Document:

Exhibit 10.1

FORM OF

SUBSCRIPTION AGREEMENT 

 
        THIS
SUBSCRIPTION AGREEMENT (this “Agreement”) is made and entered into as of the
date set forth on the signature page hereto, by and between VendingData Corporation, a
Nevada corporation (the “Company”), and the purchaser listed on the signature
page hereto (“Purchaser”). 

 
        WHEREAS,
the Company is conducting a private placement (the “Private Placement”) of
senior convertible notes (the “Notes”) exempt from the registration requirements
of the Securities Act of 1933, as amended (the “Securities Act”), where said
Notes shall be issued in increments of Fifty Thousand Dollars ($50,000) (each a
“Unit”); 

 
        WHEREAS,
the Company proposes to sell through the Private Placement a minimum of Six Million Two
Hundred Fifty Thousand Dollars ($6,250,000) (the “Minimum Offering Amount”) and
a maximum of Ten Million Dollars ($10,000,000) (the “Maximum Offering Amount”)
in Notes, where Notes in the amount of Three Million Two Hundred Fifty Thousand Dollars
($3,250,000) shall be issued in exchange for the conversion of certain promissory notes
issued by the Company through a private placement that closed on September 17, 2004 (the
“2004 Notes”) (the “Exchange Offer”); and 

 
        WHEREAS,
the Company wishes to sell to Purchaser, and Purchaser wishes to purchase from the
Company, on the terms and in the manner set forth in this Agreement, the number of Units
as indicated on the signature page hereto. 

 
        NOW,
THEREFORE, for and in consideration of the promises and mutual covenants, agreements,
understandings, undertakings, representations, warranties and promises, and subject to the
conditions hereinafter set forth, and intending to be legally bound thereby, the parties
do hereby covenant and agree that the recitals set forth above are true and accurate and
are hereby incorporated in and made a part of this Agreement, and further covenant and
agree as follows: 

	1.  	 DESCRIPTION
OF THE NOTES 

 
        This
Agreement sets forth the terms and conditions under which Purchaser will purchase a
certain number of Units, where each Unit shall consist of a 10% senior convertible note
due 2008 in the form attached hereto as Exhibit A in increments
of Fifty Thousand Dollars ($50,000), of which Note up to fifty percent (50%) of the
outstanding principal shall be convertible into shares (the “Conversion Shares”)
of the Company’s common stock, $.001 par value (“Common Stock”), at a rate
of One and 65/10ths Dollars ($1.65) per share. The Note shall be secured by that certain
Security Agreement in the form attached hereto as Exhibit B (the
“Security Agreement”). 

	2. 	OFFER 

 
        2.1.
Purchase of  Units. Subject to the terms and conditions of this Agreement, Purchaser
hereby agrees to  purchase from the Company, and the Company hereby agrees to sell to
Purchaser, that number  of Units for that subscription amount as indicated on the
signature page hereto (the  “Investment Amount”). If Purchaser is the holder of
the 2004 Notes, Purchaser  shall surrender the original 2004 Notes and execute and
deliver the Exchange Agreement in  the form attached hereto as Exhibit C (the “Exchange
Agreement”). 

 
        2.2.
Minimum Offering  Amount. Until the Company has received the Minimum Offering Amount, the
Company will  segregate all proceeds from the sale of Units. If the Company fails to sell
the Minimum  Offering Amount of Units by February 7, 2005, all proceeds received by the
Company will be  returned, without interest, within thirty (30) days and all tendered
2004 Notes shall be  returned. If the Company sells the Minimum Offering Amount of Units
by February 7, 2005  and subject to Section 4.2 of this Agreement, the Company will have
immediate access to  the proceeds and will continue to sell up to the Maximum Offering
Amount in Units until  February 15, 2005. 

 
        2.3.
Subscription.  After executing this Agreement and providing the information requested
herein, please  return the executed Agreement, the executed Exchange Agreement (if
applicable), the  original 2004 Note (if applicable) and a completed Form W-8/W-9 by
personal delivery or  overnight delivery to Philadelphia Brokerage Corporation, 992 Old
Eagle School Road, Suite  915, Wayne, Pennsylvania 19087, Attention: Bernadette Pucillo,
Operations Manager. The  Investment Amount shall be payable by wire transfer using the
following information: 

	Name:
Account No.:
ABA Routing No:
Bank:
Bank Address:	VendingData Corporation
3121447316
321270742
Wells Fargo Bank Nevada, N.A.
4425 W. Spring Mountain Road
Las Vegas, Nevada 89102

 
        2.4.
Acceptance. The  Company shall have the right, at its sole and absolute discretion, to
reject this  subscription offer or to accept such offer. Subject to Section 2.2 and
Section 4.2 of this  Agreement, if the Company accepts Purchaser’s offer, the
Company shall execute this  Agreement and return a copy of the Agreement and issue the
Note in the Investment Amount  to Purchaser. If the Company rejects Purchaser’s
offer, the Company shall return to  Purchaser this Agreement, together with any payment
made by Purchaser to the Company,  without interest or deduction. 

	3. 	RECEIPT
OF DOCUMENTS 

 
        Purchaser hereby
acknowledges receipt of copies of the following documents (collectively, the
“Documents”): 

 
        3.1.
This Agreement,  including the form of Note, the form of Note Exchange Agreement and the
form of Security  Agreement; 

 
        3.2.
Annual Report on  Form 10-KSB for the year ended December 31, 2003; 

 
        3.3.
Quarterly Report on  Form 10-QSB for the quarter ended March 31, 2004; 

 
        3.4.
Current Report on  Form 8-K dated May 3, 2004; 

 
        3.5.
Current Report on Form  8-K dated May 13, 2004; 

 
        3.6.
Current Report on  Form 8-K dated May 26, 2004; 

 
        3.7.
Quarterly Report  on Form 10-QSB for the quarter ended June 30, 2004. 

 
        3.8.
Current Report on  Form 8-K dated August 9, 2004; 

 
        3.9.
Current Report on Form  8-K dated September 21, 2004; 

-2- 

 
        3.10.
Current Report  on Form 8-K dated September 24, 2004; 

 
        3.11.
Current Report on  Form 8-K dated October 21, 2004; 

 
        3.12.
Current Report  on Form 8-K dated October 25, 2004; 

 
        3.13.
Quarterly Report  on Form 10-QSB for the quarter ended September 30, 2004; 

 
        3.14.
Current Report  on Form 8-K dated November 15, 2004; 

 
        3.15.
Current Report on  Form 8-K dated November 29, 2004; 

 
        3.16.
Current Report  on Form 8-K dated December 3, 2004; 

 
        3.17.
Current Report on  Form 8-K dated December 8, 2004; 

 
        3.18.
Current Report  on Form 8-K dated December 17, 2004; and 

 
        3.19.
Current Report on  Form 8-K dated January 6, 2005. 

	4. 	ESCROW 

 
        4.1.
Use of Proceeds.  Subject to the reasonable discretion of the Company’s management,
the Company  proposes to apply the proceeds from the Private Placement as follows: 

	 		MINIMUM AMOUNT		MAXIMUM AMOUNT	
	
		
		
	
	PROPOSED USE		AMOUNT		%		AMOUNT		%	
	
		
		
		
		
	
	Conversion of 9% Senior Secured Notes	 	$3,250,000	 	52.00	%	$3,250,000	 	32.50	%
	Fund inventory	 	1,600,000	 	25.60	%	1,600,000	 	16.00	%
	Fund operating losses	 	1,200,000	 	19.20	%	1,200,000	 	12.00	%
	Placement fees	 	120,000	 	1.92	%	270,000	 	2.70	%
	Other general corporate purposes	 	80,000	 	1.28	%	3,680,000	 	36.80	%
	
		
		
		
		
	
		 	$6,250,000	 	100.00	%	$10,000,000	 	100.00	%

 
        The
portion of the net proceeds of the Private Placement being designated as “other
general corporate purposes” excludes the acquisition of companies or products, the
repurchase of Common Stock, the issuance of the dividends or other matters not
specifically set forth in this Section 4. 

 
        4.2.
Release of  Proceeds. Once the Minimum Offering Amount has been received, the gross
proceeds may be  released to the Company and applied as follows: 

	 	 
        (a)
Three Million Two Hundred Fifty Thousand Dollars ($3,250,000) in 2004 Notes shall be
canceled;  

	 	 
        (b)
Two Million Dollars ($2,000,000) shall be released to the Company immediately;  

-3- 

	 	 
        (c)
One-third  (1/3) of the remaining gross proceeds shall be released to the Company upon
the hiring by  the Company of a North American manager of operations or Chief Operating
Officer, where  such person shall be hired no later than June 30, 2005;  

	 	 
        (d)
One-third (1/3) of the remaining gross proceeds shall be released to the Company upon the
execution of a distributor agreement with TCSJohnHuxley or an affiliate thereof that
provides for the sale and service outside the United States of one hundred (100) units of
the Company’s RandomPlusTM shuffler and PokerOneTM shuffler, where such
agreement must be executed no later than June 30, 2005; and  

	 	 
        (e)
One-third (1/3) of the remaining gross proceeds shall be released to the Company upon the
approval of the Company’s RandomPlusTM shuffler by Gaming Laboratories
International and the Nevada State Gaming Control Board and the placement of one hundred
(100) units each of the Company’s RandomPlusTM shuffler in North America, where
such approvals and shuffler placement must occur no later than June 30, 2005.  

 
        In
the event that the Company fails to meet the conditions provided for in Section 4.2.c,
Section 4.2.d and/or Section 4.2.e, respectively, the Company will return the relevant
portion of the escrowed gross proceeds, without interest, within thirty (30) days. 

	5. 	REPRESENTATIONS
AND WARRANTIES OF PURCHASER 

 
        Purchaser represents
and warrants to the Company as follows: 

 
        5.1.
Investor  Status. Purchaser understands that the Units are being offered and sold
only to  “accredited investors” (as that term is defined under Rule 501(a) of
Regulation D of the Securities Act (“Regulation D”)) or to “qualified
institutional buyers” (as that term is defined under Rule 144A(a)(1) of the
Securities Act). Purchaser represents and warrants that Purchaser meets one of the
following two investor categories (PLEASE INITIAL ONE AND COMPLETE AS  REQUIRED): 

	 	[__]  	Category
One: Accredited Investor. Purchaser represents and warrants that Purchaser is an
“accredited investor” within the meaning of Rule 501(a) of Regulation D,
where such representation and warranty is based upon one of the following categories  (PLEASE INITIAL ALL THAT APPLY): 

	 	[__]  	 Private
business development company as defined in Section 202(a)(22) of the Investment Advisors
Act of 1940; 

	 	[__]  	 Organization
described in Section 501(c)(3) of the Internal Revenue Code, corporation,  Massachusetts
or similar business trust, or partnership, not formed for the specific  purpose of
acquiring the securities offered, with total assets in excess of Five Million  Dollars
($5,000,000);  

	 	[__]  	 Manager
or executive officer of the Company; 

	 	[__]  	 Natural
person whose individual net worth, or joint net worth with that person’s  spouse,
exceeds One Million Dollars ($1,000,000);  

	 	[__]  	 Natural
person who has an individual income in excess of Two Hundred Thousand Dollars  ($200,000)
in each of the two (2) most recent years and has a reasonable expectation of  reaching
the same income level in the current year;  

-4- 

	 	[__]  	 Natural
person who has a joint income with that person’s spouse in excess of Three  Hundred
Thousand Dollars ($300,000) in each of the two (2) most recent years and has a
reasonable expectation of reaching the same income level in the current year;  

	 	[__]  	 Trust,
with total assets in excess of Five Million Dollars ($5,000,000), not formed for  the
specific purpose of acquiring the securities offered, whose purchase is directed by a
sophisticated person as defined by Rule 506(b)(2)(ii) of the Securities Act; or  

	 	[__]  	 Entity
in which all of the equity owners are accredited investors. 

	 	[__]  	Category
Two: Qualified Institutional Buyer. Purchaser represents and warrants that Purchaser
is a “qualified institutional buyer” within the meaning of Rule 144A(a)(1)
of the Securities Act, where such representation and warranty is based upon one of the
following categories  (PLEASE INITIAL ALL THAT APPLY): 

	 	[__]  	 Any
of the following entities, acting for its own account or the accounts of other  qualified
institutional buyers, that in the aggregate owns and invests on a discretionary  basis at
least $100 million in securities of issuers that are not affiliated with the  Company:  

	 	[__]  	 Any
insurance company as defined in section 2(13) of the Securities Act; 

	 	[__]  	 Any
investment company registered under the Investment Company Act or any business
development company as defined in Section 2(a)(48) of that act;  

	 	[__]  	 Any
Small  Business  Investment  Company  licensed  by the U.S.  Small  Business
Administration  under  Section 301(c) or (d) of the Small Business Investment Act of 1958; 

	 	[__]  	 Any
plan  established  and  maintained  by a state,  its  political  subdivisions,  or any
agency  or  instrumentality of a state or its political subdivisions, for the benefit of
its employees; 

	 	[__]  	 Any
employee  benefit plan within the meaning of title I of the Employee  Retirement  Income
Security  Act of 1974; 

	 	[__]  	 Any
trust fund whose trustee is a bank or trust company and whose participants are
exclusively plans of the types identified in the preceding two bullet points, except
trust  funds that include as participants individual retirement accounts or H.R. 10
plans.  

	 	[__]  	 Any
business  development  company as defined in Section  202(a)(22) of the Investment
Advisers Act of  1940; 

	 	[__]  	 Any
organization described in Section 501(c)(3) of the Internal Revenue Code, corporation
(other than a bank as defined in Section 3(a)(2) of the Securities Act or a savings and
loan association or other institution referenced in Section 3(a)(5)(A) of the Securities
Act or a foreign bank or savings and loan association or equivalent institution),
partnership, or Massachusetts or similar business trust; and  

-5- 

	 	[__]  	Any
investment  adviser registered under the Investment Advisers Act. 

	 	[__]  	 Any
dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 (the
“Exchange Act”), acting for its own account or the accounts of other qualified
institutional buyers, that in the aggregate owns and invests on a discretionary basis at
least $10 million of securities of issuers that are not affiliated with the dealer,
provided, that securities constituting the whole or a part of an unsold allotment to or
subscription by a dealer as a participant in a public offering shall not be deemed to be
owned by such dealer;  

	 	[__]  	 Any
dealer registered pursuant to Section 15 of the Exchange Act acting in a riskless
principal transaction on behalf of a qualified institutional buyer;  

	 	[__]  	 Any
investment company registered under the Investment Company Act, acting for its own
account or for the accounts of other qualified institutional buyers, that is part of a
family of investment companies which own in the aggregate at least $100 million in
securities of issuers, other than issuers that are affiliated with the investment company
or are part of such family of investment companies. Family of investment companies means
any two or more investment companies registered under the Investment Company Act, except
for a unit investment trust whose assets consist solely of shares of one or more
registered investment companies, that have the same investment adviser (or, in the case
of  unit investment trusts, the same depositor), provided that, for purposes of this
section:  

	 	[__]  	 Each
series of a series company (as defined in Rule 18f-2 under the Investment Company Act
[17 CFR 270.18f-2]) shall be deemed to be a separate investment company; and  

	 	[__]  	 Investment
companies shall be deemed to have the same adviser (or depositor) if their  advisers (or
depositors) are majority-owned subsidiaries of the same parent, or if one  investment
company’s adviser (or depositor) is a majority-owned subsidiary of the  other
investment company’s adviser (or depositor);  

	 	[__]  	 Any
entity, all of the equity owners of which are qualified institutional buyers, acting  for
its own account or the accounts of other qualified institutional buyers; and  

	 	[__]  	 Any
bank as defined in Section 3(a)(2) of the Securities Act, any savings and loan
association or other institution as referenced in Section 3(a)(5)(A) of the Securities
Act, or any foreign bank or savings and loan association or equivalent institution,
acting  for its own account or the accounts of other qualified institutional buyers, that
in the  aggregate owns and invests on a discretionary basis at least $100 million in
securities of  issuers that are not affiliated with it and that has an audited net worth
of at least $25  million as demonstrated in its latest annual financial statements, as of
a date not more  than 16 months preceding the date of sale under the Rule in the case of
a U.S. bank or  savings and loan association, and not more than 18 months preceding such
date of sale for  a foreign bank or savings and loan association or equivalent
institution.  

-6- 

 
        Purchaser,
either alone or through Purchaser’s purchaser representative (as that term is defined
under Rule 501(h) of Regulation D (“Purchaser’s Representative”), if any,
understands that this Agreement may not comply with the information requirements of
Regulation D for offers and sales to non-accredited investors (see Regulation D, Rule
502(b)), and, consequently, Purchaser understands the significance of its representation
to the Company that it is either an accredited investor or a qualified institutional
buyer. 

 
        5.2.
Authorization.  This Agreement constitutes valid and legally binding obligations of
Purchaser, enforceable  in accordance with the terms herein, except as such
enforceability may be limited by  applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation,  conservatorship, receivership or similar laws relating to, or
affecting generally, the  enforcement of creditor’s rights and remedies or by other
equitable principles of  general application. Purchaser has full power and authority to
enter into this Agreement.  To the extent that Purchaser is a trust, the undersigned
trustee of Purchaser is the duly  authorized trustee and Purchaser has all necessary
powers and authority to acquire the  Notes under the laws of the state of its domicile
and under the terms of the trust  agreement, as amended, under which it was created. To
the extent that Purchaser is a  corporation, limited-liability company or partnership,
the undersigned officer, manager or  general partner of Purchaser is the duly authorized
officer, manager or general partner  and Purchaser has all necessary powers and authority
to acquire the Notes under the laws  of the state of its organization, the terms of the
appropriate agreement, as amended,  under which it was created, and the terms of the
appropriate agreement, as amended, under  which it is governed. If Purchaser is an
entity, Purchaser shall execute and deliver the  appropriate certification provided
herewith as Exhibit D,  Exhibit E, Exhibit F or
Exhibit G. 

 
        5.3.
Due Diligence.  Purchaser has received and reviewed this Agreement and the Documents, has
had an  opportunity to ask questions of and receive answers from duly designated
representatives  of the Company concerning the terms and conditions of this Agreement and
has been afforded  an opportunity to examine such documents and other information which
Purchaser has  requested for the purpose of answering any question Purchaser may have
concerning the  business and affairs of the Company. In making this investment decision
to purchase the  Notes, Purchaser is not relying on any oral or written representations
or assurances from  the Company or its agents other than as set forth in this Agreement. 

 
        5.4.
Independent  Advice. Purchaser represents and warrants that Purchaser has had the
opportunity to review  this Agreement and the Documents and the transactions contemplated
by this Agreement with  Purchaser’s own business, tax and/or legal advisors.
Purchaser is relying solely on  such business, tax and/or legal advisors, if any, and not
on any oral or written  statements or representations of the Company of any of its agents
for advice with respect  to this investment or the transactions contemplated by this
Agreement. 

 
        5.5.
Risk of Loss.  Purchaser: (1) is able to bear the loss of its entire investment without
any material  adverse effect on its economic stability; (2) has such knowledge and
experience in  financial and business matters that it is capable of evaluating the merits
and risks of  the investment to be made by Purchaser pursuant to this Agreement; and (3)
understands  that an investment in the Company involves substantial risks, including,
without  limitation, the risk factors described in the Documents. 

 
        5.6.
Investment  Intent. The Unit(s) is (are) being purchased for investment purposes only for
such  Purchaser’s own account and not with the view to, or for resale in connection
with,  any distribution or public offering thereof. Purchaser understands that the Units
have not  been registered under the Securities Act or any state securities laws by reason
of their  contemplated issuance in transactions exempt from the registration requirements
of the  Securities Act and applicable state securities laws, and that the reliance of the
Company  and others upon these exemptions is predicated in part upon the representations
by  Purchaser. 

-7- 

 
        5.7.
No Solicitation.  Purchaser was not solicited to purchase the Notes by any means of
general solicitation,  including but not limited to the following: (i) any advertisement,
article, notice or  other communication published in any newspaper, magazine, or similar
media, or broadcast  over television or radio; or (ii) any meeting where attendees were
invited by any general  solicitation or general advertising. 

 
        5.8.
Restricted  Securities. Purchaser is aware that the shares of Common Stock issuable upon
conversion of  the Notes are and will be, when issued, “restricted securities”,
as that term is  defined in Rule 144 of the rules and regulations promulgated under the
Securities Act.  Purchaser is fully aware of the applicable limitations on the resale of
the resulting  shares. Rule 144 only permits sales of “restricted securities” held
for not less  than one year upon compliance with the requirements of such Rule. If Rule
144 is available  to Purchaser, Purchaser may make only routine sales of the resulting
shares in limited  amounts in accordance with the terms and conditions of Rule 144.
Purchaser is fully aware  that in any event, there is not likely to be any market for the
resulting shares and that  finding a purchaser for the resulting shares could be
extremely difficult. In light of the  foregoing, Purchaser understands that any and all
certificates representing the resulting  shares of Common Stock through the conversion of
the Notes shall bear a legend  substantially as follows, which legend Purchaser has read
and understands: 

	 	The
Shares represented by this Certificate have not been registered under the Securities Act
of 1933 (the “Act”) or the securities laws of any state and are “restricted
securities” as that term is defined in Rule 144 under the Securities Act. Such Shares
may not be offered for sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Securities Act and the applicable state securities laws
or pursuant to an exemption from registration thereunder, the availability of which is to
be established to the satisfaction of counsel to the issuer. 

 
        5.9.
Need for  Additional Financing. Purchaser acknowledges and understands that the Company
will need to  raise additional financing, either through private or public offerings of
the  Company’s equity securities; provided, further, the Company may issue
convertible  debt securities to sources outside of this Private Placement or otherwise
incur  indebtedness through loans, lines of credit and other forms of indebtedness (the
“Additional Indebtedness”). The issuance of additional equity securities or
Additional Indebtedness may require the grant of certain rights, preferences or
privileges  superior to those of Purchaser; provided, however, the issuance of any
Additional  Indebtedness senior to or pari passu with the Notes shall require the
consent of  the Purchasers holding a majority of the then outstanding principal of all of
the Notes  then issued and outstanding. In the event the Company is required to raise
additional  funds, Purchaser acknowledges and understands that there is no assurance that
the Company  will be able to obtain the additional funds necessary on terms favorable to
the Company,  or at all. 

 
        5.10.
Past Performance  Information. Purchaser acknowledges and understands that any statements
of the past  performance of the Company’s management are not to be viewed or
interpreted as an  indication, either anticipated or definitive, of the Company’s
future performance. In  making such acknowledgement, Purchaser understands that: (1) the
circumstances  regarding the past performance of the Company’s management are
inherently different  from the circumstances regarding the Company’s proposed
business operations;  (2) the economic conditions at or around the time of the past
performance of the  Company’s management are inherently different from the economic
conditions in which  the Company will operate; and (3) the actual results of the
Company’s  performance or an investment in a Project cannot be estimated with any
certainty at this  time. 

-8- 

 
        5.11.
Independent  Investment. No Purchaser has agreed to act with any other Purchaser
for the purpose of  acquiring, holding, voting or disposing of the Units purchased
hereunder for purposes of  Section 13(d) under the Exchange Act, and each Purchaser is
acting independently with  respect to its investment in the Units. 

	6. 	REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. 

 
        The
Company represents and warrants to each Purchaser as follows: 

 
        6.1.
Organization  and Qualification. The Company and each of its subsidiaries is a
corporation duly  organized and existing in good standing under the laws of the
jurisdiction in which it is  incorporated, and has the requisite corporate power to own
its properties and to carry on  its business as now being conducted. The Company and each
of its subsidiaries is duly  qualified as a foreign corporation to do business and is in
good standing in every  jurisdiction in which the nature of the business conducted by it
makes such qualification  necessary and where the failure so to qualify would have a
Material Adverse Effect.  “Material Adverse Effect” means any material adverse
effect on (i) the Notes,  (ii) the ability of the Company to perform its obligations
hereunder or under the Notes,  the Security Agreement or the Exchange Agreement or (iii)
the business, operations,  properties, prospects or financial condition of the Company
and its subsidiaries, taken as  a whole. 

 
        6.2.
Authorization;  Enforcement. (i) The Company has the requisite corporate power and
authority to enter  into and perform its obligations under this Agreement, the Notes, the
Security Agreement  and the Exchange Agreement, to issue and sell the Notes in accordance
with the terms  hereof, and to issue the Conversion Shares upon conversion of or
otherwise pursuant to the  Notes in accordance with the terms of the Notes, (ii) the
execution, delivery and  performance of this Agreement, the Notes, the Security Agreement
and the Exchange  Agreement by the Company and the consummation by it of the transactions
contemplated  hereby and thereby (including, without limitation, the issuance of the
Notes and the  issuance and, as applicable, reservation for issuance of the Conversion
Shares, have been  duly authorized by the Company’s Board of Directors and no
further consent or  authorization of the Company, its Board of Directors, any or
committee of the Board of  Directors is required, and (iii) this Agreement constitutes,
and, upon execution and  delivery by the Company of the Notes, and the Agreement, the
Notes, the and the Agreement  will constitute, valid and binding obligations of the
Company enforceable against the  Company in accordance with their terms. 

 
        6.3.
Stockholder  Authorization. Neither the execution, delivery or performance by the
Company of this  Agreement, the Notes, the Security Agreement or the Exchange Agreement
nor the  consummation by it of the transactions contemplated hereby or thereby
(including, without  limitation, the issuance of the Initial Notes or the issuance or, as
applicable,  reservation for issuance of the Conversion Shares) requires any consent or
authorization  of the Company’s stockholders, including but not limited to consent
under Section 705  of the Amex Company Guide or any similar rule, except as contemplated
by this Section 6.3. 

 
        6.4.
Capitalization. The capitalization of the Company as of the date hereof, including
the authorized capital stock, the number of shares issued and outstanding, the number of
shares issuable and reserved for issuance pursuant to the Company’s stock option
plans, the number of shares issuable and reserved for issuance pursuant to securities
(other than the Notes) exercisable or exchangeable for, or convertible into, any shares
of  capital stock is set forth on Schedule 6.4. All of such
outstanding  shares of capital stock have been, or upon issuance in accordance with the
terms of any  such warrants, options, preferred stock or other securities will be,
validly issued, fully  paid and non-assessable. No shares of capital stock of the Company
(including the  Conversion Shares) are subject to preemptive rights or any other similar
rights of the  stockholders of the Company or any liens or encumbrances. Except for the
Notes and as set  forth on Schedule 6.4, as of the date of this
Agreement, (i) there  are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments  of any character whatsoever relating to, or securities or
rights convertible into or  exercisable or exchangeable for, any shares of capital stock
of the Company or any of its  subsidiaries, or arrangements by which the Company or any
of its subsidiaries is or may  become bound to issue additional shares of capital stock
of the Company or any of its  subsidiaries, nor are any such issuances or arrangements
contemplated, and (ii) there are  no agreements or arrangements under which the Company
or any of its subsidiaries is  obligated to register the sale of any of its or their
securities under the Securities Act  (except the Notes). Schedule 6.4 sets
forth all of the Company issued  securities or instruments containing antidilution or
similar provisions that will be  triggered by, and all of the resulting adjustments that
will be made to such securities  and instruments as a result of, the issuance of the
Notes in accordance with the terms of  this Agreement. The Company has furnished to the
Purchasers true and correct copies of the  Company’s Articles of Incorporation as in
effect on the date hereof  (“Articles of Incorporation”), the Company’s
By-laws as in effect on  the date hereof (the “By-laws”), and all other
instruments and agreements  governing securities convertible into or exercisable or
exchangeable for capital stock of  the Company. 

-9- 

 
        6.5.
Issuance of  Securities. The Notes, upon issuance in accordance with the terms of
this Agreement,  will be validly issued and free from all taxes, liens, claims and
encumbrances and will  not be subject to preemptive rights, rights of first refusal or
other similar rights of  stockholders of the Company and will not impose personal
liability on the holders thereof.  The Conversion Shares are duly authorized and, as
applicable, reserved for issuance, and,  upon issuance pursuant to the conversion of the
Notes in accordance with the terms  thereof, will be validly issued, fully paid and
non-assessable, and free from all taxes,  liens, claims and encumbrances and will not be
subject to preemptive rights, rights of  first refusal or other similar rights of
stockholders of the Company and will not impose  personal liability upon the holder
thereof. The Company has initially reserved for  issuance pursuant to the Notes an
aggregate of Three Million Thirty Thousand Three Hundred  and Three (3,030,303) shares of
Common Stock, representing the maximum number of shares of  Common Stock initially
issuable upon the conversion in full of the Notes (the  “Reserved Amount”). 

 
        6.6.
No  Conflicts. The execution, delivery and performance of this Agreement, the
Notes, the  Security Agreement and the Exchange Agreement by the Company, and the
consummation by the  Company of the transactions contemplated hereby and thereby
(including, without  limitation, the issuance and, as applicable, reservation for
issuance of the Notes, and  Conversion Shares) will not (i) result in a violation of the
Articles of Incorporation or  By-laws or (ii) conflict with, or constitute a default (or
an event that with notice or  lapse of time or both would become a default) under, or
give to others any rights of  termination, amendment (including, without limitation, the
triggering of any anti-dilution  provisions), acceleration or cancellation of, any
agreement, indenture or instrument to  which the Company or any of its subsidiaries is a
party, or result in a violation of any  law, rule, regulation, order, judgment or decree
(including United States federal and  state securities laws and regulations and rules or
regulations of any self-regulatory  organizations to which either the Company or its
securities are subject) applicable to the  Company or any of its subsidiaries or by which
any property or asset of the Company or any  of its subsidiaries is bound or affected
(except for such conflicts, defaults,  terminations, amendments, accelerations,
cancellations and violations that would not,  individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor  any of its subsidiaries is in
violation of its Articles of Incorporation, By-laws or other  organizational documents
and neither the Company nor any of its subsidiaries is in default  (and no event has
occurred which, with notice or lapse of time or both, would put the  Company or any of
its subsidiaries in default) under, nor has there occurred any event  giving others (with
notice or lapse of time or both) any rights of termination, amendment,  acceleration or
cancellation of, any agreement, indenture or instrument to which the  Company or any of
its subsidiaries is a party, except for actual or possible violations,  defaults or
rights that would not, individually or in the aggregate, have a Material  Adverse Effect.
The businesses of the Company and its subsidiaries are not being  conducted, and shall
not be conducted so long as a Purchaser owns any of the Notes, in  violation of any law,
ordinance or regulation of any governmental entity, except for  possible violations the
sanctions for which either singly or in the aggregate would not  have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and  the Notes, the Company
is not required to obtain any consent, approval, authorization or  order of, or make any
filing or registration with, any court or governmental agency or any  regulatory or self
regulatory agency in order for it to execute, deliver or perform any of  its obligations
under this Agreement, the Notes, the Security Agreement or the Exchange  Agreement, in
each case in accordance with the terms hereof or thereof. The Company is not  in
violation of the listing requirements of the American Stock Exchange  (“Market/Exchange”)
and does not reasonably anticipate that the Common  Stock will be delisted by the
Market/Exchange for the foreseeable future. 

-10- 

 
        6.7.
SEC Documents, Financial Statements. Since December 31, 2003, the Company has
timely filed (within applicable extension periods) all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act all of which are listed in Section 3 hereof
(all of the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to herein as the “SEC Documents”).
The Company has delivered to each Purchaser true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be amended or
updated under applicable law (except for such statements as have been amended or updated
in subsequent filings made prior to the date hereof). As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published rules
and regulations of the SEC applicable with respect thereto. Such financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”),
consistently applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to immaterial
year-end audit adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents filed prior to the date hereof, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of business
and not required under GAAP to be reflected in such financial statements, which
liabilities and obligations referred to in clauses (i) and (ii), individually or in the
aggregate, are not material to the financial condition or operating results of the
Company. 

 
        6.8.
Absence of  Certain Changes. Since December 31, 2003, there has been no material
adverse change  and no material adverse development in the business, properties,
operations, prospects,  financial condition or results of operations of the Company and
its subsidiaries, taken as  a whole, except as disclosed in the SEC Documents filed prior
to the date hereof. 

 
        6.9.
Absence of  Litigation. Except as disclosed in the SEC Documents filed prior to
the date hereof,  there is no action, suit, proceeding, inquiry or investigation before
or by any court,  public board, government agency, self-regulatory organization or body,
including, without  limitation, the SEC or the Market/Exchange, pending or, to the
knowledge of the Company or  any of its subsidiaries, threatened against or affecting the
Company, any of its  subsidiaries, or any of their respective directors or officers in
their capacities as  such. There are no facts which, if known by a potential claimant or
governmental  authority, could give rise to a claim or proceeding which, if asserted or
conducted with  results unfavorable to the Company or any of its subsidiaries, could
reasonably be  expected to have a Material Adverse Effect. 

-11- 

 
        6.10.
Intellectual  Property. Each of the Company and its subsidiaries owns or is
licensed to use all  patents, patent applications, trademarks, trademark applications,
trade names, service  marks, copyrights, copyright applications, licenses, permits,
inventions, discoveries,  processes, scientific, technical, engineering and marketing
data, object and source codes,  know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or  confidential information, systems or procedures) and
other similar rights and proprietary  knowledge (collectively, “Intangibles”)
necessary for the conduct of its  business as now being conducted. To the best knowledge
of the Company, neither the Company  nor any subsidiary of the Company infringes or is in
conflict with any right of any other  person with respect to any Intangibles. Except as
disclosed in the SEC Documents filed  prior to the date hereof, neither the Company nor
any of its subsidiaries has received  written notice of any pending conflict with or
infringement upon such third party  Intangibles. The termination of the Company’s
ownership of, or right to use, any  single Intangible would not result in a Material
Adverse Effect on the Company. Neither  the Company nor any of its subsidiaries has
entered into any consent agreement,  indemnification agreement, forbearance to sue or
settlement agreement with respect to the  validity of the Company’s or its
subsidiaries’ ownership or right to use its  Intangibles and, to the best knowledge
of the Company, there is no reasonable basis for  any such claim to be successful. The
Intangibles are valid and enforceable and no  registration relating thereto has lapsed,
expired or been abandoned or canceled or is the  subject of cancellation or other
adversarial proceedings, and all applications therefor  are pending and in good standing.
The Company and its subsidiaries have complied, in all  material respects, with their
respective contractual obligations relating to the  protection of the Intangibles used
pursuant to licenses. To the best knowledge of the  Company, no person is infringing on
or violating the Intangibles owned or used by the  Company or its subsidiaries. 

 
        6.11.
Foreign  Corrupt Practices. Neither the Company, nor any of its subsidiaries, nor
any director,  officer, agent, employee or other person acting on behalf of the Company
or any subsidiary  has, in the course of his actions for, or on behalf of, the Company,
used any corporate  funds for any unlawful contribution, gift, entertainment or other
unlawful expenses  relating to political activity; made any direct or indirect unlawful
payment to any  foreign or domestic government official or employee from corporate funds;
violated or is  in violation of any provision of the U.S. Foreign Corrupt Practices Act
of 1977; or made  any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any  foreign or domestic government official or employee. 

 
        6.12.
Disclosure. All information relating to or concerning the Company set forth in
this  Agreement or provided to any Purchaser pursuant to Section 5.3 hereof or otherwise
in  connection with the transactions contemplated hereby is true and correct in all
material  respects and the Company has not omitted to state any material fact necessary
in order to  make the statements made herein or therein, in light of the circumstances
under which they  were made, not misleading. No event or circumstance has occurred or
exists with respect to  the Company or its subsidiaries or their respective businesses,
properties, prospects,  operations or financial conditions, which has not been publicly
disclosed but, under  applicable law, rule or regulation, would be required to be
disclosed by the Company in a  registration statement filed on the date hereof by the
Company under the Securities Act  with respect to the primary issuance of the Company’s
securities. 

 
        6.13.
Acknowledgment Regarding Purchasers’ Purchase of the Initial Securities. The
Company acknowledges and agrees that none of the Purchasers is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement or the transactions contemplated hereby, the relationship between the Company
and the Purchasers is “arms-length” and any statement made by any Purchaser or
any of its representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Purchaser’s purchase
of  the Initial Securities (as defined in Section 10.8 hereof) and has not been relied
upon by  the Company, its officers or directors in any way. The Company further
acknowledges that  the Company’s decision to enter into this Agreement has been
based solely on an  independent evaluation by the Company and its representatives. 

-12- 

 
        6.14.
Listing.  No later than five (5) days after the release of funds pursuant to
Section 4.2.b of this  Agreement, the Company will submit the appropriate application and
supporting documents to  list the Conversion Shares upon each national securities
exchange or automated quotation  system upon which shares of Common Stock are currently
listed (subject to official notice  of issuance). 

 
        6.15.
Form S-3  Eligibility. The Company is currently eligible to register the resale of
its Common  Stock on a registration statement on Form S-3 under the Securities Act. There
exist no  facts or circumstances that would prohibit or delay the preparation and filing
of a  registration statement on Form S-3 with respect to the Conversion Shares. The
Company has  no basis to believe that its past or present independent public auditors
will withhold  their consent to the inclusion, or incorporation by reference, of their
audit opinion  concerning the Company’s financial statements which are included in
the registration  statement required to be filed pursuant to the Notes. 

 
        6.16.
No General  Solicitation. Neither the Company nor any distributor participating on
the  Company’s behalf in the transactions contemplated hereby (if any) nor any
person  acting for the Company, or any such distributor, has conducted any “general
solicitation,” as such term is defined in Regulation D, with respect to any of the
Notes being offered hereby. 

 
        6.17.
No Integrated  Offering. Neither the Company, nor any of its affiliates, nor any
person acting on its  or their behalf, has directly or indirectly made any offers or
sales of any security or  solicited any offers to buy any security under circumstances
that would require  registration of the Notes or the Conversion Shares being offered
hereby under the  Securities Act or cause this offering to be integrated with any prior
offering of  securities of the Company for purposes of the Securities Act or any
applicable stockholder  approval provisions, including, without limitation, Section 705
of the Amex Company Guide  or any similar rule. The Company does not have any
registration statement pending before  or currently under review with the SEC. 

 
        6.18.
No  Brokers. The Company has taken no action which would give rise to any claim by
any  person for brokerage commissions, finder’s fees or similar payments by any
Purchaser  relating to this Agreement or the transactions contemplated hereby other then
with respect  to commissions to be paid to the Philadelphia Brokerage Commission. 

 
        6.19.
Title.  The Company and its subsidiaries have good and marketable title in fee
simple to all real  property and good and merchantable title to all personal property
owned by them that is  material to the business of the Company and its subsidiaries, in
each case free and clear  of all liens, encumbrances and defects except such as do not
materially affect the value  of such property and do not materially interfere with the
use made and proposed to be made  of such property by the Company and its subsidiaries.
Any real property and facilities  held under lease by the Company and its subsidiaries
are held by them under valid,  subsisting and enforceable leases with such exceptions as
are not material and do not  materially interfere with the use made and proposed to be
made of such property and  buildings by the Company and its subsidiaries. 

-13- 

 
        6.20.
Tax  Status. Except as set forth in the SEC Documents, the Company and each of its
subsidiaries has made or filed all foreign, U.S. federal, state and local income and all
other tax returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no unpaid taxes
in  any material amount claimed to be due by the taxing authority of any jurisdiction,
and the  officers of the Company know of no basis for any such claim. The Company has not
executed  a waiver with respect to any statute of limitations relating to the assessment
or  collection of any federal, state or local tax. None of the Company’s tax returns
is  presently being audited by any taxing authority. 

 
        6.21.
Key  Employees. Each of the Company’s directors, officers and any Key
Employee (as  defined below) is currently serving the Company in the capacity disclosed
in the SEC  Documents. No Key Employee, to the best of the knowledge of the Company and
its  subsidiaries, is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant,  and the continued employment of each Key Employee does not subject the Company
or any of  its subsidiaries to any liability with respect to any of the foregoing
matters. No Key  Employee has, to the best of the knowledge of the Company and its
subsidiaries, any  intention to terminate or limit his employment with, or services to,
the Company or any of  its subsidiaries, nor is any such Key Employee subject to any
constraints which would  cause such employee to be unable to devote his full time and
attention to such employment  or services. “Key Employee” means the
persons listed on Schedule  6.21 and any individual who assumes or performs any of
the duties of a Key Employee. 

 
        6.22.
Insurance. The Company has in force fire, casualty, product liability and other
insurance policies, with extended coverage, sufficient in amount to allow it to replace
any of its material properties or assets which might be damaged or destroyed or
sufficient  to cover liabilities to which the Company may reasonably become subject, and
such types  and amounts of other insurance with respect to its business and properties,
on both a per  occurrence and an aggregate basis, as are customarily carried by persons
engaged in the  same or similar business as the Company. No default or event has occurred
that could give  rise to a default under any such policy. 

 
        6.23.
Environmental  Matters. There is no environmental litigation or other
environmental proceeding  pending or threatened by any governmental regulatory authority
or others with respect to  the current or any former business of the Company or any
partnership or joint venture  currently or at any time affiliated with the Company. No
state of facts exists as to  environmental matters or Hazardous Substances (as defined
below) that involves the  reasonable likelihood of a material capital expenditure by the
Company or that may  otherwise have a Material Adverse Effect. No Hazardous Substances
have been treated,  stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by  the Company or by any partnership or joint venture
currently or at any time affiliated  with the Company in violation of any applicable
environmental laws. The environmental  compliance programs of the Company comply in all
respects with all environmental laws,  whether federal, state or local, currently in
effect. As used herein, “Hazardous  Substances” means any substance,
waste, contaminant, pollutant or material that  has been determined by any governmental
authority to be capable of posing a risk of injury  to health, safety, property or the
environment. 

-14- 

 
        6.24.
Inventory. All inventory of the Company and its subsidiaries is valued on the
Company’s consolidated books and records at the lower of cost, determined by the
“first in, first out” method of accounting, or the fair market value thereof.
Except, to the extent of the Company’s actual and potential reserves for obsolete or
unmerchantable inventory reflected and discussed in the Company’s SEC Documents, all
such inventory, after consideration of reserves consisting of finished goods is of
merchantable quality and is saleable in the ordinary course of business consistent with
past practice. 

 
        6.25.
Sarbanes-Oxley Act. The Company is in compliance with the applicable provisions of
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules
and regulations promulgated thereunder, that are effective as of the date hereof, and
intends to comply with other applicable provisions of the Sarbanes-Oxley Act, and the
rules and regulations promulgated thereunder, upon the effectiveness of such provisions. 

 
        6.26.
Independent  Nature of Purchasers. The Company acknowledges that the obligations
of each Purchaser  under this Agreement and related transaction documents 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 this Agreement. The  Company acknowledges that nothing contained herein, or in any
other transaction document,  and no action taken by any Purchaser pursuant hereto or
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  this Agreement. 

 
        6.27.
Indebtedness. Schedule 6.27 hereto sets forth as of a recent
date all outstanding secured and unsecured Indebtedness of the Company or any subsidiary,
or for which the Company or any subsidiary has commitments. For purposes of this
Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed
money or amounts owed in excess of $100,000 (other than trade accounts payable incurred
in  the ordinary course of business), (b) all guaranties, endorsements and other
contingent  obligations in respect of Indebtedness of others, whether or not the same are
or should be  reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by  endorsement of negotiable instruments for deposit or collection or
similar transactions in  the ordinary course of business and (c) the present value of any
lease payments in excess  of $25,000 due under leases required to be capitalized in
accordance with GAAP. Neither  the Company nor any subsidiary is in default with respect
to any Indebtedness. 

	7. 	COVENANTS. 

 
        7.1.
Best  Efforts. The parties shall use their best efforts timely to satisfy each of
the  conditions described in Section 9 and Section 10 of this Agreement. 

 
        7.2.
Form D: Blue  Sky Laws. The Company shall file with the SEC a Form D with respect
to the Notes as  required under Regulation D and provide a copy thereof to each Purchaser
promptly after  such filing. The Company shall, on or before the Closing Date, take such
action as the  Company shall reasonably determine is necessary to qualify the Notes for
sale to each  Purchaser pursuant to this Agreement under applicable securities or “blue
sky” laws of the states of the United States or obtain exemption therefrom. Within
two (2)  trading days after the Closing Date, the Company shall file a Form 8-K
concerning this  Agreement and the transactions contemplated hereby, which Form 8-K shall
attach this  Agreement and its Exhibits as exhibits to such Form 8-K. The Company shall
prepare a press  release describing the material terms of the transactions contemplated
hereby, provide a  copy of said press release to all Purchasers for their review and
shall issue said press  release no later than 9:00 am Eastern Time on the first trading
day following the Closing  Date. 

-15- 

 
        7.3.
Reporting  Status. So long as any Purchaser beneficially owns any of the Notes,
the Company shall  timely file (within applicable extension periods) all reports required
to be filed with  the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an  issuer required to file reports under the Exchange Act even
if the Exchange Act or the  rules and regulations thereunder would permit such
termination. In addition, the Company  shall take all actions necessary to meet the “registrant
eligibility” requirements set forth in the general instructions to Form S-3 or any
successor form  thereto, to continue to be eligible to register the resale of its Common
Stock on a  registration statement on Form S-3 under the Securities Act. 

 
        7.4.
Use of  Proceeds. The Company shall use the proceeds from the sale of the Initial
Securities  as set forth in Section 4.1. 

 
        7.5.
Financial  Information. The Company shall send the following reports to each
Purchaser until such  Purchaser transfers, assigns or sells all of its Notes: (i) within
ten (10) days after the  filing with the SEC, a copy of its Annual Report on Form 10-KSB,
its Quarterly Reports on  Form 10-QSB, its proxy statements and any Current Reports on
Form 8-K; and (ii) within one  (1) day after release, copies of all press releases issued
by the Company or any of its  subsidiaries. 

 
        7.6.
Listing.  The Company shall maintain, so long as any Purchaser (or any of their
affiliates) owns any  Notes or Conversion Shares, the listing of all Conversion Shares
from time to time  issuable upon conversion of or otherwise pursuant to the Notes on each
national securities  exchange or automated quotation system on which shares of Common
Stock are currently  listed. The Company will use its best efforts to continue the
listing and trading of its  Common Stock on the Market/Exchange and will comply in all
respects with the reporting,  filing and other obligations under the bylaws or rules of
the NASD and such exchanges, as  applicable. The Company shall promptly provide to each
holder of Notes or Conversion  Shares, copies of any notices it receives regarding the
continued eligibility of the  Common Stock for trading on the Market/Exchange or, if
applicable, any securities exchange  or automated quotation system on which securities of
the same class or series issued by  the Company are then listed or quoted, if any. 

 
        7.7.
Corporate  Existence. So long as a Purchaser beneficially owns any Notes, the
Company shall  maintain its corporate existence, and in the event of a merger,
consolidation or sale of  all or substantially all of the Company’s assets, the
Company shall ensure that the  surviving or successor entity in such transaction (i)
assumes the Company’s  obligations hereunder and under the Notes, the Security
Agreement, and the agreements and  instruments entered into in connection herewith
regardless of whether or not the Company  would have had a sufficient number of shares of
Common Stock authorized and available for  issuance in order to effect the conversion of
all Notes outstanding as of the date of such  transaction and (ii) is a publicly traded
corporation whose common stock is listed for  trading on the Nasdaq National Market, New
York Stock Exchange or American Stock Exchange.  Notwithstanding the foregoing, the
Company covenants and agrees that it will not engage in  any merger, consolidation or
sale of all or substantially all of its assets at any time  prior to the effectiveness of
the Registration Statement required to be filed pursuant to  the Note without (A)
providing each Purchaser with written notice of such transaction at  least 60 days prior
to the consummation of such transaction and (B) obtaining the written  consent of the
Purchasers holding a majority-in-interest of the then outstanding Notes on  or before the
10th day after the delivery of such notice by the Company. 

-16- 

 
        7.8.
No Integrated  Offerings. The Company shall not make any offers or sales of any
security (other than  the Notes) under circumstances that would require registration of
the Notes being offered  or sold hereunder under the Securities Act or cause this
offering to be integrated with  any other offering of securities by the Company for
purposes of any stockholder approval  provision applicable to the Company or its
securities. 

 
        7.9.
Legal  Compliance. The Company shall conduct its business and the business of its
subsidiaries in compliance with all laws, ordinances or regulations of governmental
entities applicable to such businesses, except where the failure to do so would not have
a  Material Adverse Effect. 

 
        7.10.
Redemptions  and Dividends. So long as any Purchaser beneficially owns any Notes,
the Company shall  not, without first obtaining the written approval of such Purchaser,
repurchase, redeem,  or declare or pay any cash dividend or distribution on, any shares
of capital stock of the  Company. 

 
        7.11.
Disclosure of  Material Information. The Company covenants and agrees that neither
it nor any other  person acting on its behalf has provided or will provide any Purchaser
or its agents or  counsel with any information that constitutes material non-public
information, unless  prior thereto such Purchaser shall have executed a written agreement
regarding the  confidentiality and use of such information. The Company understands and
confirms that  each Purchaser shall be relying on the foregoing representations in
effecting transactions  in securities of the Company 

	8. 	TRANSFER
AGENT INSTRUCTIONS. 

 
        8.1.
The Company shall  instruct its transfer agent to issue certificates, registered in the
name of each  Purchaser or its nominee, for the Conversion Shares in such amounts as
specified from time  to time by such Purchaser to the Company upon conversion of or
otherwise pursuant to the  Notes. To the extent and during the periods provided in
Section 5.8 of this Agreement, all  such certificates shall bear the restrictive legend
specified in Section 5.8 of this  Agreement. 

 
        8.2.
The Company  warrants that no instruction other than such instructions referred to in
this Section 8,  and stop transfer instructions to give effect to Section 5.8 hereof in
the case of the  transfer of the Conversion Shares or prior to registration of the
Conversion Shares and  under the Securities Act or without an exemption therefrom, will
be given by the Company  to its transfer agent and that the Notes and Conversion Shares
shall otherwise be freely  transferable on the books and records of the Company as and to
the extent provided in this  Agreement and the Notes. Nothing in this Section shall
affect in any way each  Purchaser’s obligations and agreement set forth in Section
5.8 hereof to resell the  Notes and Conversion Shares pursuant to an effective
registration statement or under an  exemption from the registration requirements of
applicable securities law. 

 
        8.3.
If any Purchaser  provides the Company and the transfer agent with an opinion of counsel,
which opinion of  counsel shall be in form, substance and scope customary for opinions of
counsel in  comparable transactions, to the effect that the Notes or Conversion Shares to
be sold or  transferred may be sold or transferred pursuant to an exemption from
registration, or any  Purchaser provides the Company with reasonable assurances that such
Notes or Conversion  Shares may be sold under Rule 144, the Company shall permit the
transfer and, in the case  of the Conversion Shares, promptly instruct its transfer agent
to issue one or more  certificates in such name and in such denominations as specified by
such Purchaser. 

-17- 

 
        8.4.
Notwithstanding  anything contained in this Section 8 to the contrary, the Conversion
Shares shall be free  of restrictive legends and trading restrictions so long as (a) a
registration statement  providing for the resale of the Conversion Shares is effective
and (b) the Purchaser has  complied with the applicable prospectus delivery requirements
in connection with such  resales.  If requested by a Purchaser, the Company shall
use its best efforts to  issue and deliver the Conversion Shares to the Depository Trust
Company account on the  Purchaser’s behalf via the Deposit Withdrawal Agent
Commission System for the number  of Conversion Shares for which such Purchaser is
entitled. 

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

 
        The
obligation of the Company hereunder to issue and sell the Notes to each Purchaser
hereunder is subject to the satisfaction, at or before the Closing, of each of the
following conditions thereto, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole discretion. 

 
        9.1.
Each Purchaser  shall have executed such Purchaser’s execution page to this
Agreement, the Security  Agreement (and, if applicable, the Exchange Agreement) and
delivered the same to the  Company. 

 
        9.2.
Each Purchaser  shall have delivered such Purchaser’s pro rata amount of the
purchase price for the  Notes. 

 
        9.3.
The  representations and warranties of each Purchaser shall be true and correct as of the
date  when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which representations
and  warranties shall be true and correct as of such date), and such Purchaser shall have
performed, satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied with by
such Purchaser at or prior to the Closing Date. 

 
        9.4.
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 or any self-regulatory organization having authority over the
matters  contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement. 

	10. 	CONDITIONS
TO EACH PURCHASER’S OBLIGATION TO PURCHASE. 

 
        The
obligation of each Purchaser hereunder to purchase the Notes to be purchased by it at the
Closing is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that such conditions are for such Purchaser’s sole
benefit and may be waived by such Purchaser at any time in such Purchaser’s sole
discretion: 

 
        10.1.
The Company  shall have executed this Agreement, the Notes, the Security Agreement (and
if applicable,  the Exchange Agreement), and delivered executed original copies of the
same to such  Purchaser. 

 
        10.2.
The Company  shall have delivered to such Purchaser duly executed Notes (each in such
denominations as  such Purchaser shall request) representing the Notes being so purchased
by such Purchaser. 

 
        10.3.
The Common Stock  shall be authorized for quotation on the Market/Exchange and trading in
the Common Stock  (or the Market/Exchange generally) shall not have been suspended by the
SEC or the  Market/Exchange. 

-18- 

 
        10.4.
The  representations and warranties of the Company shall be true and correct as of the
date  when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which representations
and  warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied with by
the Company at or prior to the Closing Date. On or prior to the Closing Date, each
Purchaser shall have received a certificate, executed by the Chief Executive Officer of
the Company after reasonable investigation, dated as of the Closing Date to the foregoing
effect and as to such other matters as may reasonably be requested by such Purchaser. 

 
        10.5.
No statute,  rule, regulation, executive order, decree, ruling, injunction, action or
proceeding shall  have been enacted, entered, promulgated or endorsed by any court or
governmental authority  of competent jurisdiction or any self-regulatory organization
having authority over the  matters contemplated hereby which questions the validity of,
challenges or prohibits the  consummation of, any of the transactions contemplated by
this Agreement. 

 
        10.6.
There shall have  been no Material Adverse Effect and no information, of which the
Purchaser is not  currently aware, shall come to the attention of the Purchaser that is
materially adverse  to the Company. 

 
        10.7.
On or prior to  the Closing Date, each Purchaser shall have received a copy of
resolutions, duly adopted  by the Board of Directors of the Company, which shall be in
full force and effect at the  time of the Closing, authorizing the execution, delivery
and performance by the Company of  this Agreement, the Notes and the Security Agreement
and the consummation by the Company  of the transactions contemplated hereby and thereby,
certified as such by the Secretary or  Assistant Secretary of the Company. 

 
        10.8.
The aggregate  Purchase Price of the Notes being purchased hereunder by all Purchasers at
the Closing  shall be at least Six Million Two Hundred Fifty Thousand Dollars
($6,250,000), where the  Notes purchased as the Closing shall be referred to as the “Initial
Securities.” 

 
        10.9.
The Company  shall have prepared and will file contemporaneously with the Closing the
appropriate  Financing Statements on Form UCC-1 and Forms PTO-1594 and PTO-1595 with the
United States  Patent and Trademark Office for the purposes of perfecting the security
liens against the  Collateral (as defined in the Security Agreement). 

 
        10.10.
No later than  five (5) days after the Closing Date, the Company shall provide to the
Purchasers evidence  that the Company’s fire, casualty, product liability and other
insurance policies and  shall amend such policies to add the Collateral Agent and the
Purchasers are beneficiaries  to the extent that the proceeds of such policies are
necessary to satisfy any and all  obligations or the Company under this Agreement, the
Notes and the Security Agreement. 

	11. 	INDEMNIFICATION 

 
        11.1.
By  Purchaser. Purchaser agrees that it shall indemnify and hold harmless the
Company and  its officers, directors, employees, agents and professional advisors from
and against any  and all loss, damage, liability, or expense, including costs and
reasonable  attorneys’ fees, that the foregoing, or any of them, may incur by reason
of, or in  connection with, any misrepresentation, inaccurate statement or material
omission made by  Purchaser herein, any breach of any of Purchaser’s warranties, or
any failure on  Purchaser’s part to fulfill any of Purchaser’s covenants,
agreements or  obligations set forth herein. 

-19- 

 
        11.2.
By the  Company. The Company agrees that it shall indemnify and hold harmless the
Purchaser  and its officers, directors, employees, agents and professional advisors from
and against  any and all loss, damage, liability, or expense, including costs and
reasonable  attorneys’ fees, that the foregoing, or any of them, may incur by reason
of, or in  connection with, any misrepresentation, inaccurate statement or material
omission made by  the Company herein, any breach of any of the Company’s warranties,
or any failure on  the Company’s part to fulfill any of its covenants, agreements or
obligations set  forth herein. 

	12. 	AUTHORIZATION 

 
        Due
to the regulated nature of gaming and gaming-related activities and due to the requests
for information that may be received from regulatory agencies, Purchaser hereby authorizes
the Company and its officers, employees and agents to investigate Purchaser’s
personal and business background including, without limitation, communication with any
employer, former employer, business associate, government agency, bank or other credit
reference. Purchaser hereby authorizes any person, organization or entity that may have
any knowledge or information concerning Purchaser’s personal or business background
to provide such information to the Company as the Company may request. 

	13. 	NO
BROKERS OR FINDERS 

 
        Other
than Philadelphia Brokerage Corporation, no person, firm or corporation has or will have,
as a result of any act or omission by such Purchaser, any right, interest or valid claim
against Purchaser or the Company for any commission, fee or other compensation as a finder
or broker, or in any similar capacity, in connection with the transactions contemplated by
this Agreement. 

	14. 	MISCELLANEOUS 

 
        14.1.
Governing Law;  Venue. This Agreement shall be governed by, and construed in accordance
with, the laws of  the State of Nevada. The parties hereto submit to the exclusive
jurisdiction of the courts  located in Clark County, Nevada, with respect to any dispute
arising under this Agreement  and the transactions contemplated hereby. 

 
        14.2.
Entire  Agreement. This Agreement, the Note, the Security Agreement and the Exchange
Agreement  contain the entire agreement between the Company and Purchaser with regard to
the subject  matter hereof and may not be modified or waived except in a writing signed
by both the  Company and Purchaser. 

 
        14.3.
Headings. The  headings of this Agreement are for convenience and reference only, and
shall not limit or  otherwise affect the interpretation of any term or provision hereof. 

 
        14.4.
Binding Effect.  This Agreement and the rights, powers, and duties set forth herein
shall, except as  otherwise expressly provided herein, be binding upon and inure to the
benefit of, the  heirs, executors, administrators, legal representatives, successors, and
assigns of the  parties hereto. 

 
        14.5.
No Assignment.  Purchaser may not assign any of Purchaser’s rights or interests in
and under this  Agreement without the prior written consent of the Company, and any
attempted assignment  without such consent shall be null and void and without any force
or effect whatsoever. 

 
        14.6.
Attorneys’ Fees. If any legal action or any arbitration or other proceeding is
brought for the  enforcement of this Agreement, or because of an alleged dispute, breach,
default, or  misrepresentation in connection with any of the provisions of this
Agreement, the  successful or prevailing party or parties shall be entitled to recover
reasonable  attorneys’ fees and other costs incurred in that action or proceeding,
in addition to  any other relief to which it may be entitled. 

-20- 

 
        14.7.
Notices. Unless  otherwise provided, any notice required or permitted under this
Agreement shall be given  in writing, shall be sent by facsimile to the party to be
notified and shall be deemed  effectively given upon personal delivery to the party to be
notified, or four days after  deposit with the United States Post Office, by registered
or certified mail, postage  prepaid and addressed to the party to be notified. Any notice
to Purchaser shall be sent  to his facsimile number and address set forth on the
signature page hereto, or at such  other facsimile number or address as a party may
designate by ten (10) days’ advance  written notice to the other party. Any notice
to the Company shall be sent to VendingData  Corporation, Attn: Chief Executive Officer
and Chief Financial Officer, 6830 Spencer  Street, Las Vegas, Nevada 89119, 702-733-7197
(facsimile), with a copy to Kummer Kaempfer  Bonner & Renshaw, Attn: Michael J.
Bonner, 3800 Howard Hughes Parkway, Seventh Floor,  Las Vegas, Nevada 89109, 702-796-7181
(facsimile). 

 
        14.8.
Severability. If  one or more provisions of this Agreement are held to be unenforceable
under applicable  law, such provision shall be excluded from this Agreement and the
balance of the Agreement  shall be interpreted as if such provision were so excluded and
shall be enforceable in  accordance with its terms. In addition, if any such provision,
or any part thereof, is  held to be unenforceable, the parties agree that the court,
regulatory agency or other  governmental body making such determination shall have the
power to delete or add specific  words or phrases, so that such provision shall then be
enforceable to the fullest extent  permitted by law. 

-21- 

 
        14.9.
Neutral  Interpretation. This Agreement shall be construed in accordance with its intent
and  without regard to any presumption or any other rule requiring construction against
the  party causing the same to be drafted. 

 
        14.10.
Waiver. No  delay or omission by the Purchaser in exercising any rights shall operate as
a waiver of  such right or any other right. Waiver on any one occasion shall not be
construed as a bar  to or waiver of any right or remedy on any future occasion. The
rights and remedies of the  Purchaser, whether evidenced hereby or by any other
agreement, instrument or paper, shall  be cumulative and may be exercised singularly or
concurrently. Unless otherwise provided  in this Agreement or in the Notes, any waiver or
amendment of any provisions of this  Agreement shall be in writing, executed and
delivered by the Company and by the Purchaser  or Purchasers holding Notes representing
not less than a majority of the then outstanding  principal of all of the Notes then
issued and outstanding. 

 
        IN
WITNESS WHEREOF, the undersigned has executed this Agreement as of the _______ day of
________________ 2005. 

	NUMBER
OF UNITS		PRICE
PER UNIT		INVESTMENT
AMOUNT		CASH		2004 NOTES
	 
	_____ Units	x	$50,000	=	$__________	=	$__________	+	$__________
	(NOTE: MINIMUM INVESTMENT OF ONE (1) UNIT)

    Name and Address of Purchaser:
                                                  Tax ID Number /
                                                  Social Security
                                                      Number
-------------------------------------------                          -------------------
(Signature)

-------------------------------------------
(Insert Name and Title)

                                                   Telephone (Home)   (   )    -
-------------------------------------------                          -------------------
(Street Address)
                                                 Telephone (Office)   (   )    -
-------------------------------------------                          -------------------
(Street Address)
                                                          Facsimile   (   )    -
--------------------, ---------- ----------                          -------------------
(City)                 (State)   (Zip Code)

            NAME OF JOINT PURCHASER/ADDITIONAL SIGNATORY (IF APPLICABLE):

                                                   Tax ID Number / Social
                                                      Security Number
-------------------------------------------                                ---------------------
(Signature)

-------------------------------------------
(Insert Name)

-22- 

ACCEPTANCE OF
SUBSCRIPTION AGREEMENT 

 
        On
the __________ day of __________________, 2005, VendingData Corporation, a Nevada
corporation, hereby accepts the offer of the above purchaser to purchase the number of
Units, in the dollar amount, as stated on the cover page and this signature page. 

VENDINGDATA
CORPORATION 

	By: 	  

	
Its:	Steven
J. Blad
Chief Executive Officer 

EXHIBIT A 

FORM OF PROMISSORY
NOTE 

A-1 

EXHIBIT B 

FORM OF SECURITY
AGREEMENT 

B-1 

EXHIBIT C 

FORM OF EXCHANGE AGREEMENT 

C-1 

EXHIBIT D 

CERTIFICATE OF
PARTNERSHIP INVESTOR 

CERTIFICATE OF
_____________________________________________ (the “Investor Partnership”)

               
               
               
             
(Name  of Partnership)

The undersigned,
constituting all of the partners of the Investor Partnership who must consent to the
proposed investment by the Investor Partnership hereby certify as follows:

	 	1.  	 That,
as partners of the Investor Partnership, we have authority to determine and have
determined: (a) that the investment in, and the purchase of, Units (as defined in the
Subscription Agreement) from VendingData Corporation is of benefit to the Investor
Partnership; and (b) to make such investment on behalf of the Investor Partnership.  

	 	2.  	 That
____________ is authorized to execute, on behalf of the Investor Partnership, any and
all documents in connection with the Investor Partnership’s investment in Units from
VendingData Corporation.  

IN WITNESS WHEREOF, we
have executed this certificate as partners of the Investor Partnership this ___ day of
______________ 2005, and declare that it is truthful and correct.

(Name of Investor Partnership)

	By: 	  

	
Its:	

Partner

	By: 	  

	
Its:	

Partner

	By: 	  

	
Its:	

Partner

D-1 

EXHIBIT E 

CERTIFICATE OF
TRUST INVESTOR 

CERTIFICATE OF
__________________________________________________________(the “Trust”)

               
               
               
             
(Name of Trust)

The undersigned,
constituting the Trustee(s) of the Trust, hereby certify as follows:

	 	1.  	 That,
as Trustee(s) of the Trust, we have authority to determine and have determined: (a)  that
the investment in, and the purchase of, Units (as defined in the Subscription  Agreement)
from VendingData Corporation is of benefit to the Trust; and (b) to make such  investment
on behalf of the Trust.  

	 	2.  	 That
____________ is authorized to execute, on behalf of the Trust, any and all documents  in
connection with the Trust’s investment in Units from VendingData Corporation.  

IN WITNESS WHEREOF, we
have executed this certificate as partners of the Trust this ___ day of ______________
2005, and declare that it is truthful and correct.

(Name of Trust)

	By: 	  

	
Its:	

Trustee

	By: 	  

	
Its:	

Trustee

	By: 	  

	
Its:	

Trustee

E-1 

EXHIBIT F 

CERTIFICATE OF
CORPORATE INVESTOR 

CERTIFICATE OF
_____________________________________________________(the “Corporation”)

               
               
               
             
(Name of Corporation)

The undersigned, being
the duly elected and acting Secretary or Assistant Secretary of the Corporation, hereby
certifies as follows:

	 	1.  	 That
the Articles of Incorporation and By-Laws of the Corporation do not prohibit this
investment.  

	 	2.  	 That
the Board of Directors of the Corporation has determined, or appropriate officers  acting
under authority of the Board of Directors have determined, (a) that the investment  in,
and purchase of, Units (as defined in the Subscription Agreement) from VendingData
Corporation is of benefit to the Corporation, and (b) to make such investment on behalf
of  the Corporation. Attached hereto is a true, correct and complete copy of resolutions
of  the Board of Directors (or an appropriate committee thereof) of the Corporation duly
authorizing this investment or the authority of the acting officers, as applicable, and
said resolutions have not been revoked, rescinded or modified and remain in full force
and  effect.  

	 	3.  	 That
the following named individuals are duly elected officers of the Corporation, who  hold
the offices set opposite their respective names and who are duly authorized to  execute
any and all documents in connection with the Corporation’s investment in  Units from
VendingData Corporation and that the signatures written opposite their names  and titles
are their correct and genuine signatures.  

	Name	Title	Signature
	 
	
	
	

	
	
	

	
	
	

IN WITNESS WHEREOF, I
have executed this certificate this ___ day of ______________ 2005, and declared that it
is truthful and correct.

(Name of Corporation)

	By: 	  

	
Its:	

F-1 

EXHIBIT G 

CERTIFICATE OF
LIMITED-LIABILITY COMPANY INVESTOR 

CERTIFICATE OF
________________________________________________(the “Limited Liability Company”)

               
               
               
(Name of Limited Liability Company)

The undersigned, being
the duly elected and acting Manager or Managing Member (either, a “Manager”) of
the Limited Liability Company, hereby certifies as follows:

	 	1.  	 That
the Managers of the Limited Liability Company having proper authority or the Members  of
the Limited Liability Company having proper authority have determined: (a) that the
investment in, and purchase of, Units (as defined in the Subscription Agreement) from
VendingData Corporation is of benefit to the Limited Liability Company; and (b) to make
such investment on behalf of the Limited Liability Company. Attached hereto is a true,
correct and complete copy of resolutions of the Managers or Members (or an appropriate
committee thereof) of the Limited Liability Company duly authorizing this investment, and
said resolutions have not been revoked, rescinded or modified and remain in full force
and  effect.  

	 	2.  	 That
the following named individuals are duly elected Managers, Officers or Members of the
Limited Liability Company, who hold the offices set forth opposite their respective names
and who are duly authorized to execute any and all documents in connection with the
Limited Liability Company’s investment in Units from VendingData Corporation and
that  the signatures written opposite their names and titles are their correct and
genuine  signatures.  

	Name	Title	Signature
	 
	
	
	

	
	
	

	
	
	

IN WITNESS WHEREOF, I
have executed this certificate this ___ day of ______________ 2005, and declared that it
is truthful and correct.

(Name of Limited Liability Company)

	By: 	  

	
Its:	

G-1 

SCHEDULE 6.4 

CAPITALIZATION

(AS OF JANUARY 14, 2005) 

	NAME OF SECURITY		AUTHORIZED
SHARES;
AUTHORIZED FOR
ISSUANCE		ISSUED AND
OUTSTANDING;
EXERCISABLE	
	
		
		
	
	Common Stock, $.001 par value	 	25,000,000	 	17,199,558	 
	Preferred Stock, $.001 par value	 	10,000,000	 	0	 
	Stock Options (1999 Stock Option Plan and 1999

    Directors’ Stock Option Plan)	 	3,300,000	 	2,186,856	 
	Warrants to Purchase Common Stock	 	2,540,000	 	2,540,000	 
	
		
		
	
		 		 	21,926,414	 

SCHEDULE 6.21 

KEY EMPLOYEES 

	NAME		TITLE	
	
		
	
	Steven J. Blad	 	President, Chief Executive Officer and Treasurer	 

SCHEDULE 6.27 

INDEBTEDNESS (AS
OF DECEMBER 31, 2004) 

	DESCRIPTION		AMOUNT	
	
		
	
	9% Senior Notes Due 2004	 	$3,250,000	 
	Third Party Loan	 	$238,250	 
	Central Leasing	 	$2,834,689	 
	
		
	
	Total	 	$6,322,939	 

S-1Exhibit  10.2 

FORM OF

PROMISSORY NOTE 

	 	
THIS PROMISSORY NOTE AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS  AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
THESE SECURITIES MAY NOT BE SOLD, DISTRIBUTED, OFFERED FOR SALE, ASSIGNED, 
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS: (A) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE  STATE SECURITIES LAW COVERING ANY SUCH
TRANSACTION INVOLVING THESE SECURITIES; (B) THE COMPANY (DEFINED BELOW) RECEIVES AN 
OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES STATING THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION AND SUCH  OPINION IS IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY; OR (C) PURSUANT TO RULE 144 UNDER SUCH ACT. 	 

VENDINGDATA
CORPORATION

10% SENIOR CONVERTIBLE NOTE DUE FEBRUARY ____, 2008 

	$__________________	February ___, 2005

 
        FOR
VALUE RECEIVED, the undersigned VendingData Corporation, a Nevada corporation
(“Obligor” or the “Company”), hereby promises to pay to the order of
__________________ or (his/her/its) registered assigns (“Holder”) on February
___, 2008 (the “Payment Date”), the principal sum of __________________ Dollars
($___________) and to pay interest on the unpaid principal balance hereof from the date
hereof at a rate of 10% per annum (the “Interest Rate”), payable semi-annually,
in arrears, on August 1 and February 1 (commencing on August 1, 2005), until this
Note is paid off and satisfied in full. Interest shall be calculated on the basis of a
365/366-day year and actual days elapsed. Accrued but unpaid interest shall not be
compounded. 

 
        1.
Payment. The  outstanding principal balance under this Note and all accrued and unpaid
interest shall be  due and payable in a single balloon payment on the Payment Date. At
its discretion,  Obligor may, at any time, redeem the Note prior to the Payment Date  (“Pre-Payment”),
where such Pre-Payment must be in an amount no less than fifty  percent (50%) of the then
outstanding principal amount under this Note. If a Pre-Payment  occurs on or prior to
February ___, 2006, the unpaid principal balance will be multiplied  by one hundred and
five percent (105%). If a Pre-Payment occurs after February ___, 2006  and prior to
February ___, 2007, the unpaid principal balance will be multiplied by one  hundred and
three percent (103%). If a Pre-Payment occurs on or after February ___, 2007,  or if the
Pre-Payment occurs pursuant to the provisions of Section 4.2 of the Subscription
Agreement dated as of the date hereof by and between Obligor and Holder (the  “Subscription
Agreement”), the unpaid principal shall remain at par. If Obligor  intends to
exercise its right of Pre-Payment, Obligor shall provide Holder with thirty  (30) days
prior written notice during which time Holder may elect to convert this Note in
accordance with Section 4 of this Note. Time is of the essence with respect to all of the
terms and provisions of this Note. 

 
        2.
Description of  Notes. This Note is issued as part of a private placement of up to Ten
Million Dollars  ($10,000,000) in senior convertible notes (the “Private Placement”).
This Note  shall be pari passu to all of the Notes issued as part of the Private
Placement.  This Note is being issued in increments of Fifty Thousand Dollars ($50,000). 

 
        3.
Security. This Note  is secured pursuant to the terms of that certain Security Agreement
of even date herewith.  Holder agrees that all notices, demands, consents and other
rights of Holder are to be  exercised pursuant to that certain Security Agreement of even
date herewith. 

 
        4.
Conversion. As long  as the there remains principal outstanding pursuant to this Note
(the “Conversion  Period”), Holder may exercise a one-time right to convert up
to fifty percent (50%)  of the then outstanding principal into shares of Obligor’s
common stock, $.001 par  value (“Common Stock”) at a rate of one share of
Common Stock per each One and  65/10ths Dollars ($1.65) (the “Conversion Price”)
of outstanding principal,  where the resulting shares of Common Stock shall be referred
to as the “Conversion  Shares.” 

	 	 
        4.1.
Covenants. Obligor hereby covenants and agrees that: (1) all Conversion Shares shall,
upon  issuance in accordance with the terms of this Note, be duly authorized, validly
issued,  fully paid, and non-assessable; (2) Obligor shall at all times have authorized,
and  reserved for the purpose of issuance upon conversion of this Note, sufficient number
of  shares of Common Stock to provide for the conversion of this Note; and (3) the
conversion  rights of Holder shall be binding upon any entity succeeding to Obligor by
merger,  consolidation, or acquisition of all or substantially all of Obligor’s
assets.  

	 	 
        4.2.
Adjustment Provisions. During the Conversion Period, the Conversion Price and the number
of Conversion Shares shall be subject to adjustment from time to time as provided in this
Section 4.2. If Obligor shall, prior to the payment of the Note in full,  (1) declare
a dividend or make a distribution of Common Stock payable in shares of  Common Stock, (2) subdivide
its outstanding shares of Common Stock, into a greater  number of shares of Common Stock,
(3) combine its outstanding shares of Common Stock  into a smaller number of shares
of Common Stock, or (4) issue any shares of capital  stock of Obligor by
reclassification or capital reorganization of its shares of Common  Stock, then the
number of Conversion Shares and the Conversion Price in effect immediately  prior to such
action shall be adjusted so that Holder shall be entitled to receive the  number and kind
of shares of Common Stock or other capital stock which Holder would have  owned or have
been entitled to receive immediately after such action had Holder converted  this Note
immediately prior to the record date in the case of (1), or the effective date  in the
case of (2), (3) or (4). In the event that any adjustment of the Conversion Price  as
required herein results in a fraction of a cent, such Conversion Price shall be rounded
up to the nearest cent.  

	 	 
        4.3.
Weighted Average Conversion Price Adjustment Provisions. Until the conversion of this
Note  pursuant to this Section 4, in the event that the Company issues Common Stock in
consideration for cash, cash equivalents, promissory notes or other consideration (other
than pursuant to stock options issued pursuant to the Company’s stock option plans)
at a price per share or issues debt or equity securities or reprices outstanding debt or
equity securities with an exercise and/or conversion price (in either case, the “New
Price”) less than the Conversion Price, as adjusted in accordance with  Section 4.2
hereof, the Company shall agree to calculate the adjusted Conversion  Price (the “Adjusted
Conversion Price”) based upon a weighted average of the  Conversion Shares issuable
based on the Conversion Price and the New Price pursuant to the  following formula:  

                                           ( Shares Outstanding     Conversion Shares Based
    Adjusted                                 Prior to Issuance   +    on Conversion Price  )
   Conversion    =   Conversion Price   x  -------------------------------------------------
      Price                                ( Shares Outstanding  +  Conversion Shares Based
                                             Prior to Issuance           on New Price      )

	 	where,
based on the 17,199,558 shares outstanding as of December 31, 2004 and the maximum
conversion of the Notes, if the Company were to issue shares of Common Stock at $1.00 per
share, the Adjusted Conversion Price would be calculated as follows: 

    Adjusted                        (  17,199,558   +   3,030,303  )
   Conversion    =    $1.65    x    --------------------------------   =   $1.50
     Price                          (  17,199,558   +   5,000,000  )

-2- 

	 	 
        4.4.
Manner of Conversion. Subject to the provisions hereof, the relevant portion of this Note
may be converted by the Holder by the surrender of this Note, together with a conversion
agreement in the form attached hereto (the “Conversion Agreement”), duly
completed and executed by Holder, to Obligor during normal business hours on any business
day at Obligor’s principal executive offices (or such other location as Obligor may
designate by notice to Holder).  

	 	 
        4.5.
Issuance of Conversion Shares. The Conversion Shares shall be deemed to be issued to
Holder, as the record owner of such Conversion Shares, as of the close of business on the
date on which this Note shall have been surrendered and the completed Conversion
Agreement  shall have been delivered. Certificates for the Conversion Shares,
representing the  aggregate number of shares specified in the Conversion Agreement, shall
be delivered to  Holder as soon as reasonably practicable, not exceeding three (3)
business days after the  relevant portion of this Note shall has been so converted. The
certificates so delivered  shall be in such denominations as may be reasonably requested
by Holder and shall be  registered in the name of Holder. Obligor shall, at its expense,
at the time of delivery  of such certificates, deliver to Holder a new promissory note
substantially identical to  this Note other than with respect to this conversion herewith
representing the balance of  the outstanding principal under this Note that had not been
converted.  

	 	 
        4.6.
No Rights or Liabilities as a Stockholder. This Note shall not entitle Holder to any
voting rights or other rights as a stockholder of Obligor. No provision of this Note, in
the absence of affirmative action by Holder to convert any relevant portion of this Note,
and no mere enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of such Holder for the Conversion Price or as a stockholder of Obligor,
whether such liability is asserted by Obligor or by creditors of Obligor.  

 
        5.
Demand Registration  Rights. As soon as practicable after the issuance of this Note,
Obligor shall prepare and  file a registration statement (the “Registration Statement”)
on Form S-3 or any  similar short-form registration statement, with respect to the
registration under the  Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder  (collectively, the “Securities Act”) of all Conversion
Shares for resale, which  Registration Statement shall also cover such indeterminate
number of additional shares of  Common Stock as may become issuable upon conversion of
the Notes as a result of  adjustments from stock splits, stock dividends or similar
transactions. 

	 	 
        5.1.
Registration Process. Obligor shall file the Registration Statement as soon as
practicable, but in any event within thirty (30) days after the issuance of this Note,
and  shall use commercially reasonable efforts to have such Registration Statement
promptly  declared effective by the Securities and Exchange Commission (“SEC”)
whether or  not all Conversion Shares requested to be registered can be included; provided,
however, that if Obligor shall furnish to such Holder a certificate signed by the
President of Obligor stating that in the good-faith judgment of the Obligor’s board
of directors it would be seriously detrimental to Obligor and its stockholders for such
Registration Statement to be filed within such thirty-day (30-day) period and it is
therefore essential to defer the filing of such Registration Statement, Obligor shall
have  an additional period of not more than ninety (90) days after the expiration of the
initial  thirty-day (30-day) period within which to file such Registration Statement;  provided, that
during such time Obligor may not file a Registration Statement for  securities to be
issued and sold for its own account.  

-3- 

	 	 
        5.2.
Registration Default. In the event that: (a) the Registration Statement is not filed by
the Company within thirty (30) days after the issuance of this Note, or declared
effective  by the SEC within one hundred twenty (120) days after the date of the issuance
of this  Note, on the 120th day after the issuance of this Note, or (b) the Common Stock
is no  longer listed on the American Stock Exchange or another national securities
exchange or  quotation medium (including the Nasdaq National Market and the Nasdaq
SmallCap Market) or  has been suspended from trading thereon for three (3) consecutive
business days, the  Interest Rate shall increase by one-half percent (0.5%) per annum for
each 30-day period  for which Obligor remains in default pursuant to this Section 5.2,
where the Interest Rate  shall not increase to more than fourteen percent (14%) per
annum; provided, however, with  respect to a registration default under subsection (b),
Obligor shall have one hundred  twenty (120) days to cure such registration default
during which time the Interest Rate  shall not increase, where the failure of Obligor to
cure during said 120-day period shall  cause the retroactive application of the one-half
percent (0.5%) per annum increase to the  date of the registration default. Once the
Registration Statement has been declared  effective by the SEC, if the Registration
Statement is no longer effective, other than as  provided in Section 5.3(f), for a period
of thirty (30) days in the aggregate (which days  need not be consecutive), on the day
after such thirtieth (30th) day the then applicable  Interest Rate shall increase by
one-half percent (0.5%) per annum and shall be subject to  additional increases of
one-half percent (0.5%) per annum for every such subsequent  aggregate 30-day period that
the Registration Statement is no longer effective. Upon the  re-listing of the Common
Stock or when the Registration Statement regains its  effectiveness, the Interest Rate
shall return to ten percent (10%) per annum.  

	 	 
        5.3.
Obligations of the Company. In connection with the registration of the Conversion Shares,
the Company shall have the following obligations:  

	 	 
        a.
The Company shall keep such Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of the Conversion
Shares have been sold and (ii) the date on which all of the Conversion Shares may be
immediately sold to the public without registration or restriction pursuant to Rule
144(k)  under the Securities Act or any successor provision (the “Registration Period”),
which Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference therein) (i)
shall comply in all material respects with the requirements of the Securities Act and the
rules and regulations of the SEC promulgated thereunder and (ii) shall not contain any
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 not misleading. The
financial  statements of the Company included in the Registration Statement or
incorporated by  reference therein will comply as to form in all material respects with
the applicable  accounting requirements and the published rules and regulations of the
SEC applicable with  respect thereto. Such financial statements will be prepared in
accordance with U.S.  generally accepted accounting principles, consistently applied,
during the periods  involved (except (i) as may be otherwise indicated in such financial
statements or the  notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may  not include footnotes or may be condensed on summary statements and
fairly present in all  material respects the consolidated financial position of the
Company and its consolidated  subsidiaries as of the dates thereof and the consolidated
results of their operations and  cash flows for the periods then ended (subject, in the
case of unaudited statements, to  immaterial year-end adjustments)).  

	 	 
        b.
The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to keep the Registration
Statement effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition of all
Conversion Shares of the Company covered by the Registration Statement until the end of
the Registration Period.  

-4- 

	 	 
        c.
The Company shall furnish to special counsel for the Holders whose Conversion Shares are
included in the Registration Statement (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one copy of the
Registration Statement and any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto, and each letter written by or on
behalf of the Company to the SEC or the staff of the SEC (including, without limitation,
any request to accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC, in each
case relating to the Registration Statement (other than any portion, if any, thereof
which  contains information for which the Company has sought confidential treatment),
(ii) on the  date of effectiveness of the Registration Statement or any amendment
thereto, a notice  stating that the Registration Statement or amendment has been declared
effective, and  (iii) such number of copies of a prospectus, including a preliminary
prospectus, if  applicable, and all amendments and supplements thereto and such other
documents as such  Holder may reasonably request in order to facilitate the disposition
of the Conversion  Shares owned by such Holder.  

	 	 
        d.
The Company shall use its best efforts to (i) register and qualify the Conversion Shares
covered by the Registration Statement under such other securities or “blue sky” laws
of such jurisdictions in the United States as each Holder who holds Conversion Shares
being offered reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such registrations
and  qualifications as may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration Period,
and (iv) take all other actions reasonably necessary or advisable to qualify the
Conversion Shares for sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to (A) qualify to
do business in any jurisdiction where it would not otherwise be required to qualify but
for this Section 5.3.d, (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D) provide
any  undertakings that cause the Company undue expense or burden, or (E) make any change
in its  charter or bylaws, which in each case the Board of Directors of the Company
determines to  be contrary to the best interests of the Company and its stockholders.  

	 	 
        e.
If (i) there is material non-public information regarding the Company that the  Company’s
Board of Directors (the “Board”) reasonably determines not to be  in the Company’s
best interests to disclose and that the Company is not otherwise  required to disclose,
or (ii) there is a significant business opportunity (including, but  not limited to, the
acquisition or disposition of assets (other than in ordinary course of  business) or
merger, consolidation, tender offer or other similar transaction) available  to the
Company that the Board reasonably determines not to be in the Company’s best
interests to disclose and that the Company would be required to disclose under the
Registration Statement, then the Company may suspend effectiveness of a Registration
Statement filed pursuant to this Note and suspend the sale of Conversion Shares under
such  Registration Statement for a period not to exceed twenty (20) consecutive calendar
days,  provided that the Company may not suspend its obligation pursuant to this Section
5.3.e  for more than forty (40) calendar days in the aggregate during any twelve (12)
month  period (each, a “Blackout Period”); provided, however, that no such
suspension  shall be permitted for more than one twenty (20) calendar day period, arising
out of the  same set of facts, circumstances or transactions.  

-5- 

	 	 
        f.
As promptly as practicable, but in no event later than five (5) business days, after
becoming aware of such event, the Company shall notify each Holder of the occurrence of
any event (where filing and delivery of a Form 8-K shall constitute compliance) of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a material
fact  or omission to state a material fact required to be stated therein or necessary to
make  the statements therein not misleading, and, use its commercially reasonable efforts
promptly to prepare a supplement or amendment to the Registration Statement to correct
such untrue statement or omission, and deliver such number of copies of such supplement
or  amendment to each Holder as such Holder may reasonably request.  

	 	 
        g.
The Company shall use its commercially reasonable efforts (i) to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement, and, if
such an order is issued, to obtain the withdrawal of such order at the earliest
practicable moment (including in each case by amending or supplementing such Registration
Statement) and (ii) to notify each Holder who holds Conversion Shares being sold (or, in
the event of an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof (and if such Registration Statement is supplemented or
amended, deliver such number of copies of such supplement or amendment to each Holder as
such Holder may reasonably request).  

	 	 
        h.
The Company shall permit a single firm of counsel designated by the Initial Holders
holding a majority in interest of the Conversion Shares to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time prior to
its filing with the SEC, and not file any document in a form to which such counsel
reasonably objects.  

	 	 
        i.
The Company shall make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule 158 under the
Securities  Act) covering a twelve-month period beginning not later than the first day of
the  Company’s fiscal quarter next following the effective date of the Registration
Statement.  

	 	 
        j.
At the request of any Holder in the case of an underwritten public offering, the Company
shall furnish, on the date of effectiveness of the Registration Statement (i) an opinion,
dated as of such date, from counsel representing the Company addressed to the Holders and
in form, scope and substance as is customarily given in an underwritten public offering
and (ii) a letter, dated such date, from the Company’s independent certified public
accountants in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters and the Holders.  

-6- 

	 	 
        k.
To the extent permitted by law, the Company shall make available for inspection by (i)
any  Holder, (ii) any underwriter participating in any disposition pursuant to the
Registration  Statement filed pursuant to Section 5, (iii) one firm of attorneys and one
firm of  accountants or other agents retained by the Holders, and (iv) one firm of
attorneys  retained by all such underwriters (collectively, the “Inspectors”),
all  reasonably pertinent financial and other records, and pertinent corporate documents
and  properties of the Company (collectively, the “Records”), as shall be
reasonably  deemed necessary by each Inspector to enable each Inspector to exercise its
due diligence  responsibility, and cause the Company’s officers, directors and
employees to supply  all information which any Inspector may reasonably request for
purposes of such due  diligence; provided, however, that each Inspector shall hold in
confidence and shall not  make any disclosure (except to an Holder) of any Record or
other information which the  Company provides in accordance with this Section 5.3(k),
unless (a) the disclosure of such  Records is necessary to avoid or correct a
misstatement or omission in any Registration  Statement, (b) the release of such Records
is ordered pursuant to a subpoena or other  order from a court or government body of
competent jurisdiction, or (c) the information in  such Records has been made generally
available to the public other than by disclosure in  violation of this Note or any other
agreement. The Company shall not be required to  disclose any confidential information in
such Records to any Inspector until and unless  such Inspector and its respective Holder
shall have entered into confidentiality  agreements (in form and substance satisfactory
to the Company) with the Company with  respect thereto, substantially in the form of this
Section 5.3(k). Each Holder agrees that  it shall, upon learning that disclosure of such
Records is sought in or by a court or  governmental body of competent jurisdiction or
through other means, give prompt notice to  the Company and allow the Company, at its
expense, to undertake appropriate action to  prevent disclosure of, or to obtain a
protective order for, the Records deemed  confidential. Nothing herein shall be deemed to
limit the Holders’ ability to sell  Conversion Shares in a manner which is otherwise
consistent with applicable laws and  regulations.  

	 	 
        l.
The Company shall hold in confidence and not make any disclosure of information
concerning  an Holder provided to the Company unless (i) disclosure of such information
is necessary  to comply with federal or state securities laws, (ii) the disclosure of
such information  is necessary to avoid or correct a misstatement or omission in any
Registration Statement,  (iii) the release of such information is ordered pursuant to a
subpoena or other order  from a court or governmental body of competent jurisdiction,
(iv) such information has  been made generally available to the public other than by
disclosure in violation of this  or any other agreement, or (v) such Holder consents to
the form and content of any such  disclosure. The Company agrees that it shall, upon
learning that disclosure of such  information concerning an Holder is sought in or by a
court or governmental body of  competent jurisdiction or through other means, give prompt
notice to such Holder prior to  making such disclosure, and allow the Holder, at its
expense, to undertake appropriate  action to prevent disclosure of, or to obtain a
protective order for, such information.  

	 	 
        m.
The Company shall use its commercially reasonable efforts to promptly either (i) cause
all  of the Conversion Shares covered by the Registration Statement to be listed on the
American Stock Exchange or another national securities exchange and on each additional
national securities exchange on which securities of the same class or series issued by
the  Company are then listed, if any, if the listing of such Conversion Shares is then
permitted under the rules of such exchange, or (ii) secure the designation and quotation
of all of the Conversion Shares covered by the Registration Statement on the Nasdaq
National Market or Nasdaq SmallCap Market.  

	 	 
        n.
The Company shall provide a transfer agent and registrar, which may be a single entity,
for the Conversion Shares not later than the effective date of the Registration
Statement.  

-7- 

	 	 
        o.
The Company shall cooperate with the Holders who hold Conversion Shares being offered and
the managing underwriter or underwriters, if any, to facilitate the timely preparation
and  delivery of certificates (not bearing any restrictive legends) representing
Conversion  Shares to be offered pursuant to the Registration Statement and enable such
certificates  to be in such denominations or amounts, as the case may be, as the managing
underwriter or  underwriters, if any, or the Holders may reasonably request and
registered in such names  as the managing underwriter or underwriters, if any, or the
Holders may request, and,  within three (3) business days after the Registration
Statement which includes Conversion  Shares is declared effective by the SEC, the Company
shall cause legal counsel selected by  the Company to deliver, to the transfer agent for
the Conversion Shares (with copies to  the Holders whose Conversion Shares are included
in such Registration Statement), an  opinion of such counsel in the customary form
setting forth that the Conversion Shares  have been registered under the Securities Act.  

	 	 
        p.
At the request of any Holder, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration Statement as may
be  reasonably necessary in order to change the plan of distribution set forth in such
Registration Statement.  

	 	 
        q.
The Company shall comply with all applicable laws related to a Registration Statement and
offering and sale of securities and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the Securities Act
and  the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
the  rules and regulations promulgated by the SEC).  

	 	 
        r.
From and after the date of this Note, the Company shall not, and shall not agree to,
allow  the holders of any securities of the Company to include any of their securities
that are  not Conversion Shares in the Registration Statement or any amendment or
supplement thereto  without the consent of the holders of a majority in interest of the
Conversion Shares.  

	 	 
        5.4.
Restrictions. Holder may assign the registration rights granted under this Section 5
to any assignee of this Note or any portion thereof representing not less than $50,000 in
principal amount, unless Obligor has provided its prior written consent to such
assignment  and the assignment of this Note or the Conversion Shares, as applicable.  

	 	 
        5.5.
Fees. Obligor shall pay all Registration Expenses relating to any registration of the
Conversion Shares hereunder. “Registration Expenses” shall mean all reasonable
fees and expenses incident to Obligor’s performance of or compliance with this
Section 5, including reasonable fees of counsel, not exceeding $25,000, for the
Holders in connection with the sale of the Conversion Shares. Notwithstanding the
foregoing, Holder shall pay any and all underwriting discounts, commissions and transfer
taxes attributable to the Conversion Shares.  

-8- 

	 	 
        5.6.
Cooperation; Indemnification by Holder. In connection with any registration statement in
which Holder is participating, Holder will furnish to Obligor in writing such information
and documents as Obligor reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law, will indemnify
and hold harmless Obligor, its affiliates and their respective officers, directors,
employees and affiliates against any losses, claims, damages, liabilities, joint or
several, to which such parties may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or proceedings,
whether  commenced or threatened, in respect thereof) arise out of or are based upon: (1)
any  untrue or alleged untrue statement of a material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or in any application; or (2) any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not misleading,
but only to the extent that such untrue statement or omission is made in such
registration  statement, prospectus, preliminary prospectus or any amendment or
supplement thereto, or  in any application, in reliance upon and in conformity with
written information prepared  and furnished to Obligor by such Holder expressly for use
therein. The Holder shall  reimburse Obligor, its affiliates, officers, directors,
employees and affiliates for any  legal or any other expenses incurred by them in
connection with investigating or defending  any such loss, claim, liability, action or
proceeding; provided, however, that the  obligation to indemnify will be limited to
Holder in amount not to exceed the net proceeds  to Holder from the sale of such
Conversion Shares and shall not apply to amounts paid in  settlement of any such loss,
claim, damage, liability, or action if such settlement is  effected without the consent
of Holder (which consent shall not be unreasonably withheld).  

	 	 
        5.7.
Indemnification by Obligor. In connection with any registration statement in which Holder
is participating, Obligor will indemnify and hold harmless Holder, its affiliates and
their respective officers, directors, employees and affiliates against any losses,
claims,  damages, liabilities, joint or several, to which such parties may become subject
under the  Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or  actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of  or are based upon: (1) any untrue or alleged untrue statement of a
material fact contained  in the registration statement, prospectus or preliminary
prospectus or any amendment  thereof or supplement thereto or in any application; or (2)
any omission or alleged  omission of a material fact required to be stated therein or
necessary to make the  statements therein not misleading, unless such untrue statement or
omission is made in  such registration statement, prospectus, preliminary prospectus or
any amendment or  supplement thereto, or in any application, in reliance upon and in
conformity with written  information prepared and furnished to Obligor by Holder
expressly for use therein. Obligor  shall reimburse Holder, its affiliates, officers,
directors, employees and affiliates for  any legal or any other expenses incurred by them
in connection with investigating or  defending any such loss, claim, liability, action or
proceeding; provided, however, that  the obligation to indemnify will be limited to
Obligor and shall not apply to amounts paid  in settlement of any such loss, claim,
damage, liability, or action if such settlement is  effected without the consent of
Obligor (which consent shall not be unreasonably  withheld).  

 
        6.
Fees and Expenses.  In the event any action is taken to collect or enforce this Note,
Obligor agrees to pay,  in addition to the principal and interest due and payable hereon,
all reasonable costs of  collecting this Note, including reasonable attorneys’ fees
and expenses. These costs  shall include any expenses incurred by Holder in any
bankruptcy, reorganization, or other  insolvency proceeding. 

 
        7.
Non-Waiver. The  liability of Obligor under this Note (and the liability of any endorsers
of this Note)  shall not be discharged, diminished or in any way impaired by: (1) any
waiver by Holder or  failure to enforce or exercise rights under any of the terms,
covenants or conditions of  this Note; (2) the granting of any renewal, indulgence,
extension of time to Obligor, or  any other obligors of the Indebtedness (as defined in
the Subscription Agreement); or (3)  the addition or release of any person or entity
primarily or secondarily liable for the  Indebtedness. No delay or omission of Holder in
exercising any right or rights, shall  operate as a waiver of such right or any other
rights. A waiver on one occasion shall not  be construed as a bar to or waiver of any
right or remedy on any future occasion. 

 
        8.
Maximum Interest  Rate. In no event shall the interest rate charged or received hereunder
at any time exceed  the maximum interest rate permitted under applicable law. Payments of
interest received by  Holder hereunder which would otherwise cause the interest rate
hereunder to exceed such  maximum interest rate shall, to the extent of such excess, be
deemed to be (and be deemed  to have been contracted as being) prepayments of principal
and applied as such. Unless  otherwise provided in this Note or in the Security Agreement
between the Obligor and  Holder, among others, any waiver or amendment of any provisions
of this Note shall be in  writing, executed and delivered by the Company and by parties
holding Notes representing  not less than a majority of the then outstanding principal of
all of the Notes then issued  and outstanding. 

-9- 

 
        9.
Assignment; Binding  Effect. Holder may assign this Note upon providing Obligor with
prior written notice,  where said notice shall provide the effective date of the
assignment and contact  information of the assignee. This Note shall be binding upon the
Obligor and its  successors and assigns and shall inure to the benefit of Holder and its
successors and  assigns. Every person and entity at any time liable for the payment of
this Note hereby  waives demand, presentment, protest, notice of protest, notice of
nonpayment due and all  other requirements otherwise necessary to hold them immediately
liable for payment  hereunder. 

 
        10.
Governing Law;  Venue. This Note is governed by and shall be construed and enforced in
accordance with the  laws of the State of Nevada. Any dispute arising under this Note
shall be brought in any  state of federal court of competent jurisdiction sitting in
Clark County, Nevada. 

	 	VENDINGDATA
CORPORATION 

	 	By: 	  

	 	
Its:	Steven
J. Blad
Chief Executive Officer 

-10- 

CONVERSION
AGREEMENT 

	TO:  	 VENDINGDATA
CORPORATION (THE “COMPANY”) 

 
        The
undersigned, pursuant to the provisions set forth in the attached 10% Senior Convertible
Note due February ___, 2008 (the “Note”) hereby irrevocably elects and agrees to
convert: 

	 	$________________
of the outstanding principal under the Note, representing ______ percent (______%)
outstanding principal under the Note, into shares of the Company’s common stock, at a
rate of $1.65 per share. 

 
        Please
issue a certificate or certificates for the resulting shares of the Company’s common
stock and a replacement promissory note reflecting the remaining outstanding principal
under the Note in the name of: 

	 	NAME: 	

	 	SIGNATURE:	

	 	DATED:	

	 	ADDRESS:	

	 	 	

	 	NOTE:	The above signature should correspond exactly with the name on the face of the Note.

-11-

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