Document:

EX-10.7

EXHIBIT 10.7

SECOND AMENDED AND RESTATED SECURITY AGREEMENT

     SECOND
AMENDED AND RESTATED SECURITY AGREEMENT, dated as of July 14, 2009 (this “Agreement”)
made by STINGER SYSTEMS, INC., a Nevada corporation, (the “Company”), and the undersigned
subsidiaries of the Company (each a “Grantor” and collectively and together with the Company the
“Grantors”), in favor of CASTLERIGG MASTER INVESTMENTS LTD., a company organized under the laws of
the British Virgin Islands, in its capacity as collateral agent (in such capacity, the “Collateral
Agent”) for the “Buyers” (as defined below) party to the Securities Purchase Agreements (defined
below).

W I T N E S S E T H:

     WHEREAS, the Company and each party listed as a “Buyer” on the Schedule of Buyers attached
thereto are parties to (i) that certain Securities Purchase Agreement, dated as of August 3, 2007
(as amended, restated or otherwise modified from time to time, the “August 2007 Securities Purchase
Agreement”), pursuant to which the Company sold, and the Buyers purchased certain “Notes” (as
defined therein) (as such Notes may be amended, restated, replaced or otherwise modified from time
to time in accordance with the terms thereof, collectively, the “2007 Notes”), (ii) that certain
Securities Purchase Agreement, dated as of February 29, 2008 (as amended, restated or otherwise
modified from time to time, the “February 2008 Securities Purchase Agreement”), pursuant to which
the Company sold, and the Buyers purchased certain “Notes” (as defined therein) (as such Notes may
be amended, restated, replaced or otherwise modified from time to time in accordance with the terms
thereof, collectively, the “2008 Notes”) and (iii) that certain Amendment and Exchange Agreement,
dated as of September 12, 2008 (as amended, restated or otherwise modified from time to time, the
“Exchange Agreement”), pursuant to which the Company exchanged with the Buyers the 2007 Notes and
the 2008 Notes for senior secured convertible notes (collectively, the “Exchanged Notes”);

     WHEREAS, the Company and each party listed as a “Buyer” on the Schedule of Buyers attached
thereto are entering into a new Securities Purchase Agreement, dated as of the date hereof (as
amended, restated or otherwise modified from time to time, the “New Securities Purchase Agreement”
and together with the August 2007 Securities Purchase Agreement and the February 2008 Securities
Purchase Agreement, the “Securities Purchase Agreements”), pursuant to which (i) the Exchanged
Notes shall be amended and restated pursuant to the “Amended and Restated Exchanged 2007 Notes” and
the “Amended and Restated Exchanged 2008 Notes” (each as defined therein) and (ii) the Company
shall agree to sell, and the Buyers shall agree to purchase certain additional “New Notes” (as
defined therein) (as may be amended, restated, replaced or otherwise modified from time to time in
accordance with the terms thereof, the “New Notes”, and collectively with the Amended and Restated
Exchanged 2007 Notes and the Amended and Restated Exchanged 2008 Notes, the “Notes”);

     WHEREAS, contemporaneously with the consummation of the transactions contemplated by the
August 2007 Securities Purchase Agreement, the Company entered into a Security Agreement, dated as
of August 3, 2007, by the Company in favor of the Collateral Agent, (the “Original Security
Agreement”);

 

 

     WHEREAS, contemporaneously with the consummation of the transactions contemplated by the
February 2008 Securities Purchase Agreement, the Company entered into an Amended and Restated
Security Agreement, dated as of February 29, 2008, by the Company in favor of the Collateral Agent
amending and restating the Original Security Agreement, (the “Amended and Restated Security
Agreement”)

     WHEREAS, it is a condition precedent to the Buyers purchasing the Notes pursuant to the New
Securities Purchase Agreement that the Grantors shall amend and restate the Amended and Restated
Security Agreement to include all of the Company’s obligations under all Securities Purchase
Agreements, the Amended and Restated Exchanged 2007 Notes, the Amended and Restated Exchanged 2008
Notes and the New Notes being acquired by Castlerigg Master Investments Ltd. and all other
“Transaction Documents” (as defined in the respective Securities Purchase Agreement) (collectively,
the “Transaction Documents”) as “Obligations” hereunder; and

     WHEREAS, the Grantors have determined that the execution, delivery and performance of this
Agreement directly benefits, and is in the best interest of, the Grantors.

     NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to
induce the Buyers to perform under the New Securities Purchase Agreement, each Grantor agrees with
the Collateral Agent, for the benefit of the Buyers, as follows:

     SECTION 1. Definitions.

     (a) Reference is hereby made to the Securities Purchase Agreements and the Notes for a
statement of the terms thereof. All terms used in this Agreement and the recitals hereto which are
defined in the Securities Purchase Agreements, the Notes or in Articles 8 or 9 of the Uniform
Commercial Code as in effect from time to time in the State of New York (the “Code”), and which
are not otherwise defined herein shall have the same meanings herein as set forth therein;
provided that terms used herein which are defined in the Code as in effect in the State of
New York on the date hereof shall continue to have the same meaning notwithstanding any replacement
or amendment of such statute except as the Collateral Agent may otherwise determine.

     (b) The following terms shall have the respective meanings provided for in the Code:
“Accounts”, “Cash Proceeds”, “Chattel Paper”, “Commercial Tort Claim”, “Commodity Account”,
“Commodity Contracts”, “Deposit Account”, “Documents”, “Equipment”, “Fixtures”, “General
Intangibles”, “Goods”, “Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit
Rights”, “Noncash Proceeds”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”, “Security”,
“Record”, “Security Account”, “Software”, and “Supporting Obligations”.

     (c) As used in this Agreement, the following terms shall have the respective meanings
indicated below, such meanings to be applicable equally to both the singular and plural forms of
such terms:

     “Additional Requirements” means (i) with respect to Deposit Accounts, and all cash and other
property from time to time deposited therein, for the execution of a control

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agreement with the depository institution with which such account is maintained, as provided
in Section 5(i), (ii) with respect to Commodity Contracts, for the execution of a control
agreement with the commodity intermediary with which such commodity contract is carried, as
provided in Section 5(i), (iii) with respect to the perfection of the security interest
created hereby in any Letter-of-Credit Rights, for the consent of the issuer of the applicable
letter of credit to the assignment of proceeds as provided in the Uniform Commercial Code as in
effect in the applicable jurisdiction, (iv) with respect to any action that may be necessary to
obtain control of Collateral constituting Deposit Accounts, Commodity Contracts, Electronic Chattel
Paper, Investment Property or Letter-of-Credit Rights, the taking of such actions, and (v) the
Collateral Agent having possession of all Documents, Chattel Paper, Instruments and cash
constituting Collateral.

     “Capital Stock” means (i) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated and whether or not
voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and
all partnership, membership or other equity interests of such Person.

     “Copyright Licenses” means all licenses, contracts or other agreements, whether written or
oral, naming any Grantor as licensee or licensor and providing for the grant of any right to use or
sell any works covered by any copyright (including, without limitation, all Copyright Licenses set
forth in Schedule II hereto).

     “Copyrights” means all domestic and foreign copyrights, whether registered or not, including,
without limitation, all copyright rights throughout the universe (whether now or hereafter arising)
in any and all media (whether now or hereafter developed), in and to all original works of
authorship fixed in any tangible medium of expression, acquired or used by any Grantor (including,
without limitation, all copyrights described in Schedule II hereto), all applications,
registrations and recordings thereof (including, without limitation, applications, registrations
and recordings in the United States Copyright Office or in any similar office or agency of the
United States or any other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals thereof.

     “Event of Default” shall have the meaning set forth in the Notes.

     “Governmental Authority” means any nation or government, any Federal, state, city, town,
municipality, county, local or other political subdivision thereof or thereto and any department,
commission, board, bureau, instrumentality, agency or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.

     “Insolvency Proceeding” means any proceeding commenced by or against any Person under any
provision of the Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, or extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.

     “Intellectual Property” means the Copyrights, Trademarks and Patents.

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     “Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.

     “Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights).

     “Patent Licenses” means all licenses, contracts or other agreements, whether written or oral,
naming any Grantor as licensee or licensor and providing for the grant of any right to manufacture,
use or sell any invention covered by any Patent (including, without limitation, all Patent Licenses
set forth in Schedule II hereto).

     “Patents” means all domestic and foreign letters patent, design patents, utility patents,
industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes,
proprietary information, technology, know-how, formulae, rights of publicity and other general
intangibles of like nature, now existing or hereafter acquired (including, without limitation, all
domestic and foreign letters patent, design patents, utility patents, industrial designs,
inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary
information, technology, know-how and formulae described in Schedule II hereto), all
applications, registrations and recordings thereof (including, without limitation, applications,
registrations and recordings in the United States Patent and Trademark Office, or in any similar
office or agency of the United States or any other country or any political subdivision thereof),
and all reissues, divisions, continuations, continuations in part and extensions or renewals
thereof.

     “Person” means an individual, corporation, limited liability company, partnership,
association, joint-stock company, trust, unincorporated organization, joint venture or other
enterprise or entity or Governmental Authority.

     “Trademark Licenses” means all licenses, contracts or other agreements, whether written or
oral, naming any Grantor as licensor or licensee and providing for the grant of any right
concerning any Trademark, together with any goodwill connected with and symbolized by any such
trademark licenses, contracts or agreements and the right to prepare for sale or lease and sell or
lease any and all Inventory now or hereafter owned by any Grantor and now or hereafter covered by
such licenses (including, without limitation, all Trademark Licenses described in Schedule
II hereto).

     “Trademarks” means all domestic and foreign trademarks, service marks, collective marks,
certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles,
designs, logos and other source or business identifiers and all general intangibles of like nature,
now or hereafter owned, adopted, acquired or used by any Grantor (including, without limitation,
all domestic and foreign trademarks, service marks, collective marks, certification marks, trade
names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other
source or business identifiers described in Schedule II hereto), all applications,
registrations and recordings thereof (including, without limitation, applications, registrations
and recordings in the United States Patent and Trademark Office or in any similar office or agency
of the United States, any state thereof or any other country or any political subdivision thereof),
and all reissues, extensions or renewals thereof, together with all goodwill

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of the business symbolized by such marks and all customer lists, formulae and other Records of
any Grantor relating to the distribution of products and services in connection with which any of
such marks are used.

     SECTION 2. Grant of Security Interest. As collateral security for all of the
“Obligations” (as defined in Section 3 hereof), each Grantor hereby pledges and assigns to
the Collateral Agent for the benefit of the Buyers, and grants to the Collateral Agent for the
benefit of the Buyers a continuing security interest in, all personal property of each Grantor,
wherever located and whether now or hereafter existing and whether now owned or hereafter acquired,
of every kind and description, tangible or intangible (collectively, the “Collateral”), including,
without limitation, the following:

     (a) all Accounts;

     (b) all Chattel Paper (whether tangible or electronic);

     (c) the Commercial Tort Claims specified on Schedule VI hereto;

     (d) all Deposit Accounts, all cash and other property from time to time deposited therein and
the monies and property in the possession or under the control of the Collateral Agent or Buyer or
any affiliate, representative, agent or correspondent of the Collateral Agent or Buyer;

     (e) all Documents;

     (f) all Equipment;

     (g) all Fixtures;

     (h) all General Intangibles (including, without limitation, all Payment Intangibles);

     (i) all Goods;

     (j) all Instruments (including, without limitation, Promissory Notes and each certificated
Security);

     (k) all Inventory;

     (l) all Investment Property;

     (m) all Copyrights, Patents and Trademarks, and all Licenses;

     (n) all Letter-of-Credit Rights;

     (o) all Supporting Obligations;

     (p) all other tangible and intangible personal property of each Grantor (whether or not
subject to the Code), including, without limitation, all bank and other accounts

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and all cash and all investments therein, all proceeds, products, offspring, accessions,
rents, profits, income, benefits, substitutions and replacements of and to any of the property of
any Grantor described in the preceding clauses of this Section 2 (including, without
limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now
or hereafter held by each Grantor in respect of any of the items listed above), and all books,
correspondence, files and other Records, including, without limitation, all tapes, desks, cards,
Software, data and computer programs in the possession or under the control of any Grantor or any
other Person from time to time acting for any Grantor, in each case, to the extent of such Grantors
rights therein, that at any time evidence or contain information relating to any of the property
described in the preceding clauses of this Section 2 or are otherwise necessary or helpful
in the collection or realization thereof; and

     (q) all Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of any and
all of the foregoing Collateral;

in each case howsoever any Grantor’s interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).

Notwithstanding anything herein to the contrary, the term “Collateral” shall not include in the
case of a Subsidiary of such Grantor organized under the laws of a jurisdiction other than the
United States, any of the states thereof or the District of Columbia (a “Foreign Subsidiary”), more
than 65% (or such greater percentage that, due to a change in applicable law after the date hereof,
(A) would not reasonably be expected to cause the undistributed earnings of such Foreign Subsidiary
as determined for United States federal income tax purposes to be treated as a deemed dividend to
such Foreign Subsidiary’s United States parent and (B) would not reasonably be expected to cause
any material adverse tax consequences) of the issued and outstanding shares of Capital Stock
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (it being understood and
agreed that the Collateral shall include 100% of the issued and outstanding shares of Capital Stock
not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) or other equity
interest of such Foreign Subsidiary).

The Grantors agree that the pledge of the shares of Capital Stock acquired by a Grantor of any and
all Persons now or hereafter existing who is a Foreign Subsidiary may be supplemented by one or
more separate pledge agreements, deeds of pledge, share charges, or other similar agreements or
instruments, executed and delivered by the relevant Grantors in favor of the Collateral Agent,
which pledge agreements will provide for the pledge of such shares of Capital Stock in accordance
with the laws of the applicable foreign jurisdiction. With respect to such shares of Capital
Stock, the Collateral Agent may, at any time and from time to time, in its sole discretion, take
actions in such foreign jurisdictions that will result in the perfection of the Lien created in
such shares of Capital Stock.

     SECTION 3. Security for Obligations. The security interest created hereby in the
Collateral constitutes continuing collateral security for all of the following obligations, whether
now existing or hereafter incurred (collectively, the “Obligations”):

     (a) for so long as the Notes are outstanding, (i) the payment by the Company, as and when due
and payable (by scheduled maturity, required prepayment, acceleration, demand

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or otherwise), of all amounts from time to time owing by it in respect of the Securities
Purchase Agreements, the Notes and the other Transaction Documents, and (ii) in the case of any
Guarantors, the payment by such Guarantors, as and when due and payable of all “Guaranteed
Obligations” under (and as defined in) the Guaranty, including, without limitation, in both cases,
(A) all principal of and interest on the Notes (including, without limitation, all interest that
accrues after the commencement of any Insolvency Proceeding of any Grantor, whether or not the
payment of such interest is unenforceable or is not allowable due to the existence of such
Insolvency Proceeding), and (B) all fees, commissions, expense reimbursements, indemnifications and
all other amounts due or to become due under any of the Transaction Documents; and

     (b) for so long as the Notes are outstanding, the due performance and observance by each
Grantor of all of its other obligations from time to time existing in respect of any of the
Transaction Documents, including without limitation, with respect to any conversion or redemption
rights of the Buyers under the Notes.

     SECTION 4. Representations and Warranties. Each Grantor represents and warrants as of
the date of this Agreement as follows:

     (a) Schedule I hereto sets forth (i) the exact legal name of each Grantor, and (ii)
the state of incorporation, organization or formation and the organizational identification number
of each Grantor in such state.

     (b) There is no pending or, to its knowledge, written notice threatening any action, suit,
proceeding or claim affecting any Grantor before any governmental authority or any arbitrator, or
any order, judgment or award issued by any governmental authority or arbitrator, in each case, that
may adversely affect the grant by any Grantor, or the perfection, of the security interest
purported to be created hereby in the Collateral, or the exercise by the Collateral Agent of any of
its rights or remedies hereunder.

     (c) All Federal, state and local tax returns and other reports required by applicable law to
be filed by any Grantor have been filed, or extensions have been obtained, and all taxes,
assessments and other governmental charges imposed upon any Grantor or any property of any Grantor
(including, without limitation, all federal income and social security taxes on employees’ wages)
and which have become due and payable on or prior to the date hereof have been paid, except to the
extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine
or Lien resulting from the non-payment thereof and with respect to which adequate reserves have
been set aside for the payment thereof in accordance with generally accepted accounting principles
consistently applied (“GAAP”).

     (d) All Equipment, Fixtures, Goods and Inventory of each Grantor now existing are, and all
Equipment, Fixtures, Goods and Inventory of each Grantor hereafter existing will be, located and/or
based at the addresses specified therefor in Schedule III hereto, except that each Grantor
will give the Collateral Agent written notice of any change in the location of any such Collateral
within 20 days of such change, other than to locations set forth on Schedule III hereto (or
a new Schedule III delivered by the Grantors to the Collateral Agent from time to time) and
with respect to which the Collateral Agent has filed financing statements and otherwise

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fully perfected its Liens thereon or will take such actions pursuant to Section 5(m). Each
Grantor’s chief place of business and chief executive office, the place where each Grantor keeps
its Records concerning Accounts and all originals of all Chattel Paper are located at the addresses
specified therefor in Schedule III hereto. None of the Accounts is evidenced by Promissory
Notes or other Instruments. Set forth in Schedule IV hereto is a complete and accurate
list, as of the date of this Agreement, of (i) each Promissory Note, Security and other Instrument
owned by each Grantor and (ii) each Deposit Account, Securities Account and Commodities Account of
each Grantor, together with the name and address of each institution at which each such account is
maintained, the account number for each such account and a description of the purpose of each such
account. Set forth in Schedule II hereto is a complete and correct list of each trade name
used by each Grantor and the name of, and each trade name used by, each person from which each
Grantor has acquired any substantial part of the Collateral.

     (e) Each Grantor has delivered to the Collateral Agent complete and correct copies of each
License described in Schedule II hereto, including all schedules and exhibits thereto,
which represents all of the Licenses existing on the date of this Agreement. Each such License
sets forth the entire agreement and understanding of the parties thereto relating to the subject
matter thereof, and there are no other agreements, arrangements or understandings, written or oral,
relating to the matters covered thereby or the rights of such Grantor or any of its affiliates in
respect thereof. Each material License now existing is, and any material License entered into in
the future will be, the legal, valid and binding obligation of the parties thereto, enforceable
against such parties in accordance with its terms. No default under any material License by any
such party has occurred, nor does any defense, offset, deduction or counterclaim exist thereunder
in favor of any such party.

     (f) Each Grantor owns and controls, or otherwise possesses adequate rights to use, all
Trademarks, Patents and Copyrights, which are the only trademarks, patents, copyrights, inventions,
trade secrets, proprietary information and technology, know-how, formulae, rights of publicity
necessary to conduct its business in substantially the same manner as conducted as of the date
hereof. Schedule II hereto sets forth a true and complete list of all registered
copyrights, issued Patents, Trademarks, and Licenses annually owned or used by each Grantor as of
the date hereof. To the best knowledge of each Grantor, all such Intellectual Property of each
Grantor is subsisting and in full force and effect, has not been adjudged invalid or unenforceable,
is valid and enforceable and has not been abandoned in whole or in part. Except as set forth in
Schedule II, no such Intellectual Property is the subject of any licensing or franchising
agreement. Each Grantor has no knowledge of any conflict with the rights of others to any such
Intellectual Property and, to the best knowledge of each Grantor, each Grantor is not now
infringing or in conflict with any such rights of others in any material respect, and to the best
knowledge of each Grantor, no other Person is now infringing or in conflict in any material respect
with any such properties, assets and rights owned or used by each Grantor. No Grantor has received
any notice that it is violating or has violated the trademarks, patents, copyrights, inventions,
trade secrets, proprietary information and technology, know-how, formulae, rights of publicity or
other intellectual property rights of any third party.

     (g) Each Grantor is and will be at all times the sole and exclusive owner of, or otherwise has
and will have adequate rights in, the Collateral free and clear of any Liens, except for Permitted
Liens. No effective financing statement or other instrument similar in effect

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covering all or any part of the Collateral is on file in any recording or filing office except
such as (i) may have been filed in favor of the Collateral Agent and/or the Buyers relating to this
Agreement or the other Security Documents and (ii) are described on Schedule 4(g) hereto.

     (h) The exercise by the Collateral Agent of any of its rights and remedies hereunder will not
contravene any law or any contractual restriction binding on or otherwise affecting each Grantor or
any of its properties and will not result in or require the creation of any Lien, upon or with
respect to any of its properties.

     (i) No authorization or approval or other action by, and no notice to or filing with, any
governmental authority or other regulatory body, is required for (i) the grant by each Grantor, or
the perfection, of the security interest purported to be created hereby in the Collateral, or
(ii) the exercise by the Collateral Agent of any of its rights and remedies hereunder, except
(A) for the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of
the financing statements described in Schedule V hereto (or a new Schedule V
delivered by Grantors to Collateral Agent from time to time), all of which financing statements
have been duly filed and are in full force and effect or will be duly filed and in full force and
effect, (B) with respect to the perfection of the security interest created hereby in the United
States Intellectual Property and Licenses, for the recording of the appropriate Assignment for
Security, substantially in the form of Exhibit A hereto in the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, (C) with respect to the
perfection of the security interest created hereby in foreign Intellectual Property and Licenses,
for registrations and filings in jurisdictions located outside of the United States and covering
rights in such jurisdictions relating to such foreign Intellectual Property and Licenses, and (D)
with respect to the perfection of the security interest created hereby in Titled Collateral, for
the submission of an appropriate application requesting that the Lien of the Collateral Agent be
noted on the Certificate of Title or certificate of ownership, completed and authenticated by the
applicable Grantor, together with the Certificate of Title or certificate of ownership, with
respect to such Titled Collateral, to the appropriate governmental authority (subclauses (A), (B),
(C) and (D), together with the Additional Requirements, each a “Perfection Requirement” and
collectively, the “Perfection Requirements”).

     (j) This Agreement creates in favor of the Collateral Agent a legal, valid and enforceable
security interest in the Collateral, as security for the Obligations. The Perfection Requirements
result in the perfection of such security interests. Such security interests are, or in the case
of Collateral in which each Grantor obtains rights after the date hereof, will be, perfected, first
priority security interests, subject only to Permitted Liens and the Perfection Requirements and
the financing statements described in Schedule 4(g). Such recordings and filings and all
other action necessary to perfect and protect such security interest have been duly taken or will
be taken pursuant to Section 5(m), and, in the case of Collateral in which each Grantor obtains
rights after the date hereof, will be duly taken, except for the Collateral Agent’s having
possession of all Documents, Chattel Paper, Instruments and cash constituting Collateral after the
date hereof and the other actions, filings and recordations described above, including the
Perfection Requirements.

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     (k) As of the date hereof, no Grantor holds any Commercial Tort Claims or has knowledge of any
pending Commercial Tort Claims, except for such Commercial Tort Claims described in Schedule
VI.

     SECTION 5. Covenants as to the Collateral. So long as any of the Obligations shall
remain outstanding, unless the Collateral Agent shall otherwise consent in writing:

     (a) Further Assurances. Each Grantor will at its expense, at any time and from time
to time, promptly execute and deliver all further instruments and documents and take all further
action that the Collateral Agent may reasonably request in order to: (i) perfect and protect the
security interest purported to be created hereby; (ii) enable the Collateral Agent to exercise and
enforce its rights and remedies hereunder in respect of the Collateral; or (iii) otherwise effect
the purposes of this Agreement, including, without limitation: (A) marking conspicuously all
Chattel Paper and each License and, at the request of the Collateral Agent, each of its Records
pertaining to the Collateral with a legend, in form and substance satisfactory to the Collateral
Agent, indicating that such Chattel Paper, License or Collateral is subject to the security
interest created hereby, (B)  delivering and pledging to the Collateral Agent pursuant to the
Pledge Agreement each Promissory Note, Security, Chattel Paper or other Instrument, now or
hereafter owned by any Grantor, duly endorsed and accompanied by executed instruments of transfer
or assignment, all in form and substance satisfactory to the Collateral Agent, (C) executing and
filing (to the extent, if any, that any Grantor’s signature is required thereon) or authenticating
the filing of, such financing or continuation statements, or amendments thereto, as may be
necessary or that the Collateral Agent may reasonably request in order to perfect and preserve the
security interest purported to be created hereby, (D) furnishing to the Collateral Agent from time
to time statements and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral in each case as the Collateral Agent may reasonably
request, all in reasonable detail, (E) if any Collateral shall be in the possession of a third
party, notifying such Person of the Collateral Agent’s security interest created hereby and
obtaining a written acknowledgment from such Person that such Person holds possession of the
Collateral for the benefit of the Collateral Agent, which such written acknowledgement shall be in
form and substance reasonably satisfactory to the Collateral Agent, (F) if at any time after the
date hereof, any Grantor acquires or holds any Commercial Tort Claim, promptly notifying the
Collateral Agent in a writing signed by such Grantor setting forth a brief description of such
Commercial Tort Claim and granting to the Collateral Agent a security interest therein and in the
proceeds thereof, which writing shall incorporate the provisions hereof and shall be in form and
substance satisfactory to the Collateral Agent, (G) upon the acquisition after the date hereof by
any Grantor of any motor vehicle or other Equipment subject to a certificate of title or ownership
(other than a Motor Vehicle or Equipment that is subject to a purchase money security interest),
causing the Collateral Agent to be listed as the lienholder on such certificate of title or
ownership and delivering evidence of the same to the Collateral Agent in accordance with
Section 5(j) hereof; and (H) taking all actions required by any earlier versions of the
Uniform Commercial Code or by other law, as applicable, in any relevant Uniform Commercial Code
jurisdiction, or by other law as applicable in any foreign jurisdiction.

     (b) Location of Equipment and Inventory. Each Grantor will keep the Equipment and
Inventory (i) at the locations specified therefor on Schedule III hereto, or (ii) at

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such other locations set forth on Schedule III (or a new Schedule III
delivered by Grantors to Collateral Agent from time to time) and with respect to which the
Collateral Agent has filed financing statements and otherwise fully perfected its Liens thereon, or
(iii) at such other locations in the United States, provided that within 20 days following the
relocation of Equipment or Inventory to such other location or the acquisition of Equipment or
Inventory, Grantor shall deliver to the Collateral Agent a new Schedule III indicating such
new locations.

     (c) Condition of Equipment. Each Grantor will maintain or cause the Equipment
(necessary or useful to its business) to be maintained and preserved in good condition, repair and
working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or
damage to any Equipment of any Grantor within a commercially reasonable time after the occurrence
thereof, make or cause to be made all repairs, replacements and other improvements in connection
therewith which are necessary or desirable, consistent with past practice, or which the Collateral
Agent may request to such end. Any Grantor will promptly furnish to the Collateral Agent a
statement describing in reasonable detail any such loss or damage in excess of $250,000 per
occurrence to any Equipment.

     (d) Taxes, Etc. Each Grantor agrees to pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Equipment and Inventory, except to the
extent the validity thereof is being contested in good faith by proper proceedings which stay the
imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves in accordance with GAAP have been set aside for the payment thereof.

     (e) Insurance.

          (i) Each Grantor will, at its own expense, maintain insurance (including, without limitation,
commercial general liability and property insurance) with respect to the Equipment and Inventory in
such amounts, against such risks, in such form and with responsible and reputable insurance
companies or associations as is required by any governmental authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business practice by companies
in similar businesses similarly situated and in any event, in amount, adequacy and scope reasonably
satisfactory to the Collateral Agent. To the extent requested by the Collateral Agent at any time
and from time to time, each such policy for liability insurance shall provide for all losses to be
paid on behalf of the Collateral Agent and any Grantor as their respective interests may appear,
and each policy for property damage insurance shall provide for all losses to be adjusted with, and
paid directly to, the Collateral Agent. To the extent requested by the Collateral Agent at any
time and from time to time, each such policy shall in addition (A) name the Collateral Agent as an
additional insured party or loss payee thereunder (without any representation or warranty by or
obligation upon the Collateral Agent) as their interests may appear, (B) contain an agreement by
the insurer that any loss thereunder shall be payable to the Collateral Agent on its own account
notwithstanding any action, inaction or breach of representation or warranty by any Grantor, (C)
provide that there shall be no recourse against the Collateral Agent for payment of premiums or
other amounts with respect thereto, and (D) provide that at least 30 days’ prior written notice of
cancellation, lapse, expiration or other adverse change shall be given to the Collateral Agent by
the insurer. Any

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Grantor will, if so requested by the Collateral Agent, deliver to the Collateral Agent
original or duplicate policies of such insurance and, as often as the Collateral Agent may
reasonably request, a report of a reputable insurance broker with respect to such insurance. Any
Grantor will also, at the request of the Collateral Agent, execute and deliver instruments of
assignment of such insurance policies and cause the respective insurers to acknowledge notice of
such assignment.

          (ii) Reimbursement under any liability insurance maintained by any Grantor pursuant to this
Section 5(e) may be paid directly to the Person who shall have incurred liability covered
by such insurance. In the case of any loss involving damage to Equipment or Inventory, any
proceeds of insurance maintained by any Grantor pursuant to this Section 5(e) shall be paid
to the Collateral Agent (except as to which paragraph (iii) of this Section 5(e) is not
applicable), any Grantor will make or cause to be made the necessary repairs to or replacements of
such Equipment or Inventory, and any proceeds of insurance maintained by any Grantor pursuant to
this Section 5(e) shall be paid by the Collateral Agent to any Grantor as reimbursement for
the costs of such repairs or replacements.

          (iii) Following and during the continuance of an Event of Default, all insurance payments in
respect of such Equipment or Inventory shall be paid to the Collateral Agent and applied as
specified in Section 7(b) hereof.

     (f) Provisions Concerning the Accounts and the Licenses.

          (i) Each Grantor will (A) give the Collateral Agent at least 30 days’ prior written notice of
any change in such Grantor’s name, identity or organizational structure, (B) maintain its
jurisdiction of incorporation, organization or formation as set forth in Schedule I hereto,
(C) immediately notify the Collateral Agent upon obtaining an organizational identification number,
if on the date hereof such Grantor did not have such identification number, and (D) keep adequate
records concerning the Accounts and Chattel Paper and permit representatives of the Collateral
Agent during normal business hours on reasonable notice to such Grantor, to inspect and make
abstracts from such Records and Chattel Paper.

          (ii) Each Grantor will, except as otherwise provided in this subsection (f), continue to
collect, at its own expense, all amounts due or to become due under the Accounts. In connection
with such collections, any Grantor may (and, at the Collateral Agent’s direction, will) take such
action as any Grantor or the Collateral Agent may deem necessary or advisable to enforce collection
or performance of the Accounts; provided, however, that the Collateral Agent shall
have the right at any time, upon the occurrence and during the continuance of an Event of Default,
to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to
the Collateral Agent and to direct such account debtors or obligors to make payment of all amounts
due or to become due to any Grantor thereunder directly to the Collateral Agent or its designated
agent and, upon such notification and at the expense of any Grantor and to the extent permitted by
law, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as any Grantor might have done. After
receipt by any Grantor of a notice from the Collateral Agent that the Collateral Agent has
notified, intends to notify, or has enforced or intends to enforce any Grantor’s rights against the
account debtors or obligors under any Accounts as referred to in the proviso to the immediately
preceding sentence, (A) all

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amounts and proceeds (including Instruments) received by any Grantor in respect of the
Accounts shall be received in trust for the benefit of the Collateral Agent hereunder, shall be
segregated from other funds of any Grantor and shall be forthwith paid over to the Collateral Agent
in the same form as so received (with any necessary endorsement) to be applied as specified in
Section 7(b) hereof, and (B) no Grantor will adjust, settle or compromise the amount or
payment of any Account or release wholly or partly any account debtor or obligor thereof or allow
any credit or discount thereon. In addition, upon the occurrence and during the continuance of an
Event of Default, the Collateral Agent may (in its sole and absolute discretion) direct any or all
of the banks and financial institutions with which any Grantor either maintains a Deposit Account
or a lockbox or deposits the proceeds of any Accounts to send immediately to the Collateral Agent
by wire transfer (to such account as the Collateral Agent shall specify, or in such other manner as
the Collateral Agent shall direct) all or a portion of such securities, cash, investments and other
items held by such institution. Any such securities, cash, investments and other items so received
by the Collateral Agent shall be applied as specified in accordance with Section 7(b)
hereof.

          (iii) Upon the occurrence and during the continuance of any breach or default under any
material License referred to in Schedule II hereto by any party thereto other than any
Grantor, each Grantor party thereto will, promptly after obtaining knowledge thereof, give the
Collateral Agent written notice of the nature and duration thereof, specifying what action, if any,
it has taken and proposes to take with respect thereto and thereafter will take reasonable steps to
protect and preserve its rights and remedies in respect of such breach or default, or will obtain
or acquire an appropriate substitute License.

          (iv) Each Grantor will, at its expense, promptly deliver to the Collateral Agent a copy of
each notice or other communication received by it by which any other party to any material License
referred to in Schedule II hereto purports to exercise any of its rights or affect any of
its obligations thereunder, together with a copy of any reply by such Grantor thereto.

          (v) Each Grantor will exercise promptly and diligently each and every right which it may have
under each material License (other than any right of termination) and will duly perform and observe
in all respects all of its obligations under each material License and will take all action
reasonably necessary to maintain such Licenses in full force and effect. No Grantor will, without
the prior written consent of the Collateral Agent, cancel, terminate, amend or otherwise modify in
any respect, or waive any provision of, any material License referred to in Schedule II
hereto.

     (g) Transfers and Other Liens.

          (i) No Grantor will sell, assign (by operation of law or otherwise), lease, license, exchange
or otherwise transfer or dispose of any of the Collateral, except (A) Inventory in the ordinary
course of business, and (B) worn out or obsolete assets, not necessary to the business.

          (ii) No Grantor will create, suffer to exist or grant any Lien upon or with respect to any
Collateral other than a Permitted Lien.

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     (h) Intellectual Property.

          (i) If applicable, any Grantor shall, upon the Collateral Agent’s written request, duly
execute and deliver the applicable Assignment for Security in the form attached hereto as
Exhibit A. Each Grantor (either itself or through licensees) will, and will cause each
licensee thereof to, take all action necessary to maintain all of the Intellectual Property in full
force and effect, including, without limitation, using the proper statutory notices and markings
and using the Trademarks on each applicable trademark class of goods in order to so maintain the
Trademarks in full force and free from any claim of abandonment for non-use, and each Grantor will
not (nor permit any licensee thereof to) do any act or knowingly omit to do any act whereby any
Intellectual Property may become invalidated; provided, however, that so long as no
Event of Default has occurred and is continuing, no Grantor shall have an obligation to use or to
maintain any Intellectual Property (A) that relates solely to any product or work, that has been,
or is in the process of being, discontinued, abandoned or terminated, (B) that is being replaced
with Intellectual Property substantially similar to the Intellectual Property that may be abandoned
or otherwise become invalid, so long as the failure to use or maintain such Intellectual Property
does not materially adversely affect the validity of such replacement Intellectual Property and so
long as such replacement Intellectual Property is subject to the Lien created by this Agreement or
(C) that is substantially the same as another Intellectual Property that is in full force, so long
the failure to use or maintain such Intellectual Property does not materially adversely affect the
validity of such replacement Intellectual Property and so long as such other Intellectual Property
is subject to the Lien and security interest created by this Agreement. Each Grantor will cause to
be taken all necessary steps in any proceeding before the United States Patent and Trademark Office
and the United States Copyright Office or any similar office or agency in any other country or
political subdivision thereof to maintain each registration of the Intellectual Property (other
than the Intellectual Property described in the proviso to the immediately preceding sentence),
including, without limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings and payment of
maintenance fees, filing fees, taxes or other governmental fees. If any Intellectual Property
(other than Intellectual Property described in the proviso to the first sentence of subsection (i)
of this clause (h)) is infringed, misappropriated, diluted or otherwise violated in any material
respect by a third party, each Grantor shall (x) upon learning of such infringement,
misappropriation, dilution or other violation, promptly notify the Collateral Agent and (y) to the
extent any Grantor shall deem appropriate under the circumstances, promptly sue for infringement,
misappropriation, dilution or other violation, seek injunctive relief where appropriate and recover
any and all damages for such infringement, misappropriation, dilution or other violation, or take
such other actions as such Grantor shall deem appropriate under the circumstances to protect such
Intellectual Property. Each Grantor shall furnish to the Collateral Agent from time to time upon
its request statements and schedules further identifying and describing the Intellectual Property
and Licenses and such other reports in connection with the Intellectual Property and Licenses as
the Collateral Agent may reasonably request, all in reasonable detail and promptly upon request of
the Collateral Agent, following receipt by the Collateral Agent of any such statements, schedules
or reports, each Grantor shall modify
 this Agreement by amending Schedule II hereto, as the
case may be, to include any Intellectual Property and License, as the case may be, which becomes
part of the Collateral under this Agreement and shall execute and authenticate such documents and
do such acts as shall be necessary or, in the reasonable judgment of the Collateral Agent,
desirable to subject such Intellectual Property and Licenses to the Lien and security interest
created by this

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Agreement. Notwithstanding anything herein to the contrary, upon the occurrence and during
the continuance of an Event of Default, no Grantor may abandon or otherwise permit any Intellectual
Property to become invalid without the prior written consent of the Collateral Agent, and if any
Intellectual Property is infringed, misappropriated, diluted or otherwise violated in any material
respect by a third party, each Grantor will take such action as the Collateral Agent shall deem
appropriate under the circumstances to protect such Intellectual Property.

          (ii) In no event shall any Grantor, either itself or through any agent, employee, licensee or
designee, file an application for the registration of any Trademark or Copyright or the issuance of
any Patent with the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, or in any similar office or agency of the United States or any country or
any political subdivision thereof unless it gives the Collateral Agent prior written notice
thereof. Upon request of the Collateral Agent, any Grantor shall execute, authenticate and deliver
any and all assignments, agreements, instruments, documents and papers as the Collateral Agent may
reasonably request to evidence the Collateral Agent’s security interest hereunder in such
Intellectual Property and the General Intangibles of any Grantor relating thereto or represented
thereby, and each Grantor hereby appoints the Collateral Agent its attorney-in-fact to execute
and/or authenticate and file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed, and such power (being coupled with an interest) shall
be irrevocable until the indefeasible payment in full in cash of all of the Obligations in full.

     (i) Deposit, Commodities and Securities Accounts. Upon the Collateral Agent’s written
request, each Grantor shall request that each bank and other financial institution with an account
referred to in Schedule IV hereto execute and deliver to the Collateral Agent a control
agreement, in form and substance reasonably satisfactory to the Collateral Agent, duly executed by
each Grantor and such bank or financial institution, or enter into other arrangements in form and
substance satisfactory to the Collateral Agent, pursuant to which such institution shall
irrevocably agree, inter alia, that (i) it will comply at any time with the
instructions originated by the Collateral Agent to such bank or financial institution directing the
disposition of cash, Commodity Contracts, securities, Investment Property and other items from time
to time credited to such account, without further consent of each Grantor, which instructions the
Collateral Agent will not give to such bank or other financial institution in the absence of a
continuing Event of Default, (ii) all Commodity Contracts, securities, Investment Property and
other items of each Grantor deposited with such institution shall be subject to a perfected, first
priority security interest in favor of the Collateral Agent, (iii) any right of set off (other than
recoupment of standard fees), banker’s Lien or other similar Lien, security interest or encumbrance
shall be fully waived as against the Collateral Agent, and (iv) upon receipt of written notice from
the Collateral Agent during the continuance of an Event of Default, such bank or financial
institution shall immediately send to the Collateral Agent by wire transfer (to such account as the
Collateral Agent shall specify, or in such other manner as the Collateral Agent shall direct) all
such cash, the value of any Commodity Contracts, securities, Investment Property and other items
held by it. Without the prior written consent of the Collateral Agent, each Grantor shall not make
or maintain any Deposit Account, Commodity Account or Securities Account except for the accounts
set forth in Schedule IV hereto. The provisions of this paragraph 5(i) shall not apply to
(i) Deposit Accounts for which the Collateral Agent is the depositary and (ii) Deposit Accounts
specially and exclusively used for payroll, payroll taxes and

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other employee wage and benefit payments to or for the benefit of each Grantor’s salaried or
hourly employees.

     (j) Motor Vehicles.

          (i) Upon the Collateral Agent’s written request, each Grantor shall deliver to the Collateral
Agent originals of the certificates of title or ownership for all motor vehicles with a value in
excess of $50,000, owned by it with the Collateral Agent listed as lienholder, for the benefit of
the Buyers.

          (ii) Each Grantor hereby appoints the Collateral Agent as its attorney-in-fact, effective the
date hereof and terminating upon the termination of this Agreement, for the purpose of (A)
executing on behalf of such Grantor title or ownership applications for filing with appropriate
state agencies to enable motor vehicles now owned or hereafter acquired by such Grantor to be
retitled and the Collateral Agent listed as lienholder thereof, (B) filing such applications with
such state agencies, and (C) executing such other documents and instruments on behalf of, and
taking such other action in the name of, such Grantor as the Collateral Agent may deem necessary or
advisable to accomplish the purposes hereof (including, without limitation, for the purpose of
creating in favor of the Collateral Agent a perfected Lien on the motor vehicles and exercising the
rights and remedies of the Collateral Agent hereunder). This appointment as attorney-in-fact is
coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in
full in cash.

          (iii) Any certificates of title or ownership delivered pursuant to the terms hereof shall be
accompanied by odometer statements for each motor vehicle covered thereby.

          (iv) So long as no Event of Default shall have occurred and be continuing, upon the request of
any Grantor, the Collateral Agent shall execute and deliver to any Grantor such instruments as any
Grantor shall reasonably request to remove the notation of the Collateral Agent as lienholder on
any certificate of title for any motor vehicle; provided, however, that any such
instruments shall be delivered, and the release effective, only upon receipt by the Collateral
Agent of a certificate from any Grantor stating that such motor vehicle is to be sold or has
suffered a casualty loss (with title thereto in such case passing to the casualty insurance company
therefor in settlement of the claim for such loss) and the amount that any Grantor will receive as
sale proceeds or insurance proceeds. Any proceeds of such sale or casualty loss shall be paid to
the Collateral Agent hereunder immediately upon receipt, to be applied to the Obligations then
outstanding.

     (k) Control. Each Grantor hereby agrees to take any or all action that may be
necessary or that the Collateral Agent may reasonably request in order for the Collateral Agent to
obtain control in accordance with Sections 9-105 – 9-107 of the Code with respect to the following
Collateral: (i) Electronic Chattel Paper, (ii) Investment Property, and (iii) Letter-of-Credit
Rights.

     (l) Inspection and Reporting. Each Grantor shall permit the Collateral Agent, or any
agent or representatives thereof or such professionals or other Persons as the Collateral

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Agent may designate, during normal business hours, after reasonable notice in the absence of
an Event of Default and not more than once a year in the absence of an Event of Default, (i) to
examine and make copies of and abstracts from any Grantor’s records and books of account, (ii) to
visit and inspect its properties, (iii) to verify materials, leases, Instruments, Accounts,
Inventory and other assets of any Grantor from time to time, (iii) to conduct audits, physical
counts, appraisals and/or valuations, examinations at the locations of any Grantor. Each Grantor
shall also permit the Collateral Agent, or any agent or representatives thereof or such
professionals or other Persons as the Collateral Agent may designate to discuss such Grantor’s
affairs, finances and accounts with any of its directors, officers, managerial employees,
independent accountants or any of its other representatives.

     (m) Future Subsidiaries. If any Grantor shall hereafter create or acquire any
Subsidiary, simultaneously with the creation or acquisition of such Subsidiary, such Grantor shall
(i) cause such Subsidiary to become a party to this Agreement as an additional “Grantor” hereunder,
(ii) shall deliver to Collateral Agent revised Schedules to this Agreement, as appropriate, (iii)
cause such Subsidiary (the “Guarantor”) to duly execute and deliver a guaranty (the “Guaranty”) of
the Obligations in favor of the Collateral Agent in form and substance reasonably acceptable to the
Collateral Agent, (iv) cause such Subsidiary to duly execute and deliver a pledge agreement in form
and substance reasonably acceptable to the Collateral Agent (the “Pledge Agreement”) together with
(x) certificates evidencing all of the Capital Stock of any Person owned by such Subsidiary, and
(y) undated stock powers executed in blank with signature guaranteed, (v) shall execute and deliver
a Pledge Agreement together with (x) certificates evidencing all of the Capital Stock of such
Subsidiary, and (y) undated stock powers executed in blank with signature guaranteed, and (vi)
shall duly execute and/or deliver such opinions of counsel and other documents, in form and
substance reasonably acceptable to the Collateral Agent, as the Collateral Agent shall reasonably
request with respect thereto, provided that any Grantor that acquires a subsidiary on or within two
days after the Closing Date shall have 10 Business Days in which to satisfy the requirements of
this Section 5(m).

     SECTION 6. Additional Provisions Concerning the Collateral.

     (a) To the maximum extent permitted by applicable law, and for the purpose of taking any
action that the Collateral Agent may deem necessary or advisable to accomplish the purposes of this
Agreement, each Grantor hereby (i) authorizes the Collateral Agent to file such agreements,
instruments or other documents in such Grantor’s name and in any appropriate filing office, (ii)
authorizes the Collateral Agent at any time and from time to time to file, one or more financing or
continuation statements, and amendments thereto, relating to the Collateral (including, without
limitation, any such financing statements that (A) describe the Collateral as “all assets” or “all
personal property” (or words of similar effect) or that describe or identify the Collateral by type
or in any other manner as the Collateral Agent may determine regardless of whether any particular
asset of such Grantor falls within the scope of Article 9 of the Uniform Commercial Code or whether
any particular asset of such Grantor constitutes part of the Collateral, and (B) contain any other
information required by Part 5 of Article 9 of the Code for the sufficiency or filing office
acceptance of any financing statement, continuation statement or amendment, including, without
limitation, whether such Grantor is an organization, the type of organization and any
organizational identification number issued to such Grantor) and (iii)

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ratifies such authorization to the extent that the Collateral Agent has filed any such
financing or continuation statements, or amendments thereto, prior to the date hereof. A photocopy
or other reproduction of this Agreement or any financing statement covering the Collateral or any
part thereof shall be sufficient as a financing statement where permitted by law.

     (b) Each Grantor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact and
proxy, with full authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from time to time in the Collateral Agent’s discretion, so long as an Event of
Default shall have occurred and is continuing, to take any action and to execute any instrument
which the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of
this Agreement (subject to the rights of each Grantor under Section 5 hereof), including,
without limitation, (i) to obtain and adjust insurance required to be paid to the Collateral Agent
pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under or in respect of
any Collateral, (iii) to receive, endorse, and collect any drafts or other instruments, documents
and chattel paper in connection with clause (i) or (ii) above, (iv) to file any claims or take any
action or institute any proceedings which the Collateral Agent may deem necessary or desirable for
the collection of any Collateral or otherwise to enforce the rights of the Collateral Agent and the
Buyers with respect to any Collateral, and (v) to execute assignments, licenses and other documents
to enforce the rights of the Collateral Agent and the Buyers with respect to any Collateral. This
power is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly
paid in full in cash.

     (c) For the purpose of enabling the Collateral Agent to exercise rights and remedies
hereunder, at such time as the Collateral Agent shall be lawfully entitled to exercise such rights
and remedies, and for no other purpose, each Grantor hereby grants to the Collateral Agent, to the
extent assignable, and so long as an Event of Default shall have occurred and is continuing, an
irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to
any Grantor) to use, assign, license or sublicense any Intellectual Property now owned or hereafter
acquired by such Grantor, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored and to all
computer programs used for the compilation or printout thereof. Notwithstanding anything contained
herein to the contrary, but subject to the provisions of the Securities Purchase Agreements that
limit the right of any Grantor to dispose of its property, and Section 5(g) and Section
5(h) hereof, so long as no Event of Default shall have occurred and be continuing, any Grantor
may exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary course of its business. In
furtherance of the foregoing, unless an Event of Default shall have occurred and be continuing, the
Collateral Agent shall from time to time, upon the request of any Grantor, execute and deliver any
instruments, certificates or other documents, in the form so requested, which such Grantor shall
have certified are appropriate (in such Grantor’s judgment) to allow it to take any action
permitted above (including relinquishment of the license provided pursuant to this clause (c) as to
any Intellectual Property). Further, upon the indefeasible payment in full in cash of all of the
Obligations or the conversion into shares of Common Stock of the Company all of the Obligations,
the Collateral Agent (subject to Section 10(e) hereof) shall release and reassign to any
Grantor all of the Collateral Agent’s right, title and interest in and to the Intellectual
Property, and the Licenses, all without recourse, representation or warranty

18

 

whatsoever. The exercise of rights and remedies hereunder by the Collateral Agent shall not
terminate the rights of the holders of any licenses or sublicenses theretofore granted by each
Grantor in accordance with the second sentence of this clause (c). Each Grantor hereby releases
the Collateral Agent from any claims, causes of action and demands at any time arising out of or
with respect to any actions taken or omitted to be taken by the Collateral Agent under the powers
of attorney granted herein other than actions taken or omitted to be taken through the Collateral
Agent’s gross negligence or willful misconduct, as determined by a final determination of a court
of competent jurisdiction.

     (d) If any Grantor fails to perform any agreement or obligation contained herein, the
Collateral Agent may itself perform, or cause performance of, such agreement or obligation, in the
name of such Grantor or the Collateral Agent, and the expenses of the Collateral Agent incurred in
connection therewith shall be payable by such Grantor pursuant to Section 8 hereof and
shall be secured by the Collateral.

     (e) The powers conferred on the Collateral Agent hereunder are solely to protect its interest
in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.

     (f) Anything herein to the contrary notwithstanding (i) each Grantor shall remain liable under
the Licenses and otherwise with respect to any of the Collateral to the extent set forth therein to
perform all of its obligations thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by the Collateral Agent of any of its rights hereunder shall not
release any Grantor from any of its obligations under the Licenses or otherwise in respect of the
Collateral, and (iii) the Collateral Agent shall not have any obligation or liability by reason of
this Agreement under the Licenses or with respect to any of the other Collateral, nor shall the
Collateral Agent be obligated to perform any of the obligations or duties of any Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned hereunder.

     SECTION 7. Remedies Upon Event of Default. If any Event of Default shall have
occurred and be continuing:

     (a) The Collateral Agent may exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein or otherwise available to it, all of the rights and
remedies of a secured party upon default under the Code (whether or not the Code applies to the
affected Collateral), and also may (i) take absolute control of the Collateral, including, without
limitation, transfer into the Collateral Agent’s name or into the name of its nominee or nominees
(to the extent the Collateral Agent has not theretofore done so) and thereafter receive, for the
benefit of the Collateral Agent, all payments made thereon, give all consents, waivers and
ratifications in respect thereof and otherwise act with respect thereto as though it were the
outright owner thereof, (ii) require each Grantor to, and each Grantor hereby agrees that it will
at its expense and upon request of the Collateral Agent forthwith, assemble all or part of its
respective Collateral as directed by the Collateral Agent and make it available to the Collateral

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Agent at a place or places to be designated by the Collateral Agent that is reasonably
convenient to both parties, and the Collateral Agent may enter into and occupy any premises owned
or leased by any Grantor where the Collateral or any part thereof is located or assembled for a
reasonable period in order to effectuate the Collateral Agent’s rights and remedies hereunder or
under law, without obligation to any Grantor in respect of such occupation, and (iii) without
notice except as specified below and without any obligation to prepare or process the Collateral
for sale, (A) sell the Collateral or any part thereof in one or more parcels at public or private
sale, at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Collateral Agent may deem
commercially reasonable and/or (B) lease, license or dispose of the Collateral or any part thereof
upon such terms as the Collateral Agent may deem commercially reasonable. Each Grantor agrees
that, to the extent notice of sale or any other disposition of its respective Collateral shall be
required by law, at least ten (10) days’ notice to any Grantor of the time and place of any public
sale or the time after which any private sale or other disposition of its respective Collateral is
to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated
to make any sale or other disposition of any Collateral regardless of notice of sale having been
given. The Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Each Grantor hereby waives any claims
against the Collateral Agent and the Buyers arising by reason of the fact that the price at which
its respective Collateral may have been sold at a private sale was less than the price which might
have been obtained at a public sale or was less than the aggregate amount of the Obligations, even
if the Collateral Agent accepts the first offer received and does not offer such Collateral to more
than one offeree, and waives all rights that any Grantor may have to require that all or any part
of such Collateral be marshaled upon any sale (public or private) thereof. Each Grantor hereby
acknowledges that (i) any such sale of its respective Collateral by the Collateral Agent shall be
made without warranty, (ii) the Collateral Agent may specifically disclaim any warranties of title,
possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii)
above shall not adversely affect the commercial reasonableness of any such sale of Collateral. In
addition to the foregoing, (1) upon written notice to any Grantor from the Collateral Agent after
and during the continuance of an Event of Default, such Grantor shall cease any use of the
Intellectual Property or any trademark, patent or copyright similar thereto for any purpose
described in such notice; (2) the Collateral Agent may, at any time and from time to time after and
during the continuance of an Event of Default, upon 10 days’ prior notice to such Grantor, license,
whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any of
the Intellectual Property, throughout the universe for such term or terms, on such conditions, and
in such manner, as the Collateral Agent shall in its sole discretion determine; and (3) the
Collateral Agent may, at any time, pursuant to the authority granted in Section 6 hereof
(such authority being effective upon the occurrence and during the continuance of an Event of
Default), execute and deliver on behalf of such Grantor, one or more instruments of assignment of
the Intellectual Property (or any application or registration thereof), in form suitable for
filing, recording or registration in any country.

     (b) Any cash held by the Collateral Agent as Collateral and all Cash Proceeds received by the
Collateral Agent in respect of any sale of or collection from, or other realization upon, all or
any part of the Collateral shall be applied (after payment of any amounts payable to the Collateral
Agent pursuant to Section 8 hereof) by the Collateral Agent against, all or any part

20

 

of the Obligations in such order as the Collateral Agent shall elect, consistent with the
provisions of the Securities Purchase Agreements. Any surplus of such cash or Cash Proceeds held
by the Collateral Agent and remaining after the indefeasible payment in full in cash of all of the
Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a
court of competent jurisdiction shall direct.

     (c) In the event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Collateral Agent and the Buyers are legally entitled,
each Grantor shall be liable for the deficiency, together with interest thereon at the highest rate
specified in the Notes for interest on overdue principal thereof or such other rate as shall be
fixed by applicable law, together with the costs of collection and the reasonable fees, costs,
expenses and other client charges of any attorneys employed by the Collateral Agent to collect such
deficiency.

     (d) Each Grantor hereby acknowledges that if the Collateral Agent complies with any applicable
state, provincial, or federal law requirements in connection with a disposition of the Collateral,
such compliance will not adversely affect the commercial reasonableness of any sale or other
disposition of the Collateral.

     (e) The Collateral Agent shall not be required to marshal any present or future collateral
security (including, but not limited to, this Agreement and the Collateral) for, or other
assurances of payment of, the Obligations or any of them or to resort to such collateral security
or other assurances of payment in any particular order, and all of the Collateral Agent’s rights
hereunder and in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To the extent that
any Grantor lawfully may, each Grantor hereby agrees that it will not invoke any law relating to
the marshaling of collateral which might cause delay in or impede the enforcement of the Collateral
Agent’s rights under this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each
Grantor hereby irrevocably waives the benefits of all such laws.

     SECTION 8. Indemnity and Expenses.

     (a) Each Grantor agrees, jointly and severally, to defend, protect, indemnify and hold the
Collateral Agent and each of the Buyers, jointly and severally, harmless from and against any and
all claims, damages, losses, liabilities, obligations, penalties, fees, costs and expenses
(including, without limitation, reasonable legal fees, costs, expenses, and disbursements of such
Person’s counsel) to the extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except to the extent resulting from
such Person’s gross negligence or willful misconduct, as determined by a final judgment of a court
of competent jurisdiction.

     (b) Each Grantor agrees, jointly and severally, to pay to the Collateral Agent upon demand the
amount of any and all costs and expenses, including the reasonable fees, costs, expenses and
disbursements of counsel for the Collateral Agent and of any experts and agents (including, without
limitation, any collateral trustee which may act as agent of the Collateral

21

 

Agent), which the Collateral Agent may incur in connection with (i) the preparation,
negotiation, execution, delivery, recordation, administration, amendment, waiver or other
modification or termination of this Agreement, (ii) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or
enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the failure by any
Grantor to perform or observe any of the provisions hereof.

     SECTION 9. Notices, Etc. All notices and other communications provided for hereunder
shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt
requested), telecopied, e-mailed or delivered, if to any Grantor, at its address specified on the
signature pages below; or as to any such Person, at such other address as shall be designated by
such Person in a written notice to all other parties hereto complying as to delivery with the terms
of this Section 9. All such notices and other communications shall be effective (a) if
sent by certified mail, return receipt requested, when received or three days after deposited in
the mails, whichever occurs first, (b) if telecopied or e-mailed, when transmitted (during normal
business hours) and confirmation is received, and otherwise, the day after the notice or
communication was transmitted and confirmation is received, or (c) if delivered in person, upon
delivery.

     SECTION 10. Miscellaneous.

     (a) No amendment of any provision of this Agreement shall be effective unless it is in writing
and signed by each Grantor and the Collateral Agent, and no waiver of any provision of this
Agreement, and no consent to any departure by each Grantor therefrom, shall be effective unless it
is in writing and signed by each Grantor and the Collateral Agent, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose for which given.

     (b) No failure on the part of the Collateral Agent to exercise, and no delay in exercising,
any right hereunder or under any of the other Transaction Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The rights and remedies of the Collateral
Agent or any Buyer provided herein and in the other Transaction Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law. The rights of the
Collateral Agent or any Buyer under any of the other Transaction Documents against any party
thereto are not conditional or contingent on any attempt by such Person to exercise any of its
rights under any of the other Transaction Documents against such party or against any other Person,
including but not limited to, any Grantor.

     (c) Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.

     (d) This Agreement shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until the indefeasible payment in full in cash of the Obligations,
and (ii) be binding on each Grantor and all other Persons who become bound as

22

 

debtor to this Agreement in accordance with Section 9-203(d) of the Code and shall inure,
together with all rights and remedies of the Collateral Agent and the Buyers hereunder, to the
benefit of the Collateral Agent and the Buyers and their respective permitted successors,
transferees and assigns. Without limiting the generality of clause (ii) of the immediately
preceding sentence, without notice to any Grantor, the Collateral Agent and the Buyers may assign
or otherwise transfer their rights and obligations under this Agreement and any of the other
Transaction Documents, to any other Person and such other Person shall thereupon become vested with
all of the benefits in respect thereof granted to the Collateral Agent and the Buyers herein or
otherwise. Upon any such assignment or transfer, all references in this Agreement to the
Collateral Agent or any such Buyer shall mean the assignee of the Collateral Agent or such Buyer.
None of the rights or obligations of any Grantor hereunder may be assigned or otherwise transferred
without the prior written consent of the Collateral Agent, and any such assignment or transfer
without the consent of the Collateral Agent shall be null and void.

     (e) Upon the indefeasible payment in full in cash of the Obligations or the conversion into
shares of Common Stock of the Company all of the Obligations, (i) this Agreement and the security
interests created hereby shall terminate and all rights to the Collateral shall revert to the
respective Grantor that granted such security interests hereunder, and (ii) the Collateral Agent
will, upon any Grantor’s request and at such Grantor’s expense, (A) return to such Grantor such of
the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the
terms hereof, and (B) execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination, all without any representation, warranty or
recourse whatsoever.

     (f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE
EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

     (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS

23

 

AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT.

     (h) EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COLLATERAL
AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, ORAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES
HERETO.

     (i) Each Grantor irrevocably consents to the service of process of any of the aforesaid courts
in any such action, suit or proceeding by the mailing of copies thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to any Grantor at its address
provided herein, such service to become effective 10 days after such mailing.

     (j) Nothing contained herein shall affect the right of the Collateral Agent to serve process
in any other manner permitted by law or commence legal proceedings or otherwise proceed against any
Grantor or any property of any Grantor in any other jurisdiction.

     (k) Each Grantor irrevocably and unconditionally waives any right it may have to claim or
recover in any legal action, suit or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.

     (l) Section headings herein are included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.

     (m) This Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which shall be deemed to be an original, but all of which
taken together constitute one in the same Agreement.

     (n) The parties hereto hereby acknowledge and agree that this Agreement shall amend, restate,
modify, extend, renew and continue the terms and provisions contained in the Original Security
Agreement and the Amended and Restated Security Agreement and shall not extinguish or release any
Grantor from any liability under the Original Security Agreement or the Amended and Restated
Security Agreement or otherwise constitute a novation of its obligations thereunder.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

24

 

     IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and delivered by its
officer thereunto duly authorized, as of the date first above written.

	 	 	 	 	 
	 	COMPANY:

STINGER SYSTEMS, INC.

 	 
	 	By:  	/s/ Robert Gruder
 	 
	 	 	Name:  	Robert Gruder 	 
	 	 	Title:  	CEO 	 
	 

	 	 	 	 	 
	 

	 	Address:
	 	Stinger Systems
	 

	 	 	 	5055 Johns Road
	 

	 	 	 	Suite 702
	 

	 	 	 	Tampa, Florida 33034
	 
	 	 	 	 
	 

	 	Facsimile:
	 	813-288-9148

ACCEPTED BY:

CASTLERIGG MASTER INVESTMENTS LTD.,

as Collateral Agent

	 	 	 	 	 
	By:
	 	/s/ Ken Glassman	 	 
	 

	 	 

Name: Ken Glassman
	 	 
	 

	 	Title:  Senior Managing Director	 	 
	 
	 	 	 	 
	Address:	 	 
	 
	 	 	 	 
	Facsimile:	 	 
	Email:
	 	 	 	 

Security Agreement

25EX-10.8

EXHIBIT 10.8

AMENDED AND RESTATED SENIOR SECURED CONVERTIBLE NOTE

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

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

STINGER SYSTEMS, INC.

SENIOR SECURED CONVERTIBLE NOTE

	 	 	 
	Original Issuance Date: September 12, 2008

	 	Original Principal Amount: U.S. $3,075,000.00
	Amendment
and Restatement Date: July 14, 2009
	 	 

     FOR VALUE RECEIVED, Stinger Systems, Inc., a Nevada corporation (the “Company”), hereby
promises to pay to the order of VICIS CAPITAL MASTER FUND or registered assigns (“Holder”) the
amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance
with the terms hereof) and to pay interest

 

 

(“Interest”) on any outstanding Principal at the applicable Interest Rate from the date set out
above as the Original Issuance Date (the “Issuance Date”) until the same becomes due and payable,
whether upon an Interest Date (as defined below) or the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This Amended and
Restated Senior Secured Convertible Note (including all Senior Secured Convertible Notes issued in
exchange, transfer or replacement hereof, this “Note”) amends, supplements, modifies and completely
restates and supersedes the Senior Secured Convertible Note with an original issuance date of
September 12, 2008, issued by the Company to the Holder in the original principal amount of
$3,000,000, but shall not, except as specifically amended hereby or as set forth in the July 2009
Securities Purchase Agreement, constitute a release, satisfaction or novation of the obligations
under the Transaction Document (as defined in the Securities Purchase Agreement ). This Note is
one of an issue of Senior Secured Convertible Notes issued pursuant to Section 1(a) of the
Securities Purchase Agreement on the Closing Date (collectively, the “Notes” and such other Senior
Secured Convertible Notes, if any, the “Other Notes”). Certain capitalized terms used herein are
defined in Section 30.

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

     (2) INTEREST; INTEREST RATE.

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

- 2 -

 

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

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

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

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

- 3 -

 

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

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

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

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

          (c) Mechanics of Conversion.

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

- 4 -

 

Amount being converted, then the Company shall as soon as practicable and in no event later than
three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the
holder a new Note (in accordance with Section 20(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.

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

               (iii) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of each Note and the
principal amount of the Notes held by such holders (the “Registered Notes”). The entries in the
Register shall be conclusive and binding for all purposes absent manifest error. The Company and
the holders of the Notes shall treat each Person whose name is recorded in the Register as the
owner of a Note for all purposes, including, without limitation, the right to receive payments of
Principal and Interest hereunder, notwithstanding notice to the contrary. A Registered Note may

- 5 -

 

be assigned or sold in whole or in part only by registration of such assignment or sale on the
Register. Upon its receipt of a request to assign or sell all or part of any Registered Note by a
Holder, the Company shall record the information contained therein in the Register and issue one or
more new Registered Notes in the same aggregate principal amount as the principal amount of the
surrendered Registered Note to the designated assignee or transferee pursuant to Section 20.
Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this
Note in accordance with the terms hereof, the Holder shall not be required to physically surrender
this Note to the Company unless (A) the full Conversion Amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this
Note. The Holder and the Company shall maintain records showing the Principal, Interest and Late
Charges, if any, converted and the dates of such conversion or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of
this Note upon conversion.

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

          (d) Limitations on Conversions.

               (i) Beneficial Ownership. The Company shall not effect any conversion of this Note,
and the Holder of this Note shall not have the right to convert any portion of this Note pursuant
to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”)
of the number of shares of Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned
by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without limitation, any
Other Notes or warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended (the “1934 Act”). For purposes of this Section 3(d)(i), in

- 6 -

 

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

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

- 7 -

 

     (4) RIGHTS UPON EVENT OF DEFAULT.

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

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

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

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

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

               (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness of
the Company other than with respect to any Other Notes;

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

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

               (viii) a final judgment or judgments for the payment of money aggregating in excess of (A)
$100,000 are rendered against the Company or (B) $50,000 are rendered against

- 8 -

 

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

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

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

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

          (b) Redemption Right. Upon the occurrence of an Event of Default, the Company shall
within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (an
“Event of Default Notice”) to the Holder. At any time after the earlier of the Holder’s receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may
require the Company to redeem all or any portion of this Note by delivering written notice thereof
(the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the
Company at a price equal to the greater of (i) the product of (A) the Conversion Amount to be
redeemed and (B) the Redemption Premium and (ii) the product of (A) the Conversion Rate with
respect to such Conversion Amount in effect at such time as the Holder delivers an Event of Default
Redemption Notice and (B) the product of (1) the Equity Value Redemption Premium and (2) the
greatest Closing Sale Price of the Common Stock beginning on the date immediately preceding such
Event of Default and ending on the date the Holder delivers the Event of Default Redemption Notice
(the “Event of Default Redemption Price”). Redemptions required by this Section 4(b) shall be made
in accordance with the provisions of Section 14. To the extent redemptions required by this
Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the
Note by the Company, such redemptions shall be deemed to be voluntary prepayments. The parties
hereto agree that in the event of the Company’s redemption of any portion of the Note under this
Section 4(b), the Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder. Accordingly, any Redemption Premium due

- 9 -

 

under this Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

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

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

          (b) Redemption Right.

               (i) No sooner than fifteen (15) Trading Days nor later than ten (10) Trading Days prior to the
consummation of a Change of Control, but not prior to the public announcement of such Change of
Control, the Company shall deliver written notice thereof via facsimile and overnight courier to
the Holder (a “Change of Control Notice”). At any time during the period beginning after the
Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after the date
of the consummation of such Change of Control, the Holder may require the Company to redeem all or
any portion of this Note by delivering written notice thereof (“Change of Control Redemption
Notice”) to the Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant
to this Section 5 shall be redeemed by the

- 10 -

 

Company in cash at a price equal to the greater of (i) 150% of the Conversion Amount being redeemed
and (ii) the product of (a) the Equity Value Redemption Premium and (b) the product of (1) the
Conversion Amount being redeemed multiplied by (2) the quotient determined by dividing (I) the
aggregate cash consideration and the aggregate cash value of any non-cash consideration per Common
Share to be paid to the holders of the Common Shares upon consummation of the Change of Control
(any such non-cash consideration consisting of marketable securities to be valued at the higher of
the Closing Sale Price of such securities as of the Trading Day immediately prior to, the Closing
Sale Price as of the Trading Day immediately following the public announcement of such proposed
Change of Control and the Closing Sale Price of the Common Stock immediately prior to the public
announcement of such proposed Change of Control) by (II) the Conversion Price (the “Change of
Control Redemption Price”). Redemptions required by this Section 5 shall be made in accordance
with the provisions of Section 14 and shall have priority to payments to stockholders in connection
with a Change of Control. To the extent redemptions required by this Section 5(b) are deemed or
determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary
in this Section 5, but subject to Section 3(d), until the Change of Control Redemption Price
(together with any interest thereon) is paid in full, the Conversion Amount submitted for
redemption under this Section 5(b) (together with any interest thereon) may be converted, in whole
or in part, by the Holder into Common Stock pursuant to Section 3. The parties hereto agree that
in the event of the Company’s redemption of any portion of the Note under this Section 5(b), the
Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to
predict future interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any Change of Control redemption premium due
under this Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

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

- 11 -

 

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

               (iii) Subject to Section 3(d), if the Successor Entity delivers a Successor Change of Control
Notice and elects a Successor Conversion in accordance with Section 5(b)(ii), then the applicable
Change of Control Redemption Price shall be converted by converting such Change of Control
Redemption Price at the Successor Conversion Price (A) on the date of the consummation of the
Change of Control if the Change of Control Redemption Notice is received prior to the consummation
of the Change of Control or (B) within five (5) Business Days after the Company’s receipt of such
Change of Control Redemption Notice otherwise (the “Change of Control Conversion Date”); provided
that the Equity Conditions have been satisfied (or waived in writing by the Holder). If the Equity
Conditions are not satisfied (or waived in writing by the Holder), then at the option of the Holder
designated in writing to the Company and the Successor Entity, the Holder may require the Company
to do any one or more of the following: (i) the Company shall redeem all or any part designated by
the Holder of the unconverted Successor Conversion Amount (such designated amount is referred to as
the “First Redemption Amount”) on the Change of Control Conversion Date and the Company shall pay
to the Holder on the Change of Control Conversion Date, by wire transfer of immediately available
funds, an amount in cash equal to 130% of such First Redemption Amount, and/or (ii) the Successor
Conversion shall be null and void with respect to all or any part designated by the Holder of the
unconverted Change of Control Redemption Price and the Holder shall be entitled to all the rights
of a holder of this Note with respect to such amount of the Change of Control Redemption Price;
provided, however , that the Conversion Price for such unconverted Change of Control
Redemption Price shall thereafter be adjusted to equal the lesser of (A) the Successor Conversion
Price as in effect on the date on which the Holder voided the Successor Conversion and (B) the
Successor Conversion Price that would be in effect as if the Change of Control was consummated on
the date on which the Holder delivers a Conversion Notice. If the Company fails to redeem any First
Redemption Amount on or before the Change of Control Conversion Date by payment of such amount on
the Change of Control Conversion Date, then the Holder shall have the rights set forth in
Section 14 (a) as if the Company failed to pay the applicable Redemption Price and all other

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

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

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

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

     (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

- 13 -

 

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

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

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

- 14 -

 

adjustment of the Conversion Price shall be made by reason of such issue or sale.

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

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

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

- 15 -

 

the date of the issue or sale of the Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the date of the granting
of such right of subscription or purchase, as the case may be.

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

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

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

     (8) COMPANY’S RIGHT OF MANDATORY CONVERSION.

          (a) Mandatory Conversion. If at any time and from and after the one (1) year
anniversary of the Issuance Date (the “Mandatory Conversion Eligibility Date”), the arithmetic
average of the Weighted Average Price of the Common Stock for twenty (20) Trading Days out of any
thirty (30) consecutive Trading Days after the Mandatory Conversion Eligibility Date exceeds
(i) 150% of the initial Conversion Price and there has been no Equity Conditions Failure, the
Company shall have the right to require the Holder to convert up to 50% of the Conversion Amount of
this Note or (ii) 175% of the initial Conversion Price and there has been no Equity Conditions
Failure, the Company shall have the right to require the Holder to convert up to 100% of the
Conversion Amount of this Note, as designated in the Mandatory Conversion Notice (as defined below)
into fully paid, validly issued and nonassessable shares of Common Stock in accordance with
Section 3(c) hereof at the Conversion Rate as of the Mandatory Conversion Date (as defined below)
(a “Mandatory Conversion”). The Company may exercise its right to require conversion under this
Section 8(a) by delivering within not more than twenty (20) Trading Days following the end of such
Mandatory Conversion Measuring Period a written notice thereof by facsimile and overnight courier
to all, but not less than all, of the holders of Notes and the Transfer Agent (the “Mandatory
Conversion Notice” and the date all of the holders received such notice by facsimile is referred to
as the “Mandatory Conversion Notice Date”). The Mandatory Conversion Notice shall be irrevocable.
The Mandatory Conversion Notice shall state (i) the Trading Day selected for the Mandatory
Conversion in accordance with

- 16 -

 

this Section 8(a), which Trading Day shall be no later than five (5) Business Days following the
Mandatory Conversion Notice Date (the “Mandatory Conversion Date”), (ii) the aggregate Conversion
Amount, of the Notes subject to mandatory conversion from the Holder and all of the holders of the
Notes pursuant to this Section 8 (and analogous provisions under the Other Notes), (iii) the number
of shares of Common Stock to be issued to such Holder on the Mandatory Conversion Date and (iv)
that there has been no Equity Conditions Failure; provided, however, that the Company may not
effect a Mandatory Conversion under this Section in excess of the Holder Pro Rata Amount of the
applicable Mandatory Conversion Volume Limitation. Notwithstanding the foregoing, the Company may
effect only one (1) Mandatory Conversion during any twenty (20) consecutive Trading Days. Any
shares of Common Stock delivered in connection with a Mandatory Conversion hereunder shall be
accompanied by a payment in cash equal to the amount of any accrued and unpaid Interest with
respect to such Conversion Amount subject to such Mandatory Conversion and accrued and unpaid Late
Charges, if any, with respect to such Conversion Amount and Interest.

          (b) Pro Rata Conversion Requirement. If the Company elects to cause a conversion of
any Conversion Amount of this Note pursuant to Section 8(a), then it must simultaneously take the
same action in the same proportion with respect to the Other Notes. If the Company elects a
Mandatory Conversion of this Note pursuant to Section 8(a) (or similar provisions under the Other
Notes) with respect to less than all of the Conversion Amounts of the Notes then outstanding, then
the Company shall require conversion of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of Notes which the Company has elected
to cause to be converted pursuant to Section 8(a), multiplied by (ii) the fraction, the numerator
of which is the sum of the aggregate Original Principal Amount of the Notes purchased by such
holder of outstanding Notes and the denominator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by all holders holding outstanding Notes (such fraction
with respect to each holder is referred to as its “Conversion Allocation Percentage,” and such
amount with respect to each holder is referred to as its “Pro Rata Conversion Amount”); provided,
however, that in the event that any holder’s Pro Rata Conversion Amount exceeds the outstanding
Principal amount of such holder’s Note, then such excess Pro Rata Conversion Amount shall be
allocated amongst the remaining holders of Notes in accordance with the foregoing formula. In the
event that the initial holder of any Notes shall sell or otherwise transfer any of such holder’s
Notes, the transferee shall be allocated a pro rata portion of such holder’s Conversion Allocation
Percentage and the Pro Rata Conversion Amount.

     (9) HOLDER’S RIGHT OF OPTIONAL REDEMPTION. Following each of March 1, 2009 and March
1, 2010, the Holder shall have the right (the “Holder Optional Redemption”), in its sole
discretion, to require that the Company redeem a Principal amount of this Note in an amount up to
the Available Redemption Amount plus accrued and unpaid Interest on such Available Redemption
Amount plus accrued and unpaid Late Charges with respect to such Principal and Interest (the
“Redemption Amount”) by delivering written notice thereof to the Company within five (5) Business
Days following each of the above mentioned anniversary dates (a “Holder Optional Redemption Notice”
and the date the Holder delivers such notice, the “Holder Optional Redemption Notice Date”). The
Company shall redeem any Redemption Amounts within five (5) Trading Days of the Holder Optional
Redemption Notice

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Date (the “Optional Redemption Date”) in cash at a price equal to the Redemption Amount (the
“Holder Redemption Price”). Redemptions made pursuant to this Section 9 shall be made in
accordance with Section 14. No later than one (1) Trading Day following any Optional Redemption
Date the Company shall file a Current Report on Form 8-K describing the terms of the applicable
Holder Optional Redemption.

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

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

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

- 18 -

 

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

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

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

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

     (13) RESERVATION OF AUTHORIZED SHARES.

          (a) Reservation. The Company shall reserve out of its authorized and unissued Common
Stock a number of shares of Common Stock for each of the Notes equal to 130% of the Conversion Rate
with respect to the Conversion Amount of each such Note as of the Issuance Date, subject to the
Capitalization Letter Agreement (as defined in the Securities Purchase Agreement). So long as any
of the Notes are outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, 130% of the number of shares of Common Stock as shall from time to time be
necessary to effect the conversion of all of the Notes then outstanding; provided that at no time
shall the number of shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence

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(without regard to any limitations on conversions) (the “Required Reserve Amount”). The initial
number of shares of Common Stock reserved for conversions of the Notes and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as defined in the Securities
Purchase Agreement) or increase in the number of reserved shares, as the case may be (the
“Authorized Share Allocation”). In the event that a holder shall sell or otherwise transfer any of
such holder’s Notes, each transferee shall be allocated a pro rata portion of such holder’s
Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which
ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on
the principal amount of the Notes then held by such holders.

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

     (14) HOLDER’S REDEMPTIONS.

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

- 20 -

 

for which the applicable Redemption Price (together with any Late Charges thereon) has not been
paid. Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall immediately return or
reinstate this Note, or issue a new Note (in accordance with Section 20(d)) to the Holder
representing the sum of such Conversion Amount to be redeemed together with accrued and unpaid
Interest with respect to such Conversion Amount and accrued and unpaid Late Charges with respect to
such Conversion Amount and Interest and (z) the Conversion Price of this Note or such new Notes
shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the
applicable Redemption Notice is voided and (B) the lowest Closing Bid Price of the Common Stock
during the period beginning on and including the date on which the applicable Redemption Notice is
delivered to the Company and ending on and including the date on which the applicable Redemption
Notice is voided. The Holder’s delivery of a notice voiding a Redemption Notice and exercise of
its rights following such notice shall not affect the Company’s obligations to make any payments of
Late Charges which have accrued prior to the date of such notice with respect to the Conversion
Amount subject to such notice.

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

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

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

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

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

- 21 -

 

and other Permitted Indebtedness.

          (c) Existence of Liens. The Company shall not, and the Company shall not permit any
of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively,
“Liens”) other than Permitted Liens.

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

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

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

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

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

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

     (20) REISSUANCE OF THIS NOTE.

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          (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note
to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder
a new Note (in accordance with Section 20(d)), registered as the Holder may request, representing
the outstanding Principal being transferred by the Holder and, if less then the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 20(d)) to the Holder
representing the outstanding Principal not being transferred. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions of
Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the face of this Note.

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

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

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

     (21) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Note shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction Documents at law or in equity (including
a decree of specific performance and/or other injunctive relief), and nothing herein shall limit
the Holder’s right to pursue actual and consequential damages for any failure by the Company to
comply with the terms of this Note. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges that a breach by
it of its obligations

- 23 -

 

hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such breach or
threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic loss and without any
bond or other security being required.

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

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

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

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

     (26) NOTICES; PAYMENTS.

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          (a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section 10(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at
least twenty (20) days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with such notice being
provided to the Holder.

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

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

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

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

- 25 -

 

any other jurisdictions) that would cause the application of the laws of any jurisdictions other
than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law. In the event that
any provision of this Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such provision which may
prove invalid or unenforceable under any law shall not affect the validity or enforceability of any
other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the
Holder from bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or
any other security for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

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

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

          (c) “Available Redemption Amount” means on each of March 1, 2009 and March 1, 2010, if there
has been an Equity Conditions Failure and/or the arithmetic average of the Weighted Average Price
of the Common Stock for the five (5) consecutive Trading Days ending on such date is equal to or
less than 150% of the initial Conversion Price, subject to adjustment as provided herein (a
“Pricing Failure”), an amount equal to one-third of the original Principal amount of this Note on
the Issuance Date.

          (d) “Average Market Price” means, for any given date, the lesser of (i) the arithmetic average
of the lowest Weighted Average Price of the Common Stock during the fifteen (15) consecutive
Trading Days ending on the Trading Day immediately prior to such given date (the “Measuring
Period”) and (ii) the arithmetic average of the lowest Weighted Average Price of the Common Stock
during any three (3) consecutive Trading Day period during

- 26 -

 

the Measuring Period; provided, that all such determinations shall be appropriately adjusted
for any stock split, stock dividend, stock combination or other similar transaction that
proportionately decreases or increases the Common Stock during such periods.

          (e) “Bloomberg” means Bloomberg Financial Markets.

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

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

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

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

- 27 -

 

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

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

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

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

          (n) “Equity Conditions” means that each of the following conditions is satisfied: (i) on each
day during the period beginning six (6) month prior to the applicable date of determination and
ending on and including the applicable date of determination (the “Equity Conditions Measuring
Period”), all shares of Common Stock issuable upon conversion of the Notes and exercise of the
Warrants shall be eligible for sale pursuant to Rule 144 without restriction or limitation,
including without requirement to be subject to Rule 144(c)(1), and without the need for
registration under any applicable federal or state securities laws; (ii) on each day during the
Equity Conditions Measuring Period, the Common Stock is designated for quotation on the Principal
Market or any other Eligible Market and shall not have been suspended from trading on such exchange
or market (other than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company) nor shall delisting
or suspension by such exchange or market been threatened or pending either (A) in writing by such
exchange or market or (B) by falling below the then effective minimum listing maintenance
requirements of such exchange or market; (iii) during the one (1) year period ending on and
including the date immediately preceding the applicable date of determination, the Company shall
have delivered shares of Common Stock upon conversion of the Notes and upon exercise of the
Warrants to the holders on a timely basis as set forth in Section 3(c)(ii) hereof (and analogous
provisions under the Other Notes) and Section 1(a) of the Warrants; (iv) any applicable shares of
Common Stock to be issued in connection with the event requiring determination may be issued in
full without violating (A) Section 3(d)(i) hereof, (B) Section 3(d)(ii) and (C) the rules or
regulations of the Principal Market or any applicable Eligible Market; (v) the Company shall not
have failed to timely make any payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document; (vi) during the Equity Conditions Measuring Period, there
shall not have occurred either (A) the public announcement of a pending, proposed or intended
Fundamental

- 28 -

 

Transaction which has not been abandoned, terminated or consummated, or (B) an Event of
Default or (C) an event that with the passage of time or giving of notice would constitute an Event
of Default; (vii) the Company shall have no knowledge of any fact that would cause any shares of
Common Stock issuable upon conversion of the Notes and shares of Common Stock issuable upon
exercise of the Warrants not to be eligible for sale pursuant to Rule 144 without restriction or
limitation, including without the requirement to be subject to Rule 144(c)(1) and any applicable
state securities laws; (viii) the Company otherwise shall have been in compliance with and shall
not have breached any provision, covenant, representation or warranty of any Transaction Document
and (ix) if required by the terms of the Securities Purchase Agreement, the Company shall have
obtained the Stockholder Approval on or before the applicable Stockholder Meeting Deadline.

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

          (p) “Equity Value Redemption Premium” means for any Change of Control Notice or Event of
Default Notice, as applicable, delivered or required to be delivered in connection with a Change of
Control or Event of Default, as applicable, 150%.

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

          (r) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of Voting Stock (not including any shares
of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with
the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than the 50% of the outstanding shares

- 29 -

 

of Voting Stock (not including any shares of Voting Stock held by the other Person or other
Persons making or party to, or associated or affiliated with the other Persons making or party to,
such stock purchase agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock or (vi) any “person” or “group” (as these terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
Voting Stock of the Company.

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

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

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

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

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

- 30 -

 

applicable Interest Date.

          (x) “Interest Rate” means, 10.00% per annum, subject to adjustment as set forth in Section 2
hereof.

          (y)
“July 2009 Purchase Agreement” means that
certain Securities Purchase Agreement, dated July 14, 2009, by and among the Company and the investors listed on the Schedule of Buyers attached
thereto.

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

          (aa) “New Notes” means notes of an issue of Senior Secured Convertible Notes issued pursuant
to Section 1(a) of the July 2009 Securities Purchase Agreement.

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

          (cc) “Optional Conversion Price” means, the lower of (i) the applicable Conversion Price and
(ii) that price which shall be computed as 85% of the Average Market Price ending on the Trading
Day immediately prior to the Optional Conversion/Redemption Date. All such determinations shall be
appropriately adjusted for any stock split, stock dividend, stock combination during or other
similar transaction that proportionately decreases or increases the price of the Common Stock
during the applicable period during which the Average Market Price is calculated.

          (dd) “Pari Passu Notes” means (i) this Note and the Other Notes, (ii) the Amended and Restated
Exchanged Notes and (iii) the New Notes.

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

          (ff) “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and the Other
Notes; (ii) Indebtedness evidenced by the Amended and Restated Exchanged Notes; (iii) Indebtedness
described on Schedule 3(s) to the Securities Purchase Agreement; (iv) Indebtedness incurred solely
for the purpose of financing the acquisition or lease of any Equipment (as defined in the Security
Agreement) by the Company or any of its Subsidiaries, including Capital Lease Obligations with no
recourse other than to such Equipment; (v) Indebtedness solely between the Company and/or one of
its domestic Subsidiaries, on the one hand, and the Company and/or one of its domestic
Subsidiaries, on the other which Indebtedness is not secured by any assets of the Company or any of
its Subsidiaries, provided that (x) in each

- 31 -

 

case a majority of the equity of any such domestic Subsidiary is directly or indirectly owned
by the Company, such domestic Subsidiary is controlled by the Company and such domestic Subsidiary
has executed a guaranty in the form of the Guaranty and a security agreement in the form of the
Security Agreement and (y) any such loan shall be evidenced by an intercompany note that is pledged
by the Company or its Subsidiary, as applicable, as Collateral (as defined in the Security
Agreement) pursuant to the Security Agreement (as defined in the Securities Purchase Agreement);
(vi) at any time after the eight (8) month anniversary of the Issuance Date, other Indebtedness in
an amount not to exceed $250,000 at any one time outstanding; and (vii) renewals, extensions and
refinancing of any Indebtedness described in clauses (i) or (iv) of this subsection.

          (gg) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or delinquent, (iii)
any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other
similar liens, arising in the ordinary course of business with respect to a liability that is not
yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv)
Liens (A) upon or in any equipment (as defined in the Security Agreement) acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of such equipment,
(v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (i) and (iv) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and
the principal amount of the Indebtedness being extended, renewed or refinanced does not increase,
(vi) leases or subleases and licenses and sublicenses granted to others in the ordinary course of
the Company’s business, not interfering in any material respect with the business of the Company
and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of custom duties in connection with the importation
of goods, (viii) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 4(a)(ix), (ix) Liens securing the Company’s
obligations under the Notes and (x) Liens securing the Company’s obligations under the Amended and
Restated Exchanged Notes.

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

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

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

- 32 -

 

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

          (ll) “Redemption Prices” means, collectively, the Event of Default Redemption Price, Change of
Control Redemption Price and the Holder Optional Redemption Price, each of the foregoing,
individually, a Redemption Price.

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

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

          (oo) “Securities Purchase Agreement” means that certain securities purchase agreement dated as
of the Subscription Date by and among the Company and the initial holders of the Notes pursuant to
which the Company issued the Notes and Warrants.

          (pp) “Subscription Date” means September 12, 2008.

          (qq) “Successor Conversion Price” means, (i) on or prior to the consummation of the Change of
Control, the lower of (A) the applicable Conversion Price and (B) that price which shall be
computed as 85% of the Average Market Price of the Common Stock of the Company immediately
preceding the consummation of the applicable Change of Control and (ii) after the consummation of
the Change of Control, 85% of the lesser of the Average Market Price of the Successor Entities
common stock on (A) the time of the consummation of the Change of Control and (B) the date the
Change of Control Redemption Notice is delivered by the applicable Holder. All such determinations
to be appropriately adjusted for any stock split, stock dividend, stock combination or other
similar transaction that proportionately decreases or increases the Successor’s common stock during
the applicable measuring period.

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

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

- 33 -

 

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

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

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

          (ww) “Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during the period beginning
at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is
the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading) as reported by Bloomberg
through its “Volume at Price” functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of trading), and ending at
4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official
close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Weighted Average Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 25. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.

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

- 34 -

 

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

	 	 	 	 	 
	 	

STINGER SYSTEMS, INC.

 	 
	 	By:  	

/s/ Robert Gruder
 	 
	 	 	Name:  	Robert Gruder  	 
	 	 	Title:  	President 	 
	 

- 35 -

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