Document:

EX-10.1

BROADVISION

Framework for FY 2006

Employee Profit-Sharing Plan (EPSP)

	 	 	 
	Plan objective:

	 	The program is designed to retain our talented employees by sharing company

profitability once a certain threshold has been met and maintained on a sustainable

basis. It is also intended to underscore the commitment to turning around our

company by aligning and rewarding behavior that leads to achieving a profitable

business model and other company objectives.
	 
	 	 
	Plan duration:

	 	January 3 ~ December 31 2006
	 
	 	 
	Plan details:

	 	1. EPSP award pool allocation methodology approved by BOD Compensation

Committee at the beginning of the year and implemented by management on a quarterly

basis.

2. Eligible persons are active, full-time or more than fifty percent (>50%)

part-time employees who maintain a satisfactory standing during the entirety of

each quarter and who remain an employee at the time of each quarterly payout. The

company reserves the right to make certain exclusions or exceptions regarding

eligibility on a case-by-case basis.

3. Part-time or on-leave employees are eligible for a pro-rated amount based on the

number of actual regular hours worked.

4. Commissioned employees (those with a sales commissions plan) have a portion of

their variable compensation tied to company performance, funded under the same EPSP

award pool, with payouts ahead of non-commissioned employees.

5. Payouts to non-commissioned employees are targeted at a certain percentage of

each individual’s base salary, set and/or adjusted with management discretion.

6. Payment is made on the first regularly scheduled pay date after the announcement

of quarterly earnings, or on such other date as deemed appropriate by management.

7. All amounts earned but not paid under the plan (reductions from any “merit

factor”, resignations with positive profit-sharing accruals, etc) are eliminated,

going back into company earnings.

8. Award pool allocation will be determined as follows:
	
 
	 	EBITDA+ (gross operating margin) Pool allocation (%of EDITDA+)
	
 
	 	 
	
 
	 	<10% 0%

11~20% 11~20% (percent for percent)

>20% 20%EX-10.1

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of March 9, 2006, by and among The
Allied Defense Group, Inc., a Delaware corporation with its corporate headquarters located at 8000
Towers Crescent Drive, Suite 260, Vienna, Virginia 22182, and the investors listed on the Schedule
of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

WHEREAS:

A. The Company and each Buyer are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as
amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

B. The Company has authorized a new series of senior subordinated convertible notes of the
Company, which notes shall be convertible into the Company’s common stock, par value $0.10 per
share (the "Common Stock”), in accordance with the terms of such notes.

C. Each Buyer wishes to purchase, and (i) the Company wishes to sell, upon the terms and
conditions stated in this Agreement, that aggregate principal amount of notes, in substantially the
form attached hereto as Exhibit A (the “Notes”), set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers (which aggregate amount for all Buyers shall be $30,000,000)
(as converted and/or redeemed for shares of Common Stock pursuant to the terms of the Notes,
collectively, the “Conversion Shares”) and (ii) the Company wishes to sell, upon the terms and
conditions stated in this Agreement, warrants, in substantially the form attached hereto as
Exhibit B (the “Warrants”), to acquire up to that number of additional shares of Common
Stock set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers (as exercised,
collectively, the “Warrant Shares”).

D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the form attached hereto
as Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company has
agreed to provide certain registration rights with respect to the Conversion Shares and the Warrant
Shares under the 1933 Act and the rules and regulations promulgated thereunder, and applicable
state securities laws.

E. The Notes, the Conversion Shares, the Warrants and the Warrant Shares, collectively, are
referred to herein as the “Securities”.

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

	 	1.	 	PURCHASE AND SALE OF NOTES AND WARRANTS.

(a) Purchase of Notes and Warrants.

(i) Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, on the Closing Date (as defined below), the Company shall issue and sell to each Buyer, and
each Buyer severally, but not jointly, shall purchase from the Company, (A) one or more Notes with
an aggregate principal amount as is set forth opposite such Buyer’s name in column (3) on the
Schedule of Buyers and (B) Warrants to acquire up to that number of Warrant Shares as is set forth
opposite such Buyer’s name in column (4) on the Schedule of Buyers (the “Closing”).

(ii) Purchase Price. The purchase price for each Buyer of the Notes and the Warrants
to be purchased by each such Buyer at the Closing (the “Purchase Price”) shall be the amount set
forth opposite such Buyer’s name in column (5) of the Schedule of Buyers.

(b) Closing Date. The date and time of the Closing (the “Closing Date”) shall be
10:00 a.m., New York City Time, on the date hereof after notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6(a) and 7(a) below (or such later date as
is mutually agreed to by the Company and Buyers) at the offices of Schulte Roth & Zabel LLP, 919
Third Avenue, New York, New York 10022.

(c) Form of Payment. On the Closing Date, each Buyer shall pay its Purchase Price to
the Company for the Notes and the Warrants to be issued and sold to such Buyer at such Closing, in
United States dollars by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions. At the Closing, the Company shall deliver to each Buyer (A)
Notes (allocated in the principal amounts as such Buyer shall request) with an aggregate principal
amount as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers and (B)
Warrants (allocated in the amounts as such Buyer shall request) to acquire up to an aggregate
number of Warrant Shares as is set forth opposite such Buyer’s name in column (4) on the Schedule
of Buyers, in each case duly executed on behalf of the Company and registered in the name of such
Buyer.

	 	2.	 	BUYER’S REPRESENTATIONS AND WARRANTIES.

Each Buyer represents and warrants, with respect to only itself, that:

(a) No Public Sale or Distribution. Such Buyer is acquiring the Notes and the
Warrants and upon conversion of the Notes and exercise of the Warrants (other than pursuant to a
Cashless Exercise (as defined in the Warrants)) will acquire the Conversion Shares issuable upon
conversion of the Notes and the Warrant Shares issuable upon exercise of the Warrants for
investment purposes, for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by making the representations herein,
such Buyer does not agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such Buyer is acquiring the Securities
hereunder in the ordinary course of its business. Such Buyer does not presently have any agreement
or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(b) Buyer Status. Such Buyer is an “accredited investor” as that term is defined in
Rule 501(a) of Regulation D. Such Buyer is not a registered broker-dealer under Section 15 of the
1934 Act.

(c) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying in part upon the
truth and accuracy of, and such Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine
the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.

(d) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.

(e) No Governmental Review. Such Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability of the investment in
the Securities nor have such authorities passed upon or endorsed the merits of the offering of the
Securities.

(f) Transfer or Resale. Such Buyer understands that, except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws and (ii) such Buyer agrees that if it decides to offer,
sell or otherwise transfer any of the Notes, Conversion Shares, Warrants or Warrant Shares, such
Notes, Conversion Shares, Warrants and Warrant Shares may be offered, sold or otherwise transferred
only: (A) pursuant to an effective registration statement under the 1933 Act; (B) to the Company;
(C) (1) in accordance with the exemption from registration under the 1933 Act provided by Rule 144
or Rule 144A thereunder, if available, and in compliance with any applicable state securities laws
or (2) in a transaction that does not require registration under the 1933 Act or applicable state
securities laws, and the seller has provided the Company with an opinion of counsel reasonably
acceptable to the Company, prior to such offer, sale or transfer, that such Securities may be so
offered, sold or transferred in a transaction that does not require registration under the 1933 Act
or applicable state securities laws.

(g) Legends. Such Buyer understands that the certificates or other instruments
representing the Notes and the Warrants and, until such time as the resale of the Conversion Shares
and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear any legend as required by the “blue sky” laws of any state
and a restrictive legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD OR TRANSFERRED OR ASSIGNED, UNLESS (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “1933 ACT”), OR (B) PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
1933 ACT AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by
state securities laws, (i) such Securities are registered for resale under the 1933 Act, or (ii)
following a sale or transfer of such Securities pursuant to Rule 144 (assuming the transferor is
not an affiliate of the Company), (iii) while such Securities are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable requirements of the 1933 Act
(including judicial interpretations and pronouncements issued by the Staff of the SEC).

(h) Validity; Enforcement. This Agreement and the Registration Rights Agreement have
been duly and validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.

(i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on the ability of
such Buyer to perform its obligations hereunder.

(j) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.

(k) Certain Trading Activities. Neither the Buyer nor any of its affiliates has
directly or indirectly, and no Person acting on behalf of the Buyer or its affiliates has directly
or indirectly, engaged in any transactions in the securities of the Company (including, without
limitation, any Short Sales involving the Company’s securities) since the time that the Buyer was
first contacted by the Company or Cowen & Co., LLC (the “Agent”) with respect to the transactions
contemplated hereby provided, however, that, with respect to LB I Group, the foregoing
representation is made solely by, and shall apply solely to, the Global Trading Strategies group of
Lehman Brothers Inc. and not made by, or applicable to, any other persons, affiliates or affiliated
or associated business units of Lehman Brothers Holdings Inc. “Short Sales” include, without
limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the
1934 Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, short sales, swaps and similar arrangements (including on a total return basis), and sales
and other transactions through non-US broker dealers or foreign regulated brokers. The Buyer
covenants that neither it, its affiliates, nor any Person acting on its or its affiliates’ behalf
will engage in any transactions in the securities of the Company (including Short Sales) prior to
the time that the transactions contemplated by this Agreement are publicly disclosed.
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a
representation or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect Short Sales or
similar transactions in the future.

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

	 	3.	 	REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each of the Buyers as follows:

(a) Organization and Qualification. The Company and its “Subsidiaries” (which for
purposes of this Agreement means any entity in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest of such entity) are entities duly organized
and validly existing and in good standing under the laws of the jurisdiction in which they are
formed, and have the requisite power and authorization to own their properties and to carry on
their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified
as a foreign entity to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in good standing would
not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any
of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material and adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a
whole, or (iii) an adverse impairment to the Company’s ability to perform on a timely basis its
obligations under any Transaction Document. The Company has no Subsidiaries except as set forth on
Schedule 3(a).

(b) Authorization; Enforcement; Validity. The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Notes, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5(b)), the Warrants and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Notes and the Warrants, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion or redemption of the Notes and the reservation for
issuance and issuance of Warrant Shares issuable upon exercise of the Warrants have been duly
authorized by the Company’s Board of Directors and, other than (i) the filing with the SEC of one
or more Registration Statements in accordance with the requirements of the Registration Rights
Agreement, (ii) the filing of a Form D with respect to the Notes and the Warrants as required under
Regulation D, (iii) such filings as are required by the Principal Market (as defined below), which
will be made prior to the Closing (iv) such filings required under applicable securities or “Blue
Sky” laws of the states of the United States, and (v) the Stockholder Approval as contemplated in
Section 4(q), (all of the foregoing, the “Required Approvals”), no further filing, consent, or
authorization is required by the Company or of its Board of Directors or its stockholders. This
Agreement and the other Transaction Documents of even date herewith have been duly executed and
delivered by the Company and constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies. Any of the Transaction Documents dated
after the date hereof, upon execution and delivery, will have been duly executed and, when
delivered by the Company, will constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

(c) Issuance of Securities. The issuance of the Notes and the Warrants are duly
authorized and are free from all taxes, liens and charges with respect to the issue thereof. As of
the Closing, the Company shall have reserved from its duly authorized capital stock not less than
the sum of 120% of the maximum number of shares of Common Stock (A) issuable upon conversion or
redemption of the Notes (without taking into account any limitations on the conversion or
redemption of the Notes set forth in the Notes and assuming such conversion or redemption occurred
at Closing) and (B) issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth in the Warrants and assuming such conversion
or redemption occurred at Closing). Upon issuance or conversion and payment of all consideration
then due from the holder in respect thereof in accordance with the terms thereof, in accordance
with the Notes or exercise in accordance with the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares, respectively, will be validly issued, fully paid and nonassessable
and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Based
in part upon the accuracy of the representations and warranties of the Buyers’ set forth in Article
2, the offer and issuance by the Company of the Notes, Warrants, the Conversion Shares and the
Warrant Shares (when issued) are exempt from registration under the 1933 Act.

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Notes and the Warrants and
reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not (i)
result in a violation of the Articles of Incorporation, any capital stock of the Company or any of
its Subsidiaries, the bylaws or any of the organizational documents of the Company or any of its
Subsidiaries or (ii) conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others 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, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the American Stock Exchange (the “Principal Market”)) 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 in the case of each of clauses (ii) and (iii),
such as would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.

(e) Consents. Other than the Required Approvals and except as described in
Schedule 3(e), neither the Company nor any of its Subsidiaries is required to obtain any
consent, authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other Person in order for it
to execute, deliver or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations (which the Company is required to obtain pursuant
to the preceding sentence) have been obtained or effected, or will have been obtained or effected,
on or prior to the Closing Date, and the Company and its Subsidiaries are unaware of any facts or
circumstances that might prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence. Except as described in Schedule
3(e), the Company is not in violation of the listing requirements of the Principal Market and
has no knowledge of any facts that would reasonably lead to delisting or suspension of the Common
Stock in the foreseeable future.

(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect
to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer
is (i) an officer or director of the Company, (ii) to the Company’s knowledge, an “affiliate” of
the Company or any of its Subsidiaries (as defined in Rule 144 under the 1933 Act) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934
Act”)). The Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s
purchase of the Securities. The Company further represents to each Buyer that the Company’s
decision to enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.

(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its Subsidiaries or affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than
for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby.

(h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, or any Person acting on 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 any of the Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under the rules and
regulations of the Principal Market such that the representation set forth in the last sentence of
either Section 3(c) or Section 3(d)(iii) would not be accurate. None of the Company, its
Subsidiaries, their affiliates or any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of any of the Securities
under the 1933 Act or cause the offering of the Securities to be integrated with other offerings.

(i) Dilutive Effect. The Company understands and acknowledges that the number of
Conversion Shares issuable upon conversion or redemption of the Notes and the Warrant Shares
issuable upon exercise of the Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion or redemption of the
Notes in accordance with this Agreement and the Notes and its obligation to issue the Warrant
Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.

(j) Application of Takeover Protections; Rights Agreement. The Company and its board
of directors have taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Articles of Incorporation or the laws
of the jurisdiction of its incorporation which is or would become applicable to any Buyer as a
result of the transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the Securities. Except as set
forth on Schedule 3(j), the Company has not adopted a stockholder rights plan or similar
arrangement relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company.

(k) SEC Documents; Financial Statements. During the two (2) years prior to the date
hereof, the Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the “SEC Documents”). The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC Documents not available on
the EDGAR system. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act 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 the light of the circumstances under which they were made, not misleading. 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 with respect thereto. Such financial statements have been prepared in
accordance with 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 exclude
footnotes or may be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of the Company to the
Buyers which is not included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements therein, in the light of
the circumstance under which they are or were made, not misleading. The provisions of this Section
3(k) are qualified in their entirety by the disclosure set forth on Schedule 3(k).

(l) Absence of Certain Changes. Since the Company’s most recently filed audited
financial statements contained in a Form 10-K, there has been no material adverse change and no
material adverse development in the business, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company. Except as disclosed in Schedule
3(l), since the Company’s most recently filed audited financial statements contained in a Form
10-K, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii)
sold any assets, individually or in the aggregate, in excess of $200,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in the aggregate, in excess
of $200,000. Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to
believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact that would reasonably lead a creditor to do so. The Company and its
Subsidiaries, on a consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined
below). For purposes of this Section 3(l), “Insolvent” means, with respect to the Company and its
Subsidiaries on a consolidated basis, (i) the present fair saleable value of such Person’s assets
is less than the amount required to pay such Person’s total Indebtedness (as defined in Section
3(s)), (ii) such Person is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii) such Person intends to
incur or believes that it will incur debts that would be beyond its ability to pay as such debts
mature or (iv) such Person has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be conducted.

(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial condition, that
would be required to be disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its
Common Stock and which has not been publicly announced.

(i) Conduct of Business; Regulatory Permits. Neither the Company nor its Subsidiaries
is in violation of any term of or in default under its Articles of Incorporation or Bylaws or their
organizational charter or certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any law,
statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither
the Company nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations that would not, individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing, except as set forth in
Schedule 3(n), the Company is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the
foreseeable future. During the two (2) years prior to the date hereof, (i) the Common Stock have
been designated for quotation on the Principal Market, (ii) trading in the Common Stock has not
been suspended by the SEC or the Principal Market and (iii) except as set forth in Schedule
3(n), the Company has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Stock from the Principal Market. The
Company and its Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective businesses, except where
the failure to possess such certificates, authorizations or permits would not have, individually or
in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

(n) 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 of
its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.

(o) [INTENTIONALLY OMITTED]

(p) Transactions With Affiliates. Except as set forth in the SEC Documents filed at
least ten days prior to the date hereof and other than the grant of stock options disclosed on
Schedule 3(r), none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise requiring payments to or
from any such officer, director or employee or, to the knowledge of the Company or any of its
Subsidiaries, any corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director, trustee or partner.

(q) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 30,000,000 shares of Common Stock, of which as of the date hereof,
6,011,675 are issued and outstanding, 478,000 shares are reserved for issuance pursuant to the
Company’s stock option and purchase plans and 43,000 shares are reserved for issuance pursuant to
securities (other than the Notes and the Warrants) exercisable or exchangeable for, or convertible
into, shares of Common Stock and (ii) 1,000,000 shares of undesignated preferred stock, no par
value, of which as of the date hereof none of which is issued and outstanding or reserved for
issuance. All of such outstanding shares have been, or upon issuance will be, validly issued and
are fully paid and nonassessable. Except as disclosed in Schedule 3(r): (i) none of the
Company’s capital stock is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) 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 capital stock
of the Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or 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 capital stock of the Company or
any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements,
credit facilities or other agreements, documents or instruments evidencing Indebtedness (as defined
in Section 3(s)) of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in
any material amounts, either singly or in the aggregate, filed in connection with the Company or
any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any
of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act
(except pursuant to the Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or
any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Securities; (viii) the Company
does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar
plan or agreement; and (ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than
those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses
and which, individually or in the aggregate, do not or would not reasonably be expected to have a
Material Adverse Effect. The Company has made available to the Buyer true, correct and complete
copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date
hereof (the “Articles of Incorporation”), and the Company’s Bylaws, as amended and as in effect on
the date hereof (the “Bylaws”), and the terms of all securities convertible into, or exercisable or
exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect
thereto.

(r) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined
below), (ii) is a party to any contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract, agreement or instrument would
reasonably be expected to result in a Material Adverse Effect, (iii) is in violation of any term of
or in default under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the aggregate, in a
Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument relating to
any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. Schedule 3(s) provides a detailed description
of the material terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase price of property or
services, including (without limitation) “capital leases” in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to
in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness,
lease, dividend or other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide assurance to the
obligee of such liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability will be protected (in
whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency thereof.

(s) Absence of Litigation. Except as set forth in Schedule 3(t), there is no
action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court,
public board, government agency, self-regulatory organization or body pending or, to the knowledge
of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common
Stock or any of the Company’s Subsidiaries or any of the Company’s or its Subsidiaries’ officers or
directors in their capacities as such.

(t) Insurance. The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially exceed market costs for similar
businesses to the Company.

(u) Employee Relations. (i) Except as set forth in Schedule 3(v), neither
the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or
employs any member of a union. The Company and its Subsidiaries believe that their relations with
their employees are good. Except as set forth in Schedule 3(v), no executive officer of the
Company or any of its Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the
Company or any such Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer of the Company or any of 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 such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters.

(ii) The Company and its Subsidiaries are in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

(v) Title. The Company and its Subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all personal property owned by them
which 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 interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.

(w) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, service marks and all applications and
registrations therefor, trade names, patents, patent rights, copyrights, original works of
authorship, inventions, trade secrets, licenses, approvals, governmental authorizations and other
intellectual property rights (“Intellectual Property Rights”) necessary to conduct their respective
businesses as now conducted. Except as set forth in Schedule 3(x), none of the Company’s
or its Subsidiaries’ Intellectual Property Rights have expired, terminated or have been abandoned,
or are expected to expire, terminate or be abandoned, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the Company or any of
its Subsidiaries of Intellectual Property Rights of others. There is no claim, action or
proceeding being made or brought, or to the knowledge of the Company, being threatened against the
Company or any of its Subsidiaries regarding its Intellectual Property Rights. Neither the Company
nor any of its Subsidiaries is aware of any facts or circumstances which might give rise to any of
the foregoing infringements or claims, actions or proceedings. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.

(x) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with
any and all Environmental Laws (as hereinafter defined), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply
would be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution
or protection of human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into
the environment, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or
approved thereunder.

(y) Subsidiary Rights. Except as set forth in Schedule 3(z), the Company or
one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

(z) Tax Status. The Company and each of its Subsidiaries (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside on its books
provision 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.

(aa) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to maintain asset and
liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in
accordance with management’s general or specific authorization and (iv) the recorded accountability
for assets and liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that
are effective in ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within
the time periods specified in the rules and forms of the SEC, including, without limitation,
controls and procedures designed in to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is accumulated and communicated
to the Company’s management, including its principal executive officer or officers and its
principal financial officer or officers, as appropriate, to allow timely decisions regarding
required disclosure.

(bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.

(cc) Ranking of Notes. Except as set forth in Schedule 3(dd), no Indebtedness
of the Company is senior to or ranks pari passu with the Notes in right of payment, whether with
respect of payment of redemptions, interest, damages or upon liquidation or dissolution or
otherwise.

(dd) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other
than income or similar taxes) which are required to be paid in connection with the sale and
transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully
paid or provided for by the Company, and all laws imposing such taxes will be or will have been
complied with.

(ee) Acknowledgement Regarding Buyers’ Trading Activity. It is understood and
acknowledged by the Company (i) that following the public disclosure of the transactions
contemplated by the Transaction Documents in accordance with the terms hereof, none of the Buyers
have been asked to agree, nor has any Buyer agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on securities issued by
the Company or to hold the Securities for any specified term; (ii) that any Buyer, and counter
parties in “derivative” transactions to which any such Buyer is a party, directly or indirectly,
which were established prior to their learning of the transactions contemplated by the Transaction
Documents, presently may have a “short” position in the Common Stock, and (iii) that each Buyer
shall not be deemed to have any affiliation with or control over any arm’s length counter-party in
any “derivative” transaction. The Company further understands and acknowledges that following the
public disclosure of the transactions contemplated by the Transaction Documents in accordance with
the terms hereof, one or more Buyers may engage in hedging and/or trading activities at various
times during the period that the Securities are outstanding and (b) such hedging and/or trading
activities, if any, can reduce the value of the existing stockholders’ equity interest in the
Company both at and after the time the hedging and/or trading activities are being conducted. The
Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a
breach of this Agreement, the Notes, the Warrants or any of the documents executed in connection
herewith.

(ff) Form S-1 Eligibility. The Company is currently eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form S-1 promulgated under
the 1933 Act.

(gg) Manipulation of Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities of the Company.

(hh) Investment Company Status. The Company is not, and upon consummation of the sale
of the Securities will not be, an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as amended.

(ii) U.S. Real Property Holding Corporation. The Company is not, nor has ever been, a
U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company shall so certify upon Buyer’s request.

(jj) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers or their agents or counsel with any information that
constitutes or would reasonably be expected to constitute material, nonpublic information, except
to the extent that the knowledge of the transactions contemplated by the Transaction Documents may
constitute such information. The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in the Securities. All disclosure
provided to the Buyers regarding the Company and its Subsidiaries, their business and the
transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on
behalf of the Company is true and correct and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. Each press release
issued by the Company or its Subsidiaries during the twelve (12) months preceding the date of this
Agreement did not at the time of release contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure or announcement by the
Company but which has not been so publicly announced or disclosed.

(kk) Inventory of Mecar S.A. The inventory of Mecar S.A. as set forth on the
financial statements of the Company included in the SEC Documents was, and the inventory of the
Mecar S.A. is, in usable or salable condition in the ordinary course of business at the amounts
carried on the financial statements of the Company included in the SEC Documents and currently on
the books and records of the Mecar S.A. The amounts of the inventories of Mecar S.A. reflected on
the financial statements of the Company included in the SEC Documents and on the books and records
of the Mecar S.A. have been determined in accordance with generally accepted accounting principles
applied on a consistent basis. Since December 31, 2004, there has not been any material
write-downs of the value or accrued costs of any inventory of Mecar S.A.

	 	4.	 	COVENANTS.

(a) Best Efforts. Each party shall use its best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.

(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify
the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to the Buyers on or
prior to the Closing Date. The Company shall make all filings and reports relating to the offer
and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of
the United States following the Closing Date.

(c) Reporting Status. Until the date on which the Buyers shall have sold all the
Conversion Shares and Warrant Shares and none of the Notes or Warrants is outstanding (the
"Reporting Period”), the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall continue to timely file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise no longer require or
permit such filings.

(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for (A) repayment of the Indebtedness in the amount of $14,000,000 pursuant to that
certain Loan and Security Agreement, dated as of May 28, 2004, by and among Patriot Capital Funding
LLC I, a Delaware limited liability company (as successor in interest to Wilton Funding, LLC, a
Delaware limited liability) (the “Patriot Lender”), the Company and certain of its Subsidiaries
named as borrowers therein (as amended as of March 23, 2005, the “Patriot Agreement”), (B)
repayment of the Indebtedness in the amount of $2,000,000 pursuant to that certain Term Loan
Promissory Note, dated February 3, 2006, issued to Robert P. Dowski (the “Dowski Note”) and (C)
working capital purposes, and not for the (i) repayment of any other outstanding Indebtedness of
the Company or any of its Subsidiaries or (ii) redemption or repurchase of any of its equity
securities.

(e) Financial Information. The Company agrees to send the following to each Investor
(as defined in the Registration Rights Agreement) during the Reporting Period (i) unless the
following are filed with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports or any
consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same
day as the release thereof, facsimile copies of all press releases issued by the Company or any of
its Subsidiaries, which are attached to a Current Report on Form 8-K, and (iii) copies of any
notices and other information made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the stockholders. As used herein
“Business Day” means any other day other than a Saturday, Sunday, or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.

(f) Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national securities exchange
and automated quotation system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company shall use its best
efforts to maintain the authorization of the Common Stock for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably
expected to result in the delisting or suspension of the Common Stock on the Principal Market;
provided, however, that the Company makes no covenant regarding the trading price
of the Common Stock. The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).

(g) Fees. Subject to Section 8 below, at the Closing, the Company shall pay an
expense allowance to Kings Road Investments Ltd. (a Buyer) or its designee(s) (less any other
expense amounts paid to any Buyer prior to the date of this Agreement) to cover expenses reasonably
incurred by Kings Road Investments Ltd. or any professionals engaged by Kings Road Investments Ltd.
in relation to due diligence and investment documentation, in an amount, against receipt of an
invoice therefor, not to exceed $100,000 (less any other expense amounts previously paid to, or on
behalf of, Kings Road Investments Ltd. ), which amount may be withheld by such Buyer from its
Purchase Price at the Closing. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons engaged by
any Buyer) relating to or arising out of the transactions contemplated hereby, including, without
limitation, any fees or commissions payable to the Agent. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable
attorney’s fees and out-of-pocket expenses) arising in connection with any claim relating to any
such payment. Except as otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

(h) Pledge of Securities. The Company acknowledges and agrees that the Securities may
be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document. The Company hereby agrees to execute and
deliver such documentation as a pledgee of the Securities may reasonably request in connection with
a pledge of the Securities to such pledgee by an Investor. No legal opinion of legal counsel to
the pledgee, secured party or pledgor shall be required in connection with the pledge, but such
legal opinion may be required in connection with a subsequent transfer following default by the
Investor transferee of the pledge.

(i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York time, on the first Business Day following the date of this Agreement, the Company
shall issue a press release reasonably acceptable to the Buyers disclosing all material terms of
the transactions contemplated hereby and the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents (including, without
limitation, this Agreement (and all schedules to this Agreement), the form of each of the Notes,
the forms of Warrants and the Registration Rights Agreement) as exhibits to such filing (including
all attachments, the “8-K Filing”). From and after the 8-K Filing with the SEC, no Buyer shall be
in possession of any material, nonpublic information received from the Company or any of its
Subsidiaries or any of its respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause each of its Subsidiaries and
its and each of their respective officers, directors, employees and agents, not to, provide any
Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the 8-K Filing with the SEC without the express written consent of such Buyer. If a
Buyer reasonably believes that the Company or its agents have distributed to it any such material,
nonpublic information regarding the Company or any of its Subsidiaries, it shall provide the
Company with written notice thereof. The Company shall, within five (5) Trading Days of receipt of
such notice, make public disclosure of such material, nonpublic information. In the event of a
breach of the foregoing covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other remedy provided
herein or in the Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents for any such disclosure. Subject to the foregoing, neither the Company, its
Subsidiaries nor any Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial conformity with the
8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company
in connection with any such press release or other public disclosure prior to its release).
Without the prior written consent of any applicable Buyer, neither the Company nor any of its
Subsidiaries shall disclose the name of any Buyer in any filing, announcement or press release,
unless such disclosure is required by law, regulation or the Principal Market (and in such case,
the Company shall have consulted with such Buyer in connection with any such press release or other
public disclosure prior to its release).

(j) Restriction on Redemption and Dividends; Additional Registration Statements. So
long as any Notes or Warrants are outstanding, the Company shall not, directly or indirectly,
redeem, repurchase or otherwise acquire for value or declare or pay any dividend or distribution
on, the Common Stock without the prior express written consent of the holders of Notes representing
not less than a majority of the aggregate principal amount of the then outstanding Notes. Until
the Effective Date (as defined in the Registration Rights Agreement), the Company shall not file a
registration statement under the 1933 Act relating to securities that are not the Securities (other
than on Form S-8).

(k) Additional Notes; Variable Securities; Dilutive Issuances. So long as any Notes
remain outstanding, the Company will not issue any Notes (other than to the Buyers as contemplated
hereby) and the Company shall not issue any other securities that would cause a breach or default
under the Notes. For so long as any Notes or Warrants remain outstanding, the Company shall not,
in any manner, issue or sell any rights, warrants or options to subscribe for or purchase Common
Stock or directly or indirectly convertible into or exchangeable or exercisable for Common Stock at
a price which varies or may vary with the market price of the Common Stock, including by way of one
or more reset(s) to any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable Conversion Price (as defined in the Notes) with
respect to the Common Stock into which any Note is convertible or the then applicable Exercise
Price (as defined in the Warrants) with respect to the Common Stock into which any Warrant is
exercisable. For so long as any Notes or Warrants remain outstanding, the Company shall not, in
any manner, enter into or affect any Dilutive Issuance (as defined in the Notes) if the effect of
such Dilutive Issuance is to cause the Company to be required to issue upon conversion of any Note
or exercise of any Warrant any shares of Common Stock in excess of that number of shares of Common
Stock which the Company may issue upon conversion of the Notes and exercise of the Warrants without
breaching the Company’s obligations under the rules or regulations of any Eligible Market (as
defined in the Notes). Until the Stockholder Approval has been obtained, the Company shall not, in
any manner, enter into or affect any Dilutive Issuance if the effect of such Dilutive Issuance
would, but for the application of the Conversion Floor Price (as defined in the Note) or the
Exercise Floor Price (as defined in the Warrant), as applicable, cause either (i) the Conversion
Price (as defined in the Notes) to be reduced below the Conversion Floor Price or (ii) the Exercise
Price (as defined in the Warrant) to be reduced below the Exercise Floor Price.

(l) Corporate Existence. So long as any Notes are outstanding, the Company shall not
be party to any Fundamental Transaction (as defined in the Notes) unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes
and the Warrants.

(m) Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, after the Closing Date, 120% of
the maximum number of (i) shares of Common Stock issuable upon conversion or redemption of all of
the Notes, (ii) shares of Common Stock issuable upon exercise of the Warrants (without taking into
account any limitations on the conversion or redemption of the Notes or exercise of the Warrants
set forth in the Notes and Warrants, respectively) and (iii) any capital stock of the Company
issued or issuable with respect to the Conversion Shares, the Notes, the Warrant Shares or the
Warrants.

(n) Conduct of Business. The business of the Company and its Subsidiaries shall not
be conducted in violation of any law, ordinance or regulation of any governmental entity, except
where such violations would not result, either individually or in the aggregate, in a Material
Adverse Effect.

(o) Additional Issuances of Securities.

(i) For purposes of this Section 4(o), the following definitions shall apply.

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

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

(3) “Common Share Equivalents” means, collectively, Options and Convertible Securities.

(ii) From the date hereof until the date that is 90 Trading Days (as defined in the Notes)
following the Closing Date (the “Trigger Date”), the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ equity or
equity equivalent securities, including, without limitation, any debt, preferred stock or other
instrument or security that is, at any time during its life and under any circumstances,
convertible into or exchangeable or exercisable for shares of Common Stock or Common Share
Equivalents (any such offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement”).

(iii) As long as any applicable Buyer holds no less than 25% of the original principal amount
of the Notes issued to such Buyer at the Closing, from the Trigger Date until the twelve month
anniversary of the Closing Date, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this Section 4(o)(iii).

(1) The Company shall deliver to each such Buyer by facsimile a written notice
(the "Offer Notice”) of any proposed or intended issuance or sale or exchange (the "Offer”)
of the securities being offered (the “Offered Securities”) in a Subsequent Placement within
one Business Day of the determination of the terms of such Subsequent Placement, which Offer
Notice shall (w) identify and describe the Offered Securities, (x) describe the price and
other final terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Offered Securities to be issued, sold or exchanged, (y) identify the persons
or entities (if known) to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyers
(which offer being non-transferable to any successor to such Buyer) a pro rata portion of at
least thirty percent (30%) of the Offered Securities allocated among such Buyers (a) based
on such Buyer’s pro rata portion of the aggregate principal amount of Notes purchased
hereunder (the “Basic Amount”), and (b) with respect to each Buyer that elects to purchase
its Basic Amount, any additional portion of the Offered Securities attributable to the Basic
Amounts of other Buyers as such Buyer shall indicate it will purchase or acquire should the
other Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”).

(2) To accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the second (2nd) full Business Day after such
Buyer’s receipt of the Offer Notice (for purposes of this Section 4(a)(iii)(2),
notwithstanding the provisions of Section 9(f), receipt of the Offer Notice shall not be
deemed to have occurred until the Buyer shall have physically received such Offer Notice and
until such Offer Notice contains the final terms of the Offer) (the “Offer Period”), setting
forth the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and, if
such Buyer shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if
any, that such Buyer elects to purchase (in either case, the “Notice of Acceptance”). If
the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic
Amounts, then each Buyer who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for,
the Undersubscription Amount it has subscribed for; provided, however, that
if the Undersubscription Amounts subscribed for exceed the difference between the total of
all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Buyer who has subscribed for any Undersubscription Amount shall be entitled
to purchase only that portion of the Available Undersubscription Amount as the Basic Amount
of such Buyer bears to the total Basic Amounts of all Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the extent it deems
reasonably necessary.

(3) The Company shall have ten (10) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered Securities as
to which a Notice of Acceptance has not been given by the Buyers (the “Refused Securities”),
but only to the offerees described in the Offer Notice (if so described therein) and only
upon terms and conditions (including, without limitation, unit prices and interest rates)
that are not more favorable to the acquiring person or persons or less favorable to the
Company than those set forth in the Offer Notice.

(4) In the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section 4(o)(iii)(3)
above), then each Buyer may, at its sole option and in its sole discretion, reduce the
number or amount of the Offered Securities specified in its Notice of Acceptance to an
amount that shall be not less than the number or amount of the Offered Securities that such
Buyer elected to purchase pursuant to Section 4(o)(iii)(2) above multiplied by a fraction,
(i) the numerator of which shall be the number or amount of Offered Securities the Company
actually proposes to issue, sell or exchange (including Offered Securities to be issued or
sold to Buyers pursuant to Section 4(o)(iii)(3) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered Securities. In the event
that any Buyer so elects to reduce the number or amount of Offered Securities specified in
its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have again been
offered to the Buyers in accordance with Section 4(o)(iii)(1) above.

(5) Upon the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company shall issue
to the Buyers, the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above if the Buyers have so elected,
upon the terms and conditions specified in the Offer. The purchase by the Buyers of any
Offered Securities is subject in all cases to (i) the preparation, execution and delivery by
the Company and the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their respective counsel,
(ii) the Buyers’ satisfaction, in their sole discretion, with the final terms and/or
conditions that differ from those contained in the Offer Notice, and (iii) the Buyers’
reasonable satisfaction with the identity of the other persons or entities to which the
Offered Securities will be sold.

(6) Any Offered Securities not acquired by the Buyers or other persons in accordance
with this Section 4(o)(iii) may not be issued, sold or exchanged until they are again
offered to the Buyers under the procedures specified in this Agreement.

(iv) The restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall not
apply in connection with the issuance of any Excluded Securities (as defined in the Notes).

(p) Holding Period. For the purposes of Rule 144, the Company acknowledges that under
current regulations, the holding period of the Conversion Shares may be tacked onto the holding
period of the Notes (unless the holder thereof is an affiliate of the Company) and the Company
agrees not to take a position contrary to this Section 4(p).

(q) Stockholder Approval. The Company shall provide each stockholder entitled to vote
at a special or annual meeting of stockholders of the Company (the “Stockholder Meeting”), which
initially shall be promptly called and held not later than June 30, 2006 (the “Stockholder Meeting
Deadline”), a proxy statement, substantially in the form which has been previously reviewed by the
Buyers and a counsel of their choice at the expense of the Company, soliciting each such
stockholder’s affirmative vote at the Stockholder Meeting for approval of resolutions (the
"Resolutions”) providing for the Company’s issuance of all of the Securities as described in the
Transaction Documents in accordance with applicable law and the rules and regulations of the
Principal Market (such affirmative approval being referred to herein as the “Stockholder Approval”
and the date such approval is obtained, and the Company shall use its reasonable best efforts to
solicit its stockholders’ approval of the Resolutions and to cause the Board to recommend to the
stockholders that they approve the Resolutions. If, despite the Company’s best efforts the
Stockholder Approval is not obtained on or prior to the Stockholder Meeting Deadline, the Company
shall solicit the Stockholder Approval at each subsequent special or annual meeting of stockholders
of the Company until such Stockholder Approval is obtained.

(r) Sarbanes-Oxley Act. As of March 31, 2006, the Company will be in material
compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are
effective as of the date hereof, and any and all applicable rules and regulations promulgated by
the SEC thereunder that are effective as of the date hereof.

(s) Good Standing. No later than ten (10) Business Days after the Closing Date, the
Company shall deliver to each Buyer a certificate evidencing the formation and good standing of the
Company and each of its Subsidiaires in such entity’s jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction.

	 	5.	 	REGISTER; TRANSFER AGENT INSTRUCTIONS.

(a) Register. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Notes and the Warrants in which the Company shall record the name and address of
the Person in whose name the Notes and the Warrants have been issued (including the name and
address of each transferee), the principal amount of Notes held by such Person, the number of
Conversion Shares issuable upon conversion of the Notes and the number of Warrant Shares issuable
upon exercise of the Warrants held by such Person. The Company shall keep the register open and
available at all times during business hours for inspection of any Buyer or its legal
representatives upon reasonable notice.

(b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of
each Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares issued
upon conversion of the Notes or exercise of the Warrants in such amounts as specified from time to
time by each Buyer to the Company upon conversion of the Notes or exercise of the Warrants in the
form of Exhibit D attached hereto (the “Irrevocable Transfer Agent Instructions”). The
Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent, and that the Securities shall otherwise
be freely transferable on the books and records of the Company as and to the extent provided in
this Agreement and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall permit the transfer
and the Company shall promptly instruct its transfer agent to issue one or more certificates or
credit shares to the applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Conversion Shares or Warrant Shares sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall
issue such Securities to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.

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

The obligation of the Company hereunder to issue and sell the Notes and the related Warrants
to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, 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 by providing each Buyer with prior
written notice thereof:

(a) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company.

(b) Such Buyer and each other Buyer shall have delivered to the Company the Purchase Price
(less, in the case of Kings Road Investments Ltd., the amounts withheld pursuant to Section 4(g))
for the Notes and the related Warrants being purchased by such Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions provided by the Company.

(c) The representations and warranties of such Buyer shall be true and correct in all material
respects 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), and such Buyer 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 Buyer at
or prior to the Closing Date.

	 	7.	 	CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

The obligation of each Buyer hereunder to purchase the Notes and the related Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with prior written notice
thereof:

(a) The Company shall have duly executed and delivered to such Buyer: (A) the Notes (in such
principal amounts as such Buyer shall request) and the related Warrants (in such amounts as such
Buyer shall request) being purchased by such Buyer at the Closing pursuant to this Agreement and
(B) each of the other Transaction Documents.

(b) Such Buyer shall have received the opinion of Baxter, Baker, Sidle, Conn & Jones, the
Company’s outside counsel, dated as of the Closing Date, in substantially the form of Exhibit
E attached hereto.

(c) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.

(d) The Company shall have delivered to such Buyer a certificate evidencing the formation and
good standing of the Company and each of its domestic Subsidiaries in each such entity’s
jurisdiction of formation issued by the Secretary of State (or comparable office) of such
jurisdiction, as of a date within 10 days of the Closing Date.

(e) The Company shall have delivered to such Buyer a certificate evidencing the Company’s
qualification as a foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company, as applicable, conducts business, as
of a date within 10 days of the Closing Date.

(f) The Company shall have delivered to such Buyer a certified copy of the Certificate of
Incorporation of the Company as certified by the Secretary of State of Delaware within ten (10)
days of the Closing Date.

(g) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of
the Company dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as
adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Articles of Incorporation, as in effect at the Closing and (iii) the Bylaws, as in effect at the
Closing, in the form attached hereto as Exhibit F.

(h) The representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) 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) and the Company shall have performed, satisfied
and complied in all material respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit
G.

(i) The Company shall have delivered to such Buyer a letter from the Company’s transfer agent
certifying the number of shares of Common Stock outstanding as of a date within five days of the
Closing Date.

(j) The Common Stock (i) shall be designated for quotation or listed on the Principal Market
and (ii) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have
been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market
or (B) by falling below the minimum listing maintenance requirements of the Principal Market.

(k) The Company shall have obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the sale of the Securities.

(l) The Company shall deliver to such Buyer a payoff letter, in form and substance reasonably
satisfactory to the Buyers, executed by the Patriot Lender and setting forth the cash amount
required to be paid by the Company on the Closing Date to repay all amounts outstanding pursuant to
the Patriot Agreement in full (the “Patriot Payoff Amount”). The Company shall cause the Patriot
Payoff Amount to be wired to the Patriot Lender on the Closing Date.

(m) The Company shall deliver to such Buyer a payoff letter, in form and substance reasonably
satisfactory to the Buyers, executed by Robert P. Dowski and setting forth the cash amount required
to be paid by the Company on the Closing Date to repay all amounts outstanding pursuant to the
Dowski Note in full (the “Dowski Payoff Amount”). The Company shall cause the Dowski Payoff Amount
to be wired to the Robert P. Dowski on the Closing Date.

(n) The Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

	 	8.	 	TERMINATION.

In the event that the Closing shall not have occurred with respect to a Buyer on or before
March 17, 2006 due to the Company’s or such Buyer’s failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party’s failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without liability of any
party to any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 8 due to the failure of the Company to satisfy any of the conditions to
Closing set forth in Section 7, the Company shall remain obligated to reimburse the non-breaching
Buyers for the expenses described in Section 4(g) above.

	 	9.	 	MISCELLANEOUS.

(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.

(c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction.

(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters discussed herein and
therein, and this Agreement, the other Transaction Documents and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate principal amount of Notes issued
and issuable hereunder, and any amendment to this Agreement made in conformity with the provisions
of this Section 9(e) shall be binding on all Buyers and holders of Securities, as applicable. No
provision hereof may be waived other than by an instrument in writing signed by the party against
whom enforcement is sought. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the applicable Securities then outstanding. No consideration shall
be offered or paid to any Person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration also is offered to all of the
parties to the Transaction Documents, holders of Notes or holders of the Warrants, as the case may
be. The Company has not, directly or indirectly, made any agreements with any Buyers relating to
the terms or conditions of the transactions contemplated by the Transaction Documents except as set
forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that,
except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.

(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:

	 	 	 
	If to the Company:

	 	

	 
	 	 
	The Allied Defense Group, Inc.

	 
	 	 
	8000 Towers Crescent Drive

Suite 260

Vienna, Virginia 22182

Telephone:

Facsimile:

	 	

(703) 847-5268

	Attention:

	 	

With a copy (for informational purposes only) to:

Baxter, Baker, Sidle, Conn & Jones

Sun Trust Building

Suite 2100

120 E. Baltimore Street

Baltimore, Maryland 21202

Tel: (410) 230-8122

Fax: (410) 230-3801

Attention: James E. Baker, Jr., Esq.

If to the Transfer Agent:

Mellon Investor Services, LLC

85 Challenger Road

Ridgefield, New Jersey 07660

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers,

	 	 	 	 	 
	with a copy (for informational purposes only) to:

	Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone:
	 	 	(212) 756-2000	 
	Facsimile:
	 	 	(212) 593-5955	 
	Attention:
	 	Eleazer N. Klein, Esq.

or to such other address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.

(g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Notes or the Warrants. The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the holders of at least a majority of the aggregate
principal amount of Notes issued and issuable hereunder, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Notes and the Warrants). A Buyer may assign some or all
of its rights hereunder without the consent of the Company in which event such assignee shall be
deemed to be a Buyer hereunder with respect to such assigned rights.

(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in Sections 2 and 3 and the
agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer
shall be responsible only for its own representations, warranties, agreements and covenants
hereunder.

(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.

(k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities and all of their
shareholders, partners, members, officers, directors, employees and direct or indirect investors
and any of the foregoing Persons’ agents or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any
inaccuracy in any representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Company contained in the Transaction Documents or any
other certificate, instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company) and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, (iii) any disclosure made by such Buyer pursuant to Section 4(i), or (iv) the
status of such Buyer or holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Transaction Documents. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k) shall be the same as
those set forth in Section 6 of the Registration Rights Agreement.

(l) No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.

(m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it fails
to perform, observe, or discharge any or all of its obligations under the Transaction Documents,
any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond or other security.

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

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

(p) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction Documents and the
Company acknowledges that the Buyers are not acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction contemplated hereby
with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights arising out of this
Agreement or out of any other Transaction Documents, and it shall not be necessary for any other
Buyer to be joined as an additional party in any proceeding for such purpose.

[Signature Page Follows]

1

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 
	 

	COMPANY:

	 

	 

	 

	THE ALLIED DEFENSE GROUP, INC.

By:

	 

	Name:

	Title:

	 

2

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 
	 

	BUYERS:

	 

	 

	 

	KINGS ROAD INVESTMENTS LTD.

By:

	 

	Name:

	Title:

	 

3

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 
	 

	BUYERS:

	 

	 

	 

	PORTSIDE GROWTH & OPPORTUNITY FUND

By:

	 

	Name:

	Title:

	 

4

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 
	 

	BUYERS:

	 

	 

	 

	CASTLERIGG MASTER INVESTMENTS LTD.

By:

	 

	Name:

	Title:

	 

5

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.

	 
	 

	BUYERS:

	 

	 

	 

	LB I GROUP INC.

By:

	 

	Name:

	Title:

6

SCHEDULE OF BUYERS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(1)	 	(2)	 	(3)	 	(4)	 	(5)	 	(6)
	 	 	Address and	 	Aggregate Principal	 	Number of Warrant	 	 	 	 	 	Legal Representative's Address
	Buyer	 	Facsimile Number	 	Amount of Notes	 	Shares	 	Purchase Price	 	and Facsimile Number
	 
	 	c/o Polygon Investment Partners LP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	598 Madison Avenue, 14th Floor	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	New York, NY 10022
	 	 	 	 	 	 	 	 	 	 	 	 	 	Schulte Roth & Zabel LLP

	 
	 	Attention:  Erik M.W. Caspersen
	 	 	 	 	 	 	 	 	 	 	 	 	 	919 Third Avenue
	 
	 	and Brandon L. Jones
	 	 	 	 	 	 	 	 	 	 	 	 	 	New York, New York  10022

	 
	 	Facsimile:  (212) 359-7303
	 	 	 	 	 	 	 	 	 	 	 	 	 	Attention:  Eleazer Klein, Esq.

	Kings Road
	 	Telephone:  (212) 359-7300
	 	 	 	 	 	 	 	 	 	 	 	 	 	Facsimile:  (212) 593-5955

	Investments Ltd.
	 	Residence:  Cayman Islands
	 	$	12,500,000	 	 	 	94,500	 	 	$	12,500,000	 	 	Telephone:  (212) 756-2376

	 
	 	c/o Ramius Capital Group, L.L.C.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	666 Third Avenue, 26th Floor	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	New York, New York  10017
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Attention:  Jeffrey Smith
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Owen Littman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Facsimile:  (212) 845-7999
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	(212) 845-7995	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Telephone: (212) 845-7955
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Portside Growth &
	 	 	(212) 201-4841	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Opportunity Fund
	 	Residence:  Cayman Islands
	 	$	7,500,000	 	 	 	56,700	 	 	$	7,500,000	 	 	 	 	 
	 
	 	c/o Sandell Asset Management	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	40 West 57th St	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	26th Floor	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	New York, NY 10019
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Attention: Cem Hacioglu / Matthew
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Pliskin
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Telephone: 212-603-5700
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Castlerigg Master
	 	Fax:  212-603-5710
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Investments Ltd.
	 	Residence: British Virgin Islands
	 	$	6,000,000	 	 	 	45,360	 	 	$	6,000,000	 	 	 	 	 
	 
	 	c/o Lehman Brothers Inc.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Att: Will Yelsits
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	399 Park Ave	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	LB I Group Inc.
	 	NY, NY 10022
	 	$	4,000,000	 	 	 	30,240	 	 	$	4,000,000	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

7

EXHIBITS

	 	 	 
	Exhibit A

Exhibit B

Exhibit C

Exhibit D

Exhibit E

Exhibit F

Exhibit G

	 	Form of Notes

Form of Warrants

Registration Rights Agreement

Irrevocable Transfer Agent Instructions

Form of Counsel Opinion

Form of Secretary’s Certificate

Form of Officer’s Certificate

SCHEDULES

	 	 	 
	Schedule 3(a)

Schedule 3(l)

Schedule 3(r)

Schedule 3(s)

Schedule 3(t)

Schedule 3(x)

Schedule 3(z)

	 	Subsidiaries

Absence of Certain Changes

Capitalization

Indebtedness and Other Contracts

Litigation

Intellectual Property

Subsidiary Rights
	 
	 	 

8

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