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Exhibit 4.3  

 
 

SUBSCRIPTION AGREEMENT    
  

        August 7, 2002 

TO
EACH OF THE PURCHASERS

NAMED ON THE SIGNATURE

PAGES HEREOF 

Ladies
and Gentlemen: 

        Odetics, Inc.,
a Delaware corporation (the "Company"), hereby confirms its agreement with you (the
"Purchasers"), as set forth below. 

        1.    The Securities.    Subject to the terms and conditions herein contained, the Company proposes to issue and sell
to each Purchaser, severally and not jointly, (a) the number of shares of its Class A Common Stock, par value $0.10 per share (the "Common
Stock"), set forth on the signature page of such Purchaser hereto (collectively, the "Shares") (b) a warrant,
substantially in the form attached hereto at Exhibit A (the "Series A Warrants"), to
acquire one (1) share (the "Series A Warrant Shares") of Common Stock for each two (2) Shares purchased pursuant to this Agreement,
and (c) a warrant, substantially in the form attached hereto as Exhibit B (the "Series B
Warrants" and, together with the Series A Warrants, the "Warrants"), to acquire one (1) share (the
"Series B Warrant Shares" and, together with the Series A Warrant Shares, the "Warrant
Shares") of Common Stock for each two (2) Shares purchased pursuant to this Agreement. 

        The
Shares and the Warrants are sometimes herein collectively referred to as the "Securities". 

        The
Securities will be offered and sold to the Purchasers without such offers and sales being registered under the Securities Act of 1933, as amended (together with the rules and
regulations of the Securities and Exchange Commission (the "Commission") promulgated thereunder, the "Securities
Act"), in reliance on exemptions therefrom. 

        In
connection with the sale of the Securities, the Company has made available to the Purchasers its periodic and current reports filed with the Commission under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), since January 1, 2001. These reports, filings and amendments are collectively referred to as the
"Disclosure Documents". All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or
"stated" in the Disclosure Documents shall be deemed to mean and include all such financial statements and schedules. 

        The
Purchasers and their direct and indirect transferees of the Securities will be entitled to the benefits of a Registration Rights Agreement in substantially the form attached hereto
as Exhibit C (the "Registration Rights Agreement") pursuant to which the Company will agree,
among other things, to effect a shelf registration statement (the "Shelf Registration Statement") pursuant to Rule 415 under the Securities Act
relating to the resale of the Shares and the Warrant Shares by holders thereof. 

        The
Registration Rights Agreement, the Engagement Letter with Roth Capital Partners, LLC (the "Placement Agent"), the Warrants and this
Agreement are herein collectively referred to as the "Basic Documents". 

        2.    Representations and Warranties of the Company.    The Company represents and warrants to and agrees with each
Purchaser and the Placement Agent that, except as disclosed in the schedules delivered by the Company to the Purchasers in connection herewith (collectively, the
"Schedules"): 

        (a)  The
Disclosure Documents as of their respective dates did not, and as of the Closing Date as defined in Section 3 below will not, contain any untrue statement of
a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Disclosure Documents and
the 

 

documents incorporated or deemed to be incorporated by reference therein, at the time they were filed with the Commission, complied in all material respects with the requirements of the Securities
Act
and/or the Exchange Act, as the case may be (together with the rules and regulations of the Commission promulgated thereunder, the "Securities Acts"),
as applicable. 

        (b)  Each
of the Company and its active subsidiaries, each of which is identified in Exhibit D hereto (the
"Subsidiaries"), has been duly incorporated and each of the Company and the Subsidiaries is validly existing in good standing as a corporation under the
laws of its jurisdiction of incorporation, with the requisite corporate power and authority to own its properties and conduct its business as now conducted as described in the Disclosure Documents and
is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not, individually or in the aggregate, (i) have a material adverse effect on the business, condition (financial or other),
results of operations, properties or prospects of the Company and the Subsidiaries, taken as a whole, or (ii) materially impair or limit the ability of the Company to issue and sell the Shares,
the Warrants and the Warrant Shares and to perform its other obligations under the Basic Documents (any such event, a "Material Adverse Effect"). As of
the Closing Date; the Company will have the authorized, issued and outstanding capitalization set forth in the Disclosure Documents (subject to (A) the issuance of the Securities hereunder,
(B) the issuance of shares pursuant to options outstanding under the Company's stock option plans or outstanding warrants or other rights to acquire shares described in the Disclosure
Documents, and (C) the issuance of shares of Common Stock upon conversion of the Class B Common Stock in accordance with the terms of the Company's Certificate of Incorporation, as
amended). Except as set forth in Exhibit D hereto, the Company does not have any subsidiaries other than the Subsidiaries or own directly or
indirectly any of the capital stock or other equity or long-term debt securities of or have any equity interest in any other person. All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. Except as set forth in the Disclosure
Documents, all of the outstanding shares of capital stock of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable, were not issued in violation
of any preemptive or similar rights and are owned, directly or indirectly, by the Company, free and clear of all liens, encumbrances, equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or "Blue Sky" laws) or voting. Except as set forth in the Disclosure Documents or issued pursuant to this Agreement, as of the Closing Date no
options, warrants or other rights to purchase from the Company or any Subsidiary, agreements or other obligations of the Company or any Subsidiary to issue or other rights to convert any obligation
into, or exchange any securities for, shares of capital stock of or ownership interests in the Company or any Subsidiary are outstanding. Except as set forth in the Disclosure Documents or as provided
herein, there is no agreement, understanding or arrangement among the Company or any Subsidiary and each of their respective stockholders or any other person relating to the ownership or disposition
of any capital stock of the Company or any Subsidiary or the election of directors of the Company or any Subsidiary or the governance of the Company's or any Subsidiary's affairs, and, if any, such
agreements, understandings and arrangements will not be breached or violated as a result of the execution and delivery of, or the consummation of the transactions contemplated by, the Basic Documents,
or the issuance of the Shares, the Warrants and/or the Warrant Shares. 

        (c)  The
Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Basic Documents. Each of the Basic Documents has
been duly and validly authorized by the Company and, constitutes or, in the case of Basic Documents to be executed after the date hereof, when executed and delivered by the Company, will constitute, a
valid and legally binding agreement of the Company, enforceable against the Company in 

2

 

accordance with its terms except as (i) the enforcement thereof may be limited by (A) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now
or hereafter in effect relating to or affecting creditors' rights generally or (B) general principles of equity and the discretion of the court before which any proceeding therefore may be
brought (regardless of whether such enforcement is considered in a proceeding at law or in equity) (collectively, the "Enforceability Exceptions"), and
(ii) any rights to indemnity, or contribution under the Registration Rights Agreement may be limited by federal and state securities laws and public policy considerations. 

        (d)  The
Shares have been duly authorized and, when issued upon payment thereof in accordance with this Agreement, will have been validly issued, fully paid and
nonassessable. The Warrant Shares have been duly authorized and validly reserved for issuance, and when issued upon exercise of the Warrants in accordance with the terms thereof and upon payment of
the exercise price therefor, will be validly issued, fully paid and nonassessable. The capital stock of the Company, including the Common Stock, conforms to the description thereof contained in the
Disclosure Documents. The stockholders of the Company have no preemptive or similar rights to purchase shares of the Company's capital stock from the Company. 

        (e)  No
consent, approval, authorization, license, qualification, exemption or order of any court or governmental agency or body or third party is required for the execution
or performance of the Basic Documents by the Company or for the consummation by the Company of any of the transactions contemplated thereby, or the application of the proceeds of the issuance of the
Securities as described in this Agreement, except for such consents, approvals, authorizations, licenses, qualifications, exemptions or orders (i) as have been obtained on or prior to the
Closing Date, true and complete copies of which have been delivered to the Purchasers, (ii) as are not required to be obtained under the Securities Laws after the date hereof that will be
obtained when required, or (iii) the failure to obtain which would not, individually or in the aggregate, have a Material Adverse Effect. All such consents, approvals, authorizations, licenses,
qualifications, exemptions and orders set forth in the Disclosure Documents which are required to be obtained by the Closing Date will be in full force and effect as of the Closing Date and not the
subject of any pending or, to the knowledge of the Company, threatened attack by appeal or direct proceeding or otherwise. Assuming the truth and accuracy of the representations and warranties of the
Purchasers set forth herein, the Company has taken all action necessary to exempt from the provisions of Section 203 of the Delaware General Corporation Law or any provision of the Company's
Certificate of Incorporation, By-laws or any stockholder rights agreement that is or could become applicable to the Purchasers as a result of the transactions contemplated by the Basic
Documents (i) the issuance and sale of the Securities, (ii) the issuance of the Warrant Shares upon due exercise of the Warrants, and (iii) the other transactions contemplated by
the Basic Documents, including without limitation, the issuance of the Shares, the Warrants and the Warrant Shares and the ownership, disposition or voting of the Shares, the Warrants and the Warrant
Shares by the Purchasers or the exercise of any right granted to the Purchasers pursuant to this Agreement or the other Basic Documents. 

        (f)    None
of the Company or the Subsidiaries is (i) in violation of its certificate of incorporation or bylaws (or similar organizational document), (ii) in
breach or violation of any statute, judgment, decree, order, rule or regulation applicable to it or any of its properties or assets, which breach or violation would, individually or in the aggregate,
have a Material Adverse Effect, or (iii) in default (nor has any
event occurred which with notice or passage of time, or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument 

3

 

to which it is a party or to which it is subject, which default would, individually or in the aggregate, have a Material Adverse Effect. 

        (g)  The
execution, delivery and performance by the Company of the Basic Documents, the issuance by the Company of the Shares, the Warrants and the Warrant Shares and the
consummation by the Company of the transactions contemplated thereby and the fulfillment of the terms thereof do not and will not (a) violate or constitute or result in a breach of or a default
under (or an event that, with notice or lapse of time, or both, would constitute a breach of or a default under) any of (i) the terms or provisions of any contract, indenture, mortgage, deed of
trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the certificate of incorporation or bylaws of any of the Company or the Subsidiaries (or similar organizational document) or (iii) any
statute, judgment, decree, order, rule or regulation of any court or governmental agency or other body applicable to the Company or the Subsidiaries or any of their respective properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the properties or assets now owned or hereafter acquired by the Company or any of the Subsidiaries, except, in the case
of clauses (i) and (iii) only, where the violation, conflict, breach, default or lien would not, individually or in the aggregate, have a Material Adverse Effect. 

        (h)  The
audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations, cash flows
and changes in stockholders' equity of the Company, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on
a consistent basis. The interim unaudited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations and cash
flows of the Company, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles as in effect on the date hereof
("GAAP") applied on a consistent basis with the audited consolidated financial statements included therein, except for the failure to include certain
footnotes and schedules otherwise required by GAAP and subject to year-end audit adjustments; the selected financial and statistical data included in the Disclosure Documents present
fairly the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein.
Ernst & Young LLP, which has examined certain of such financial statements as set forth in its report included in the Disclosure Documents, is an independent public accounting firm as required
by the Securities Act for an offering registered thereunder. 

        (i)    Except
as described in the Disclosure Documents, there is not pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or
investigation, governmental or otherwise, to which any of the Company or the Subsidiaries is a party, or to which their respective properties or assets are subject, before or brought by any court,
arbitrator or governmental agency or body. 

        (j)    None
of the Company or the Subsidiaries has, or, after giving effect to the issuance and sale of the Securities hereunder, will have, any liability for any prohibited
transaction (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code")), accumulated funding deficiency (as defined in Section 302 of ERISA) or any complete
or partial withdrawal from a multiemployer plan (as defined in Section 4001(a)(3) of ERISA), with respect to any plan (as defined in Section 3(3) of ERISA) as to which the Company or any
of the Subsidiaries has or could have any direct or indirect, actual or contingent liability. With respect to such plans, the Company and the Subsidiaries are, and, after giving effect to the issuance
and sale of the 

4

 

Securities hereunder, will be, in compliance in all material respects with all provisions of the Code and ERISA. 

        (k)(i)All
Intellectual Property of the Company and its Subsidiaries is currently in compliance in all material respects with all legal requirements (including timely
filings, proofs and payments of fees) and is valid and enforceable. No Intellectual Property of the Company or its Subsidiaries which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently proposed to be conducted has been or is now involved in any cancellation, dispute or litigation, and, to the Company's
knowledge, no such action is threatened. No patent of the Company or its Subsidiaries has been or is now involved in any interference, reissue, re-examination or opposition proceeding. 

        (ii)  All
of the licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property which are necessary for the conduct of the Company's and
each of its Subsidiaries' respective businesses as currently conducted or as currently proposed to be conducted to which the Company or any Subsidiary is a party or by which any of their assets are
bound (other than generally commercially available, non-custom, off-the-shelf software application programs having a retail acquisition price of less than $10,000
per license) (collectively, "License Agreements") are valid and binding obligations of the Company or its Subsidiaries that are parties thereto and, to
the Company's knowledge, the other parties thereto, enforceable in accordance with their terms, subject to the Enforcement Exceptions, and, to the Company's knowledge, there exists no event or
condition which will result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default by the Company or any of its Subsidiaries under any such License
Agreement, except where the violation, breach or default would not have a Material Adverse Effect, individually or in the aggregate. 

        (iii)  The
Company and its Subsidiaries own or have the valid right to use all of the Intellectual Property that is necessary for the conduct of the Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently proposed to be conducted and for the ownership, maintenance and operation of the Company's and its Subsidiaries' properties
and assets, free and clear of all liens, encumbrances, adverse claims or obligations to license all such owned Intellectual Property and Confidential Information, other than licenses entered into in
the ordinary course of the Company's and its Subsidiaries' businesses. The Company and its Subsidiaries have a valid and enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and its Subsidiaries. 

        (iv)  The
conduct of the Company's and its Subsidiaries' businesses as currently conducted does not infringe or otherwise impair or conflict with (collectively,
"Infringe") any Intellectual Property rights of any third party or any confidentiality obligation owed to a third party, except where such infringement,
impairment or conflict could not reasonably be expected to result in a Material Adverse Effect, individually or in the aggregate, and, to the Company's knowledge, the Intellectual Property and
Confidential Information of the Company and its Subsidiaries which are necessary for the conduct of Company's and each of its Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted are not being Infringed by any third party. There is no litigation or order pending or outstanding or, to the Company's knowledge, threatened or imminent, that seeks to limit
or challenge or that concerns the ownership, use, validity or enforceability of any Intellectual Property or Confidential Information of the Company and its Subsidiaries and the Company's and its
Subsidiaries' use of any Intellectual Property or Confidential Information owned by a third party, and, to the Company's knowledge, there is no valid basis for the same. 

5

 

        (v)  The
consummation of the transactions contemplated hereby will not result in the alteration, loss, impairment of or restriction on the Company's or any of its
Subsidiaries' ownership or right to use any of the Intellectual Property or Confidential Information which is necessary for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted or as currently proposed to be conducted. 

        (vi)  All
software owned by the Company or any of its Subsidiaries, and, to the Company's knowledge, all software licensed from third parties by the Company or any of its
Subsidiaries, (A) is free from any material defect, bug, virus, or programming, design or documentation error; (B) operates and runs in a reasonable and efficient business manner; and
(C) conforms in all material respects to the specifications and purposes thereof. 

      (vii)  The
Company and its Subsidiaries have taken reasonable steps to protect the Company's and its Subsidiaries' rights in their Intellectual Property and Confidential
Information. Each employee, consultant and contractor who has had access to Confidential Information which is necessary for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted or as currently proposed to be conducted has executed an agreement to maintain the confidentiality of such Confidential Information and has executed appropriate agreements that
are substantially consistent with the Company's standard forms thereof. Except under confidentiality obligations, there has been no material disclosure of any of the Company's or its Subsidiaries'
Confidential Information to any third party. 

        (k)  Each
of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals presently required or
necessary to own or lease, as the case may be, and to operate
its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Disclosure Documents
("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect; each of the
Company and the Subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit; and none of the Company or the Subsidiaries has received any notice of any
proceeding relating to revocation or modification of any such Permit, except as described in the Disclosure Documents and except where such revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect. 

        (l)    Since
March 31, 2002, except as identified and described in the Disclosure Documents, there has not been: 

          (i)  any
change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in
the Company's most recent Quarterly Report on Form 10-Q, except for changes in the ordinary course of business which have not and could not reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; 

        (ii)  any
declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Company, or any redemption or
repurchase of any securities of the Company; 

        (iii)  any
material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company or its Subsidiaries; 

6

 

        (iv)  any
waiver, not in the ordinary course of business, by the Company or any Subsidiary of a material right or of a material debt owed to it; 

        (v)  any
satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company or a Subsidiary, except in the ordinary course of business
and which is not material to the assets, properties, financial condition, operating results or business of the Company and its Subsidiaries taken as a whole (as such business is presently conducted
and as it is proposed to be conducted); 

        (vi)  except
as contemplated by the Basic Documents, any change or amendment to the Company's Certificate of Incorporation or by-laws, or material change to any
material contract or arrangement by which the Company or any Subsidiary is bound or to which any of their respective assets or properties is subject; 

      (vii)  any
material labor difficulties or, to the Company's knowledge, labor union organizing activities with respect to employees of the Company or any Subsidiary; 

      (viii)  any
material transaction entered into by the Company or a Subsidiary other than in the ordinary course of business; 

        (ix)  the
loss of the services of any key employee, or material change in the composition or duties of the senior management of the Company or any Subsidiary; 

        (x)  the
loss or threatened loss of any customer which has had or would have a Material Adverse Effect; or 

        (xi)  any
other event or condition of any character that has had or would have a Material Adverse Effect. 

        (m)  There
are no legal or governmental proceedings nor are there any contracts or other documents required by the Securities Act to be described in a prospectus that are not
described in the Disclosure Documents. Except as described in the Disclosure Documents, none of the Company or the Subsidiaries is in default under any of the contracts described in the Disclosure
Documents, has received a notice or claim of any such default or has knowledge of any breach of such contracts by the other party or parties thereto, except such defaults or breaches as would not,
individually or in the aggregate, have a Material Adverse Effect. 

        (n)  Neither
the Company nor any of the Subsidiaries owns any real property. Each of the Company and the Subsidiaries has good title to all personal property described in the
Disclosure Documents as being owned by it and possesses valid leasehold rights in the real or personal property described therein as being leased by it, free and clear of all liens, charges,
encumbrances or restrictions, except, in each case, as described in the Disclosure Documents or such as would not, individually or in the aggregate, have a Material Adverse Effect. All leases,
contracts and agreements, including those referred to in the Disclosure Documents, to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable
against the Company or any such Subsidiary, are, to the knowledge of the Company, valid and enforceable against the other party or parties thereto and are in full force and effect, other than where
such invalidity or unenforceability would not, individually or in the aggregate, have a Material Adverse Effect. 

        (o)  The
Company and each Subsidiary has timely prepared and filed (within all applicable extension periods) all tax returns required to have been filed by the Company or
such Subsidiary with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by it except (i) where the Company has obtained an extension of time within
which to file any such tax return (and is in compliance with the terms of any such extension) and (ii) for such failures to file or pay as have not had and would not have a Material Adverse
Effect, individually 

7

 

or in the aggregate. The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid
assessments against the Company or any Subsidiary nor, to the Company's knowledge, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any
federal, state or local taxing authority except for any assessment which is not material to the Company and its Subsidiaries, taken as a whole. All taxes and other assessments and levies that the
Company or any Subsidiary is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due. There are no tax
liens or claims pending or, to the Company's knowledge, threatened against the Company or any Subsidiary or any of their respective assets or property. There are no outstanding tax sharing agreements
or other such arrangements between the Company and any Subsidiary or other corporation or entity. 

        (p)  Except
as disclosed in the Disclosure Documents and except as would not, individually or in the aggregate, have a Material Adverse Effect, (A) each of the Company
and the Subsidiaries is in compliance with all, and is not subject to liability (including, without limitation, fines or penalties) under any, applicable Environmental Laws, (B) each of the
Company and the Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has all permits, authorizations and approvals required under any
applicable Environmental Laws and is in compliance with their requirements, (C) there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter or request for information pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries under any
Environmental Law, (D) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or
controlled by the Company or any of the Subsidiaries, (E) neither the Company nor any of the Subsidiaries is subject to any order, decree or agreement requiring, or otherwise obligated or
required to perform any response or corrective action relating to any hazardous material, (F) neither the Company nor any of the Subsidiaries has received notice that it has been identified as
a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or any
comparable state law, (G) no property or facility of the Company or any of the Subsidiaries is (i) listed or proposed for listing on the National Priorities List under CERCLA or
(ii) listed in the Comprehensive Environmental Response, Compensation and Liability Information System List promulgated pursuant to CERCLA, or on any comparable list maintained by any state or
local governmental authority and (H) there are no past or present actions, events, operations or activities which could reasonably be expected to prevent or interfere with compliance by the
Company or any Subsidiary with any applicable Environmental Law or to result in liability (including, without limitation, fines or penalties) under any applicable Environmental Law. 

        For
purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means any federal, state, local
or municipal statute, law, rule, regulation, ordinance, code, policy
or rule of common law and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment binding on any of the Company or the
Subsidiaries, relating to pollution or protection of the environment, natural resources or health or safety including, without limitation, any relating to the release or threatened release of any
pollutant, contaminated substance, material, waste, chemical or contaminant subject to regulation thereunder. 

        (q)  None
of the Company or the Subsidiaries is, or immediately after the Closing Date will be, required to register as an "investment company" or a company "controlled by"
an "investment 

8

 

company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"). 

        (r)  None
of the Company or the Subsidiaries or any of such entities' directors, officers, employees, agents or controlling persons has taken, directly or indirectly, any
action designed, or that might reasonably be expected, to cause or result, under the Securities Acts or otherwise, in, or that has constituted, stabilization or manipulation of the price of the Common
Stock. 

        (s)  None
of the Company, the Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) directly,
or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any "security" (as defined in the Securities Act) which is or could be integrated
with the sale of the Securities hereunder in a manner that would require the registration under the Securities Act of the Securities or (ii) engaged in any form of general solicitation or
general advertising (as those terms are used in Regulation D under the Securities Act) in connection with the offering of the Securities or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act. Assuming the accuracy of the representations and warranties of the Purchasers in Section 6 hereof, it is not necessary in connection with
the offer, sale and delivery of the Securities to the Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Securities Act. 

        (t)    Except
as set forth in the Disclosure Documents, there is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of the
Subsidiaries which is pending or, to the knowledge of the Company or any of the Subsidiaries, threatened. 

        (u)  Each
of the Company and the Subsidiaries carries insurance (including self-insurance) in such amounts and covering such risks as in its reasonable
determination is adequate for the conduct of its business and the value of its properties. 

        (v)  Each
of the Company and the Subsidiaries (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and
(D) the reported accountability for its assets is compared with existing assets at reasonable intervals. 

        (w)  No
holder of securities of the Company or any Subsidiary will be entitled to have such securities registered under the Shelf Registration Statement. 

        (x)  The
statistical and market and industry-related data included in the Disclosure Documents are based on or derived from sources which the Company believes to be reliable
and accurate or represent the Company's good faith estimates that are made on the basis of data derived from such sources. 

        (y)  Except
for the fee payable to the Placement Agent, the Company does not know of any claims for services, either in the nature of a finder's fee or financial advisory
fee, with respect to the offering of the Shares and the transactions contemplated by the Basic Documents. 

        (z)  The
Common Stock is listed on the Nasdaq SmallCap Market. The Company currently is not in violation of, and assuming the satisfaction of the condition specified in
Section 5(d), the consummation of the transactions contemplated by the Basic Documents will not violate, any rule of the National Association of Securities Dealers. 

9

  

        (aa)
The Company has filed a Listing of Additional Shares Notification Form with the Nasdaq Stock Market with respect to the Shares and the Warrant Shares. The Shares and the Warrant
Shares will be listed on the Nasdaq SmallCap Market immediately following their issuance. There are no proceedings pending or, to the Company's knowledge, threatened against the Company relating to
the continued listing of the Company's Common Stock on Nasdaq and the Company has not received any notice of, nor to the Company's knowledge is there any basis for, the delisting of the Common Stock
from Nasdaq. 

        (bb)
The Company is eligible to use Form S-3 for the resale of the Shares and the Warrant Shares by Purchasers or their transferees. The Company has no reason to
believe that it is not capable of satisfying the registration or qualification requirements (or an exemption therefrom) necessary to permit the resale of the Shares and the Warrant Shares under the
securities or "blue sky" laws of any jurisdiction within the United States that is the residence or domicile of any Purchaser. 

        (cc)
Neither the Company nor any of its Subsidiaries nor, to the Company's knowledge, any of their respective current or former stockholders, directors, officers, employees, agents or
other persons acting on behalf of the Company or any Subsidiary, has on behalf of the Company or any Subsidiary or in connection with their respective businesses: (a) used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or
employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books
and records of the Company or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature. 

        (dd)
Except as disclosed in the Disclosure Documents, none of the officers, directors or employees of the Company is presently a party to any transaction with the Company or a Subsidiary
or to a presently contemplated transaction (other than for services as employees, officers and directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the Securities Act, without regard to the dollar thresholds contained in such Item. 

        (ee)
Any certificate signed by any officer of the Company or any Subsidiary and delivered pursuant to this Agreement shall be deemed a joint and several representation and warranty by
the Company to each Purchaser as to the matters covered thereby. 

        3.    Purchase, Sale and Delivery of the Shares.    On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Purchasers, and each Purchaser acting severally and not jointly agrees
to purchase from the Company, the number of Shares and the Warrants set forth on such Purchaser's signature page hereto, for the aggregate purchase price set forth on such signature page. 

        The
Company shall deliver to Lowenstein Sandler PC, in trust, a certificate or certificates, registered in such name or names as the Purchasers may designate, representing the Shares and
Warrants, with instructions that such certificates are to be held for release to the Investors only upon payment of the aggregate purchase price to the Company. Upon receipt by Lowenstein Sandler PC
of the certificates, each Purchaser shall promptly cause a wire transfer in same day funds to be sent to the account of the Company as instructed in writing by the Company, in an amount representing
such Purchaser's pro rata portion of the purchase price as set forth on the signature pages to this Agreement. On the date (the "Closing Date") the
Company receives such funds, the certificates evidencing the Shares and Warrants shall be released to the Purchasers (the "Closing"). The purchase and
sale of the Shares and Warrants shall take place at the offices of Lowenstein Sandler PC, 1330 

10

 

Avenue of the Americas, 21st Floor, New York, New York, or at such other location and on such other date as the Company and the Purchasers shall mutually agree. 

        4.    Certain Covenants.    The Company covenants and agrees with each Purchaser and the Placement Agent that: 

        (a)  None
of the Company or any of its Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the
Securities Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Securities Act of the Securities. 

        (b)  The
Company will apply the net proceeds from the sale of the Securities for general working capital purposes. 

        (c)  Except
in connection with the filing of the Shelf Registration Statement, the Company will not, and will not permit any of the Subsidiaries to, engage in any form of
general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) in connection with the offering of the Securities or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities Act. 

        (d)  The
Company will not become, at any time prior to the expiration of three years after the Closing Date, an open-end investment company, unit investment
trust, closed-end investment company or
face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. 

        (e)  The
Company will use its best efforts to do and perform all things required to be done and performed by it under this Agreement and the other Basic Documents prior to or
after the Closing Date and to satisfy all conditions precedent on its part to the obligations of the Purchasers to purchase and accept delivery of the Securities. 

        (f)    The
Company shall at all times following the Closing reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of
providing for the conversion of the Shares and the exercise of the Warrants, such number of shares of Common Stock as shall from time to time equal the number of shares sufficient to permit the
conversion of the Shares and the exercise of the Warrants issued pursuant to this Agreement in accordance with their respective terms. 

        (g)  For
as long as a Purchaser or its assignees hold any of the Securities or Warrant Shares, the Company will furnish to such Purchaser and/or its assignees such
information relating to the Company and its Subsidiaries as from time to time may reasonably be requested by such Purchaser and/or its assignees; provided, however, that the Company shall not disclose
material nonpublic information to the Purchasers, or to advisors to or representatives of the Purchasers, unless prior to disclosure of such information the Company advises the Purchasers, such
advisors and representatives that the information they have requested or that the Company otherwise intends to disclose is material nonpublic information and provides the Purchasers, such advisors and
representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and provided further that any Purchaser wishing to obtain such material nonpublic
information enters into an appropriate confidentiality agreement with the Company with respect thereto. 

        (h)  The
Company will not take any action, enter into any agreement or make any commitment that would conflict or interfere in any material respect with the obligations to
the Purchasers under the Basic Documents. 

        (i)    The
Company shall not materially reduce the insurance coverages described in Section 3. 

11

 

        (j)    The
Company will comply in all material respects with all applicable laws, rules, regulations, orders and decrees of all governmental authorities. 

        (k)  Promptly
following the date hereof, the Company shall take all necessary action to cause the Shares and the Warrant Shares to be included on The Nasdaq SmallCap Market
no later than the Closing Date. Further, if the Company applies to have its Common Stock or other securities traded on any other principal stock exchange or market, it shall include in such
application the Shares and the Warrant Shares and will take such other action as is necessary to cause such Common Stock to be so listed. The Company will use commercially reasonable efforts to
continue the listing and trading of its Common Stock on The Nasdaq SmallCap Market and, in accordance, therewith, will use commercially reasonable efforts to comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of such market or exchange, as applicable. 

        5.    Conditions of the Purchasers' Obligations.    The obligation of each Purchaser to purchase and pay for the
Securities is subject to the following conditions unless waived in writing by the relevant Purchaser: 

        (a)  The
representations and warranties made by the Company in this Agreement qualified as to materiality shall be true and correct at all times prior to and on the Closing
Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in this Agreement not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the
Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all material respects all obligations and conditions herein required to be performed or observed by it on or prior to the Closing
Date. 

        (b)  None
of the issuance and sale of the Securities pursuant to this Agreement or any of the transactions contemplated by any of the other Basic Documents shall be enjoined
(temporarily or permanently) and no restraining order or other injunctive order shall have been issued in respect thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened against the Company or against any Purchaser relating to the issuance of the Securities or any Purchaser's activities in
connection therewith or any other transactions contemplated by this Agreement, the other Basic Documents or the Disclosure Documents. 

        (c)  The
Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Securities all of which shall be in full force and effect. 

        (d)  The
Company shall have received (A) written notice from Nasdaq to the effect that the issuance and sale of the Securities as contemplated hereby will not require
shareholder approval pursuant to the requirements of Nasdaq Marketplace Rule 4350(i), and (B) oral confirmation from Nasdaq that the Shares and the Warrant Shares shall have been
approved for inclusion in The Nasdaq SmallCap Market upon official notice of issuance. 

        (e)  The
Purchasers and Placement Agent shall have received certificates, dated the Closing Date and signed by the chief executive officer and the chief financial officer of
the Company, to the effect of paragraphs 5(a), (b), (c) and (d). 

        (f)    The
Company shall have delivered a Certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by
the Board of 

12

 

Directors of the Company approving the transactions contemplated by this Agreement and the other Basic Documents and the issuance of the Securities, certifying the current versions of the Certificate
of Incorporation and Bylaws of the Company and certifying as to the signatures and authority of persons signing the Basic Documents and related documents on behalf of the Company. 

        (g)  On
or before the Closing Date, the Purchasers shall have received the Registration Rights Agreement executed by the Company and such agreement shall be in full force and
effect at all times from and after the Closing Date, subject to the Enforceability Exceptions. 

        (h)  The
Purchasers and Placement Agent shall have received an opinion of Brobeck, Phleger & Harrison LLP, counsel to the Company, in the form attached hereto as  Exhibit E. 

        (i)    No
stop order or suspension of trading shall have been imposed by Nasdaq, the Commission or any other governmental regulatory body with respect to public trading in the
Common Stock. 

        6.    Representations and Warranties of the Purchasers.    

        (a)  Each
Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that the Securities to be acquired by it hereunder (including the
Warrant Shares that it may acquire upon exercise of the Warrants) are being acquired for its own account for investment (and/or on behalf of managed accounts who are purchasing solely for their own
accounts for investment) and with no intention of distributing or reselling such Securities or any part thereof or interest therein in any transaction which would be in violation of the securities
laws of the United States of America or any State, without prejudice, however, to a Purchaser's right, subject to the provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Shares or Warrant Shares under an effective registration statement under the Securities Act and in compliance with applicable state securities
laws or under an exemption from such registration, and subject, nevertheless, to the disposition of a Purchaser's property being at all times within its control. By executing this Agreement, each
Purchaser further represents that such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any Person with respect
to any of the Securities or the Warrant Shares. 

        (b)  Each
Purchaser understands that the Securities and the Warrant Shares have not been registered under the Securities Act and may not be offered, resold, pledged or
otherwise transferred except (a) pursuant to an exemption from registration under the Securities Act (and, if requested by the Company, based upon an opinion of counsel acceptable to the
Company) or pursuant to an effective registration statement under the Securities Act and (b) in accordance with all applicable securities laws of the states of the United States and other
jurisdictions. 

        Each
Purchaser agrees to the imprinting of the following legend on the Shares and the Warrant Shares: 

        The shares of common stock evidenced by this certificate have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered, sold,
pledged or otherwise transferred ("transferred") in the absence of such registration or an applicable exemption therefrom. In the absence of such registration, such shares may not be transferred
unless, if the Company requests, the Company has received a written opinion from counsel in form and substance satisfactory to the Company stating that such transfer is being made in compliance with
all applicable federal and state securities laws.

        Such
legend shall remain on the certificates representing the Shares and the Warrant Shares until the earlier of (i)(A) registration of the Shares and the Warrant Shares for resale
pursuant to 

13

 

the Registration Rights Agreement and (B) delivery by a Purchaser to the transfer agent for the Common Stock (the "Transfer Agent") of a
certification that such Purchaser has disposed of the Shares and/or the Warrant Shares in compliance with the Securities Act (including the prospectus delivery requirements thereof), or
(ii) Rule 144(k) becoming available. Upon the registration of the Shares and the Warrant Shares for resale pursuant to the Registration Rights Agreement, the Company shall deliver to the
Transfer Agent (x) irrevocable instructions to issue new certificates without the restrictive legend set forth above upon the disposition of Shares and Warrant Shares in accordance with
clause (i) above, and (y) a blanket opinion from the Company's counsel to the effect that certificates representing Shares and Warrant Shares disposed of in accordance with
clause (i) above may be re-issued without such restrictive legend. Upon compliance with the provisions of clause (i) or (ii) above, the Company shall, upon a
Purchaser's written request, promptly, and in any case within three (3) Business Days after receipt of such request, cause certificates evidencing the Shares and the Warrant Shares to be
replaced with certificates which do not bear such restrictive legends. 

        (c)  Each
Purchaser is an accredited investor within the meaning of Rule 501(a) of Regulation D under the Securities Act. 

        (d)  Each
Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that it 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, such
Purchaser having been represented by counsel, and has so evaluated the merits and risks of such investment and is able to bear the economic risk of such investment and, at the present time, is able to
afford a complete loss of such investment. 

        (e)  Each
Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that the purchase of the Securities to be purchased by it has
been duly and properly authorized and this Agreement has been duly executed and delivered by it or on its behalf and constitutes the valid and legally binding obligation of such Purchaser, enforceable
against the Purchaser in accordance with its terms, subject to the Enforcement Exceptions. 

        (f)    Each
Purchaser, severally and not jointly and as to itself only, represents and warrants to the Company that neither it nor any of its directors, officers, employees,
agents, or controlling persons has taken, directly or indirectly, any actions designed, or might reasonably be expected to cause or result, under the Securities Acts or otherwise, in, or that has
constituted, stabilization, or manipulation of the price of the Common Stock. 

        (g)  Each
Purchaser acknowledges receipt of the Disclosure Documents and further 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 Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to
evaluate its investment in the Securities; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that
is necessary to verify the accuracy and completeness of the information contained in the Disclosure Documents; provided, however, that no investigation conducted by the Purchaser shall limit or affect
the representations and warranties of the Company contained herein or the right of the Purchaser to rely thereon. 

        (h)  Each
Purchaser understands and acknowledges that (i) any forward-looking information included in the Disclosure Documents supplied to such Purchaser by the
Company or its management is subject to risks and uncertainties, including those risks and uncertainties set forth 

14

 

in the Disclosure Documents; and (ii) the Company's actual results may differ materially from those projected by the Company or its management in such forward-looking information. 

        (i)    Each
Purchaser understands and acknowledges that (i) the Securities are offered and sold without registration under the Securities Act in a private placement that
is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption depends in part on, and that the Company, its counsel and the Placement Agent will
rely upon, the accuracy and truthfulness of the foregoing representations and such Purchaser hereby consents to such reliance. 

        7.    Survival; Indemnification.    

        (a)  The
respective representations, warranties, agreements and covenants of the Company and the Purchasers set forth in this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, or any Purchaser and (ii) delivery of, payment for or disposition of the
Securities, and shall be binding upon and shall inure to the benefit of any successors, assigns, heirs or personal representatives of the Company and the Purchasers. 

        (b)  The
Company agrees to indemnify and hold harmless, on an after-tax and after insurance recovery basis, each Purchaser and its affiliates and their respective
directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities and reasonable out-of-pocket expenses (including without limitation
reasonable attorney fees and disbursements and other reasonable expenses incurred in connection with investigating, preparing or defending any action, claim or proceeding, pending or threatened and
the costs of enforcement hereof) (collectively, "Losses") to which such person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company under the Basic Documents, and will reimburse any such person for all such amounts as they are incurred by such person. 

        (c)  Promptly
after receipt by any person (the "Indemnified Person") of notice of any demand, claim or circumstances which
would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to this Section 8, such Indemnified
Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall
assume the payment of all fees and expenses; provided, however, that the failure of any Indemnified
Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the
Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of both
parties by the same counsel would be inappropriate due to actual or potential differing interests between them. In no event shall the Company be liable for the fees and expenses of more than one
separate counsel (together with local counsel), for all of the Indemnified Persons who are parties to such proceeding. The Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Company shall indemnify and hold
harmless such Indemnified Person from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Without the prior written consent of the Indemnified
Person, which consent shall not be unreasonably withheld, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could
have 

15

 

been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising
out of such proceeding. 

        8.    Termination.    

        (a)  The
obligations of the Company, on the one hand, and the Purchasers, on the other hand, to effect the Closing shall terminate as follows: 

          (i)  Upon
the mutual written consent of the Company and the Purchasers; 

        (ii)  By
the Company if the representations and warranties made by the Purchasers in Section 6 are not true and correct in all material respects; 

        (iii)  By
the Purchasers if any of the conditions set forth in Section 5 shall have become incapable of fulfillment; or 

        (iv)  By
either the Company or the Purchasers if the Closing has not occurred on or prior to September 30, 2002; 

provided,
however, that, except in the case of clause (i) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or the other Basic Documents if such breach has resulted in the circumstances giving rise to such party's seeking to terminate its
obligation to effect the Closing. 

        (b)  In
the event of termination by the Company or the Purchasers of their obligations to effect the Closing pursuant to this Section 8, written notice thereof shall
forthwith be given to the other parties hereto and the obligation of all parties to effect the Closing shall be terminated, without further action by any party. Nothing in this Section 8 shall
be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Basic Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement or the other Basic Documents. 

        9.    Notices.    All communications hereunder shall be in writing and, (i) if sent to a Purchaser, shall be
hand delivered, mailed by first-class mail, couriered by next-day air courier or telecopied and confirmed in writing to their address on their signature page hereof and (ii) if sent
to the Company, shall be hand delivered, mailed by first-class mail, couriered by next-day air courier or faxed and confirmed in writing to Odetics, Inc., 1515 South Manchester
Avenue, Anaheim, CA 92802, Attention: Chief Executive
Officer (facsimile: (714) 780-7857), and with a copy to Ellen S. Bancroft, Esq., Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine, California 92618 (facsimile:
(949) 790-6301). 

        All
such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail,
postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; and when receipt is acknowledged by the addressee, if
faxed. 

        10.    Successors.    This Agreement shall inure to the benefit of and be binding upon each Purchaser and the Company
and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other person. No purchaser of Securities from any Purchaser will be deemed a successor because of such purchase. 

16

 

        11.    No Waiver; Modifications in Writing.    No failure or delay on the part of the Company or any Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or any Purchaser
at law or in equity or otherwise. No waiver of or consent to any departure by the Company or any Purchaser from any provision of this Agreement shall be effective unless signed in writing by the party
entitled to the benefit thereof, provided that notice of any such waiver shall be given to each party hereto as set forth below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of each of the Company and the relevant Purchaser. Any amendment, supplement or modification
of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Company or any Purchaser from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand
on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. 

        12.    Entire Agreement.    This Agreement, the other Basic Documents, the Disclosure Documents and the Schedules
constitute the entire agreement among the parties hereto and supersede all prior agreements, understandings and arrangements, oral or written, among the parties hereto with respect to the subject
matter hereof, including, but not limited to, the letter agreement, dated July 23, 2002, among the parties hereto. 

        13.    APPLICABLE LAW.    THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO
CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

        14.    Consent to Jurisdiction.    Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment
relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto
anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any
such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in
such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 

        15.    Expenses.    The parties hereto shall pay their own costs and expenses in connection herewith, except that the
Company shall pay the reasonable fees and out-of-pocket expenses of counsel to the Purchasers in connection with the documentation and negotiation of the Basic Documents, but
not in excess of $25,000. The Company shall reimburse the Purchasers upon demand for all reasonable out-of-pocket expenses incurred by the Purchasers, including without
limitation reimbursement of attorneys' fees and disbursements, in connection with any amendment, modification or waiver of this Agreement or the other Basic Documents. In the event that legal
proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Basic Documents, the party or parties which do not
prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys' fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings. 

17

 

        16.    Publicity.    No public release or announcement concerning the transactions contemplated hereby shall be issued
by the Company or the Purchasers without the prior consent of the Company (in the case of a release or announcement by the Purchasers) or Special Situations Fund III, L.P. ("SSF") (in the case of a
release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any
securities exchange or securities market, in which case the Company or the Purchasers, as the case may be, shall allow SSF or the Company, as applicable, to the extent reasonably practicable in the
circumstances, reasonable time to comment on such release or announcement in advance of such issuance. 

        17.    Counterparts.    This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. 

18

        If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this Agreement shall constitute a
binding agreement among the Company and the Purchasers. 

	 	 	Very truly yours,
	

 	
 	

 	
 	

 
	 	 	 	 	ODETICS, INC.
	

 	
 	

 	
 	

 
	 	 	By:	 	/s/ Gregory A. Miner

	 	 	 	 	Name: Gregory A. Miner
	 	 	 	 	Title: Chief Executive Officer and Chief Financial Officer

 
 

SUBSCRIPTION AGREEMENT SIGNATURE PAGE    
  

	 	 	SPECIAL SITUATIONS FUND III, L.P.
	

 	
 	

 	
 	

 	
 	

 
	 	 	By:	 	/s/ Austin Marxe

	 	 	 	 	Name:	 	Austin Marxe
	 	 	 	 	Title:	 	General Partner
	

 	
 	

 	
 	

 	
 	

 
	Aggregate Purchase Price: $1,700,040

Number of Shares: 1,416,700

Number of Series A Warrants: 708,350

Number of Series B Warrants: 708,350	 	 	 	 	 	 
	

 	
 	

 	
 	

 	
 	

 
	Address for Notice:	 	 	 	 	 	 
	 	 	 	 	153 E. 53rd Street

55th Floor

New York, NY 10022
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	with a copy to:
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400
	

 	
 	

 	
 	

 	
 	

 
	 	 	SPECIAL SITUATIONS CAYMAN FUND, L.P.
	

 	
 	

 	
 	

 	
 	

 
	 	 	By:	 	/s/ Austin Marxe

	 	 	 	 	Name:	 	Austin Marxe
	 	 	 	 	Title:	 	General Partner
	Aggregate Purchase Price: $499,920

Number of Shares: 416,600

Number of Series A Warrants: 208,300

Number of Series B Warrants: 208,300	 	 	 	 	 	 
	

 	
 	

 	
 	

 	
 	

 
	Address for Notice:	 	 	 	 	 	 
	 	 	 	 	153 E. 53rd Street

55th Floor

New York, NY 10022
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	with a copy to:
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400

	

 	
 	

 	
 	

 	
 	

 
	 	 	SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
	

 	
 	

 	
 	

 	
 	

 
	 	 	By:	 	/s/ Austin Marxe

	 	 	 	 	Name:	 	Austin Marxe
	 	 	 	 	Title:	 	General Partner
	

 	
 	

 	
 	

 	
 	

 
	Aggregate Purchase Price: $800,040

Number of Shares: 666,700

Number of Series A Warrants: 333,350

Number of Series B Warrants: 333,350	 	 	 	 	 	 
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	153 E. 53rd Street

55th Floor

New York, NY 10022
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	with a copy to:
	

 	
 	

 	
 	

 	
 	

 
	 	 	 	 	Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn: John D. Hogoboom, Esq.

Telephone: 973.597.2500

Facsimile: 973.597.2400

Exhibit A  

Form
of Series A Warrant 

Exhibit B  

Form
of Series B Warrant 

Exhibit C  

Form
of Registration Right Agreement 

Exhibit D  

Form
of Opinion of Brobeck, Harrison & Phleger, LLP 

        A.    The
Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, and the Company has the requisite
corporate power and authority to own its properties and to conduct its business as, to such counsel's knowledge, it is presently conducted 

        B.    Each
of Zyfer, Inc., MAXxess, Inc., Broadcast, Inc. and Iteris, Inc. is a corporation duly incorporated, validly existing and in good standing
under the laws of the state of its incorporation and has the requisite corporate power and authority to own its properties and to conduct its respective business as, to such counsel's knowledge, it is
presently conducted. 

        C.    The
Shares have been duly authorized and, when issued and delivered to and paid for by the Purchasers in accordance with the terms of the Subscription Agreement, will be
validly issued, fully paid and non-assessable and, will not be issued in violation of any preemptive rights in the Company's certificate of incorporation or any agreement binding upon the
Company that is listed as an exhibit to the Company's Form 10-K filed with the Securities and Exchange Commission on June 29, 2002 (the "Material Agreements"). The Warrant
Shares have been duly authorized and validly reserved for issuance, and when issued upon exercise of the Warrants in accordance with the terms thereof and payment of the aggregate exercise price
therefor, will be validly issued, fully paid and nonassessable. 

        D.    The
Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Subscription Agreement, the Registration Rights
Agreement and the Warrants (the "Transaction Documents"), and each such Transaction Document has been duly authorized, executed and delivered by the Company. 

        E.    Each
of the Transaction Documents constitutes a legal, valid and binding obligation of the Company, enforceable by the Purchasers against the Company in accordance with
its terms. 

        F.    Other
than in connection with any securities laws (with respect to which we direct you to paragraph I below), all consents, approvals, permits, orders or
authorizations of, and all qualifications by and registrations with, any federal or Delaware corporate or California state governmental authority on the part of the Company required in connection with
the execution and delivery of the Transaction Documents and consummation at the Closing of the transactions contemplated by the Subscription Agreement have been obtained, except for those
(i) as have been obtained on or prior to the Closing Date, (ii) as are not required to be obtained on or prior to the Closing Date that will be obtained when required, or
(iii) the failure to obtain which would not, individually or in the aggregate, have a Material Adverse Effect. 

        G.    Other
than in connection with any securities laws (with respect to which we direct you to paragraph I below), the Company's execution and delivery of, and its
performance and compliance as of the date hereof with the terms of, the Transaction Agreements do not violate any provision of any federal, Delaware corporate or California law, rule or regulation
applicable to the Company or any provision of the Company's Certificate of Incorporation or Bylaws, as amended, and do not conflict with or constitute a default under the provisions of any judgment,
writ, decree or order specifically identified in the Officer's Certificate dated    . 2002 (the "Officers' Certificate") or the material provisions of any of the Material Agreements, except
in each case for any violation, conflict, breach or default would not, individually or in the aggregate, have a Material Adverse Effect. 

        H.    We
are not aware that there is any action, proceeding or governmental investigation pending, or overtly threatened in writing, against the Company which questions the
validity of the Transaction Documents or the right of the Company to enter into the Transaction Agreements. 

        I.    On
the assumption that the representations of the Purchasers in the Subscription Agreement are correct, the offer and sale of the Common Stock to the Purchasers pursuant
to the terms of the Subscription Agreement are exempt from the registration requirement of Section 5 of the Securities Act of 1933, as amended, and from the qualification requirement of the
California Corporate Securities Law of 1968, as amended. 

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SUBSCRIPTION AGREEMENT

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Exhibit 4.4  

        THIS
WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS. 

        SUBJECT
TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON AUGUST 16, 2007 (THE "EXPIRATION
DATE"). 

No. A-                             

 
 

ODETICS, INC.    
    
    SERIES A WARRANT TO PURCHASE [            ] SHARES OF
  CLASS A COMMON STOCK, PAR VALUE $0.10 PER SHARE    

        For VALUE RECEIVED, [                        ] ("Warrantholder"), is entitled to purchase, subject
to the provisions of this Warrant, from Odetics, Inc., a Delaware corporation ("Company"), at any time not later than 5:00 P.M., Eastern
time, on the Expiration Date (as defined above), at an exercise price per share equal to $1.50 (the exercise price in effect being herein called the "Warrant
Price"), [            ] shares ("Warrant Shares") of the Company's Class A Common Stock, par
value $0.10 per share ("Common Stock"). The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time as described herein. 

        Section 1.    Registration.    The Company shall maintain books for the transfer and registration of the
Warrant. Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder. 

        Section 2.    Transfers.    As provided herein, this Warrant may be transferred only pursuant to a registration
statement filed under the Securities Act of 1933, as amended ("Securities Act"), or an exemption from such registration. Subject to such restrictions,
the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of counsel to the Warrantholder to the
effect that such transfer is exempt from the registration requirements of the Securities Act, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall
be issued to the transferee and the surrendered Warrant shall be canceled by the Company. 

        Section 3.    Exercise of Warrant.    Subject to the provisions hereof, the Warrantholder may exercise this
Warrant in whole or in part at any time prior to the Expiration Date upon surrender of the Warrant, together with delivery of the duly executed Warrant exercise form attached hereto as
Appendix A (the "Exercise Agreement") and payment by cash, certified check or wire transfer of funds for the aggregate Warrant Price for that
number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof). The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have been surrendered (or evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the
Company), the Warrant Price shall have been paid and the completed Exercise Agreement shall have been delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so
exercised. The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name 

 

as shall be designated by such holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of
such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. As used herein,
"business day" means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business. Each
exercise hereof shall constitute the re-affirmation by the Warrantholder that the representations and warranties contained in Section 6 of the Purchase Agreement (as defined below)
are true and correct in all material respects with respect to the Warrantholder as of the time of such exercise. 

        Section 4.    Compliance with the Securities Act of 1933.    The Company may cause the legend set forth on the
first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or
issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary. 

        Section 5.    Payment of Taxes.    The Company will pay any documentary stamp taxes attributable to the initial
issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the registered holder of this Warrant in respect of which such shares are issued, and in such
case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has
established to the Company's reasonable satisfaction that such tax has been paid. The holder shall be responsible for income taxes due under federal, state or other law, if any such tax is due. 

        Section 6.    Mutilated or Missing Warrants.    In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the
Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company. 

        Section 7.    Reservation of Common Stock.    The Company hereby represents and warrants that there have been
reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock,
sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant. The Company agrees that all Warrant Shares issued upon due exercise of the Warrant shall be, at the
time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company. 

        Section 8.    Adjustments.    Subject and pursuant to the provisions of this Section 8, the Warrant
Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter. 

        (a)  If
the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common
Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification
of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing
corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of 

2

 

shares of Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that has
been adjusted to reflect a fair allocation of the economics of such event to the Warrantholder. Such adjustments shall be made successively whenever any event listed above shall occur. 

        (b)  If
any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company
is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company's assets to another corporation shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock,
securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon
exercise of the Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made
with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be
applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise thereof. The Company shall not effect any such
consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the holder of the
Warrant, at the last address of such holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be
entitled to purchase, and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations,
mergers, sales, transfers or other dispositions. 

        (c)  In
case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings
or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined
by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined in good faith by the Company's Board of Directors) of
said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding
multiplied by such Market Price per share of Common Stock immediately prior to such payment date. "Market Price" as of a particular date (the
"Valuation Date") shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one
share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc.
("Nasdaq"), the closing sale price of one share of Common Stock on Nasdaq on the last
trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted on Nasdaq on the last trading day prior to the
Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, the fair market value of one share of Common Stock as of the Valuation Date shall
be determined in good faith by the Board of Directors of the Company. 

3

 

        (d)  For
the term of this Warrant, in addition to the provisions contained above, the Warrant Price shall be subject to adjustment as provided below. An adjustment to the
Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an
adjustment. 

        (e)  In
the event that, as a result of an adjustment made pursuant to this Section 8, the holder of this Warrant shall become entitled to receive any shares of capital
stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant. 

        (f)    Except
as provided in subsection (g) hereof, if and whenever the Company shall issue or sell, or is, in accordance with any of subsections (f)(l) through (f)(7)
hereof, deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share less than the Warrant Price in effect immediately prior to the time of such
issue or sale, then and in each such case (a "Trigger Issuance") the then-existing Warrant Price, shall be reduced, as of the close of
business on the effective date of the Trigger Issuance, to a price determined as follows: 

	 	Adjusted Warrant Price	 	=	 	(A × B) + D
 A+C

        where

        "A" equals the number of shares of Common Stock outstanding, including Additional Shares (as defined below) deemed to be issued hereunder,
immediately preceding such Trigger Issuance; 

        "B" equals the Warrant Price in effect immediately preceding such Trigger Issuance; 

        "C" equals the number of Additional Shares of Common Stock issued or deemed issued hereunder as a result of the Trigger Issuance; and 

        "D" equals the aggregate consideration, if any, received or deemed to be received by the Company upon such Trigger Issuance; 

provided,
however, that in no event shall the Warrant Price after giving effect to such Trigger Issuance be greater than the Warrant Price in effect prior to such Trigger Issuance. 

        For
purposes of this subsection (f), "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company or
deemed to be issued pursuant to this subsection (f), other than Excluded Issuances (as defined in subsection (g) hereof). 

        Notwithstanding
the foregoing, no adjustment in the Warrant Price shall result in the Warrant Price being less than $1.20 (appropriately adjusted for any stock split, reverse stock
split, stock dividend or other reclassification or combination of the Common Stock occurring after the date hereof) (the "Floor Price"), except upon
compliance with the procedures specified below. In the event that any adjustment in the Warrant Price required by this Warrant would result in the Warrant Price being adjusted to a price lower than
the Floor Price, (i) the Warrant Price shall be reduced to the Floor Price, and (ii) the Company shall promptly use its commercially reasonable efforts to obtain stockholder approval for
the adjustment in the Warrant Price in accordance with Nasdaq's Marketplace Rules. The Board of Directors shall recommend (and shall not withdraw or modify such recommendation) that stockholders vote
in favor of such adjustment at the meeting. Upon the receipt of stockholder approval, the Warrant Price shall be adjusted to the price that would have been in effect but for the limitations of this
paragraph, and after giving effect to any intervening adjustments. 

4

 

        For
purposes of this subsection (f), the following subsections (f)(l) to (f)(7) shall also be applicable: 

        (f)(1)    Issuance of Rights or Options. In case at any time the Company shall in any manner grant (directly and not by
assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing
(i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such
Options, plus (y) the aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), in the case of such Options which relate to
Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options) shall be less than the Warrant Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such
price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price.
Except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 

        (f)(2)    Issuance of Convertible Securities. In case the Company shall in any manner issue (directly and not by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received
or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the
Warrant Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes
of adjusting the Warrant Price, provided that (a) except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Warrant Price shall be made by reason of the issue or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible Securities for which adjustments of the Warrant Price have been made pursuant to the other provisions of subsection 8(f). 

5

 

        (f)(3)    Change in Option Price or Conversion Rate. Upon the happening of any of the following events, namely, if the purchase
price provided for in any Option referred to in subsection 8(f)(l) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in
subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2) are convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Warrant Price in effect at the time of such event shall forthwith be readjusted to
the Warrant Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or sold. On the termination of any Option for which any adjustment was made pursuant to this subsection 8(f) or any right to
convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 8(f) (including without limitation upon the redemption or purchase for consideration of such
Convertible Securities by the Company), the Warrant Price then in effect hereunder shall forthwith be changed to the Warrant Price which would have been in effect at the time of such termination had
such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued. 

        (f)(4)    Stock Dividends. Subject to the provisions of this Section 8(f), in case the Company shall declare a dividend
or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. 

        (f)(5)    Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold
for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions
or concessions paid or allowed by the Company in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the
Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company. If Common Stock, Options or Convertible
Securities shall be issued or sold by the Company and, in connection therewith, other Options or Convertible Securities (the "Additional Rights") are
issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes option pricing
model or another method mutually agreed to by the Company and the Warrantholder). The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder as to the
fair market value of the Additional Rights. In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value of the Additional Rights, the
Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall
be borne evenly by the Company and the Warrantholder. 

        (f)(6)    Record Date. In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in 

6

 

Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be. 

        (f)(7)    Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an
issue or sale of Common Stock for the purpose of this subsection (f). 

        (g)  Anything
herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Warrant Price in the case of the issuance of
(A) capital stock, Options or Convertible Securities issued to directors, officers, employees or consultants of the Company in connection with their service as directors or advisory board
members of the Company, their employment by the Company or their retention as consultants by the Company pursuant to an equity compensation program approved by the Board of Directors of the Company or
the compensation committee of the Board of Directors of the Company, (B) shares of Common Stock issued upon the conversion or exercise of Options or Convertible Securities issued prior to the
date hereof, (C) securities issued pursuant to that certain Subscription Agreement dated August 7, 2002, among the Company and the Purchasers named therein (the
"Purchase Agreement") and securities issued upon the exercise or conversion of those securities, (D) shares of Common Stock issued or issuable by
reason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such a dividend, split or distribution results in an adjustment in the Warrant Price
pursuant to the other provisions of this Warrant), and (E) capital stock, Options or Convertible Securities issued pursuant to the arrangements described in Section 2(y) of the Purchase
Agreement (collectively, "Excluded Issuances"). 

        Section 9.    Fractional Interest.    The Company shall not be required to issue fractions of Warrant Shares
upon the exercise of this Warrant. If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the
Company, in lieu of delivering such fractional share, shall pay to the exercising holder of this Warrant an amount in cash equal to the Market Price of such fractional share of Common Stock on the
date of exercise. 

        Section 10.    Extension of Expiration Date.    If the Company fails to cause any Registration Statement
covering Registrable Securities (unless otherwise defined herein, capitalized terms are as defined in the Registration Rights Agreement relating to the Warrant Shares (the
"Registration Rights Agreement")) to be declared effective prior to the applicable dates set forth therein, or if any of the events specified in
Section 2(c)(ii) of the Registration Rights Agreement occurs, and the Blackout Period (whether alone, or in combination with any other Blackout Period) continues for more than
60 days in any 12 month period,
or for more than a total of 90 days, then the Expiration Date of this Warrant shall be extended one day for each day beyond the 60-day or 90-day limits, as the case may
be, that the Blackout Period continues. 

        Section 11.    Benefits.    Nothing in this Warrant shall be construed to give any person, firm or corporation
(other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the
Warrantholder. 

        Section 12.    Notices to Warrantholder.    Upon the happening of any event requiring an adjustment of the
Warrant Price, the Company shall promptly give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in reasonable detail the 

7

 

method of calculation and the facts upon which such calculation is based. Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the
subject adjustment. 

        Section 13.    Identity of Transfer Agent.    The Transfer Agent for the Common Stock is U.S. Stock Transfer
Corporation. Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented
by the Warrant, the Company will mail to the Warrantholder a statement setting forth the name and address of such transfer agent. 

        Section 14.    Notices.    Unless otherwise provided, any notice required or permitted under this Warrant shall
be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if
given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the
earlier of (A) receipt of such notice by the recipient or (B) three (3) business days after such notice is deposited in first class mail, postage prepaid, and (iv) if given
by an internationally recognized overnight air courier, then such notice shall be deemed given one (1) business day after delivery to such carrier. All notices shall be addressed as follows: if
to the Warrantholder, at its address as set forth in the Company's books and records and, if to the Company, at the address as follows, or at such other address as the Warrantholder or the Company may
designate by ten (10) days' advance written notice to the other: 

        If
to the Company: 

Odetics, Inc.

1515 South Manchester Avenue

Anaheim, California 92802

Attention: Gregory A. Miner

Fax: (714) 780-7857 

        With
a copy to: 

Brobeck,
Phleger & Harrison LLP

38 Technology Drive

Irvine, California 92618

Attention: Ellen S. Bancroft, Esq.

Fax: (949) 790-6301 

        Section 15.    Registration Rights.    The initial holder of this Warrant is entitled to the benefit of certain
registration rights with respect to the shares of Common Stock issuable upon the exercise of this Warrant as provided in the Registration Rights Agreement, and any subsequent holder hereof may be
entitled to such rights. 

        Section 16.    Successors.    All the covenants and provisions hereof by or for the benefit of the
Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder. 

        Section 17.    Governing Law.    This Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Warrantholder, each irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Warrantholder, each
irrevocably 

8

 

consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Warrantholder, each
irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such
courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 

        Section 18.    Call Provision.    Notwithstanding any other provision contained herein to the contrary, in the
event that the closing bid price of a share of Common Stock as traded on the Nasdaq (or such other exchange or stock market on which the Common Stock may then be listed or quoted) equals or exceeds
$3.00 (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Common Stock occurring after the date hereof) for twenty
(20) consecutive trading days, the Company, upon thirty (30) days prior written notice (the "Notice Period") following such twenty
(20) trading day period, to the Warrantholder, may call this Warrant, in whole but not in part, at a redemption price equal to $0.01 per share of Common Stock then purchasable pursuant to this
Warrant; provided, however, that (i) all of the shares of Common Stock issuable hereunder either (A) are registered pursuant to an effective Registration Statement (as defined in the
Registration Rights Agreement) which is available for sales of such shares of Common Stock during the Notice Period or (B) no longer constitute Registrable Securities (as defined in the
Registration Rights Agreement), and (ii) the Company simultaneously redeems all Company Warrants (as defined in Section 20 below) on the same terms. Notwithstanding any such notice by
the Company, the Warrantholder shall have the right to exercise this Warrant prior to the end of the Notice Period. 

        Section 19.    No Rights as Stockholder.    Prior to the exercise of this Warrant, the Warrantholder shall not
have or exercise any rights as a stockholder of the Company by virtue of its ownership of this Warrant. 

        Section 20.    Amendment; Waiver.    This Warrant is one of a series of Warrants of like tenor issued by the
Company pursuant to the Purchase Agreement and initially covering an aggregate of 1,250,000 shares of Common Stock (collectively, the "Company
Warrants"). Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) upon the written consent of the
Company and the holders of Company Warrants representing at least 50% of the number of shares of Common Stock then subject to all outstanding Company Warrants (the "Majority
Holders"); provided, that (x) any such amendment or waiver must apply to all Company Warrants; and (y) the number
of Warrant Shares subject to this Warrant, the Warrant Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written
consent of the Warrantholder. 

        Section 21.    Section Headings.    The section headings in this Warrant are for the convenience of the Company
and the Warrantholder and in no way alter, modify, amend, limit or restrict the provisions hereof. 

9

 

        IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the            day
of                        , 2002. 

	 	 	ODETICS, INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	Gregory A. Miner
	 	 	Title:	Chief Executive Officer and

Chief Financial Officer

10

 
 

APPENDIX A
  ODETICS, INC.
  WARRANT EXERCISE FORM    
  

To:
Odetics, Inc.: 

        The
undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant ("Warrant") for, and to
purchase thereunder by the payment of the Warrant Price and surrender of the Warrant,                          shares of
Class A Common Stock
("Warrant Shares") provided for therein, and requests that certificates for the Warrant Shares be issued as follows: 

	
 Name
	 
	
 Address
	 
	

	 
	
 Federal Tax ID or Social Security No.

	

 	
 	

and delivered by	
 	

(certified mail to the above address, or
	 	 	 	 	(electronically (provide DWAC Instructions: _____________), or
	 	 	 	 	(other (specify): _____________________________________).

and,
if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of
this Warrant be registered in the name of the undersigned Warrantholder or the undersigned's Assignee as below indicated and delivered to the address stated below. 

Dated:
_______________________, _______ 

	

Note: The signature must correspond with	
 	

Signature:	
 	

 
	the name of the registered holder as written	 	 	 	

	on the first page of the Warrant in every	 	 	 	 
	particular, without alteration or enlargement or any change whatever, unless the Warrant has been assigned.	 	
 Name (please print)

	

 	
 	

 Address

	

 	
 	

 Federal Identification No. or Social Security No.
	

 	
 	

Assignee:
	 	 	 	 	 
	 	 	

	 	 	 	 	 
	 	 	

	 	 	 	 	 
	 	 	

QuickLinks

ODETICS, INC. SERIES A WARRANT TO PURCHASE [ ] SHARES OF CLASS A COMMON STOCK, PAR VALUE $0.10 PER SHARE

APPENDIX A ODETICS, INC. WARRANT EXERCISE FORM

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