Document:

PREFERRED
STOCK EXCHANGE AGREEMENT

     

    THIS
PREFERRED STOCK EXCHANGE AGREEMENT (this “Agreement”), dated as of
February 27, 2009, is by and among Paradigm Holdings, Inc., a Wyoming
corporation (the “Company”), and the persons
listed on Schedule
I hereto (each a “Stockholder,” and,
collectively, the “Stockholders”).

     

    WHEREAS,
Hale Capital Partners, LP and the other Purchasers (collectively, the “Investors”) and the Company
propose to enter into a Preferred Stock Purchase Agreement dated as of February
27, 2009 (as the same may be amended or supplemented, the “Purchase Agreement”) providing
for the purchase by the Investors of shares of Series A-1 Senior Preferred
Stock, $0.01 par value per share, of the Company (the “Series A-1 Preferred Stock”)
and certain series of warrants (the “Warrants”) to purchase Common
Stock, $0.01 par value per share, of the Company (the “Common Stock”) (the
transactions contemplated by the Purchase Agreement, including without
limitation the issuance of securities thereunder and the amendment or amendment
and restatement of the Company’s Articles of Incorporation, the “Transactions”);

     

    WHEREAS,
each Stockholder is the record and beneficial owner, or the trustee of a trust
whose beneficiaries are the beneficial owners, of such number of shares of
Series A Preferred Stock of the Company (the “Series A Preferred Stock”) set
forth opposite such Stockholder’s name on Schedule I hereto
(such shares of Series A Preferred Stock, the “Shares”).

     

    WHEREAS,
the Stockholders have agreed with the Company to exchange, at the closing of the
Transactions, the Series A Preferred Stock held by them for shares of Common
Stock at a price per share of Common Stock of $0.078 (the “Issue Price”).

     

    WHEREAS,
as a condition to the execution and delivery of the Purchase Agreement, the
Investors have requested that the Stockholders enter into this Agreement;
and

     

    WHEREAS,
the Stockholders believe that the execution, delivery and performance of the
Purchase Agreement and the consummation of the Transactions is in the best
interests of the Company and its shareholders.

     

    NOW,
THEREFORE, in consideration of the premises and the representations, warranties
and agreements contained herein, the Stockholders agree as follows:

     

    1.    Definitions.  In
addition to the terms defined elsewhere in this Agreement, the following terms
shall have the meanings set forth in this Section
1:

     

    “Affiliate” of a Person means
any other Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
first Person.

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    “Eligible Stock” shall mean,
for each Stockholder, at the time of an issuance of additional shares of Common
Stock or Convertible Securities, the lesser of (A) the number of shares of
Common Stock then held by such Stockholder and its Affiliates (other than shares
of Common Stock (i) issued to such Stockholder pursuant to Section 4 below or
(ii) purchased by such Stockholder on the open market) or (B) the number of
shares of Common Stock issued at the closing of the Transactions to such
Stockholder in exchange for Series A Preferred Stock.

     

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

     

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

     

    “New Securities” means Common
Stock or Common Stock Equivalents; provided that the term “New Securities” does
not include Excluded Stock, shares of Common Stock issued to such Stockholder
pursuant to Section
4 below or the Series A-1 Preferred Stock and Warrants sold pursuant to
the Purchase Agreement.

     

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

     

    
      
        
        

      

      
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    “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.

     

     “Registrable Securities” means
the shares of Common Stock issued to the Stockholders pursuant to Section 2 of this
Agreement.

     

    “Registration Statement” means
a registration statement under the Securities Act of 1933, as amended (the
“Securities Act”) which
covers the Registrable Securities.

     

    “Specified Event” (i) the
Securities and Exchange Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any proceedings for
that purpose; (ii) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any proceeding for such
purpose; or (iii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any statement made in any
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference is untrue in any material respect
or any revision to a Registration Statement, related prospectus or other
document is required so that it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

     

    2.      Exchange of Series A
Preferred Stock.  At the closing of the Transactions, each
Stockholder agrees to exchange all Shares held by such Stockholder for a number
of shares of Common Stock equal to the product of $1,000 and the number of
Shares exchanged (the “Face
Amount”) divided by the Issue Price, rounded up to the nearest whole
share.  Upon issuance, such shares of Common Stock shall be validly
issued, fully paid and non-assessable.  At the closing of the
Transactions, each Stockholder shall deliver all share certificates evidencing
all of said Stockholder’s Shares to the Company and shall execute a stock power
separate from the certificate transferring the Stockholder’s Shares to the
Company and, within two (2) business days following the closing of the
Transactions, the Company shall deliver to each Stockholder a certificate in
such Stockholder’s name representing the number of shares of Common Stock issued
to such Stockholder pursuant to this Section
2.

     

    3.      Representations and
Warranties of the Stockholders.  Each Stockholder hereby,
severally and not jointly, represents and warrants to the Company and the
Investors as follows:

     

    
      
        
        

      

      
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    (a) Authority.  The
Stockholder has all requisite power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.  The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the
Stockholder.  This Agreement has been duly executed and delivered by
the Stockholder and, assuming this Agreement constitutes a valid and binding
obligation of the other parties hereto, constitutes a valid and binding
obligation of the Stockholder enforceable against the Stockholder in accordance
with its terms.  Neither the execution, delivery or performance of
this Agreement by the Stockholder nor the consummation by the Stockholder of the
transactions contemplated hereby will (i) require any filing with, or permit,
authorization, consent or approval of, any federal, state, local or municipal
foreign or other government or subdivision, branch, department or agency thereof
or any governmental or quasi-governmental authority of any nature, including any
court or other tribunal, (a “Governmental Entity”), (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default under, or give rise to any right of
termination, amendment, cancellation or acceleration under, or result in the
creation of any pledge, claim, lien, option, charge, encumbrance or security
interest of any kind or nature whatsoever (a “Lien”) upon any of the
properties or assets of the Stockholder under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, permit,
concession, franchise, contract, agreement or other instrument or obligation (a
“Contract”) to which the
Stockholder is a party or by which the Stockholder or any of the Stockholder’s
properties or assets, including the Stockholder’s Shares, may be bound or (iii)
violate any judgment, order, writ, preliminary or permanent injunction or decree
or any statute, law, ordinance, rule or regulation of any Governmental Entity (a
“Law”) applicable to the
Stockholder or any of the Stockholder’s properties or assets, including the
Stockholder’s Shares.

     

    (b) The
Shares.  Subject to the terms of this Agreement, the Series A
Preferred Stock and the certificates representing such Shares are now held by
such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder.  The Stockholder has good and marketable title to such
Shares, free and clear of any Liens, proxies, voting trusts or agreements,
understandings or arrangements, except for any such Liens or proxies arising
hereunder.  The Stockholder owns of record or beneficially no Series A
Preferred Stock other than the Shares as set forth on Schedule I
hereto.

     

    (c) Purchase
Agreement.  Each Stockholder understands and acknowledges that
the Investors are entering into the Purchase Agreement in reliance upon such
Stockholder’s execution and delivery of this Agreement.

     

    (d) Investment
Intent.  Such Stockholder is acquiring the Common Stock
hereunder for its own account for investment purposes only and not with a view
to or for distributing or reselling such securities or any part
thereof.

     

    (e) Stockholder
Status.  Such Stockholder is and on the date of the closing of
the Transactions will be, an “accredited investor” as defined in Rule 501(a)
under the Securities Act.

     

    (f) Experience of such
Stockholder.  Such Stockholder, 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 Common Stock, and has so evaluated
the merits and risks of such investment.  Such Stockholder is able to
bear the economic risk of an investment in the Common Stock and is able to
afford a complete loss of such investment.

     

    
      
        
        

      

      
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    (g) Access to
Information.  Such Stockholder acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Common Stock and the merits and
risks of investing in the Common Stock; (ii) access to information about the
Company and its subsidiaries and their respective financial condition, results
of operations, business, properties and management sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such additional
information that is necessary to make an informed investment decision with
respect to the investment.

     

    (h) General
Solicitation.  Such Stockholder is not purchasing the Common
Stock as a result of any advertisement, article, notice or other communication
regarding the Common Stock 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.

     

    (i) Legend.  Such
Stockholder understands and agrees that the certificates evidencing the shares
of Common Stock acquired hereunder  or any other securities issued in
respect of such shares upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall bear the following legend (in
addition to any legend required by applicable state securities
laws):

     

    “THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.”

     

    4.      Certain
Adjustments.  Subject to Section 5, if at any
time while at least Nine Hundred Thirty (930) shares of the Company’s Series A-1
Preferred Stock (as adjusted for any stock splits, stock combination or similar
event with respect to the Series A-1 Preferred Stock) the Company issues Common
Stock or Common Stock Equivalents for a consideration (net of any discounts,
fees, commissions and other expenses that are not customary) to the Company per
share less than the Issue Price (such lesser consideration per share, the “Reference Price”), each of the
Stockholders shall be entitled to receive, and the Company shall issue, such
additional shares of Common Stock to each Stockholder (upon payment to the
Company by such Stockholder of an amount per share equal to the par value of
such additional shares of Common Stock), equal to the excess of (A) the
quotient obtained by dividing the aggregate purchase price paid by such
Stockholder for the Eligible Stock then held by such Stockholder (determined by
reference to the Face Amount of Series A Preferred Stock exchanged for such
shares) divided by the Reference Price less (B) the number of shares of
Eligible Stock then held by such Stockholder.

     

    
      
        
        

      

      
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    5.    Certain
Exceptions.  The provisions of Section 4 above shall
be subject to the following limitations:

     

    (a) Section 4 shall not
apply to any issuance of Excluded Stock; and

     

    (b) Section 4 shall not
apply to the issuance of Common Stock or Common Stock Equivalents with respect
to any Stockholder if such Stockholder has been offered the opportunity to
purchase its pro rata share (based upon the number of shares of Eligible Stock
then held by each Stockholder in proportion to the total shares of Common Stock
of the Company then outstanding (assuming full conversion and exercise of all
outstanding Common Stock Equivalents)) of such Common Stock or Common Stock
Equivalents (at the same price as other purchasers of such securities) and such
Stockholder has not purchased such pro rata share of such
securities.  For the avoidance of doubt, the election by a Stockholder
to purchase or not purchase its pro rata share of Common Stock or Common Stock
Equivalents pursuant to this Section 5(b) shall
not preclude another Stockholder from electing to purchase or not purchase its
pro rata share of Common Stock or Common Stock Equivalents pursuant to this
Section
5(b).

     

    6.    Certain Mechanics of
Adjustments.  For purposes of any issuances of shares of Common
Stock to a Stockholder under Section 4, the
following provisions shall be applicable:

     

    (a) In
connection with any issuance of any Common Stock Equivalents, (x) the
maximum number of shares of Common Stock potentially issuable at any time upon
conversion, exercise or exchange of such Common Stock Equivalents (the “Deemed Number”) shall be
deemed to be outstanding upon issuance of such Common Stock Equivalents, and
(y) the price per share applicable to such Common Stock Equivalents shall
be deemed to equal the minimum dollar value of consideration payable to the
Company to purchase such Common Stock Equivalents and to convert, exercise or
exchange them into Common Stock, divided by the Deemed Number.

     

    (b) In
the case of the issuance of Common Stock Equivalents for cash, the amount of the
consideration received by the Company shall be deemed to be the aggregate amount
of cash received by the Company or payable to the Company to purchase such
Common Stock Equivalents and to convert, exercise or exchange them into Common
Stock.

     

    (c) In
the case of the issuance of Common Stock Equivalents for a consideration in
whole or in part other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Company’s Board of Directors,
irrespective of any accounting treatment.

     

    (d) All
shares to be issued pursuant to Section 4, upon
issuance, shall be validly issued, fully-paid and non-assessable and free of any
preemptive or similar rights.

     

    7.    Further
Assurances.  Each Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments as the
Company or the Investors may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement.

     

    
      
        
        

      

      
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    8.      Termination.  This
Agreement, and all rights and obligations of the parties hereunder, shall
terminate upon the termination of the Purchase Agreement prior to the closing of
the Transactions.  Notwithstanding the foregoing, this Agreement shall
terminate and have no further force or effect if the closing of the sale of
Series A-1 Preferred Stock and Warrants to the Investors pursuant to the
Purchase Agreement is not consummated on or before March 1, 2009.

     

    9.      Piggyback
Registration.

     

    (a)       Until
all Registrable Securities held by the Stockholders have been sold or may be
sold without any restrictions pursuant to Rule 144 promulgated under the
Securities Act, if (but without any obligation to do so) the Company proposes to
register any of its Common Stock under the Securities Act in connection with the
public offering of such securities by the Company solely for cash (other than a
registration on Form S-8 (or similar or successor form) relating solely to the
sale of securities to participants in a Company stock plan or to other
compensatory arrangements to the extent includable on Form S-8 (or similar or
successor form), or a registration on Form S-4 (or similar or successor form)),
the Company shall, at such time, promptly give each Stockholder that then holds
Registrable Securities written notice of such registration.  Upon the
written request of any such Stockholders received by the Company within ten (10)
business days after mailing of such notice by the Company in accordance with
this Section
9(a) (the “Electing Holders”),
the Company shall (subject to, among other things, limitations imposed by the
Securities and Exchange Commission or federal securities laws and regulations)
use its commercially reasonable efforts to include in such registration all of
such Registrable Securities that are specified in such request; provided, that
in no event shall the aggregate number of such Registrable Securities included
in any Registration Statement exceed twenty percent (20%) of the total number of
securities included in such Registration Statement on behalf of all selling
stockholders (the “Limitation
Amount”).  Subject to the terms of this Agreement (including
without limitation the cutback provisions in Section 9(b)), the
Limitation Amount shall be allocated in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities requested to be included in
such registration by the Electing Holders.  Notwithstanding the
foregoing, the Company shall not be required to register any Registrable
Securities that are eligible for resale pursuant to Rule 144 promulgated under
the Securities Act or that are the subject of a then effective Registration
Statement.  If the registration involves an underwritten offering to
the public, all Electing Holders must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to the Company or other selling stockholders.  If, at any time after
giving notice of the Company’s intention to register any securities pursuant to
this Section
9(a) and prior to the effective date of the Registration Statement filed
in connection with such registration, the Company shall determine for any reason
not to register such securities, the Company shall give written notice to all
holders of Registrable Securities and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration.  The Company shall have no obligation to make any
offering of its securities, or to complete an offering of its securities that it
proposes to make.

     

    
      
        
        

      

      
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    (b) If such registration involves an
underwritten offering to the public, if the managing underwriter of the
underwritten offering shall inform the Company by letter of the underwriter’s
opinion that the number of Registrable Securities requested to be included in
such registration would, in its opinion, materially adversely affect such
offering, including the price at which such securities can be sold, and the
Company has so advised the Electing Holders in writing, then the Company shall
include in such registration, to the extent of the number that the Company is so
advised can be sold in (or during the time of) such offering, (i) first, all
securities proposed by the Company to be sold for its own account, then (ii)
such securities requested by the Purchasers (as defined in the Purchase
Agreement) to be included in such registration as required by the terms of the
Purchase Agreement and then (iii) such Registrable Securities requested to be
included by Electing Holders, allocated pro rata among such Electing Holders in
proportion, as nearly as practicable, to the respective amounts of such
securities requested to be included in such registration.

    

    (c)           Each
Electing Holder agrees that, upon receipt of any notice from the Company of the
happening of a Specified Event such Electing Holder will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement
covering such Registrable Securities until such Electing Holder’s receipt of
copies of a supplemented or amended prospectus (which the Company shall promptly
prepare following the happening of a Specified Event) or receipt of notice that
no supplement or amendment is required.

    

    (d)           Each
Electing Holder covenants and agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it or an exemption
therefrom in connection with sales of Registrable Securities pursuant to the
Registration Statement.

    

    (e)           Each
Electing Holder shall furnish to the Company such information regarding such
holder and the distribution proposed by such holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration referred to in this Section 9.

    

    10. New
Securities.  Each Stockholder shall be offered the opportunity
to purchase its pro rata share (based upon the number of shares of Eligible
Stock then held by each Stockholder in proportion to the total shares of Common
Stock of the Company then outstanding (assuming full conversion and exercise of
all outstanding Common Stock Equivalents)) of New Securities (at the same price
as other purchasers of such securities) which the Company may, from time to
time, propose to sell and issue after the date of this Agreement.

     

    11. Voting
Agreement.  At any meeting of stockholders of the Company
called to vote upon the Proposal (as defined in the Purchase Agreement) or at
any adjournment thereof or in any other circumstances upon which a vote, consent
or other approval (including by written consent) with respect to the Proposal or
which is necessary to consummate the Transactions or for the Company to perform
its obligations under the Purchase Agreement or the Certificate of Designations
(as defined in the Purchase Agreement) is sought, each Stockholder shall,
including by executing a written consent if requested by the Company, vote (or
cause to be voted) such Stockholder’s shares of Common Stock in favor the
Proposal.  For the period from the date hereof until the date approval
of the Proposal is obtained, no Stockholder shall directly or indirectly sell or
transfer any shares of Common Stock to any Person unless such Person executes
and delivers to the Company a written agreement pursuant to which such Person
will be bound by and obligated to comply with the terms and provisions of this
section.

     

    
      
        
        

      

      
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    12. General.

     

    (a) Counterparts.  This
Agreement may be executed in two (2) or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when two or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.

     

    (b) Entire Agreement;
Third-Party Beneficiaries.  Each party hereby acknowledges that
no other party or any other person or entity has made any promises, warranties,
understandings or representations whatsoever, express or implied, not contained
in this Agreement and acknowledges that it has not executed this Agreement in
reliance upon any such promises, representations, understandings or warranties
not contained herein and that this Agreement supersedes all prior agreements and
understandings between the parties with respect thereto.  Each
Investor shall be a third party beneficiary of the rights and benefits of this
Agreement.  This Agreement is not intended to confer upon any person
other than the parties hereto and the Investors any rights or remedies
hereunder.

     

    (c) Governing
Law.  This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to any
applicable conflicts of law.

     

    (d) Titles and
Subtitles.  The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

     

    (e) Notices.  All
notices and other communications required or permitted hereunder shall be in
writing.  Notices shall be delivered personally, via recognized
overnight courier (such as Federal Express, DHL or Airborne Express) or via
certified or registered mail.  Notices may be delivered via facsimile
or e-mail, provided that by no later than two days thereafter such notice is
confirmed in writing and sent via one of the methods described in the previous
sentence.  Notices shall be addressed to the address of each
Stockholder as is set forth on the books and records of the Company, or at such
other address or facsimile number as such Stockholder shall have furnished in
writing to the other parties hereto.  All notices shall be effective
upon receipt.

     

    (f) Severability  Whenever
possible, each provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
but this Agreement will be reformed, construed and enforced in such jurisdiction
to the greatest extent possible to carry out the intentions of the parties
hereto.

     

    
      
        
        

      

      
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    (g) Delays or
Omissions.  No delay or omission to exercise  any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such nonbreaching or nondefaulting party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring.

     

    (h) Facsimile
Signatures.  Any signature page delivered by a fax machine
shall be binding to the same extent as an original signature page, with regard
to any agreement subject to the terms hereof or any amendment
thereto.

     

    (i) Amendment and
Waiver.  This Agreement may be amended by the parties hereto by
execution of an instrument in writing signed by the Company and on behalf of the
Stockholders holding a majority of Shares held by all of the Stockholders and
the written consent of any third party beneficiary hereto.  Any such
amendment signed by the Stockholders holding a majority of Shares held by all of
the Stockholders shall bind all of the Stockholders.  Any action,
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed by the Company and on behalf of
Stockholders holding a majority of Shares held by all of the
Stockholders.

     

    (j) Enforcement.  The
parties agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached.  It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in a court of the United States.  This being in
addition to any other remedy to which they are entitled at law or in
equity.  In addition, each of the parties hereto waives any right to
trial by jury with respect to any claim or proceeding related to or arising out
of this Agreement or any of the transactions contemplated hereby.

     

    [Signature
page follows.]

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, each party hereto has signed this Agreement as of the date
first written above.

     

    
      
        
          
            
              
                
                  
                    	 
      	
                            COMPANY:

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            PARADIGM
      HOLDINGS, INC.

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            By:

                          	
                            /s/Peter LaMontagne

                          
	 
      	
                            Name:  Peter
      LaMontagne

                          
	 
      	
                            Title:  President
      and Chief Executive Officer

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            STOCKHOLDERS:

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            FTC
      EMERGING MARKETS

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            By:

                          	
                            /s/Guillermo Clamens

                          
	 
      	 
      
	 
      	
                            Name:

                          	
                            President/CEO

                          
	 
      	 
      
	 
      	
                            Title:

                          	
                            G. Clamens

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            JOHN
      MOORE & ANNEDENISE MOORE JT TEN

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            By:

                          	
                            /s/John Moore

                          
	 
      	 
      
	 
      	
                            By:

                          	
                            /s/Annedenise Moore

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            PETER
      LAMONTAGNE

                          
	 
      	 
      
	 
      	 
      
	 
      	
                            /s/Peter
  LaMontagne

                          

                  

                

              

            

          

        

      

    

    
       

    

     

    Signature
Page to Preferred Stock Exchange Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	 
      	
                RICHARD
      SAWCHAK

              
	 
      	 
      
	 
      	 
      
	 
      	
                /s/Richard
  Sawchak

              

      

    

    

    Signature
Page to Preferred Stock Exchange Agreement

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
I

    

    
      
        
          
            
              
                
                  	
                          Stockholder

                        	   	
                          Series A Preferred Stock

                        	 
	
                          FTC
      Emerging Markets

                        	 	 	1,000	 
	
                          John
      Moore and Annedenise Moore JT TEN

                        	 	 	500	 
	
                          Peter
      LaMontagne

                        	 	 	100	 
	
                          Richard
      Sawchak

                        	 	 	100	 
	 
      	 	 	 	 
	
                          Total

                        	 	 	1,700PREFERRED
STOCK REDEMPTION AGREEMENT

     

    THIS
PREFERRED STOCK REDEMPTION AGREEMENT (this “Agreement”), dated as of
February 27, 2009, is made by and among Paradigm Holdings, Inc., a Wyoming
corporation (the “Company”), Semper Finance,
Inc., a Delaware corporation, and USA Asset Acquisition Corp. (each a “Stockholder,” and,
collectively, the “Stockholders”).

     

    WHEREAS,
Hale Capital Partners, LP and EREF PARA LLC (collectively, the “Investors”) and the Company
propose to enter into a Preferred Stock Purchase Agreement dated as of February
27, 2009 (as the same may be amended or supplemented, the “Purchase Agreement”) providing
for the purchase by the Investors of shares of Series A-1 Senior Preferred
Stock, $0.01 par value per share, of the Company (the “Series A-1 Preferred Stock”)
and certain series of warrants (the “Warrants”) to purchase Common
Stock, $0.01 par value per share, of the Company (the “Common Stock”) (the
transactions contemplated by the Purchase Agreement, including without
limitation the issuance of securities thereunder and the amendment or amendment
and restatement of the Company’s Articles of Incorporation, the “Transactions”);

     

    WHEREAS,
each Stockholder is the record and beneficial owner of such number of shares of
Series A Preferred Stock of the Company (the “Series A Preferred Stock”) set
forth opposite such Stockholder’s name on Schedule I hereto
(such shares of Series A Preferred Stock, the “Shares”).

     

    WHEREAS,
the Stockholders have agreed with the Company to sell the Series A Preferred
Stock held by them for the Purchase Price (as defined below).

     

    WHEREAS,
as a condition to the execution and delivery of the Purchase Agreement, the
Investors have requested that the Stockholders enter into this Agreement;
and

     

    WHEREAS,
the Stockholders believe that the execution, delivery and performance of the
Purchase Agreement and the consummation of the Transactions is in the best
interests of the Company and its shareholders.

     

    NOW,
THEREFORE, in consideration of the premises and the representations, warranties
and agreements contained herein, the Stockholders agree as follows:

     

    1.     Sale of Series A Preferred
Stock.  At the closing of the Transactions, each Stockholder
agrees to sell all Shares held by such Stockholder for the consideration set
forth opposite such Stockholder’s name on Schedule I hereto (the “Purchase
Price”).  At the closing of the Transactions, each Stockholder
shall deliver all share certificates evidencing all of said Stockholder’s Shares
to the Company and shall execute a stock power separate from the certificate
transferring the Stockholder’s Shares to the Company and the Company shall
deliver to each Stockholder the Purchase Price for such Stockholder’s
Shares.

     

    2.     Representations and
Warranties of the Stockholders.  Each Stockholder hereby,
severally and not jointly, represents and warrants to the Company as
follows:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (a)  Authority.  The
Stockholder has all requisite power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.  The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the
Stockholder.  This Agreement has been duly executed and delivered by
the Stockholder and, assuming this Agreement constitutes a valid and binding
obligation of the other parties hereto, constitutes a valid and binding
obligation of the Stockholder enforceable against the Stockholder in accordance
with its terms.  Neither the execution, delivery or performance of
this Agreement by the Stockholder nor the consummation by the Stockholder of the
transactions contemplated hereby will (i) require any filing with, or permit,
authorization, consent or approval of, any federal, state, local or municipal
foreign or other government or subdivision, branch, department or agency thereof
or any governmental or quasi-governmental authority of any nature, including any
court or other tribunal, (a “Governmental Entity”), or (ii)
violate any judgment, order, writ, preliminary or permanent injunction or decree
or any statute, law, ordinance, rule or regulation of any Governmental Entity
applicable to the Stockholder or any of the Stockholder’s properties or assets,
including the Stockholder’s Shares.

     

    (b) The
Shares.  Subject to the terms of this Agreement, the Series A
Preferred Stock and the certificates representing such Shares are now held by
such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder.  The Stockholder has good and marketable title to such
Shares, free and clear of any Liens, proxies, voting trusts or agreements,
understandings or arrangements, except for any such Liens or proxies arising
hereunder.  The Stockholder owns of record or beneficially no Series A
Preferred Stock other than the Shares as set forth on Schedule I
hereto.

     

    (c) 
Purchase
Agreement.  Each Stockholder understands and acknowledges that
the Investors are entering into the Purchase Agreement in reliance upon such
Stockholder’s execution and delivery of this Agreement.

     

    (d)  Information. Each
Stockholder has had an opportunity to ask questions of, and receive answers
from, the officers of the Company concerning the Transactions and the Company’s
business, management and financial affairs, which questions were answered to its
satisfaction.  Each Stockholder believes that it has received all the
information such Stockholder considers necessary or appropriate for deciding
whether to sell the Shares.  Each Stockholder acknowledges that it is
relying solely on its own counsel and not on any statements or representations
of the Company or its agents for legal advice with respect to the sale of the
Shares.

     

    3.     Further
Assurances.  Each Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments as the
Company or the Investors may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    4.     Termination.  This
Agreement, and all rights and obligations of the parties hereunder, shall
terminate upon the termination of the Purchase Agreement prior to the closing of
the Transactions.  Notwithstanding the foregoing, this Agreement shall
terminate and have no further force or effect if the closing of the sale of
Series A-1 Preferred Stock and Warrants to the Investors pursuant to the
Purchase Agreement is not consummated on or before March 1, 2009.

     

    5.     Release.

     

    (a)  Definitions.  For
purposes of this Section 5, “RELEASORS” means each of the
Stockholders and all related corporations, partnerships, affiliates,
subsidiaries, parents, entities, successors and assigns and their past and
present directors, officers, shareholders, members, partners, contractors,
agents, attorneys and/or employees.  For purposes of this Section 5, “RELEASED
PARTIES” means
the Company and all of its related corporations, partnerships, affiliates,
subsidiaries, parents, entities, successors and assigns and their past and
present directors, officers, shareholders, members, partners, contractors,
agents, attorneys and/or employees.

     

    (b)  RELEASORS unconditionally and
irrevocably release the RELEASED PARTIES from all
known or unknown claims, debts, liabilities, breaches of contract, compensation,
claims for profits, claims for expenses, demands, damages, actions, causes of
action, or suits of any kind or nature whatsoever, if any, that the RELEASORS presently have or
could have, with respect to the Shares including, but not limited to, all
losses, debts, liabilities, breaches, claims and causes of action based on
breach of contract, accounting, misrepresentation, fraud, conflicts of interest,
tortious interference, breach of fiduciary duties, demands, costs, loss of
services, expenses, compensation, contribution, attorneys’ fees, and all
compensatory, consequential, liquidated, special and punitive
damages.  RELEASORS acknowledge that
RELEASED PARTIES
have relied
on the representations and promises in this Agreement and in this
release (described herein in Section 5) in
agreeing to the repurchase of the Shares. RELEASORS understand that
RELEASORS are releasing
any and all claims that may ever arise with respect to the Shares that RELEASORS may not know about
as of the date of execution of this Agreement.

     

    (c)  Each
Stockholder acknowledges and agrees that the waiver of such Stockholder’s claims
is knowing and voluntary and that this waiver is a part of this Agreement, which
has been written in a manner calculated to be, and which is, understood by such
Stockholder.

     

    6.      General.

     

    (a)  Counterparts.  This
Agreement may be executed in two (2) or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when two or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (b)  Entire
Agreement.  Each party hereby acknowledges that no other party
or any other person or entity has made any promises, warranties, understandings
or representations whatsoever, express or implied, not contained in this
Agreement and acknowledges that it has not executed this Agreement in reliance
upon any such promises, representations, understandings or warranties not
contained herein and that this Agreement supersedes all prior agreements and
understandings between the parties with respect thereto.  This
Agreement is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.

     

    (c)  
Governing
Law.  This Agreement shall be governed and construed in
accordance with the laws of the State of Maryland without regard to any
applicable conflicts of law.

     

    (d)  Titles and
Subtitles.  The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

     

    (e)  Notices.  All
notices and other communications required or permitted hereunder shall be in
writing.  Notices shall be delivered personally, via recognized
overnight courier (such as Federal Express, DHL or Airborne Express) or via
certified or registered mail.  Notices may be delivered via facsimile
or e-mail, provided that by no later than two days thereafter such notice is
confirmed in writing and sent via one of the methods described in the previous
sentence.  Notices shall be addressed to the address of each
Stockholder as is set forth on the books and records of the Company, or at such
other address or facsimile number as such Stockholder shall have furnished in
writing to the other parties hereto.  All notices shall be effective
upon receipt.

     

    (f)  
Severability  Whenever
possible, each provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
but this Agreement will be reformed, construed and enforced in such jurisdiction
to the greatest extent possible to carry out the intentions of the parties
hereto.

     

    (g) 
Delays or
Omissions.  No delay or omission to exercise  any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such nonbreaching or nondefaulting party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring.

     

    (h) 
Facsimile
Signatures.  Any signature page delivered by a fax machine
shall be binding to the same extent as an original signature page, with regard
to any agreement subject to the terms hereof or any amendment
thereto.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (i)   Amendment and
Waiver.  This Agreement may be amended by the parties hereto by
execution of an instrument in writing signed by the Company and on behalf of the
Stockholders holding a majority of Shares held by all of the
Stockholders.  Any such amendment signed by the Stockholders holding a
majority of Shares held by all of the Stockholders shall bind all of the
Stockholders.  Any action, extension or waiver by any party of any
provision hereto shall be valid only if set forth in an instrument in writing
signed by the Company and on behalf of Stockholders holding a majority of Shares
held by all of the Stockholders.

     

    (j)   Enforcement.  The
parties agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached.  It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in a court of the United States.  This being in
addition to any other remedy to which they are entitled at law or in
equity.  In addition, each of the parties hereto waives any right to
trial by jury with respect to any claim or proceeding related to or arising out
of this Agreement or any of the transactions contemplated hereby.

     

    [Signature
page follows.]

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, each party hereto has signed this Agreement as of the date
first written above.

     

    
      
        
          
            	
                    COMPANY:

                  
	 
      
	
                    PARADIGM
      HOLDINGS, INC.

                  
	 
      
	
                    By:

                  	
                    /s/Peter LaMontagne

                  
	
                    Name:  Peter
      LaMontagne

                  
	
                    Title: 
      President and Chief Executive Officer

                  
	 
      	 
      
	
                    STOCKHOLDERS:

                  
	 
      
	
                    SEMPER
      FINANCE, INC., a Delaware

                    corporation

                  
	 
      	 
      
	
                    By:

                  	
                    /s/Francis X. Ryan

                  
	 
      	 
      
	
                    Name:

                  	
                    Francis X. Ryan

                  
	 
      	 
      
	
                    Title:

                  	
                    President

                  
	 
      	 
      
	
                    USA
      ASSET ACQUISITION CORP.

                  
	 
      	 
      
	
                    By:

                  	
                    /s/Francis X. Ryan

                  
	 
      	 
      
	
                    Name:  

                  	
                    Francis X. Ryan

                  
	 
      	 
      
	
                    Title:

                  	
                    President

                  

          

        

      

    

     

    Signature
Page to Redemption Agreement

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    Schedule
I

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	
                                  Stockholder

                                	 	
                                  Series A Preferred Stock

                                	 	
                                  Purchase Price

                                	 
	
                                  Semper
      Finance, Inc.

                                	 	
                                  50
      shares*

                                	 	$	55,583.34	 
	
                                  USA
      Asset Acquisition Corp.

                                	 	
                                  50
      shares**

                                	 	$	55,583.34	 
	
                                  Total

                                	 	
                                  100
      shares

                                	 	$	111,166.68	 

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    *Shares
registered in the name of SEMPER FINANCE INC OF DELEWARE but the owner of these
shares is Semper Finance, Inc.

    **Shares
registered in the name of USA ASSET ACQUISITION CORP INC but the owner of these
shares is USA Asset Acquisition Corp.

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