Document:

exv10w19

 

Exhibit 10.19

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of April 18, 2005
among Brillian Corporation, a Delaware corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively the “Purchasers”).

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

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

ARTICLE I.

DEFINITIONS

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

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

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

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

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

       “Closing Price” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted on a

 

 

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

       “Commission” means the Securities and Exchange Commission.

       “Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may hereafter have been
reclassified or changed into.

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

       “Company Counsel” means Greenberg Traurig, P.A.

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

       “Debentures” means, the 7% Convertible Debentures due, subject to the terms
therein, three years from their date of issuance, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A.

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

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

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

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

       “Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any stock or option plan duly
adopted by a majority of the non-employee members of the Board of Directors of

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the Company or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise of or conversion of any
Securities issued hereunder, convertible securities, options or warrants issued and
outstanding on the date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such securities or to
decrease the exercise or conversion price of any such securities, (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such issuance shall only be
to a Person which is, itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities, (d) securities issued pursuant to the
Regenmacher Transaction; (e) securities issued to the Purchasers prior to December 31, 2005
with an aggregate purchase price not to exceed $1,000,000; and (f) securities issued in a
firm-commitment underwritten public offering.

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

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

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

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

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

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

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

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

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

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

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

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

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

       “Regenmacher Transaction” shall have the meaning ascribed to such term in
Section 2.3(b)(v).

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

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

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

       “Required Minimum” means, as of any date, the maximum aggregate number of
 shares of Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Debentures (including Underlying Shares issuable as payment of
interest), ignoring any conversion or exercise limits set forth therein, and assuming that
the Conversion Price is at all times on and after the date of determination 75% of the then
Conversion Price on the Trading Day immediately prior to the date of determination.

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

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

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

       “Securities Act” means the Securities Act of 1933, as amended.

       “Shareholder Approval” means such approval as may be required by the applicable
rules and regulations of the Trading Market (or any successor entity) from the shareholders
of the Company with respect to the transactions contemplated by the Transaction Documents,
including the issuance of all of the Underlying Shares and shares of Common Stock issuable
upon exercise of the Warrants in excess of 19.99% of the issued and outstanding Common Stock
on the Closing Date.

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       “Short Sales” shall include all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act.

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

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

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

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

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

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

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

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

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

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appraiser selected in good faith by the Purchasers and reasonably acceptable to the
Company.

       “Warrants” means collectively the Common Stock purchase warrants, in the form
of Exhibit C delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable 181 days following the date thereof and
have a term of exercise equal to five years.

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

ARTICLE II.

PURCHASE AND SALE

     2.1   Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto,
the Company agrees to sell, and each Purchaser agrees to purchase in the aggregate, severally and
not jointly, up to $2,500,000 principal amount of the Debentures. Each Purchaser shall deliver to
the Company via wire transfer or a certified check immediately available funds equal to their
Subscription Amount and the Company shall deliver to each Purchaser their respective Debenture and
Warrants as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2
issuable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of FW, or such other location as the parties shall mutually
agree.

     2.2   Deliveries.

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

	 	(i)  	this Agreement duly executed by the Company;
	 
	 	(ii)  	a Debenture with a principal amount equal to
such Purchaser’s Subscription Amount, registered in the name of such
Purchaser;
	 
	 	(iii)  	a Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock equal to
100% of such Purchaser’s Subscription Amount divided by $1.57, with an
exercise price equal to $1.57 , subject to adjustment therein;
	 
	 	(iv)  	the Registration Rights Agreement duly executed
by the Company; and
	 
	 	(v)  	a legal opinion of Company Counsel, in the form
of Exhibit D attached hereto.

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

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	 	   	to the Company the following:

	 	(i)  	this Agreement duly executed by such Purchaser;
	 
	 	(ii)  	such Purchaser’s Subscription Amount by wire
transfer to the account as specified in writing by the Company; and
	 
	 	(iii)  	the Registration Rights Agreement duly
executed by such Purchaser.

     2.3   Closing Conditions.

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

	 	(i)  	the accuracy in all material respects when made
and on the Closing Date of the representations and warranties of the
Purchasers contained herein;
	 
	 	(ii)  	all obligations, covenants and agreements of
the Purchasers required to be performed at or prior to the Closing Date
shall have been performed; and
	 
	 	(iii)  	the delivery by the Purchasers of the items
set forth in Section 2.2(b) of this Agreement.

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

	 	(i)  	the accuracy in all material respects on the
Closing Date of the representations and warranties of the Company
contained herein;
	 
	 	(ii)  	all obligations, covenants and agreements of
the Company required to be performed at or prior to the Closing Date
shall have been performed;
	 
	 	(iii)  	the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
	 
	 	(iv)  	there shall have been no Material Adverse
Effect with respect to the Company since the date hereof; and
	 
	 	(v)  	the sale of secured nonconvertible debentures
and warrants of the Company in the principal amount of up to $2,000,000
to Regenmacher Ltd. (“Regenmacher”) pursuant to that certain Securities
Purchase Agreement of even date herewith by and
between the Company and Regenmacher (the “Regenmacher

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

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

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

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

       (b)   Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as applicable),
with the requisite power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of
the Company and the Subsidiaries is duly qualified to conduct business and is in good

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standing as a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be, could not have
or reasonably be expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material adverse effect on
the results of operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s
ability to perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or qualification.

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

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

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

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

       (g)   Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g). The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to the exercise
of employee stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase plan and
pursuant to the conversion or exercise of outstanding Common Stock Equivalents. No Person
has any right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction Documents. Except
as a result of the purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the Company to issue
 shares of Common Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the Board of Directors
of the Company or others is required for the issuance and sale of the Securities. There are
no

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stockholders agreements, voting agreements or other similar agreements with respect to
the Company’s capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.

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

       (i)   Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or purchased, redeemed or made
any agreements to purchase or redeem any shares of its capital stock and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does
not have pending before the Commission any request for confidential treatment of
information.

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

       (k)   Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect.

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

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

       (n)   Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to the business of
the Company and the Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the

12

 

Subsidiaries, in each
case free and clear of all Liens, except for Liens as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of federal,
state or other taxes, the payment of which is neither delinquent nor subject to penalties.
Any real property and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.

       (o)   Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the SEC Reports and which
the failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of others.

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

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

       (r)   Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are

13

 

applicable to it
as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure controls and procedures to
ensure that material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities, particularly during
the period in which the Company’s most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures as of the date prior to
the filing date of the most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant changes in the
Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under
the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly
affect the Company’s internal controls.

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

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

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

14

 

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

       (w)   Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and maintenance
requirements.

       (x)   Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.

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

       (z)   No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under

15

 

circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and regulations of any
Trading Market on which any of the securities of the Company are listed or designated.

       (aa)   Solvency. Based on the financial condition of the Company as of the
Closing Date after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder, (i) the Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its
debt when such amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company has no knowledge
of any facts or circumstances which lead it to believe that it will file for reorganization
or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one
year from the Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in
excess of $50,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.

       (bb)   Form S-3 Eligibility. The Company is eligible to register the resale of
the Underlying Shares for resale by the Purchaser on Form S-3 promulgated under the
Securities Act.

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

16

 

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

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

       (ff)   Accountants. The Company’s accountants are set forth on Schedule
3.1(ff) of the Disclosure Schedule. To the Company’s knowledge, such accountants, who
expressed their opinion with respect to the financial statements included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2004 are a registered public
accounting firm as required by the Securities Act.

       (gg)   Seniority. As of the Closing Date, no indebtedness or other equity of the
Company is senior to the Debentures in right of payment, whether with respect to interest or
upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets covered thereby) and
capital lease obligations (which is senior only as to the property covered thereby).

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

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

17

 

on
the independent evaluation of the transactions contemplated hereby by the Company and its
representatives.

       (jj)   Acknowledgement Regarding Purchasers’ Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Section 4.16
hereof), it is understood and agreed by the Company (i) that none of the Purchasers have
been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling,
long and/or short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term; (ii) that past or
future open market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and
counter parties in “derivative” transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction.

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

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

       (b)   Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for its
own account and not with a view to or for distributing or reselling such Securities or any
part thereof in violation of the Securities Act or any applicable state securities law, has
no present intention of distributing any of such Securities in violation of the Securities
Act

18

 

or any applicable state securities law and has no arrangement or understanding with any
other persons regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement or understanding, directly or indirectly, with
any Person to distribute any of the Securities.

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

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

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

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

19

 

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

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

     4.1   Transfer Restrictions.

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

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

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

       The Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees

20

 

to be bound by
the provisions of this Agreement and the Registration Rights Agreement and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

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

       (d)   In addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company’s transfer agent) delivered for removal

21

 

of the restrictive legend
and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5
Trading Days after such damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered without a legend. Nothing herein shall
limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief.

       (e)   Each Purchaser, severally and not jointly with the other Purchasers, agrees that
the removal of the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or pursuant to Rule 144, and if
the Purchaser wishes to utilize any other exemption under the Securities Act to sell any
Securities, such Securities shall be redelivered to the Company’s transfer agent for
re-legending.

       (f)   Until the one year anniversary of the Effective Date, the Company shall not
undertake a reverse or forward stock split or reclassification of the Common Stock without
the prior written consent of the Purchasers holding a majority in principal amount
outstanding of the Debentures.

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

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

22

 

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

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

     4.6   Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern
time on the Trading Day following the date hereof, issue a press release reasonably acceptable to
each Purchaser disclosing the material terms of the transactions contemplated hereby, and shall
file a Current Report on Form 8-K within the time required by such form, which report shall attach
the Transaction Documents thereto. The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing
with the Commission or any regulatory agency or Trading Market, without the prior written consent
of such Purchaser, except (i) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and (ii) to the extent
such disclosure is required by law or Trading Market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure permitted under subclause (i) or (ii).

     4.7   Shareholder Rights Plan. No claim will be made or enforced by the Company or, to
the knowledge of the Company, any other Person that any Purchaser is an “Acquiring Person” under
any shareholder rights plan or similar plan or arrangement in effect or hereafter adopted by the
Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.

     4.8   Non-Public Information. The Company covenants and agrees that neither it nor any
other Person acting on its behalf will provide any Purchaser or its agents or counsel with any

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information that the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the confidentiality and
use of such information. The Company understands and confirms that each Purchaser shall be relying
on the foregoing representations in effecting transactions in securities of the Company.

     4.9   Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for working capital
purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of
trade payables in the ordinary course of the Company’s business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding litigation. The Company shall
engage the services of a reputable investor relations firm, which selection shall be subject to the
reasonable approval of a majority in interest of the Purchasers, and shall continue to use the
services of such firm (or another firm selected through a similar process) for a period of at least
two years, unless all of the Debentures are repaid or converted prior to two years from the Closing
Date.

     4.10   Reimbursement. If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except as a result of
sales, pledges, margin sales and similar transactions by such Purchaser to or with any current
stockholder), solely as a result of such Purchaser’s acquisition of the Securities under this
Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses
(including the cost of any investigation preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the Purchasers and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any such Affiliate and any such Person.
The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors,
agents, employees or controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.

     4.11   Indemnification of Purchasers. Subject to the provisions of this Section 4.11,
the Company will indemnify and hold the Purchasers and their directors, officers, shareholders,
partners, employees and agents (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a)
any breach of any of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such Purchaser’s
representation, warranties or covenants under the Transaction Documents or any agreements or

24

 

understandings such Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right
to assume the defense thereof with counsel of its own choosing. Any Purchaser Party shall have the
right to employ separate counsel in any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the
extent that (i) the employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and the position of
such Purchaser Party. The Company will not be liable to any Purchaser Party under this Agreement
(i) for any settlement by a Purchaser Party effected without the Company’s prior written consent,
which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of
the representations, warranties, covenants or agreements made by the Purchasers in this Agreement
or in the other Transaction Documents.

     4.12   Reservation and Listing of Securities.

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

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

       (c) The Company shall, if applicable: (i) in the time and manner required by the
Trading Market, prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to the Required
Minimum on the date of such application, (ii) take all steps necessary to cause such shares
of Common Stock to be approved for listing on the Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market. In addition, the Company shall hold a
special meeting of shareholders (which may also be at the annual meeting of shareholders) by
no later than June 10, 2005 for the purpose of obtaining Shareholder Approval, with the
recommendation of the Company’s Board of
Directors that such proposal be approved, and the Company shall solicit proxies from
its shareholders in connection therewith in the same manner as all other management

25

 

proposals in such proxy statement and all management-appointed proxyholders shall vote their
proxies in favor of such proposal. If the Company does not obtain Shareholder Approval at
the first meeting, the Company shall call a meeting every month thereafter to seek
Shareholder Approval until the earlier of the date Shareholder Approval is obtained or the
Debentures are no longer outstanding.

     4.13   Participation in Future Financing.

       (a) From the date hereof until the date, with respect to each Purchaser, that such
Purchaser no longer owns any Debentures, upon any financing by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents (a “Subsequent Financing”),
each Purchaser shall have the right to participate in up to an amount of the Subsequent
Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”).

       (b) At least 5 Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it
wants to review the details of such financing (such additional notice, a “Subsequent
Financing Notice”). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than
1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.
The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of
such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the
Person with whom such Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto.

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

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

       (e) If by 5:30 p.m. (New York City time) on the fifth Trading Day after all of the
Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent
Financing Notice from Purchasers seeking to purchase more than the

26

 

aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to purchase the greater of
(a) their Pro Rata Portion (as defined below) of the Participation Maximum and (b) the
difference between the Participation Maximum and the aggregate amount of participation by
all other Purchasers. “Pro Rata Portion” is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser participating under this
Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities purchased
on the Closing Date by all Purchasers participating under this Section 4.13.

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

       (g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an
Exempt Issuance.

     4.14   Subsequent Equity Sales.

       (a) From the date hereof until 180 days after the Effective Date, neither the Company
nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; except
for a firm-commitment underwritten public offering, as to which the Company may file a
registration statement to commence such public offering at any time after the earlier of (i)
the date the initial Registration Statement required under the Registration Rights Agreement
is declared effective by the Commission, or (ii) the Company is notified by the Commission
that the initial Registration Statement required under the Registration Rights Agreement
will be subject to any review beyond the Selling Shareholders and Plan of Distribution
captions. If the Company issues any of its securities prior to the 180th day
following the Effective Date (other than securities issued pursuant to a firm commitment
underwritten offering as set forth above), the Company shall cause its counsel to issue each
Purchaser and each applicable Trading Market (if required) a legal opinion that such
issuance does not cause this offering of the Securities to be integrated with it for
purposes of the Securities Act or any applicable shareholder approval provisions, including,
without limitation, under the rules and regulations of any Trading Market on which any of
the securities of the Company are listed or designated.

       (b) From the date hereof until such time as no Purchaser holds any of the Securities,
the Company shall be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a “Variable Rate Transaction”. The term “Variable Rate
Transaction” shall mean a transaction in which the Company issues or sells (i) any debt
or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common Stock
either (A) at a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares of Common Stock at any

27

 

time after the initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a future determined
price.

       (c) Unless Shareholder Approval has been obtained and deemed effective, the Company
shall not make any issuance whatsoever of Common Stock or Common Stock Equivalents for an
effective per share purchase price of Common Stock of less than $1.57, subject to adjustment
for reverse and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock. Any Purchaser shall be entitled to obtain injunctive
relief against the Company to preclude any such issuance, which remedy shall be in addition
to any right to collect damages.

       (d) Notwithstanding the foregoing, Sections 4.14(a) and (b) shall not apply in respect
of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

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

     4.16   Short Sales and Confidentiality. Each Purchaser severally and not jointly with
the other Purchasers covenants that neither it nor any affiliates acting on its behalf or pursuant
to any understanding with it will execute any Short Sales during the period after the Discussion
Time and ending at the time that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.6. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company as described in Section 4.6, such Purchaser will maintain, the
confidentiality of all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Each Purchaser understands and acknowledges, severally
and not jointly with any other Purchaser, that the Commission currently takes the position that
coverage of short sales of shares of the Common Stock “against the box” prior to the Effective Date
of the Registration Statement with the Securities is a violation of Section 5 of
the Securities Act, as set forth in Item 65, Section 5 under Section A, of the Manual of
Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no Purchaser makes any

28

 

representation, warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Notwithstanding the foregoing, in the case
of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers have no direct
knowledge of the investment decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement.

ARTICLE V.

MISCELLANEOUS

     5.1   Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before April 20, 2005; provided, however, that no such
termination will affect the right of any party to sue for any breach by the other party (or
parties).

     5.2   Fees and Expenses. At the Closing, the Company has agreed to reimburse Bushido
Capital Partners, Ltd. (“Bushido”) up to $30,000, for its actual, reasonable, out-of-pocket legal
fees and expenses. The Company shall deliver, prior to the Closing, a completed and executed copy
of the Closing Statement, attached hereto as Annex A. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities.

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

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

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actual receipt by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached hereto.

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

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

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

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

     5.9   Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or proceeding by mailing

30

 

a
copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other party for its
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

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

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

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

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

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

31

 

circumstances shall also pay any reasonable third-party costs associated with the issuance of such
replacement Securities.

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

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

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

     5.18   Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of

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

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

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

(Signature Pages Follow)

33

 

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

	 	 	 	 	 
	BRILLIAN CORPORATION	 	Address for Notice:
	 
	 	 	 	 
	By:

	 	/s/ Wayne Pratt

Name: Wayne Pratt

Title: Vice President and Chief Financial Officer	 	 
	 
	 	 	 	 
	With a copy to (which shall not constitute notice):	 	 
	 
	 	 	 	 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

34

 

[PURCHASER SIGNATURE PAGES TO BRLC SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: Gamma Opportunity Capital Partners, LP

Signature of Authorized Signatory of Purchaser: /s/ Jonathan P. Knight

Name of Authorized Signatory: Jonathan P. Knight

Title of Authorized Signatory: President/Director

Email Address of Purchaser: jonathan@siamus.com

Address for Notice of Purchaser:

 

 

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

 

 

Subscription Amount:

Warrant Shares:

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

 

[PURCHASER SIGNATURE PAGES TO BRLC SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: Bushido Capital Master Fund, LP

Signature of Authorized Signatory of Purchaser: /s/ Christopher Rossman

Name of Authorized Signatory: Christopher Rossman

Title of Authorized Signatory: Managing Director

Email Address of Purchaser: rossman@bushidocapital.com

Address for Notice of Purchaser:

 

 

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

 

 

Subscription Amount:

Warrant Shares:

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

 

[PURCHASER SIGNATURE PAGES TO BRLC SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: SRG Capital, LLC

Signature of Authorized Signatory of Purchaser: /s/ Yoan Roth

Name of Authorized Signatory: Yoan Roth

Title of Authorized Signatory: Portfolio Manager

Email Address of Purchaser: yroth@srgcap.com

Address for Notice of Purchaser:

 

 

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

 

 

Subscription Amount:

Warrant Shares:

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

 

[PURCHASER SIGNATURE PAGES TO BRLC SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: Enable Growth Partners LP

Signature of Authorized Signatory of Purchaser: /s/ Brendan O’Neil

Name of Authorized Signatory: Brendan O’Neil

Title of Authorized Signatory: Principal

Email Address of Purchaser: boneil@enablecapital.com

Address for Notice of Purchaser:

 

 

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

 

 

Subscription Amount:

Warrant Shares:

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

 

[PURCHASER SIGNATURE PAGES TO BRLC SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: Enable Opportunity Partners LP

Signature of Authorized Signatory of Purchaser: /s/ Brendan O’Neil

Name of Authorized Signatory: Brendan O’Neil

Title of Authorized Signatory: Principal

Email Address of Purchaser: boneil@enablecapital.com

Address for Notice of Purchaser:

 

 

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

 

 

Subscription Amount:

Warrant Shares:

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

 

Annex A

CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers
shall purchase up to $2,500,000 of Debentures and Warrants from Brillian Corporation (the
“Company”). All funds will be wired into a trust account maintained by ___________,
counsel to the Company. All funds will be disbursed in accordance with this Closing Statement.

Disbursement Date: April ___, 2005

 

	 	 	 	 	 
	I.    PURCHASE PRICE
	 	 	 	 
	 
	 	 	 	 
	Gross Proceeds to be Received in Trust
	 	$	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	II.   DISBURSEMENTS
	 	 	 	 
	 
	 	 	 	 
	 
	 	$	 	 
	[Per the instructions of Bushido]
	 	$	30,000	 
	 
	 	$	 	 
	 
	 	$	 	 
	 
	 	$	 	 
	 
	 	 	 	 
	Total Amount Disbursed:
	 	$	 	 

	 	 	 	 	 
	WIRE INSTRUCTIONS:	 	 
	 
	 	 	 	 
	To:

	 	 	 	 
	

	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	To:exv10w20

 

Exhibit 10.20

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of April 18, 2005,
among Brillian Corporation, a Delaware corporation (the “Company”), and Regenmacher Holdings Ltd.
(“Purchaser”).

     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506
promulgated thereunder, the Company desires to issue and sell to Purchaser, and Purchaser desires
to purchase from the Company, securities of the Company as more fully described in this Agreement.

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

ARTICLE I.

DEFINITIONS

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

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

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

     “Agent” shall have the meaning ascribed to such term in the Security Agreement.

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

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

     “Commission” means the Securities and Exchange Commission.

 

 

     “Common Stock” means the common stock of the Company, par value $0.001 per
share, and any securities into which such common stock shall hereinafter have been
reclassified into.

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

     “Company Counsel” means Greenberg Traurig, P.A.

     “Debenture” means the 9% Senior Secured Debentures due, subject to the terms
therein, April 20, 2008, issued by the Company to the Purchaser, in the form of Exhibit
A.

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

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

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any stock or option plan duly
adopted by a majority of the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise of or conversion of any securities issued
hereunder, convertible securities, options or warrants issued and outstanding on the date of
this Agreement, provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company in a business synergistic
with the business of the Company and in which the Company receives benefits in addition to
the investment of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities.

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

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

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

-2-

 

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

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

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

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

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

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

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

     “Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Warrant Shares issuable upon exercise in full of all
Warrants, ignoring any conversion or exercise limits set forth therein.

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

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

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

     “Securities Act” means the Securities Act of 1933, as amended.

     “Security Agreement” means the Security Agreement, dated the date hereof, among
the Company and the Purchaser, in the form of Exhibit E attached hereto.

     “Security Documents” shall mean the Security Agreement and any other documents
and filing required thereunder in order to grant the Purchaser a first priority

-3-

 

security interest in the assets of the Company as provided in the Security Agreement,
including all UCC-1 filing receipts.

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

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

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

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

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

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

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

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

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

-4-

 

ARTICLE II.

PURCHASE AND SALE

     2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto,
the Company agrees to sell, and Purchaser agrees to purchase $2,000,000 principal amount of the
Debentures. Purchaser shall deliver to the Company via wire transfer or a certified check
immediately available funds equal to its Subscription Amount and the Company shall deliver to the
Purchaser the Debenture and Warrants as determined pursuant to Section 2.2(a) and the other items
set forth in Section 2.2 issuable at the Closing. Upon satisfaction of the conditions set forth in
Section 2.2, the Closing shall occur at the offices of FW, or such other location as the parties
shall mutually agree.

     2.2 Deliveries.

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

     (i) this Agreement duly executed by the Company;

     (ii) the Debenture, registered in the name of Purchaser;

     (iii) a Warrant registered in the name of Purchaser to purchase up to
150,000 shares of Common Stock, with an exercise price equal to
$1.57 , subject to adjustment therein;

     (iv) the Registration Rights Agreement duly executed by the Company;

     (v) the Security Agreement duly executed by the Company; and

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

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

     (i) this Agreement duly executed by Purchaser;

     (ii) Purchaser’s Subscription Amount by wire transfer to such accounts
as specified in writing by the Company;

     (iii) the Security Agreement, duly executed by Purchaser; and

     (iv) the Registration Rights Agreement duly executed by Purchaser.

-5-

 

     2.3 Closing Conditions.

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

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

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

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

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

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

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

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

     (iv) the $2,500,000 convertible debt financing shall have closed or all
conditions met such that a closing on such financing shall occur
simultaneously with the Closing;

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

     (vi) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior
to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades
are reported by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international

-6-

 

calamity of such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in the reasonable
judgment of Purchaser, makes it impracticable or inadvisable to purchase the
Debentures at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the disclosure schedules delivered to the Purchaser concurrently herewith
(the “Disclosure Schedules”) which Disclosure Schedules shall be deemed a part hereof, the
Company hereby makes the representations and warranties set forth below to Purchaser.

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

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

     (c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations thereunder. The execution
and delivery of each of the Transaction Documents by the Company and

-7-

 

the consummation by it of the transactions contemplated thereby, including the issuance
of the Securities, have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally
and (ii) as limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.

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

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

     (f) Issuance of the Warrant Shares. The Warrant Shares, when issued and upon
payment of the exercise price in accordance with the terms of the Transaction Documents,
will be validly issued, fully paid and nonassessable, free and clear of all

-8-

 

Liens imposed by the Company. The Company has reserved from its duly authorized
capital stock a number of shares of Common Stock for issuance of the Warrant Shares at least
equal to the Required Minimum on the date hereof.

     (g) Capitalization. The capitalization of the Company is as described in the
Company’s most recent periodic report filed with the Commission. The Company has not issued
any capital stock since such filing other than pursuant to the exercise of employee stock
options under the Company’s stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company’s employee stock purchase plan and pursuant to the
conversion or exercise of outstanding Common Stock Equivalents. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock. The issuance and sale of the Securities will
not obligate the Company to issue shares of Common Stock or other securities to any Person
(other than the Purchaser) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under such
securities. All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with all federal and
state securities laws or pursuant to an exception therefrom, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for
or purchase securities. No further approval or authorization of any stockholder, the Board
of Directors of the Company or others is required for the issuance and sale of the
Securities. Except as disclosed in the SEC Reports, there are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s capital stock to
which the Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.

     (h) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to herein as the
“SEC Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such extension. As
of their respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light

-9-

 

of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Except as set forth in the SEC Reports as a
reserve for bad debt or uncollected accounts, all of the Company’s receivables are expected
to be collectible in the ordinary course of business and the inventories shown on the latest
balance sheet are expected to be liquidated at their carried values in the ordinary course
of business.

     (i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or purchased, redeemed or made
any agreements to purchase or redeem any shares of its capital stock and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending before the Commission
any request for confidential treatment of information.

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

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Commission has not issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under the Exchange Act or
the Securities Act.

     (k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect.

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

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

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

     (o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the SEC Reports and which
the failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”). Neither the Company nor any Subsidiary has
received a

-11-

 

written notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of others.

     (p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company and the Subsidiaries are
engaged. To the best of Company’s knowledge, such insurance contracts and policies are
accurate and complete. Neither the Company nor any Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost. The Company does not have any claims
for an insured loss pending with any of its insurers.

     (q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner, in each
case in excess of $25,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any stock option
plan of the Company.

     (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure controls and procedures to
ensure that material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities, particularly during
the period in which the Company’s most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls

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and procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no significant changes in the Company’s internal controls (as such
term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the
Company’s knowledge, in other factors that could significantly affect the Company’s internal
controls.

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

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

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

     (v) Registration Rights. No Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the Company.

     (w) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and maintenance
requirements. Subject to the receipt of the Required Approvals, the issuance and sale of
the Securities hereunder does not contravene the rules and regulations of the Trading
Market.

-13-

 

     (x) Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchaser as a result of the
Purchaser and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.

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

     (z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and regulations of any
exchange or automated quotation system on which any of the securities of the Company are
listed or designated.

     (aa) Solvency. Based on the financial condition of the Company as of the
Closing Date after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder, (i) the Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the proceeds the

-14-

 

Company would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date. The SEC Reports set forth as of the
dates thereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of
this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any lease payments in excess
of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.

     (bb) Form S-3 Eligibility. The Company is eligible to register the resale of
the Warrant Shares for resale by the Purchaser on Form S-3 promulgated under the Securities
Act.

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

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

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

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any material respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended

     (ff) Accountants. The Company’s accountants are set forth on Schedule
3.1(ff) of the Disclosure Schedule. To the Company’s knowledge, such accountants, who
expressed their opinion with respect to the financial statements included in the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2004 are a registered public
accounting firm as required by the Securities Act.

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

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

     (ii) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s
length purchaser with respect to the Transaction Documents and the transactions contemplated
hereby. The Company further acknowledges that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by Purchaser or any
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Purchasers’ purchase of the Securities. The
Company further represents to Purchaser that the Company’s decision to enter into this
Agreement has been based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its representatives.

     3.2 Representations and Warranties of the Purchaser. Purchaser hereby represents
and warrants as of the date hereof and as of the Closing Date to the Company as follows:

     (a) Organization; Authority. Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by Purchaser of the
transactions contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of Purchaser. Each Transaction Document to which it
is a party has been duly executed by Purchaser, and when delivered by Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding obligation
of Purchaser, enforceable against it in accordance with its terms, except (i) as

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limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

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

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

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

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

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

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ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

     4.1 Transfer Restrictions.

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

     (b) The Purchaser agrees to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Warrants and Warrant Shares in the following form:

THESE SECURITIES  HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR REASONABLY
ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES.

     The Company acknowledges and agrees that Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and the Registration Rights Agreement and, if required
under the terms of such arrangement, Purchaser may transfer pledged or

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secured Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense, the
Company will execute and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of Selling Stockholders thereunder.

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

     (d) In addition to Purchaser’s other available remedies, the Company shall pay to a
Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $500 of
Warrant Shares (based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company’s transfer agent) delivered for removal of the restrictive legend
and subject to this Section 4.1(c), $5 per Trading Day (increasing to $10 per Trading Day 5
Trading Days after such damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered without a legend. Nothing herein shall
limit Purchaser’s right to pursue actual damages for the

-19-

 

Company’s failure to deliver certificates representing any Securities as required by
the Transaction Documents, and Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.

     (e) Purchaser agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance that the Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

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

     4.3 Furnishing of Information. As long as Purchaser owns Warrants or Warrant Shares,
the Company covenants to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as Purchaser owns Warrants or Warrant Shares, if the Company
is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchaser and make publicly available in accordance with Rule 144(c) such information as is
required for the Purchaser to sell the Warrant Shares under Rule 144. The Company further
covenants that it will take such further action as any holder of Warrants or Warrant Shares may
reasonably request, all to the extent required from time to time to enable such Person to sell such
Warrants or Warrant Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144.

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

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

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     4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern
time on the Trading Day following the date hereof, issue a press release reasonably acceptable to
each Purchaser disclosing the material terms of the transactions contemplated hereby, and shall
file a Current Report on Form 8-K within the time required by such form, which report shall attach
the Transaction Documents thereto. The Company and Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated hereby, and neither
the Company nor Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press release of Purchaser,
or without the prior consent of Purchaser, with respect to any press release of the Company, which
consent shall not unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose
the name of Purchaser, or include the name of Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of Purchaser, except (i) as
required by federal securities law in connection with the registration statement contemplated by
the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the Purchaser with prior notice
of such disclosure permitted under subclause (i) or (ii).

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

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

     4.9 Reimbursement. If Purchaser becomes involved in any capacity in any Proceeding by
or against any Person who is a stockholder of the Company (except as a result of sales, pledges,
margin sales and similar transactions by Purchaser to or with any current stockholder), solely as a
result of Purchaser’s acquisition of the Securities under this Agreement, the Company will
reimburse Purchaser for its reasonable legal and other expenses (including the cost of any
investigation preparation and travel in connection therewith) incurred in connection therewith, as
such expenses are incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have, shall extend upon the
same terms and conditions to any Affiliates of the Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and controlling persons (if
any), as the case may be, of the Purchaser and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal

-21-

 

representatives of the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates, partners, directors,
agents, employees or controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.

     4.10 Indemnification of Purchaser. Subject to the provisions of this Section 4.11,
the Company will indemnify and hold the Purchaser and its directors, officers, shareholders,
partners, employees and agents (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a)
any breach of any of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of Purchaser’s representation,
warranties or covenants under the Transaction Documents or any agreements or understandings
Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect
of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly
notify the Company in writing, and the Company shall have the right to assume the defense thereof
with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in
such action there is, in the reasonable opinion of such separate counsel, a material conflict on
any material issue between the position of the Company and the position of such Purchaser Party.
The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement
by a Purchaser Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchaser in this Agreement or in the other
Transaction Documents.

     4.11 Reservation and Listing of Securities.

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

-22-

 

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

     (c) The Company shall, if applicable: (i) in the time and manner required by the
Trading Market or if the Common Stock is listed on another Trading Market, promptly prepare
and file with such Trading Market an additional shares listing application covering a number
of shares of Common Stock at least equal to the Required Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on the Trading Market as soon as possible thereafter, (iii) provide to
the Purchaser evidence of such listing, and (iv) maintain the listing of such Common Stock
on any date at least equal to the Required Minimum on such date on such Trading Market or
another Trading Market.

     4.12 Other Financing. The Company shall not incur any indebtedness which is not
expressly subordinated in right of payment of principal and interest to the debt represented by the
Debentures; provided, that the Company may (i) enter into any capital lease or vendor purchase
money financing arrangement, which such lease or financing is expressly secured only by the asset
so leased or purchased, and by no other assets of the Company, and (ii) enter into the convertible
debt financing referred to in Section 2.3(b)(iv), as to which Purchaser gives its express
permission to the Company to pay scheduled interest, so long as no Event of Default has occurred
under the Debenture or the Security Agreement.

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

ARTICLE V.

MISCELLANEOUS

     5.1 Fees and Expenses. At the Closing, the Company has agreed to reimburse Sandhurst
for $15,000, for its actual, reasonable, out-of-pocket legal fees and expenses. The Company shall
deliver, prior to the Closing, a completed and executed copy of the Closing Statement, attached
hereto as Annex A. Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to

-23-

 

the negotiation, preparation, execution, delivery and performance of this Agreement. The
Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the issuance of any Securities.

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

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

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

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

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

     5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,

-24-

 

nor may any provision hereof be enforced by, any other Person, except as otherwise set forth
in Section 4.11.

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

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

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

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

-25-

 

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

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

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

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

     5.16 Usury. To the extent it may lawfully do so, the Company hereby agrees not to
insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be
compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any claim, action or proceeding that may be brought by
Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding
any provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the maximum lawful rate

-26-

 

authorized under applicable law (the “Maximum Rate”), and, without limiting the
foregoing, in no event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be obligated to pay
under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction Documents is increased
or decreased by statute or any official governmental action subsequent to the date hereof, the new
maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date of such increase or decrease forward, unless such
application is precluded by applicable law. If under any circumstances whatsoever, interest in
excess of the Maximum Rate is paid by the Company to Purchaser with respect to indebtedness, if
any, evidenced by the Transaction Documents, such excess shall be applied by Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of
handling such excess to be at Purchaser’s election in the event any principal amount remains
outstanding.

     5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, if any, and no Purchaser shall be responsible in any way for the performance of
the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or
in any Transaction Document, and no action taken by Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers, if more than one, as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions contemplated by the
Transaction Document. Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.

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

(Signature Pages Follow)

-27-

 

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

	 	 	 	 	 
	BRILLIAN CORPORATION	 	Address for Notice:
	 
	 	 	 	 
	By:

	 	/s/ Wayne Pratt
	 	1600 N. Desert Drive
	

	 	Name: Wayne Pratt
	 	Tempe, AZ 85281
	

	 	Title: Vice President and Chief Financial Officer	 	 

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

-28-

 

[PURCHASER SIGNATURE PAGES TO BRILLIAN SECURITIES PURCHASE AGREEMENT]

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

Name of Investing Entity: Regenmacher Holdings Ltd.

Signature of Authorized Signatory of Investing Entity: /s/ Jonathan P. Knight

Name of Authorized Signatory: Jonathan P. Knight

Title of Authorized Signatory: President

Email Address of Authorized Entity: jonathan@siamus.com

Address for Notice of Investing Entity:

 

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

 

 

Subscription Amount:

Warrant Shares:

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

-29-

 

Annex A

CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers
shall purchase up to $2,000,000 of Debentures and Warrants from Brillian Corporation (the
“Company”).  All funds will be disbursed in accordance with this Closing Statement.

Disbursement Date: April ___, 2005

	 	 	 	 	 	 	 
	I.
	 	PURCHASE PRICE	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	Gross Proceeds to be Received in Trust	 	$	 	 
	 
	 	 	 	 	 	 
	II.
	 	DISBURSEMENTS	 	 	 	 
	 
	 	 	 	$	 	 
	 
	 	 	 	$	 	 
	 
	 	 	 	$	 	 
	 
	 	 	 	$	 	 
	 
	 	 	 	$	 	 
	 
	 	 	 	 	 	 
	Total Amount Disbursed:	 	$	 	 

WIRE INSTRUCTIONS:

To:                                                             

-30-

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