing, either by any Governmental Authority or by any prime
contractor, subcontractor, vendor or other third party arising under or relating
to any Government Contract or Government Bid.

       

      (v)           No
termination for default or convenience, cure notice or show cause notice has
been issued in writing by any Governmental Authority or by any prime contractor,
subcontractor, vendor or other third party with respect to any Government
Contract or Government Bid.

       

      (vi)           None
of the Government Contracts are subject to termination by a Governmental
Authority as a result of the consummation of the transactions contemplated by
the Transaction Documents.

       

      (vii)        The
facility security clearances held by the Company and all personnel security
clearances held by any director, officer or employee of the Company are all of
the facility and personnel security clearances necessary to conduct the business
of the Company as currently conducted.

       

      (kk)          No Suspension or
Debarment.  Neither the Company nor any Subsidiary during the
last five (5) years has been and, to the Company’s knowledge, none of their
respective employees, consultants or agents during the last five years has been
suspended or debarred from eligibility for award of contracts with any
Governmental Authority or is or was the subject of a finding of
non-responsibility or ineligibility for government
contracting.  During the past five years, no government contracting
suspension or debarment action has been threatened or commenced against the
Company or a Subsidiary, or, to the Company’s knowledge, any of its officers or
employees.  The Company does not have knowledge of a valid basis, nor
specific circumstances that are or, with the passage of time, would likely
become a basis for the Company’s or a Subsidiary’s suspension or debarment from
award of contracts with any Government Authority.

       

      (ll)          No Event of
Default.  After giving effect to the transactions contemplated
by this Agreement to occur at the Closing, no Event of Default (as defined in
the Certificate of Designations) has occurred and is continuing.

       

      (mm)      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.

      
        
           

        

        
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      (nn)          Acknowledgement Regarding
Purchasers’ Trading Activity.  Anything in this Agreement or
elsewhere herein to the contrary notwithstanding, it is understood and
acknowledged by the Company (i) that none of the Purchasers have been asked
to agree, nor has any Purchaser agreed, to desist from purchasing or selling,
long and/or short, securities of the Company, or “derivative” securities based
on securities issued by the Company or to hold the Securities for any specified
term; (ii) that past or future open market or other transactions by any
Purchaser, including short sales, and specifically including, without
limitation, short sales or “derivative” transactions, before or after the
Closing Date 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 shareholders’ 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.

       

      (oo)          Manipulation of
Price.  The Company has not, and to its knowledge no one acting
on its or any of its officers’ or Affiliates’ 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 or (iii) except as set forth on Schedule
3.1(oo)(iii), paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company.

       

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

       

      (a)          Organization;
Authority.  Such Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate, limited liability company 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 Transaction Documents to which it is a
party have been duly authorized by all necessary corporate or, if such Purchaser
is not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Purchaser.  Each of the
Transaction Documents to which such Purchaser is a party has been duly executed
by such Purchaser and, when delivered by such Purchaser in accordance with terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms.

      
        
           

        

        
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    (b)          Investment
Intent.  Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes and not with a view to
distributing or reselling such Securities or any part thereof in violation of
applicable securities laws, without prejudice, however, to such Purchaser’s
right at all times to sell or otherwise dispose of all or any part of such
Securities in compliance with applicable federal and state securities
laws.  Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold the Securities for any period of
time.  Such Purchaser understands that the Securities have not been
registered under the Securities Act, and therefore the Securities may not be
sold, assigned or transferred unless pursuant to (i) an effective
registration statement under the Securities Act with respect thereto or
(ii) an available exemption from the registration requirements of the
Securities Act.

     

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

     

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

     

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

     

    (f)          Purchase of Common
Stock.  Other than pursuant to the transactions contemplated by
this Agreement and the other Transaction Documents, no Purchaser has purchased
any Common Stock on the open market or otherwise in the 12 months preceding the
date of this Agreement.

     

    (g)          Access to
Data.  Such Purchaser has received and reviewed information
about the Company and has had an opportunity to discuss the Company’s business,
management and financial affairs with its management and to review the Company’s
facilities.  The foregoing, however, does not limit or modify the
representations and warranties made by the Company in this Agreement or any
other provision in this Agreement or the right of the Purchasers to rely
thereon.

     

    (h)          Manipulation of
Price.  During the 12-month period immediately preceding the
Closing Date, such Purchaser has not, and to its knowledge no one acting on its
or any of its officers’ or Affiliates’ 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 or
(iii) paid or agreed to pay to any Person any compensation for soliciting
another to purchase any other securities of the Company.

    
      
         

      

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

     

    ARTICLE
IV.

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1           Transfer
Restrictions.

     

    (a)          The
Securities may only be disposed of pursuant to an effective registration
statement under the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act, and in compliance with any
applicable state securities laws.  In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, except as otherwise set forth herein, the Company may require the
transferor to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act.  Notwithstanding the foregoing,
the Company hereby consents to and agrees to register on the books of the
Company and with its transfer agent, without any such legal opinion, any
transfer of Securities by a Purchaser to an Affiliate of such Purchaser,
provided that the transferee certifies to the Company that it is an “accredited
investor” as defined in Rule 501(a) 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 any other applicable Transaction Document) and
shall have the rights of a Purchaser under this Agreement.

     

    (b)          The
Purchasers agree to the imprinting on any certificate evidencing Securities,
except as otherwise permitted by Section 4.1(c),
of a restrictive legend in substantially the form as follows, together with any
additional legend required by (i) any applicable state securities laws and
(ii) any securities exchange upon which such Securities may be
listed:

     

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

    
      
         

      

      
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    (c)          Certificates
evidencing Securities shall not be required to contain the legend set forth in
Section 4.1(b)
(i) following any sale of such Securities pursuant to an effective
Registration Statement covering the resale of such Securities under the
Securities Act, (ii) following any sale of such Securities in compliance
with Rule 144, (iii) 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.  Following the Effective
Date or at such earlier time as a legend is no longer required for certain
Securities, the Company will no later than three (3) Trading Days following the
delivery by a Purchaser to the Company or the Company’s transfer agent of a
legended certificate representing such Securities, deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that is
free from all restrictive and other legends.  The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in Section 4.1(b).  For
so long as any Purchaser owns Securities, the Company will not effect or
publicly announce its intention to effect any exchange, recapitalization or
other transaction that effectively requires or rewards physical delivery of
certificates evidencing the shares of Common Stock.

     

    (d)          The
Company acknowledges and agrees that a Purchaser may from time to time pledge or
grant a security interest in some or all of the Securities in connection with a
bona fide margin agreement secured by the Securities and, if required under the
terms of such agreement, 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
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 the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of selling
shareholders thereunder.

     

    4.2           Dilution.  The
Company acknowledges that the issuance of the Securities (including the
Underlying Shares) will 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 Securities (including 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 that the Company may have against any
Purchaser.

    
      
         

      

      
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    4.3           Furnishing of
Information.  As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act.  Upon the
request of any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence.  As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to such laws, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with paragraph (c) of Rule 144 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 satisfy the provisions of Rule 144 applicable to the
issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144.

     

    4.4           Integration.  The
Company shall not, and shall use its reasonable best efforts to ensure that no
Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that 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           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, prior to the Amendment Date,
the Available Underlying Shares, and as of the Amendment Date, in such amount as
may be required to fulfill its obligations in full under the Transaction
Documents.

     

    (b)          The
Company shall, as applicable (i) prepare and timely file with each Trading
Market an additional shares listing application covering all of the shares of
Common Stock issued or issuable under the Transaction Documents, (ii) use
reasonable best efforts to cause such shares of Common Stock to be approved for
listing on each Trading Market as soon as practicable thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) use
reasonable best efforts to maintain the listing of such Common Stock on each
such Trading Market or another Eligible Market.

     

    (c)          In
the case of a breach by the Company of Section 4.5(a),
in addition to the other remedies available to the Purchasers, the Purchasers
shall have the right to require the Company to either: (i) use its
reasonable best efforts to obtain the required shareholder approval necessary to
permit the issuance of such shares of Common Stock as soon as is possible, but
in any event not later than the 60th day
after such notice, or (ii) within five (5) Trading Days after delivery of a
written notice, pay cash to such Purchaser, as liquidated damages and not as a
penalty, in an amount equal to the number of shares of Common Stock not issuable
by the Company times 115% of the average Closing Price over the five (5) Trading
Days immediately prior to the date of such notice or, if greater, the five (5)
Trading Days immediately prior to the date of payment (the “Cash Amount”).  If
the exercising or converting Purchaser elects the first option under the
preceding sentence and the Company fails to obtain the required shareholder
approval on or prior to the 60th day
after such notice, then within three (3) Trading Days after such 60th day,
the Company shall pay the Cash Amount to such Purchaser, as liquidated damages
and not as a penalty or as an exclusive remedy hereunder.

    
      
         

      

      
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    4.6           Subsequent
Placements.

     

    (a)          Without
the prior consent of Hale Capital, from the date hereof and for so long as (x)
an aggregate of not less than fifteen percent (15%) of the Preferred Shares
purchased on the Closing Date are outstanding, (y) Warrants to purchase an
aggregate of not less than twenty percent (20%) of the Underlying Shares
issuable pursuant to all Warrants on the Closing Date are outstanding, or (z)
the Purchasers, in the aggregate, own not less than fifteen percent (15%) of the
Common Stock issuable upon exercise of all Warrants on the Closing Date, the
Company will not, directly or indirectly, effect any Subsequent Placement, other
than Permitted Issuances.

     

    (b)          If,
from the date hereof and for so long as (x) an aggregate of not less than
fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are
outstanding, (y) Warrants to purchase an aggregate of not less than twenty
percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the
Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not
less than fifteen percent (15%) of the Common Stock issuable upon exercise of
all Warrants on the Closing Date, the Company is permitted to effect any
Subsequent Placement, the Company will not effect such Subsequent Placement
(including, with respect to clause (II) hereof, any Permitted Issuance) unless
the Company shall have (I) first received the consent of Hale Capital in
accordance with Section 4.6(a), and
(II) shall have complied with all other provisions of this Section 4.6:

     

    (i)           The
Company shall deliver to each Purchaser a written notice (the “Offer”) of any proposed or
intended issuance or sale or exchange of the securities being offered (the
“Offered Securities”) in
any Subsequent Placement, which Offer shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they
are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the Persons or
entities to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to or exchange
with each Purchaser (A) a pro rata portion of the Offered Securities based
on such Purchaser’s pro rata portion of the Preferred Shares then outstanding
(the “Basic Amount”),
and (B) with respect to each Purchaser that elects to purchase its Basic
Amount, any additional portion of the Offered Securities attributable to the
Basic Amounts of other Purchasers as such Purchaser shall indicate it will
purchase or acquire should the other Purchasers subscribe for less than their
Basic Amounts (the “Undersubscription
Amount”).

     

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

    
      
         

      

      
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    (iii)           The
Company shall have 35 Trading Days from the expiration of the period set forth
in Section 4.6(b)(ii)
above to issue, sell or exchange all or any part of such Offered Securities as
to which a Notice of Acceptance has not been given by the Purchasers (the “Refused Securities”), but only
to the offerees described in the Offer and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring Person or Persons or less favorable to the
Company than those set forth in the Offer.

     

    (iv)           In
the event the Company shall propose to sell less than all of the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4.6(b)(iii)
above), then each Purchaser may, at its sole option and in its sole discretion,
reduce the number or amount of the Offered Securities specified in its Notice of
Acceptance to an amount that shall be not less than the number or amount of the
Offered Securities that the Purchaser elected to purchase pursuant to Section 4.6(b)(ii)
above multiplied by a fraction, (i) the numerator of which shall be the
number or amount of Offered Securities the Company actually proposes to issue,
sell or exchange (including Offered Securities to be issued or sold to
Purchasers pursuant to Section 4.6(b)(ii)
above prior to such reduction) and (ii) the denominator of which shall be
the original amount of the Offered Securities.  In the event that any
Purchaser so elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not issue, sell or
exchange more than the reduced number or amount of the Offered Securities unless
and until such securities have again been offered to the Purchasers in
accordance with Section 4.6(b)(i)
above.

     

    (v)           Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Purchasers shall acquire from the Company, and the
Company shall issue to the Purchasers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to Section 4.6(b)(iv)
above if the Purchasers have so elected, upon the terms and conditions specified
in the Offer.  The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Purchasers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Company the
Purchasers and their respective counsel.

     

    (vi)           Any
Offered Securities not acquired by the Purchasers or other Persons in accordance
with Section 4.6(b)(iii)
above may not be issued, sold or exchanged until they are again offered to the
Purchasers under the procedures specified in this Agreement.

    
      
         

      

      
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    (c)          If
at any time while (x) an aggregate of not less than fifteen percent (15%) of the
Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to
purchase an aggregate of not less than twenty percent (20%) of the Underlying
Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or
(z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of
the Common Stock issuable upon exercise of all Warrants on the Closing Date, the
Company proposes to directly or indirectly effect a Subsequent Placement
(including any Permitted Issuance), then the Company shall offer to, upon the
consummation of such Subsequent Placement, repurchase an amount of the Preferred
Shares held by the Purchasers, any Warrants held by the Purchasers and any
Common Stock held by the Purchasers, in each case in such maximum amounts with
respect to each Purchaser as elected by such Purchaser, for an aggregate price
(as determined below) equal to the lesser of (i) the aggregate amount of
the Subsequent Placement; provided that with respect to any Permitted Issuance,
such amount shall be limited to twenty-five percent (25%) of the aggregate
amount thereof, and (ii) the aggregate amount required to repurchase all of
the Preferred Shares, all of the Warrants and all Common Stock elected to be
repurchased by the Purchasers, as applicable, pursuant to this Section 4.6(c).  All
Preferred Shares repurchased under this Section 4.6(c)
shall be repurchased at a price equal to one hundred twenty-five percent (125%)
of the then current Stated Value (as defined in the Certificate of Designations)
of the Preferred Shares purchased plus one hundred percent (100%) of all accrued
but unpaid cash dividends thereon as of the date of repurchase; provided that
any Preferred Shares repurchased with the proceeds of a Permitted Issuance shall
be repurchased at a price equal to one hundred percent (100%) of the then
current Stated Value of the Preferred Shares plus one hundred percent (100%) of
all accrued but unpaid cash dividends thereon as of the date of repurchase.
 All Warrants
repurchased under this Section 4.6(c) shall
be repurchased at a price per Warrant equal to such Warrant’s Repurchase Price
(as defined in the applicable Warrant) in respect of the portion of such Warrant
being repurchased.  All Common Stock repurchased under this Section 4.6(c) shall
be repurchased at a price equal to one hundred twenty-five percent (125%) of the
greater of (X) the applicable Exercise Price(s) (as defined in the applicable
Warrant) paid for such shares of Common Stock, and (Y) the then current fair
market value of such shares of Common Stock; provided that any Common Stock
repurchased with the proceeds of a Permitted Issuance shall be repurchased at a
price equal to one hundred percent (100%) of the greater of clauses (X) and (Y)
in this sentence.

     

    (d)          The
restrictions contained in this Section 4.6
shall not apply to issuances of Excluded Stock.

     

    4.7           Exercise
Procedures.  The form of Exercise Notice included in the
Warrants sets forth the totality of the procedures required by the Purchasers in
order to exercise the Warrants.  No other information or instructions
shall be necessary to enable the Purchasers to exercise the
Warrants.  The Company shall honor exercises of the Warrants, and,
prior to the Amendment Date, shall deliver all Available Underlying Shares, and,
as of the Amendment Date, all Underlying Shares, in each case in accordance with
the terms, conditions and time periods set forth in the Transaction
Documents.

    
      
         

      

      
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    4.8           Securities Laws Disclosure;
Publicity.  Within two (2) Business Days following the Closing
Date, the Company shall issue a press release reasonably acceptable to the
Purchasers disclosing the transactions contemplated hereby.  Within
two (2) Business Days of the Closing Date, the Company shall file a Current
Report on Form 8-K with the Commission (the “8-K Filing”) describing the
material terms of the transactions contemplated by the Transaction Documents and
including as exhibits to such Current Report on Form 8-K this Agreement and the
forms of the Certificate of Designations and the Warrants, in the form required
by the Exchange Act.  Thereafter, the Company shall timely file any
filings and notices required by the Commission or applicable law with respect to
the transactions contemplated hereby and provide copies thereof to the
Purchasers promptly after filing.  The Company shall, at least two (2)
Trading Days prior to the filing or dissemination of any disclosure required by
this paragraph, provide a copy thereof to the Purchasers for their
review.  The Company and the Purchasers shall consult with each other
in issuing any press releases or otherwise making public statements or filings
and other communications with the Commission or any regulatory agency or Trading
Market with respect to the transactions contemplated hereby, and neither party
shall issue any such press release or otherwise make any such public statement,
filing or other communication without the prior consent of the other, 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,
filing or other 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 (other than the Registration Statement, the 8-K Filing and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act, the Proxy Materials to be
filed pursuant to Section 4.21 and
any application to list additional shares filed with the Trading Market),
without the prior written consent of such Purchaser, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law, Trading Market regulations or the Commission, in which case the
Company shall provide the Purchasers with prior notice of such
disclosure.  If at any time the Purchasers do not have a designee or
observer on the Company’s Board of Directors and any Purchaser has notified the
Company that it does not wish to receive any material nonpublic information, the
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide any
such Purchaser with any material nonpublic information regarding the Company or
any of its Subsidiaries without the express written consent of such
Purchaser.  In the event of a breach of the foregoing covenant by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Purchaser shall have the right to require the
Company to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material nonpublic
information.  No Purchaser shall have any liability to the Company,
its Subsidiaries, or any of its or their respective officers, directors,
employees, shareholders or agents for any such disclosure.  In
addition, if at any other time, a Purchaser so requests, the Company will
confirm to such Purchaser in writing that the Company does not believe that such
Purchaser, or any employee, officer, director, agent or representative of such
Purchaser, has been provided any material non-public information relating to the
Company by the Company or any Subsidiary, or any of their respective employees,
officers, directors, agents or representatives.  In the event that the
Company is unable to make such confirmation, or any Purchaser otherwise
requests, the Company will make public disclosure of any information in the
possession of such Purchaser which the Company or such Purchaser believes might
constitute material non-public information relating to the
Company.  No Purchaser shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
shareholders or agents for any such disclosure.  Subject to the
foregoing, neither the Company nor any Purchaser shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Purchaser, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the
8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause (i) each
Purchaser shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release).  Each press
release disseminated by the Company during the 12 months prior to the Closing
Date did not at the time of release contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.

    
      
         

      

      
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    4.9           Use of
Proceeds.  The Company shall use the net proceeds from the sale
of the Securities hereunder to repay certain existing Indebtedness of the
Company set forth on Schedule 4.9 (which
shall be repaid by the Company as promptly as practicable after the Closing and
which shall then be deemed paid for purposes of this Agreement as of the
Closing) and for general working capital purposes.

     

    4.10           Covenants.

     

    (a)          At
any time while (x) an aggregate of not less than fifteen percent (15%) of the
Preferred Shares purchased on the Closing Date are outstanding, (y) Warrants to
purchase an aggregate of not less than twenty percent (20%) of the Underlying
Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or
(z) the Purchasers, in the aggregate, own not less than fifteen percent (15%) of
the Common Stock issuable upon exercise of all Warrants on the Closing Date, the
Company shall:

     

    (i)           (A)
other than pursuant to Section 4.19, do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and its rights and franchises; (B) continue to
conduct its business substantially as now conducted or as otherwise currently
contemplated and permitted under this Agreement; and (C) at all times maintain,
preserve and protect in all material respects all of its assets and properties
used or useful in the conduct of its business, and keep the same in good repair,
working order and condition in all material respects (taking into consideration
ordinary wear and tear) and from time to time make, or cause to be made, all
necessary or appropriate repairs, replacements and improvements thereto
consistent with industry practices;

     

    (ii)           keep
adequate books and records with respect to its business activities in which
proper entries, reflecting all bona fide financial transactions, are made in
accordance with GAAP;

     

    (iii)           at
all times maintain, as of the last Trading Day of each fiscal quarter ending
after the date hereof (A) an amount of Cash of not less than 80% of the amount
of Cash projected for such fiscal quarter as set forth on Schedule 4.10(a), and
(B) an amount of Net Cash of not less than 80% of the amount of Cash projected
for such fiscal quarter as set forth on Schedule
4.10(a).  For purposes hereof, “Cash” shall mean all cash and
cash equivalents, as shown on the consolidated balance sheet of the Company
prepared in accordance with GAAP and included in the then most recent SEC
Report, and “Net Cash”
shall mean Cash minus Indebtedness (including without limitation Permitted
Indebtedness).

    
      
         

      

      
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    (iv)           at
all times maintain, at all times during each fiscal quarter ending after the
date hereof, gross revenues, determined in accordance with GAAP, of not less
than 80% of the amount of gross revenues projected for such fiscal quarter set
forth on Schedule
4.10(a);

     

    (v)           at
all times maintain, as of the last Trading Day of each fiscal quarter ending
after the date hereof, EBITDA, determined in accordance with GAAP, of not less
than 80% of the amount of EBITDA projected for such fiscal quarter as set forth
on Schedule
4.10(a); and

     

    (vi)           at
all times maintain, as of the last Trading Day of each fiscal quarter, Working
Capital of not less than the amount of Working Capital projected for such fiscal
quarter as set forth on Schedule
4.10(a).

     

    (b)          Notwithstanding
anything to the contrary, as long as (x) an aggregate of not less than fifteen
percent (15%) of the Preferred Shares purchased on the Closing Date are
outstanding, (y) Warrants to purchase an aggregate of not less than twenty
percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the
Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not
less than fifteen percent (15%) of the Common Stock issuable upon exercise of
all Warrants on the Closing Date, the Company shall not, directly or indirectly,
and including in each case with respect to any Subsidiary (as applicable),
without the affirmative vote of Hale Capital:

     

    (i)           by
operation of law or otherwise, (A) form or acquire any Subsidiary, (B) amend or
restate the Company’s Articles of Incorporation or other organizational or
charter documents (including the Certificate of Designations) or convert into
any other organizational form, other than pursuant to Section 4.19, (C)
liquidate, dissolve or wind up the Company, other than pursuant to Section 4.19, or (D)
other than pursuant to Section 4.19, merge
with, consolidate with, acquire all or substantially all of the assets or
capital stock of, or otherwise combine with or acquire or be acquired by, or
sell all or substantially all of the assets or capital stock to, any Person or
any operating division of any Person;

     

    (ii)           other
than pursuant to Section 4.19, sell,
dispose of, license or transfer, directly or indirectly, any capital stock or
any assets or property (including without limitation any payment of cash,
capital stock and/or other consideration in connection with any settlement by or
judgment against the Company or any Subsidiary) with a value, individually or in
the aggregate (including all such sales, dispositions, licenses or transfers),
equal to or greater than $100,000, or that are otherwise material to the Company
or its business;

     

    (iii)           undergo
any Fundamental Transaction, other than pursuant to clauses (i), (ii) or (vi) of
the definition thereof if and only if the Company does not solicit, participate
(other than as required by applicable law), consent to, enter into or fail to
reasonably resist or prevent any action contemplated by the applicable
clause;

    
      
         

      

      
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    (iv)           (A)
authorize the creation or issuance or issue of any capital stock other than
Permitted Issuances or issuances of Excluded Stock in accordance with the
definitions thereof and subject to the conditions of this Agreement or pursuant
to Sections 4.6, 4.19
or 4.21 subject to the conditions contained therein, (B) reclassify any
capital stock, or (C) directly or indirectly, redeem, purchase or otherwise
acquire any capital stock or set aside any monies for such a redemption,
purchase or other acquisition of its capital stock; provided that the Company
may (v) issue capital stock in respect of the Preferred Shares if specifically
permitted pursuant to the Certificate of Designations and in all events in
accordance with the terms thereof and of Section 4.6, (x)
directly or indirectly, redeem, purchase or otherwise acquire Securities if
specifically permitted pursuant to the Certificate of Designations or Section 4.6 and in
all events in accordance with the terms of the Certificate of Designations and
of Section 4.6,
or if allowed pursuant to Section 4.22 of this
Agreement and in all events in accordance with the terms thereof, (y) repurchase
the capital stock of former employees, officers, directors or consultants
pursuant to any plan, agreement or arrangement described in Schedule 3.1(g) in
accordance with its terms on the date hereof, or (z) comply with any cashless
exercise rights of the Warrants;

     

    (v)           set
aside, declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any shares or
other interests in the Company, other than distributions (v) in respect of the
Preferred Shares if specifically permitted pursuant to the Certificate of
Designations and in all events in accordance with the terms thereof and of Section 4.6, (w) to
directly or indirectly, redeem, purchase or otherwise acquire Securities if
specifically permitted pursuant to the Certificate of Designations or Section 4.6 and in
all events in accordance with the terms of the Certificate of Designations and
of Section 4.6,
or if allowed pursuant to Section 4.22 of this
Agreement and in all events in accordance with the terms thereof, (x) of Common
Stock upon the conversion of any Convertible Securities or Options outstanding
as of the date hereof and set forth in Schedule 3.1(g),
pursuant to the terms of such Convertible Securities or Options, as applicable,
as of the date hereof, (y) of Common Stock as a dividend on the Common Stock
distributed pro rata to the holders thereof, and (z) of assets to repurchase the
capital stock of former employees, officers, directors or consultants pursuant
to any plan, agreement or arrangement described in Schedule 3.1(g) in
accordance with its terms on the date hereof;

     

    (vi)           accelerate
any payments which are not currently due under any maintenance, license or any
other agreement or contract with any customer or supplier, other than in the
ordinary course of business and consistent with past practice between the
Company and the applicable customer or supplier;

     

    (vii)           create,
incur, assume or suffer to exist any Indebtedness of any kind, other than (A)
pursuant to the Senior Facility, and (B) trade payables incurred in the ordinary
course of business consistent with past practice, in the case of clause (A) in
no event to exceed $4,500,000 at all times after the Closing (clauses (A) and
(B) collectively, “Permitted
Indebtedness”);

    
      
         

      

      
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    (viii)         create,
incur, assume or suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, other than: (A) Liens
incurred by the Company, pursuant to Permitted Indebtedness; (B) carriers’,
warehousemen’s, materialmen’s and mechanics’ Liens arising by operation of law
or that are not material in amount and Liens arising from taxes, assessments,
charges or claims that are not yet due or that remain payable without penalty;
(C) Liens on real property that 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; (D) Liens incurred or deposits made in the
ordinary course of business in connection with workers’ compensation,
unemployment insurance and other types of social security, and mechanic’s Liens,
carrier’s Liens and other Liens to secure the performance of tenders, statutory
obligations, contract bids, government contracts, performance and return of
money bonds and other similar obligations, incurred in the ordinary course of
business, whether pursuant to statutory requirements, common law or contractual
arrangements; (E) Liens upon any equipment acquired or held by the Company
or any of its Subsidiaries to secure the purchase price of such equipment
incurred solely for the purpose of financing the acquisition of such equipment,
so long as such Lien extends only to the equipment financed, and any accessions,
replacements, substitutions and proceeds (including insurance proceeds) thereof
or thereto; and (F) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of customs duties in connection
with the importation of goods (clauses (A) through (F) collectively, “Permitted
Liens”);

     

    (ix)           make
directly or indirectly any payment in respect or on account of any Indebtedness,
other than Permitted Indebtedness;

     

    (x)           notwithstanding
anything to the contrary contained in this Agreement (A) seek to amend or
modify, or request any waiver of, any provision of the Senior Facility, or (B)
request to draw any funds under the Senior Facility such that the aggregate
amount owed by the Company under the Senior Facility at any given time would be
in excess of $4,500,000;

     

    (xi)           approve
or adopt stock option plan or similar employee incentive plan other than any
plan described in Schedule 3.1(g) or as
approved by the Company’s Board of Directors, in all cases in an aggregate
amount not to exceed three percent (3%) of the outstanding Common Stock on a
fully-diluted basis in any 12-month period and other than the Management
Pool;

     

    (xii)           increase
or decrease, or authorize the increase or decrease, of the number of members of
the Company’s Board of Directors or any committee thereof, other than pursuant
to Section 9(c) of the Certificate of Designations;

     

    (xiii)          (A)
appoint, hire, suspend or terminate the employment, or (B) materially modify the
compensation (including with respect to salary, bonus, incentives or severance),
other than in the case of this clause (B) pursuant to employment arrangements
existing as of the date of this Agreement and set forth on Schedule 3.1(m)(i),
of any executive officer; or

    
      
         

      

      
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    (xiv)         enter
into any agreement to do any of the foregoing or cause or permit any Subsidiary
of the Corporation directly or indirectly to take any actions described in
clauses (i) through (xiii) above.

     

    4.11           Repurchase of
Securities.  Each of the parties hereto agrees that all
repurchases of Securities by the Company pursuant to Section 4.6 hereof
will be paid, with respect to the Preferred Shares, pro rata to the holders
thereof based upon the number of Preferred Shares being purchased from each of
such holders and, with respect to the Warrants, pro rata to the holders thereof
based upon the number of Underlying Shares subject to the Warrants being
repurchased from each of such holders, and with respect to Common Stock, pro
rata to the holders thereof based upon the number of shares of Common Stock
being repurchased from each of such holders.

     

    4.12           No
Impairment.  At all times after the date hereof, the Company
will not take or permit any action, or cause or permit any Subsidiary to take or
permit any action that impairs or adversely affects the rights of the Purchasers
under any Transaction Document.

     

    4.13           [Intentionally
Omitted.]

     

    4.14           Indemnification.  If
any Purchaser or any of its Affiliates or any officer, director, partner,
controlling person, employee or agent of a Purchaser or any of its Affiliates (a
“Related Person”)
becomes involved in any capacity in any Proceeding brought by or against any
Person in connection with or as a result of the transactions contemplated by the
Transaction Documents, the Company will indemnify and hold harmless such
Purchaser or Related Person for its reasonable legal and other expenses
(including the reasonable costs of any investigation, preparation and travel)
and for any Losses incurred in connection therewith, as such expenses or Losses
are incurred, excluding only Losses that result directly from such Purchaser’s
or Related Person’s gross negligence or willful misconduct.  In
addition, the Company shall indemnify and hold harmless each Purchaser and
Related Person from and against any and all Losses, as incurred, arising out of
or relating to any misrepresentation or breach by the Company or any Subsidiary
of any of the representations, warranties or covenants made by the Company or
any Subsidiary in this Agreement or any other Transaction Document, or any
allegation by a third party that, if true, would constitute such a breach or
misrepresentation.  The conduct of any Proceedings for which
indemnification is available under this paragraph shall be governed by Section 6.6(c)
below.  The indemnification obligations of the Company under this
paragraph shall be in addition to any liability that the Company or any
Subsidiary may otherwise have and shall be binding upon and inure to the benefit
of any successors, assigns, heirs and personal representatives of the Purchasers
and any such Related Persons.  If the Company or any Subsidiary
breaches its obligations under any Transaction Document, then, in addition to
any other liabilities the Company may have under any Transaction Document or
applicable law, the Company shall pay or reimburse the Purchasers on demand for
all costs of collection and enforcement (including reasonable attorneys fees and
expenses).  Without limiting the generality of the foregoing, the
Company specifically agrees to reimburse the Purchasers on demand for all costs
of enforcing the indemnification obligations in this paragraph.

    
      
         

      

      
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    4.15           Shareholders Rights
Plan.  No claim will be made or enforced by the Company or any
other Person that any Purchaser is an “Acquiring Person” or any similar term
under any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers.

     

    4.16           Delivery of
Certificates.  In addition to any other rights available to a
Purchaser, if the Company fails to deliver or cause to be delivered to such
Purchaser a certificate representing Common Stock on the date on which delivery
of such certificate is required by any Transaction Document, and if after such
date such Purchaser purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Purchaser of the
shares that the Purchaser anticipated receiving from the Company (a “Buy-In”), then the Company
shall, within three Trading Days after such Purchaser’s request and in such
Purchaser’s discretion, either (i) pay cash to such Purchaser in an amount
equal to such Purchaser’s total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to
such Purchaser a certificate or certificates representing such Common Stock and
pay cash to such Purchaser in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Price on the date of the event giving rise to the
Company’s obligation to deliver such certificate.

     

    4.17           Access.  In
addition to any other rights provided by law or set forth herein, from and after
the date of this Agreement and for so long as any Preferred Shares remain
outstanding, the Company shall, and shall cause each of the Subsidiaries, to
give each Purchaser and its representatives, at the request of the Purchasers,
access during reasonable business hours to (a) all properties, assets,
books, contracts, commitments, reports and records relating to the Company and
the Subsidiaries, and (b) the management, accountants, lenders, customers
and suppliers of the Company and the Subsidiaries; provided, however, that the
Company shall not be required to provide such Purchaser access to any
information or Persons if the Company reasonably determines that access to such
information or Persons (x) would adversely affect the attorney-client
privilege between the Company and its counsel and cannot be provided to the
Purchasers in a manner that would avoid the adverse affect on the
attorney-client privilege between the Company and its counsel, (y) would
result in the disclosure of trade secrets, material nonpublic information or
other confidential or proprietary information and cannot be provided to the
Purchasers in a manner that would avoid the disclosure of trade secrets,
material nonpublic information or other confidential or proprietary information,
or (z) would violate the requirements of any Governmental Authority,
applicable law or regulation with respect to the confidentiality of information
or security clearances and cannot be provided to the Purchasers in a manner that
would not violate any such requirements, law or regulation; provided further
that the Company shall be required to provide such Purchaser with access to the
information contemplated in clause (y) if the Purchaser signs a customary
confidentiality agreement with the Company with respect to such
information.

    
      
         

      

      
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    4.18           Amendments to Transaction
Documents.  So long as (x) an aggregate of not less than
fifteen percent (15%) of the Preferred Shares purchased on the Closing Date are
outstanding, (y) Warrants to purchase an aggregate of not less than twenty
percent (20%) of the Underlying Shares issuable pursuant to all Warrants on the
Closing Date are outstanding, or (z) the Purchasers, in the aggregate, own not
less than fifteen percent (15%) of the Common Stock issuable upon exercise of
all Warrants on the Closing Date, the Company shall not, and shall not permit
any of its Subsidiaries to, enter into or become or remain subject to any
agreement or instrument, except for the Transaction Documents, that would
prohibit or require the consent of any Person to any amendment, modification or
supplement to any of the Transaction Documents.

     

    4.19           Amended
Certificate.  Promptly after attaining approval of the Proposal
in accordance with Section 4.21, but in
no event later than two (2) Business Days thereafter (the “Amendment Date”), the Company
shall file amended and restated articles of incorporation and/or such other
applicable merger, organizational or charter documents (the “Amended Certificate”), in a
form reasonably satisfactory to Purchasers, which shall provide for among other
things (i) an increase in the number of shares of Common Stock so as to
allow for the full issuance of the Underlying Shares, (ii) reincorporation of
the Company under the laws of the State of Delaware or Nevada, (as determined in
the discretion of Hale Capital), (iii) the approval of certain rights granted to
the holders of the Preferred Shares pursuant to Section 8(a) of the Certificate
of Designations, and (iv) the amendment of Section 9(b)(ii) of the Certificate
of Designations so that the text of such section is identical to the text set
forth in Section
4.10(b)(ii) of this Agreement.

     

    4.20           Stock
Split.  Promptly after attaining approval of the Proposal in
accordance with Section 4.21, the
Company shall cause a reverse stock split of the Common Stock on terms
reasonably acceptable to the Purchasers, subject only to the shareholder
approval required by the Amended Certificate, as may be amended from time to
time, the by-laws or any other applicable state laws.

     

    4.21           Shareholder
Approval.

     

    (a)          The
Company shall seek, and use its reasonable best efforts to obtain as soon as
possible, but in no event later than 105 days following the date hereof, or 195
days in the event the Proxy Materials shall be reviewed by the Commission (the
“Shareholder Approval
Date”), shareholder approval of the Amended Certificate, including with
respect to the issuance of the Underlying Shares, the reincorporation of the
Company and the approval of certain rights of the holders of Preferred Shares,
pursuant to Section
4.19, in accordance with the organizational documents of the Company and
all applicable laws (the “Proposal”).

     

    (b)          As
soon as practicable following the date of this Agreement, but in no event later
than 60 days following the date of this Agreement, the Company shall prepare and
file with the Commission preliminary Proxy Materials in connection with the
special meeting of the shareholders of the Company (the “Meeting”) seeking approval of
the Proposal.  The Company shall use its reasonable best efforts to
cause such preliminary Proxy Materials to reach the “no further comment” stage
as soon as possible (the “Clearance Date”) and to hold
the Meeting as soon as possible following the Clearance Date and in no event
later than 60 days following the Clearance Date.

    
      
         

      

      
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    (c)          The
Company’s Board of Directors shall recommend approval of the Proposal by the
Company’s shareholders, provided that such recommendation shall not as a result
of events occurring after the date hereof, in the sole determination of the
Company’s Board of Directors, constitute a breach of a directors’ fiduciary
duties to the Company or its shareholders.  The Company shall provide
the Purchasers an opportunity to review and comment on the Proxy Materials by
providing copies of such Proxy Materials and any revised version thereof to the
Purchasers at least three (3) days prior to its filing with the
Commission.  The Company shall provide the Purchasers excerpts of all
correspondence from or to the Commission or its staff concerning the Proposal
promptly after the same is sent or received by the Company and summaries of any
comments of the Commission’s staff concerning the Proposal which the Company
receives orally promptly after receiving such oral comments.  The
Company shall (i) furnish to the Purchasers and their legal counsel a copy
of the definitive Proxy Materials and any amendments or supplements thereto
promptly after the same are first mailed to shareholders or filed with the
Commission, (ii) inform the Purchasers of the progress of solicitation of
proxies for the Meeting, and (iii) inform the Purchasers of any adjournment of
the Meeting and report the result of the vote of shareholders of the Company on
the proposal at the conclusion of the Meeting.

     

    (d)          If
for any reason the Proposal is not approved at the Meeting, the Company shall
take such additional actions as are necessary to hold an additional special
meeting of its shareholders to consider the Proposal and in conjunction
therewith shall hire a nationally recognized proxy solicitation firm, selected
by Hale Capital which is reasonably acceptable to the Company, to assist the
Company in obtaining the necessary shareholder votes to approve the
Proposal.

     

    (e)          The
Company shall bear all costs and expenses of the preparation, mailing and filing
of the Proxy Materials.

     

    4.22           Certain Rights of the
Company.  If at any time a Purchaser and/or any transferee(s)
of that Purchaser realizes cash proceeds with respect to the Preferred Shares,
Warrants and Common Stock received upon exercise of the Warrants (for purposes
of clarity, including pursuant to any dividends, redemptions or other payments
made thereto in respect of the Preferred Shares) held by that Purchaser and/or
any such transferee(s), in the aggregate equal to or in excess of (x) the
Aggregate Purchase Price paid by that Purchaser as set forth on Schedule A, plus (y)
two hundred percent (200%) of such Aggregate Purchase Price, then the Company
shall have the option to repurchase all outstanding Preferred Shares held by
that Purchaser and/or any such transferee(s) for no additional consideration by
the Company.  Each Purchaser shall be required to provide the Company
and, if applicable, such transferee(s), with written notice of the occurrence of
the foregoing with respect to such Purchaser within five (5) Business Days of
such occurrence and the Company shall have the option to exercise the foregoing
right by providing written notice to such Purchaser and/or, if applicable, such
transferee(s) within 30 days of its receipt of such Purchaser’s written notice;
provided that the Company may provide notice to such Purchaser and/or, if
applicable, such transferee(s) once such Purchaser and/or, if applicable, such
transferee(s) have realized cash proceeds as set forth in clauses (x) and (y)
above.

    
      
         

      

      
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    ARTICLE
V.

    CONDITIONS

     

    5.1           Conditions Precedent to the
Obligations of the Purchasers.  The obligation of each
Purchaser to acquire Securities at the Closing is subject to the satisfaction or
waiver by such Purchaser, at or before the Closing, of each of the following
conditions:

     

    (a)          Representations and
Warranties.  The representations and warranties of the Company
and each other Purchaser contained herein shall be true and correct in all
material respects (except to the extent such representations and warranties are
qualified as to materiality, in which case such representations and warranties
shall be true and correct in all respects) as of the date when made and as of
the Closing as though made on and as of such time;

     

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

     

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

     

    (d)          Adverse
Changes.  Since the date of execution of this Agreement, no
event or series of events shall have occurred that has had or reasonably could
be expected to have or result in, individually or in the aggregate, a Material
Adverse Effect;

     

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

     

    (f)          Due
Diligence.  The Purchasers shall have satisfactorily completed
their due diligence in their sole discretion;

     

    (g)          Legal
Opinions.  The Purchasers shall have received the opinion of
Company’s legal counsel, in the form attached hereto as Exhibit G, with such
changes as may be approved by the Purchasers;

     

    (h)          Secretary of State
Certificates.  The Purchasers shall have received Certificates,
as of a recent date, of the Secretary of State of the States of Wyoming, Nevada
and Maryland and each other jurisdiction where a Subsidiary is organized showing
the Company and each Subsidiary (other than the Non-Active Subsidiary), as
applicable, to be validly existing in their respective jurisdictions of
organization and in good standing;

    
      
         

      

      
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    (i)          Officer’s Certificates of
Company and the Subsidiaries.  The Purchasers shall have
received a certificate signed by an authorized officer of each of the Company
and the Subsidiaries (other than the Non-Active Subsidiary) dated as of the
Closing Date certifying that (i) attached thereto are true and complete
copies of all organizational documents thereof, together with any and all
amendments thereto, and that the same are in full force and effect, and
(ii) with respect to the Company, attached thereto are true and complete
copies of resolutions adopted by the Company’s Board of Directors, authorizing
the execution, delivery and performance by the Company of the Transaction
Documents to which it is a party, and that the same are in full force and
effect;

     

    (j)          Closing Certifications of
the Company.  The Purchasers shall have received a certificate
signed by an authorized officer of the Company certifying that, as of the
Closing Date, (i) each of the conditions set forth in this Section 5.1 has
been satisfied (except to the extent waived in writing by the Purchasers) and
(ii) no Event of Default (as defined in the Certificate of Designations),
or event which, with the giving of notice or the passing of time, would
constitute an Event of Default, exists as of such date;

     

    (k)          Preferred Stock Exchange
Agreement.  The Preferred Stock Exchange Agreement attached as
Exhibit E
hereto, duly executed by the Company and each of the Persons holding Series A
Preferred Stock of the Company listed on the signature pages thereto and
delivered to the Purchasers on the date of this Agreement, shall remain in full
force and effect, and the consummation of the exchange of the Series A Preferred
Stock by such Persons contemplated thereby shall occur at the
Closing;

     

    (l)          Preferred Stock Redemption
Agreement.  The Preferred Stock Redemption Agreement attached
as Exhibit F
hereto, duly executed by the Company and each of the Persons holding Series A
Preferred Stock of the Company listed on the signature pages thereto and
delivered to the Purchasers on the date of this Agreement, shall remain in full
force and effect, and the consummation of the redemption of the Series A
Preferred Stock by such Persons contemplated thereby shall occur immediately
following the Closing;

     

    (m)          Shareholder
Agreement.  The Shareholder Agreement attached as Exhibit I hereto,
duly executed by the Company and each of the Persons listed on Schedule I
attached thereto and delivered to the Purchasers on the date of this Agreement,
shall remain in full force and effect;

     

    (n)          Other
Documents.  All other Transaction Documents, opinions,
certificates and other instruments and all proceedings in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
form and substance to the Purchasers.  The Purchasers shall have
received copies of all other documents, opinions, certificates and instruments
required to be delivered at the Closing pursuant to Section 2.2(a)
hereof and all other documents, opinions, certificates and instruments
reasonably requested thereby, with respect to the transactions contemplated by
this Agreement and the other Transaction Documents in form and substance
satisfactory to the Purchasers;

     

    (o)          Financial
Tests.  The Company shall have achieved the financial tests set
forth on Schedule
4.10(a); and

     

    (p)          Financial
Plan.  The Company and Hale Capital shall have agreed upon a
two (2)-year financial plan for the Company.

    
      
         

      

      
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    5.2           Conditions Precedent to the
Obligations of the Company.  The obligation of the Company to
sell Securities at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following
conditions:

     

    (a)          Representations and
Warranties.  The representations and warranties of the
Purchasers contained herein shall be true and correct in all material respects
(except to the extent such representations and warranties are qualified as to
materiality, in which case such representations and warranties shall be true and
correct in all respects) as of the date when made and as of the Closing as
though made on and as of such date;

     

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

     

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

     

    (d)          Other
Documents.  The Company shall have received copies of all other
documents, opinions, certificates and instruments required to be delivered at
the Closing pursuant to Section 2.2(b)
hereof and all other documents, opinions, certificates and instruments
reasonably requested thereby, with respect to the transactions contemplated by
this Agreement and the other Transaction Documents in form and substance
satisfactory to the Company.

     

    ARTICLE
VI.

    REGISTRATION
RIGHTS

     

    6.1           Demand
Registration.

     

    (a)          If
at any time the Company shall receive a Registration Request, then the Company
shall, within 10 days of the receipt thereof, give written notice of such
request to all holders of Registrable Securities and, subject to the limitations
of Section
6.1(b), shall use its reasonable best efforts to prepare and file a
Registration Statement under the Securities Act with respect to all Registrable
Securities which the applicable holders thereof request to be registered within
10 days of the mailing of such notice by the Company, in accordance with Section 6.3 (as
expeditiously as practicable) in any event not later than the Filing Date, and
use its reasonable best efforts to cause such Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event not later than the Required Effectiveness
Date.

    
      
         

      

      
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    (b)          If
the applicable holders thereof intend to distribute the Registrable Securities
covered by their request by means of an underwriting (whether it is on a firm
commitment or best efforts (i.e., registered direct) basis), they shall so
advise the Company as a part of their request made pursuant to this Section 6.1 and the
Company shall include such information in the written notice referred to in
Section
6.1(a).  In such event, the right of any such holder to include
such holder’s Registrable Securities in such registration shall be conditioned
upon such holder’s participation in such underwriting and the inclusion of such
holder’s Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the holders participating in the
underwriting and such holder) to the extent provided herein.  A
majority in interest of the holders of Registrable Securities participating in
the underwriting, in consultation with the Company, shall select the managing
underwriter or underwriters in such underwriting.  All holders
proposing to distribute Registrable Securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form with the underwriter or underwriters so selected for such underwriting by a
majority in interest of such holders; provided, however, that no holder (or any
of their assignees) shall be required to make any representations, warranties or
indemnities except as they relate to such holder’s ownership of shares and
authority to enter into the underwriting agreement and to such holder’s intended
method of distribution, and the liability of such holder shall be limited to an
amount equal to the net proceeds from the offering received by such
holder.  Notwithstanding any other provision of this Section 6.1, if the
underwriter advises a holder that marketing factors require a limitation of the
number of shares to be underwritten, then the holder shall so advise the Company
and the Company shall so advise all holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated as follows: (i) first, among the Purchasers that have elected to
participate in such underwritten offering, in proportion (as nearly as
practicable) to the aggregate amount of Registrable Securities held by all such
Purchasers, until such Purchasers have included in the underwriting all shares
requested by such Purchasers to be included, (ii) then, among other holders of
Registrable Securities that have elected to participate in such underwritten
offering, in proportion (as nearly as practicable) to the aggregate amount of
Registrable Securities held by all such holders, until such holders have
included in the underwriting all shares requested by such holders to be
included, and (iii) thereafter, among all other holders of Common Stock, if any,
that have the right and have elected to participate in such underwritten
offering, in proportion (as nearly as practicable) to the amount of shares of
Common Stock owned by such holders.  Without the consent of a majority
in interest of the holders of Registrable Securities participating in a
registration referred to in Section 6.1(a), no
securities other than Registrable Securities shall be covered by such
registration if the inclusion of such other securities would result in a
reduction of the number of Registrable Securities covered by such registration
or included in any underwriting or if, in the opinion of the managing
underwriter, the inclusion of such other securities would adversely impact the
marketing of such offering.  Notwithstanding anything contained
herein, in the event the Commission or applicable federal securities laws and
regulations prohibit the Company from including all Registrable Securities
requested by the holders thereof to be registered in any Registration Statement,
then the Company shall be obligated to include in such Registration Statement
only such limited portion of the Registrable Securities as is the maximum amount
permitted by the Commission or such federal securities laws and
regulations.

     

    (c)          The
Company shall be obligated to effect only four (4) registrations pursuant to
Registration Requests under this Section 6.1 (an
offering which is not consummated shall not be counted for this
purpose).

    
      
         

      

      
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    6.2           Piggyback
Registration.

     

    (a)          If
(but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the holders of Registrable Securities) any of its Common
Stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration on Form S-8 (or similar or
successor form) relating solely to the sale of securities to participants in a
Company stock plan or to other compensatory arrangements to the extent
includable on Form S-8 (or similar or successor form), or a registration on Form
S-4 (or similar or successor form)), the Company shall, at such time, promptly
give each holder of Registrable Securities written notice of such
registration.  Upon the written request of any holder of Registrable
Securities received by the Company within 10 Trading Days after mailing of such
notice by the Company in accordance with this Agreement, the Company shall use
its reasonable best efforts to cause to be filed a Registration Statement
including the maximum amount of Registrable Securities that each such holder
(collectively, the “Electing
Holders”) has so requested to be registered and which is permitted to be
registered by the Commission or applicable federal securities laws and
regulations, and use its reasonable best efforts to cause such Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof.  If such registration involves an
underwritten offering to the public, all Electing Holders must sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to the Company or other selling
shareholders.  If, at any time after giving notice of the Company’s
intention to register any securities pursuant to this Section 6.2 and prior
to the effective date of the Registration Statement filed in connection with
such registration, the Company shall determine for any reason not to register
such securities, the Company shall give written notice to all holders of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from any obligation of the Company to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of holders of
Registrable Securities under Section
6.1.  The Company shall have no obligation under this Section 6.2 to make
any offering of its securities, or to complete an offering of its securities
that it proposes to make.

     

    (b)          If
such registration involves an underwritten offering to the public, if the
managing underwriter of the underwritten offering shall inform the Company by
letter of the underwriter’s opinion that the number of Registrable Securities
requested to be included in such registration would, in its opinion, materially
adversely affect such offering, including the price at which such securities can
be sold, and the Company has so advised the Electing Holders in writing, then
the Company shall include in such registration, to the extent of the number that
the Company is so advised can be sold in (or during the time of) such offering,
(i) first, all securities proposed by the Company to be sold for its own
account, then (ii) to the extent that the number of shares of Common Stock
proposed to be sold by the Company or the other holders of Registrable
Securities pursuant to Section 6.2(a) is
less than the number of shares of Common Stock that the Company has been advised
can be sold in such offering without having the material adverse effect referred
to above, such Registrable Securities requested by Electing Holders who are
Purchasers to be included in such registration, allocated pro rata among such
Electing Holders as nearly as practicable to the respective amounts of
Registrable Securities requested to be included in such registration, shall
first be included (and in no event shall the amount of Registrable Securities of
the selling Purchasers included in the offering be reduced below thirty percent
(30%) of the total
amount of securities included in such offering, then (iii) such other securities
covered by other registration rights, allocated pro rata among the holders of
such other rights in proportion, as nearly as practicable, to the respective
amounts of such securities requested to be included in such
registration.  All other shareholders of the Company shall be excluded
from the proposed offering before any Electing Holder is required to reduce his,
hers or its shares being offered under the registration
statement.

    
      
         

      

      
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    6.3           Demand Registration
Procedures.  In connection with the Company’s registration
obligations hereunder with respect to a Registration Statement pursuant to Section 6.1, the
Company shall:

     

    (a)          Not
less than three (3) Trading Days prior to the filing of a Registration Statement
or any related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall furnish to each holder of Registable Securities
and its counsel copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such holders and their
counsel.  The Company shall not file a Registration Statement or any
such Prospectus or any amendments or supplements thereto to which holders
holding a majority of the Registrable Securities shall reasonably
object.

     

    (b)          (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep such Registration Statement continuously
effective as to the applicable Registrable Securities until all of the
Registrable Securities registered thereunder have been sold, and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424; (iii) respond as promptly as reasonably possible, to any comments
received from the Commission with respect to any Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the holders of
Registrable Securities and their counsel true and complete copies of all
correspondence from and to the Commission relating to a Registration Statement,
but, if any holder has not signed a confidentiality agreement with the Company,
not any correspondence which would result in the disclosure to such holder of
material nonpublic information concerning the Company; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by a
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the holders thereof set forth in the
applicable Registration Statement as so amended or in such Prospectus as so
supplemented.

    
      
         

      

      
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    (c)          Notify
the holders of Registrable Securities to be sold pursuant to any Registration
Statement and their counsel as promptly as reasonably possible, and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Trading Day thereafter, of any of the following
events:  (i) the Commission notifies the Company whether there
will be a “review” of any Registration Statement; (ii) the Commission
comments in writing on any Registration Statement (in which case the Company
shall deliver to each holder of Registrable Securities a copy of such comments
and of all written responses thereto, but, if any holder has not signed a
confidentiality agreement with the Company, no information which the Company
reasonably believes would constitute material nonpublic information concerning
the Company ); (iii) any Registration Statement or any post-effective
amendment is declared effective; (iv) the Commission or any other federal
or state Governmental Authority requests any amendment or supplement to any
Registration Statement or Prospectus or requests additional information related
thereto; (v) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included or incorporated by
reference in any Registration Statement become ineligible for inclusion or
incorporation therein or any statement made in any Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference is untrue in any material respect or any revision to a Registration
Statement, Prospectus or other document is required so that it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.

     

    (d)          Use
its reasonable best efforts to avoid the issuance of or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of any
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as practicable.

     

    (e)          Furnish
to each holder of Registrable Securities and its counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

     

    (f)          Promptly
deliver to each holder of Registrable Securities and its counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request.  The Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

     

    (g)          (i)
In the time and manner required by each Trading Market, if applicable, prepare
and file with such Trading Market an additional shares listing application
covering all of the Registrable Securities; (ii) use its reasonable best efforts
to cause such Registrable Securities to be approved for listing on each Trading
Market, as applicable, as soon as reasonably practicable thereafter; (iii)
provide to the Holder evidence of such listing; and (iv) use its reasonable best
efforts to maintain the listing of such Registrable Securities on each such
Trading Market or another Eligible Market.

    
      
         

      

      
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    (h)          Prior
to any public offering of Registrable Securities pursuant to any Registration
Statement, use its reasonable best efforts to register or qualify or cooperate
with the selling holders of Registrable Securities and their counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as any such holder requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective until all of the Registrable
Securities registered or qualified thereunder have been sold and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement.

     

    (i)          Subject
to Section
4.17, cooperate with the holders of Registrable Securities to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by this Agreement, of
all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such holders may
request.

     

    (j)          Upon
the occurrence of any event described in Section 6.3(c)(vii),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the affected Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the affected Registration Statement nor
such Prospectus will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

     

    (k)          Cooperate
with any due diligence investigation undertaken by the holders of Registrable
Securities in connection with the sale of Registrable Securities pursuant to a
Registration Statement, including without limitation by making available any
documents and information.

     

    (l)          If
holders of a majority of the Registrable Securities being offered pursuant to a
Registration Statement select underwriters (whether on a firm commitment or best
efforts basis) for the offering, the Company shall enter into and perform its
obligations under an underwriting (or similar) agreement, in usual and customary
form, including, without limitation, by providing customary legal opinions,
comfort letters and indemnification and contribution obligations.

     

    (m)          In
the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering.

     

    (n)          Comply
with all applicable rules and regulations of the Commission.

    
      
         

      

      
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    (o)          The
Company shall not be required to deliver any document pursuant to any provision
of this Section
6.3 to any holder of Registrable Securities that is not selling
Registrable Securities under the applicable Registration Statement.

     

    (p)          The
Company shall not identify any holder of Registrable Securities as an
underwriter in any public disclosure or filing with the Commission or any
Trading Market without the prior written consent of such holder.  If
the Company is required by law to identify any such holder as an underwriter in
any public disclosure or filing with the Commission or any Trading Market, it
must notify such holder in writing in advance and such holder shall have the
option, in its sole discretion, to consent to such identification as an
underwriter or to elect to have its Registrable Securities be removed from such
Registration Statement.  If any holder of Registrable Securities does
not make such election within five (5) Business Days of such holder’s receipt of
such Notice, such holder shall be deemed to have elected to have its Registrable
Securities be deemed to be removed from such Registration
Statement.

     

    6.4           Piggyback Registration
Procedures.  In connection with the Company’s registration
obligations hereunder with respect to a Registration Statement pursuant to Section 6.2, the
Company shall:

     

    (a)          Not
less than three (3) Trading Days prior to the filing of each Registration
Statement or any related Prospectus or any amendment or supplement thereto, (i)
furnish to the Electing Holders and their counsel copies of all such documents
proposed to be filed, and (ii) cause the Company’s officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.

     

    (b)          (i)
Cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424; (ii) as promptly as reasonably possible provide the Electing Holders
and their counsel true and complete copies of all correspondence from and to the
Commission relating to a Registration Statement; and (iii) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by a
Registration Statement during the offering.

     

    (c)          Notify
the Electing Holders and their counsel as promptly as reasonably possible, and
(if requested by any such person) confirm such notice in writing no later than
one (1) Trading Day thereafter, of any of the following events: (i) the
Commission notifies the Company whether there will be a “review” of any
Registration Statement; (ii) the Commission comments in writing on any
Registration Statement (in which case the Company shall deliver to each Electing
Holder a copy of such comments and of all written responses thereto); (iii) any
Registration Statement or any post-effective amendment is declared effective;
(iv) the Commission or any other Governmental Authority requests any amendment
or supplement to a Registration Statement or related Prospectus or requests
additional information related thereto; (v) the Commission issues any stop order
suspending the effectiveness of any Registration Statement or initiates any
Proceedings for that purpose; (vi) the Company receives notice of any suspension
of the qualification or exemption from qualification of any Registrable
Securities for sale in any jurisdiction, or the initiation or threat of any
Proceeding for such purpose; or (vii) the financial statements included in any
Piggy-Back Registration Statement become ineligible for inclusion therein or any
statement made in any Piggy-Back Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference is
untrue in any material respect or any revision to a Registration Statement,
related Prospectus or other document is required so that it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.

    
      
         

      

      
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    (d)          Furnish
to each Electing Holder and its counsel, without charge at least one (1)
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, and all exhibits to the extent
requested by such person (excluding those previously furnished or incorporated
by reference) promptly after the filing of such documents with the
Commission.

     

    (e)          Promptly
deliver to each Electing Holder and its counsel, without charge, as many copies
of the Prospectus or Prospectuses (including each form of prospectus) related to
the Registration Statement and each amendment or supplement thereto as such
persons may reasonably request.  The Company hereby consents to the
use of such Prospectus and each amendment or supplement thereto by each of the
selling Electing Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

     

    (f)          Cooperate
with the Electing Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement which certificates shall be free, to the
extent permitted by this Agreement, of all restrictive legends, and to enable
such Registrable Securities to be in such denominations and registered in such
names as any such Electing Holders may request.

     

    (g)          Comply
with all applicable rules and regulations of the Commission.

     

    (h)          Upon
the occurrence of any event described in Section 6.4(c)(vii),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to such a Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither such Registration Statement nor its related
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

     

    6.5           Registration
Expenses.  The Company shall pay (or reimburse the holders of
Registrable Securities for) all fees and expenses incident to the performance of
or compliance with this Agreement by the Company, including without limitation
(a) all registration and filing fees and expenses, including without
limitation those related to filings with the Commission, any Trading Market and
in connection with applicable state securities or Blue Sky laws,
(b) printing expenses (including without limitation expenses of printing
certificates for Registrable Securities and of printing prospectuses requested
by the holders of Registrable Securities), (c) messenger, telephone and
delivery expenses, (d) reasonable fees and disbursements of counsel for the
Company and reasonable fees and disbursements of one (1) counsel for the holders
of Registrable Securities, (e) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement, and (f) all listing fees to be paid by the
Company to the Trading Market.  Notwithstanding the foregoing, the
Company shall not be obligated to pay any sales or brokerage commission incurred
by the holders of Registrable Securities in connection with any sale of
Registrable Securities.

    
      
         

      

      
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    6.6           Indemnification.

     

    (a)          Indemnification by the
Company.  The Company shall, notwithstanding any termination of
this Agreement, indemnify and hold harmless each Purchaser, holder of
Registrable Securities, the officers, directors, partners, members, agents,
brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin call
of Common Stock), investment advisors and 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 each of them, each Person who
controls any such Purchaser or holder of Registrable Securities (within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, partners, members, agents and
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
each such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all Losses, as incurred, arising out of or relating to
(1) any untrue or alleged untrue statement of a material fact contained in
the Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, or (2) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities law, or any rule or regulation thereunder,
in connection with the performance of its obligations under this Agreement,
except to the extent, but only to the extent, that (i) such untrue
statements, alleged untrue statements, omissions or alleged omissions are based
solely upon information regarding such Purchaser or holder of Registrable
Securities furnished in writing to the Company by such Purchaser or holder of
Registrable Securities expressly for use therein, or to the extent that such
information relates to such Purchaser or holder of Registrable Securities or
such Purchaser’s or holder of Registrable Securities’ proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Purchaser or holder of Registrable Securities expressly for
use in the Registration Statement, such Prospectus or such form of Prospectus or
in any amendment or supplement thereto or (ii) in the case of an occurrence
of an event of the type specified in Sections 6.3(c)(v)-(vii)
or 6.4(c)(v)-(vii), the use by such Purchaser or holder of Registrable
Securities of an outdated or defective Prospectus after the Company has notified
such Purchaser or holder of Registrable Securities in writing that the
Prospectus is outdated or defective and prior to the receipt by such Purchaser
of the Advice contemplated in Section 6.7.  The
Company shall notify the Purchasers and the holders of Registrable Securities
promptly of the institution, threat or assertion of any Proceeding arising from
or in connection with the transactions contemplated by this Agreement of which
the Company is aware.

    
      
         

      

      
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    (b)          Indemnification by
Purchasers.  Each Purchaser shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
any omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in light of the circumstances under which they were made)
not misleading to the extent, but only to the extent, that (i) such untrue
statement or omission is based solely upon information regarding such Purchaser
furnished in writing to the Company by such Purchaser expressly for use in such
Registration Statement or Prospectus, or to the extent that such information
relates to such Purchaser or such Purchaser’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Purchaser expressly for use in the Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto or
(ii) in the case of an occurrence of an event of the type specified in
Sections 6.3(c)(v)-(vii)
or 6.4(c)(v)-(vii), the use by such Purchaser of an outdated or defective
Prospectus after the Company has notified such Purchaser in writing that the
Prospectus is outdated or defective and prior to the receipt by such Purchaser
of the Advice contemplated in Section 6.7.  In
no event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount of the net proceeds received by such Purchaser
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.

     

    (c)          Conduct of Indemnification
Proceedings.  If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.

    
      
         

      

      
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    An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (i) the Indemnifying Party has agreed in writing to pay
such fees and expenses; or (ii) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(iii) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party).  The Indemnifying
Party shall not be liable for any settlement of any such Proceeding effected
without its written consent, which consent shall not be unreasonably
withheld.  No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

     

    All fees
and expenses of the Indemnified Party (including reasonable fees and expenses to
the extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within 10 Trading Days of written notice thereof
to the Indemnifying Party (regardless of whether it is ultimately determined
that an Indemnified Party is not entitled to indemnification hereunder;
provided, that the Indemnifying Party may require such Indemnified Party to
undertake to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).

     

    (d)          Contribution.  If
a claim for indemnification under Section 6.5(a) or
(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by a party as a result of any
Losses shall be deemed to include, subject to the limitations set forth in Section 6.5(c),
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its
terms.

    
      
         

      

      
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    The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.5(d)
were determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph.  Notwithstanding the provisions of
this Section 6.5(d),
no Purchaser shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Purchaser
from the sale of the Registrable Securities subject to the Proceeding exceeds
the amount of any damages that such Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.  No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

     

    The
indemnity and contribution agreements contained in this Section 6.5 are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

     

    6.7           Dispositions.  Each
Purchaser agrees that it will comply with the prospectus delivery requirements
of the Securities Act as applicable to it in connection with sales of
Registrable Securities pursuant to the Registration Statement.  Each
Purchaser further agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Sections 6.3(c)(v),
(vi) or (vii) or 6.4(c)(v), (vi) or (vii), such Purchaser will
discontinue disposition of such Registrable Securities under the Registration
Statement until such Purchaser’s receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Sections 6.2(j) or
6.3(j), or until it is advised in writing (the “Advice”) by the Company that
the use of the applicable Prospectus may be resumed, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus or Registration
Statement.

     

    6.8           No Piggyback on
Registrations.  Except as set forth on Schedule 6.8 or with
the prior written consent of the holders of a majority of the Registrable
Securities, neither the Company nor any of its security holders (other than the
Purchasers in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities, and
the Company shall not enter into any agreement providing for any such right to
any of its security holders to be included in the Registration Statement for the
Registrable Securities.

    
      
         

      

      
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    6.9           Default on
Registration.  If: (a) any Registration Statement is not
filed on or prior to its Filing Date (provided that if the Company files such
Registration Statement without affording the Purchasers the opportunity to
review and comment on the same as required by Sections 6.3 and
6.4, the Company shall not be deemed to have satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act,
within five (5) Trading Days after the date that the Company is notified (orally
or in writing, whichever is earlier) by the Commission that a Registration
Statement will not be “reviewed,” or will not be subject to further review, or
(c) the Company fails to respond to any comments made by the Commission
within 10 Trading Days after the receipt of such comments, (except if such
comments relate to the financial statements of the Company or other accounting
related issues, in which case, such response period shall be extended for such
period of time as may be required for the Company’s auditors to provide
responses to such comments, provided that the Company is during such period
continually using all commercially reasonable efforts to obtain such responses,
and provided, further, that such period of time shall in no event exceed 20
Trading Days (an “Accounting
Extension”)), or (d) a Registration Statement filed or required to
be filed hereunder is not declared effective by the Commission by the Required
Effectiveness Date, or (e) after a Registration Statement is filed with and
declared effective by the Commission, such Registration Statement ceases for any
reason to remain continuously effective as to all Registrable Securities for
which it is required to be effective without being succeeded within 10 Trading
Days by an amendment to such Registration Statement or by a subsequent
Registration Statement filed with and declared effective by the Commission, or
the Purchasers are otherwise not permitted to utilize the Prospectus therein to
resell such Registrable Securities for more than 15 consecutive calendar days or
more than an aggregate of 30 calendar days during any 12-month period (which
need not be consecutive calendar days), or (f) an amendment to a
Registration Statement is not filed by the Company with the Commission within 10
Trading Days after the Commission’s having notified the Company that such
amendment is required in order for such Registration Statement to be declared
effective (except to the extent such period is exceeded pursuant to an
Accounting Extension), or (g) the Common Stock is not listed or quoted, or
is suspended from trading on an Eligible Market for a period of three (3)
Trading Days (which need not be consecutive Trading Days), (any such failure or
breach being referred to as an “Event,” and for purposes of
clause (a) or (d) the date on which such Event occurs, or for purposes of clause
(b) the date on which such five (5) Trading Day period is exceeded, or for
purposes of clauses (c), (e) or (f) the date which such 10 Trading Day-period is
exceeded, or for purposes of clause (g) the date on which such three (3) Trading
Day period is exceeded, being referred to as “Event Date”),
then:  (x) on each such Event Date the Company shall pay to each
Purchaser an amount in cash, as partial liquidated damages and not as a penalty,
equal to the lesser of (A) one percent (1%) of the purchase price paid with
respect to the maximum amount of Registrable Securities that could under
applicable federal securities laws and regulations be registered for resale by
such Purchaser pursuant to this Agreement, and (B) one percent (1%) of the
purchase price paid with respect to the total number of Registrable Securities
requested to be registered by such Purchaser; and (y) on each monthly
anniversary of each such Event Date thereof (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to each Purchaser an amount in cash, as partial liquidated damages and
not as a penalty, equal to the lesser of (A) two percent (2%) of the purchase
price paid with respect to the maximum amount of Registrable Securities that
could under applicable federal securities laws and regulations be registered for
resale by such Purchaser pursuant to this Agreement, and (B) two percent (2%) of
the purchase price paid with respect to the total number of Registrable
Securities requested to be registered by such Purchaser.  Such
payments shall be in partial compensation to the Purchasers and shall not
constitute the Purchaser’s exclusive remedy for such events.  If the
Company fails to pay any liquidated damages pursuant to this Section 6.9 in full
within five (5) Business Days after the date payable, the Company will pay
interest thereon at the Default Rate to the Purchaser, accruing daily from the
date such liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full.  This Section 6.9
shall not apply to a delay to the extent caused by (i) the Purchasers or
(ii) the Company’s independent auditors or the Commission, if such delay is
outside the control of the Company and not related to any action or inaction on
the part of the Company, the Subsidiaries or any of their respective officers or
directors.  Notwithstanding the foregoing, to the extent that the
Company is unable to satisfy any of its obligations pursuant to this Section 6.9 with
respect to any portion of the Registrable Securities as a result of applicable
securities laws, rules or regulations, the liquidated damages payable by the
Company pursuant to this Section 6.9 shall be
proportionately reduced in respect thereof.

    
      
         

      

      
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    ARTICLE
VII.

    MISCELLANEOUS

     

    7.1           Termination.  This
Agreement may be terminated by Hale Capital, by written notice to the other
parties, if the Closing has not been consummated within five business days of
the date hereof; provided that no such termination will affect the right of any
party to sue for any breach by the other party (or parties).

     

    7.2           Fees and
Expenses.  At the Closing, the Company shall pay to the
Purchasers in cash by wire transfer of immediately available funds (i) the
legal and due diligence fees and expenses incurred by them in connection with
the preparation and negotiation of the Transaction Documents, which is $270,000
as of the Closing; and (ii) the financing origination fees set forth on
Schedule
7.2.  In lieu of the foregoing payments, the Purchasers may
retain such amounts at 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 issuance of any
Securities.

     

    7.3           Entire
Agreement.  The Transaction Documents, together with the
Exhibits and Schedules thereto and the respective nondisclosure agreements
between the Company and the Purchasers, 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.  At or after the Closing, and without further
consideration, the Company will execute and deliver to the Purchasers such
further documents as may be reasonably requested in order to give practical
effect to the intention of the parties under the Transaction
Documents.

     

    7.4           Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided under this Agreement or any other Transaction Document shall be in
writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section prior to 6:30 p.m. (New
York City time) on a Trading Day, (ii) the Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, specifying next business day delivery or
(iv) upon actual receipt by the party to whom such notice is required to be
given if delivered by hand.  The address for such notices and
communications shall be as follows:

     

    
      	
              If
      to the Company:

            	
              Paradigm
      Holdings, Inc.

              9715
      Key West Ave.

              3rd
      Floor

              Rockville,
      MD 20850

              Attn.:
      Peter B. LaMontagne

              Tel.:
      (301) 468-1200

              Fax:
      (240) 235-4380

            
	 
      

    

    
      
         

      

      
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              With
      a copy to:

            	
              K&L
      Gates

              Wachovia
      Financial Center, Suite 3900,

              200
      South Biscayne Boulevard

              Miami,
      Florida  33131-2399

              Attn.:  Clayton
      E. Parker

              Tel.:
      (305) 539-3306

              Fax:
      (305) 358-7095

            
	 
      
	 
      	 
      
	
              If
      to the Purchasers:

            	
              To
      the address set forth under such Purchaser’s name on the signature pages
      attached hereto.

            
	 
      	 
      
	
              With
      a copy to:

            	
              Proskauer
      Rose LLP

              1585
      Broadway

              New
      York, NY 10036

              Attn.:  Adam
      J. Kansler

              Tel.:
      (212) 969-3000

              Fax:
      (212) 969-2900

            

    

     

    or such
other address as may be designated in writing hereafter, in the same manner, by
such Person by two Trading Days’ prior notice to the other party in accordance
with this Section 7.4.

     

    7.5           Amendments;
Waivers.  No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
Hale Capital and the Company, or, in the case of a waiver, by Hale
Capital.  Any waiver executed by Hale Capital shall be binding on the
Company all Purchasers hereunder and all holders of Preferred Shares and/or
Warrants, as applicable.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.  Notwithstanding the foregoing,
a waiver or consent to depart from the provisions hereof with respect to a
matter that relates exclusively to the rights of Purchasers under Article VI and that
does not directly or indirectly affect the rights of other Purchasers may be
given by Purchasers holding at least a majority of the Registrable Securities to
which such waiver or consent relates.  No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
also is offered on identical terms to all of the parties to the Transaction
Documents that are holders of Preferred Shares.

     

    7.6           Construction.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.  The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.

    
      
         

      

      
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    7.7           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, other than pursuant to the reincorporation as
contemplated by Section 4.19, without
the prior written consent of the Purchasers.  Any Purchaser may assign
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 hereof and
of the applicable Transaction Documents that apply to the
“Purchasers.”  Notwithstanding anything to the contrary herein,
Securities may be pledged to any Person in connection with a bona fide margin
account or other loan or financing arrangement secured by such
Securities.

     

    7.8           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 that each Related Person is an intended third party beneficiary
of Section 4.14
and each Indemnified Party is an intended third party beneficiary of Section 6.4 and
(in each case) may enforce the provisions of such Sections directly against
the parties with obligations thereunder.

     

    7.9           Governing Law; Venue; Waiver
of Jury Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York (except for matters governed by corporate law in the State of Wyoming),
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
(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, Borough of
Manhattan.  each party hereto 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 this Agreement), and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such
Proceeding is improper.  each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof.  nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.  each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any Proceeding arising out of or
relating to this Agreement or the transactions contemplated
hereby.  if either party shall commence a Proceeding to enforce any
provisions of this Agreement, then the prevailing party in such Proceeding shall
be reimbursed by the other party for its attorneys’ fees and other reasonable
costs and expenses incurred with the investigation, preparation and prosecution
of such Proceeding.

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

      
        61

        
          

        

      

      
         

      

    

    7.16           Payment Set
Aside.  To the extent that the Company makes a payment or
payments to any Purchaser hereunder or any Purchaser enforces or exercises its
rights hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company
by 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.

     

    7.17           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 of interest 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.

     

    7.18           Independent Nature of
Purchasers’ Obligations and Rights.  The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under any
Transaction Document.  The decision of each Purchaser to purchase
Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions.  Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Document.  The Company hereby confirms that it understands
and agrees that the Purchasers are not acting as a “group” as that term is used
in Section 13(d) of the Exchange Act.  Each Purchaser
acknowledges that no other Purchaser has acted as agent for such Purchaser in
connection with making its investment hereunder and that no other Purchaser will
be acting as agent of such Purchaser in connection with monitoring its
investment hereunder.  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.

    
      
         

      

      
        62

        
          

        

      

      
         

      

    

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

     

    7.20           
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.

     

    7.21           Fundamental
Transaction.  The Company and each Purchaser acknowledges and
agrees that for purposes of the Certificate of Designations, notwithstanding any
term of the Certificate of Designations to the contrary, no action taken for the
purpose of changing the Company’s jurisdiction of incorporation pursuant to
Section 4.19 of
this Agreement or otherwise specifically contemplated pursuant to Section 4.19 or Section 4.20 of this
Agreement for the purposes set forth therein shall constitute a Fundamental
Transaction as such term is defined in the Certificate of
Designations.

     

    7.22           Settlements and
Judgments.  The Company and each Purchaser acknowledges and
agrees that for purposes of the Certificate of Designations, notwithstanding any
term of the Certificate of Designations to the contrary, any breach of the
covenant contained in Section 4.10(b)(ii)
of this Agreement shall constitute a breach of Section 9(b)(ii) of the
Certificate of Designations and shall constitute an Event of Default under
Section 9(c)(iv) of the Certificate of Designations.

     

    7.23           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.

    
      
         

      

      
        63

        
          

        

      

      
         

      

    

     

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        64

        
          

        

      

      
         

      

    

    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.

     

    
      
        	 
      	
                PARADIGM
      HOLDINGS, INC.

              
	 
      	 
      
	 
      	 
      
	 
      	
                By: 

              	
                /s/Peter B. LaMontagne

              
	 
      	 
      	
                Name:  Peter
      B. LaMontagne

              
	 
      	 
      	
                Title:  President
      and Chief Executive Officer

              

      

    

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGES OF PURCHASERS FOLLOW.]

    
      
         

      

      
        65

        
          

        

      

      
         

      

    

     

    
      
        	 
      	
                PURCHASERS:

              
	 
      	 
      
	 
      	
                HALE
      CAPITAL PARTNERS, LP

              
	 
      	 
      
	 
      	 
      
	 
      	
                By: 

              	
                /s/Martin Hale Jr.

              
	 
      	 
      	
                Name:  Martin
      Hale Jr.

              
	 
      	 
      	
                Title:  CEO

              
	 
      	 
      
	 
      	 
      
	 
      	
                Address
      for Notice:

              
	 
      	
                570
      Lexington Ave, 49th Floor

              
	 
      	
                New
      York, NY 10022

              
	 
      	 
      
	 
      	
                Facsimile
      No.:

              
	 
      	
                Telephone
      No.:     (212) 751-8800

              
	 
      	
                Attn.: Martin
      Hale Jr.

              

      

    

    
      
         

      

      
        66

        
          

        

      

      
         

      

    

     

    
      
        
          
            	 
      	
                    PURCHASERS:

                  
	 
      	 
      
	 
      	
                    EREF
      PARA, LLC

                  
	 
      	 
      
	 
      	
                    By:
      Hale Fund Management, LLC,

                    its
      Managing Member

                  
	 	 
	 
      	 
      
	 
      	
                    By: 

                  	
                    /s/Martin Hale Jr.

                  
	 
      	 
      	
                    Name:
      Martin Hale Jr.

                  
	 
      	 
      	
                    Title:  CEO

                  
	 
      	 
      
	 	 
	 
      	
                    Address
      for Notice:

                  
	 
      	
                    570
      Lexington Ave, 49th Floor

                  
	 
      	
                    New
      York, NY 10022

                  
	 
      	 
      
	 
      	
                    Facsimile
      No.:

                  
	 
      	
                    Telephone
      No.:     (212) 751-8800

                  
	 
      	
                    Attn.: Martin
      Hale Jr.

                  

          

        

      

    

    
      
         

      

      
        67

        
          

        

      

      
         

      

    

     

    Schedule
A

     

    
      
        
          	
                  Name of

                  Purchaser

                	 	
                  Number of

                  Preferred

                  Shares

                	 	 	
                  Number of

                  Class A Warrant

                  Shares

                	 	 	
                  Number of

                  Class B

                  Warrant Shares

                	 	 	
                  Percentage

                  Interest

                	 	 	
                  Aggregate

                  Purchase Price

                	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  EREF
      PARA, LLC

                	 	 	3,075	 	 	 	39,442,154	 	 	 	34,219,531	 	 	 	49.5	%	 	$	3,075,000	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Hale
      Capital Partners, LP

                	 	 	3,131	 	 	 	40,160,450	 	 	 	34,842,716	 	 	 	50.5	%	 	$	3,131,000	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Total

                	 	 	6,206	 	 	 	79,602,604	 	 	 	69,062,248	 	 	 	100	%	 	$	6,206,000	 

        

      

    

    
      
         

      

      
        68

        
          

        

      

      
         

      

    

    Annex A

     

    “Black-Scholes
value” means the value of the applicable Warrant based on the Black and Scholes
Option Pricing model obtained from the “OV” function on Bloomberg determined on
the applicable date and reflecting (i) a risk-free interest rate corresponding
to the U.S. Treasury rate for a period equal to the remaining term of the
applicable Warrant as of the applicable date of determination, (ii) an expected
volatility equal to the greater of 80% and the 100-day volatility obtained from
the “HVT” function on Bloomberg as of the applicable date of determination, and
(iii) the underlying price per share used in such calculation shall be the sum
of the price per share being offered in cash, if any, plus the value of any
non-cash consideration, if any, being in connection with the applicable
triggering event.

    
      
         

      

      
        69

        
          

        

      

      
         

      

    

    Annex B

    

    [See
attached Term Sheet]

    
      
         

      

      
        70Unassociated Document

    

      EXECUTION COPY

      

      SIDE
LETTER

       

      Reference is made to that certain
Preferred Stock Purchase Agreement dated as of February 27, 2009 among Paradigm
Holdings, Inc. (the “Company”), Hale Capital
Partners, LP (“HCP”) and
the other Purchasers party thereto (the “Purchase
Agreement”).  Capitalized terms used but not defined herein
shall have the meanings given to them in the Purchase Agreement.

       

      1.           Pursuant
to the Certificate of Designations, at any time that (x) an aggregate of not
less than fifteen percent (15%) of the Company’s Series A-1 Senior Preferred
Stock (the “Preferred
Shares”) purchased on the Closing Date are outstanding, (y) Warrants to
purchase an aggregate of not less than twenty percent (20%) of the Underlying
Shares issuable pursuant to all Warrants on the Closing Date are outstanding, or
(z) the original holders of the Preferred Shares and/or their transferee(s), in
the aggregate, own not less than fifteen percent (15%) of the Common Stock
issuable upon exercise of all Warrants on the Closing Date, the holders of a
majority of the then outstanding Preferred Shares (the “Majority Holders”) shall have
the exclusive right, voting separately as a class, to elect (A) two (2)
directors to the Board of Directors of the Company (the “Board”), and (B) until the
Amendment Date, two (2) observers, and, from and after the Amendment Date, one
(1) observer, to the Board; provided that upon the election of the Majority
Holders such observer(s) shall be automatically appointed to the Board as a
director (such two (2) directors in accordance with clause (A) and, upon the
Majority Holders’ election in accordance with clause (B), such one (1) or two
(2) director(s), as applicable, collectively, the “Series A-1
Directors”).  If, at any time from and after the Amendment
Date, the Majority Holders elect to convert the observer to a Series A-1
Director pursuant to clause (B) above and there are greater than four (4)
directors on the Board at such time, the Majority Holders shall remove a
director (other than a Series A-1 Director) from the Board such that after the
conversion pursuant to clause (B) the Board shall consist of five (5)
directors.  If the Majority Holders makes such election prior to the
Amendment Date, the number of directors on the Board after such conversion shall
be seven (7) until the Amendment Date, upon which the Majority Holders shall
remove two (2) directors (including one (1) Series A-1 Director if there are
four (4) Series A-1 Directors at such time, but otherwise, other than any Series
A-1 Directors) such that the Board shall consist of five (5)
directors.  Unless otherwise determined by HCP, it is hereby agreed
that these rights of the Majority Holders under the Certificate of Designations
shall be vested in and exercisable only by HCP.

       

      2.           Pursuant
to the Certificate of Designations, at any time that (x) an aggregate of fifteen
percent (15%) or less of the Preferred Shares purchased on the Closing Date are
outstanding, (y) Warrants to purchase an aggregate of less than twenty percent
(20%) of the Underlying Shares issuable pursuant to all Warrants on the Closing
Date are outstanding, and (z) the holders of the Preferred Shares and/or their
transferee(s), in the aggregate, own less than fifteen percent (15%) of the
Common Stock issuable upon exercise of all Warrants on the Closing Date, then
the Majority Holders shall have the exclusive right, voting separately as a
class, to elect (A) one (1) Series A-1 Director to the Board, and (B) one (1)
observer to the Board.  Unless otherwise determined by HCP, it is
hereby agreed that these rights of the Majority Holders under the Certificate of
Designations shall be vested in and exercisable only by HCP.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      3.           Any
vacancy in the position of any Series A-1 Director may be filled only by
the holders of the Series A-1 Preferred Stock.  Any Series A-1
Director may, during his or her term of office, be removed at any time, with or
without cause, by and only by the Majority Holders.  Any vacancy
created by such removal may also be filled by the Majority
Holders.  Unless otherwise determined by HCP, it is hereby agreed that
these rights of the Majority Holders under the Certificate of Designations shall
be vested in and exercisable only by HCP.

       

      4.           Subject
to the fiduciary duties of the Board under applicable law, the Company will
include the Series A-1 Directors as the Company’s nominees for election as
directors at each annual or special meeting of stockholders or action by written
consent of stockholders at which directors will be elected.

       

      5.           The
membership of all committees of the Board shall be reassigned, subject to HCP’s
reasonable approval, upon the Closing.  Provided that the Series A-1
Directors meet the applicable membership requirements of the Commission and the
Trading Market (if applicable), the Board shall elect the Series A-1 Directors
to all committees of the Board requested by HCP.  The Company shall
provide the same compensation and rights and benefits of indemnity to the Series
A-1 Directors as are provided to other non-employee directors of the
Company.  The Series A-1 Directors may resign from the Board at any
time without notice.  In the event that any Series A-1 Director shall
cease to serve as a director of the Company for any reason, at the discretion of
HCP, the Board shall fill the vacancy resulting therefrom with another Series
A-1 Director designated by HCP that is reasonably acceptable to the Board, it
being understood, subject to the fiduciary duties of the Board under applicable
law, that any senior professional of HCP or any of its Affiliates shall be
acceptable to the Board .

       

      6.  Prior
to being converted into a Series A-1 Director, any observer appointed by HCP in
accordance with clause (B) of Sections 1 or 2 above
shall be allowed to attend all meetings of the Board in a non-voting capacity,
and in connection with each such Board observer’s attendance, the Company shall
give such Board observer copies of all notices, minutes, consents and other
materials, financial or otherwise, which the Company provides to the Board prior
to any such meeting.  HCP shall provide the Company with written
notice identifying any individuals who shall exercise Board observation rights
on behalf of HCP from time to time.  Effective upon execution and
delivery of this letter agreement, HCP hereby initially appoints Alice
Lee as a Board observer.  The Company agrees that if any of the
Purchasers or the Board observer so requests, neither the Company nor any other
person acting on its behalf will provide such Purchaser or its agents (including
any Board observer) or counsel with any information that the Company believes
constitutes material non-public information.

       

      This Side
Letter shall be governed by and construed in accordance with the laws of the
State of New York and each of the parties hereto irrevocably consents to the
exclusive jurisdiction of all courts, federal and state, located in the City of
New York for the adjudication of any dispute arising hereunder.  This
Side Letter may not be amended or waived except in writing, by a document
executed by the Company and HCP.

       

      This Side
Letter may be executed in two (2) or more counterparts, together constituting
one (1) agreement, and may be executed by facsimile, having the same force as if
originally executed.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      IN WITNESS WHEREOF, each of the
Purchasers has entered into this Side Letter as of February 27,
2009.

      

      
        
          
            
              
                
                  
                    	
                            Hale
      Capital Partners, LP

                          
	 
      	 
      
	 
      	 
      
	
                            By:

                          	
                            /s/Martin Hale Jr.

                          
	
                            Name:  Martin
      Hale Jr.

                          
	
                            Title:
      CEO

                          
	 
      	 
      
	 
      	 
      
	
                            EREF
      PARA, LLC

                          
	 
      	 
      
	
                            By:

                          	
                            Hale
      Fund Management, LLC

                          
	 
      	
                             its
      Managing Member

                          
	 
      	 
      
	
                            By:

                          	
                            /s/Martin
      Hale Jr.

                          
	
                            Name:  Martin
      Hale Jr.

                          
	
                            Title:  CEO

                          
	 
      	 
      
	 
      	 
      
	
                            Acknowledged
      and agreed by the Company:

                          
	 
      	 
      
	 
      	 
      
	
                            Paradigm
      Holdings, Inc.

                          
	 
      	 
      
	 
      	 
      
	
                            By:

                          	
                            /s/Peter
      B. LaMontagne

                          
	
                            Name:  Peter
      B. LaMontagne

                          
	
                            Title:  President
      and Chief Executive Officer

                          
	 
      	 
      
	
                            Date:  February
      27,
2009

                          

                  

                

              

            

          

        

      

      
        
           

        

        
          3

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