Document:

EX-10.1

 

EXHIBIT 10.1

EXTENSION AGREEMENT

     This EXTENSION AGREEMENT entered into at Providence, Rhode Island, as of February 26, 2008,
between John D Oil & Gas Company, an Ohio corporation, with an address of 8500 Station Street,
Suite 345, Mentor, Ohio 44060 (the “Borrower”) and RBS
Citizens, N. A. d/b/a Charter One, a national
banking association with an address of One Citizens Plaza, Providence, Rhode Island 02903 (the
“Bank”)

     WHEREAS, the Bank established a revolving line of credit (the “Revolving Loan”) for Borrower
which matures on February 29, 2008 (the “Maturity Date”) respecting which Bank agreed to Lend to
Borrower upon Borrower’s request, but subject to the terms and conditions set forth in various
loan documents, of up to Nine Million Five Hundred Thousand Dollars and Zero Cents ($9,500,000.00)
(the “Revolving Loan Amount”);

     WHEREAS, the Revolving Loan is evidenced by that certain Revolving Term Note, dated September
28, 2006 (as previously amended, modified or supplemented, the “Note”), by the Borrower in favor
of the Bank in the face amount of the Revolving Loan Amount;

     WHEREAS, pursuant to one or more previous amendments, modifications or supplements the
original principal amount of the Note was changed to $9,500,000,00;

     WHEREAS, the Note and all other documents and instruments executed in connection with or
relating to the Loan are referred to herein, collectively, as the “Loan Documents”, and all
collateral granted to the Bank to secure the Loan is referred to herein, collectively, as the
“Collateral”,

     WHEREAS, the Borrower has requested and the Bank has agreed to extend the Maturity Date of the
Loan;

     WHEREAS, the Borrower and the Bank have agreed to modify the Loan and the Loan Documents in
accordance with the terms of this Agreement.

     NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Bank and the Borrower mutually agree as follows.

1. EXTENSION

1.1 Recitals and Representations Accurate. The above recitals are hereby made a part of
this Agreement and the Borrower acknowledges and agrees that each of the recitals is true and correct

1.2
Ratification. All of the terms, covenants, provisions, representations, warranties, and conditions of the Loan Documents, as amended or modified hereby, are ratified, acknowledged, confirmed, and
continued in full force and effect as if fully restated herein

1.3 Maturity Date. The Bank hereby agrees to extend the Maturity Date of the Note to March
31, 2008 (the “New Maturity Date”) and accordingly, the Bank shall continue to make advances
respecting the Revolving Loan, subject to the terms and conditions of the Loan Documents, until
the New Maturity Date at which time there shall be no advances respecting the Note. On the New
Maturity Date, the Loan and all fees, costs, expenses and other amounts owing by the Borrower to
the Bank shall be due and

 

 

payable, in full, without further notice or demand. All references to the Maturity Date in
the Loan Documents shall be modified accordingly, The Borrower hereby agrees to pay to the Bank all
payments due prior to the New Maturity Date in accordance with the terms of the Note, as affected
hereby, and that any failure to make any such payments in accordance with the terms of the Note
shall be a default under this Agreement, the Note and each of the Loan Documents

1.4
Principal Balance. The Borrower acknowledges and agrees that the current outstanding
principal balance of the Note as of the date hereof is $9,500,000.00

1.5
Representations and Warranties. The Borrower hereby represents
and warrants to the Bank that,

	 	(a)	 	The person executing this Agreement is duly authorized to do so and to bind the
Borrower to the terms hereof;
	 
	 	(b)	 	Each of the Loan Documents is a valid and legal binding obligation of the Borrower,
enforceable in accordance with its terms, and is not subject to any defenses,
counterclaims, or
offsets of any kind,
	 
	 	(c)	 	All financial statements delivered to the Bank were true, accurate and complete, in all
material respects, as of the date of delivery to the Bank;
	 
	 	(d)	 	Since the date of the Loan Documents there has been no material adverse change in the
condition, financial or otherwise, of the Borrower, except as disclosed to the Bank in
writing;
	 
	 	(e)	 	There exists no action, suit, proceeding or investigation, at law or in equity, before
any court,board, administrative body or other entity, pending or threatened, affecting the Borrower
or its property, wherein an unfavorable decision, ruling or finding would materially adversely
affect the business operations, property or financial condition of the Borrower; and
	 
	 	(f)	 	There exists no event of default, or other circumstance that with the passage of time
or giving of notice or both will become an event of default, under any of the Loan Documents

1.6 Interest, Fees, Costs and Expenses. The Borrower shall, simultaneously with the execution of
this Agreement, pay to the Bank all accrued interest owing on the Loan as of the date of this
Agreement together with all fees, costs and expenses due and owing to the Bank by the Borrower
under the Loan Documents

2. MISCELLANEOUS

2.1 Set-Off. The Borrower hereby grants to the Bank a continuing lien and security
interest in any and all deposits or other sums at any time credited by or due from the Bank or any
Bank Affiliate (as hereinafter defined) to the Borrower and any cash, securities, instruments or
other property of the Borrower in the possession of the Bank or any Bank Affiliate, whether for
safekeeping or otherwise, or in transit to or from the Bank or any Bank Affiliate (regardless of
the reason the Bank or Bank Affiliate had received the same or whether the Bank or any Bank
Affiliate has conditionally released the same) as security for the full and punctual payment and
performance of all of the liabilities and obligations of the Borrower to the Bank or any Bank
Affiliate and such deposits and other sums may be applied or set off against such liabilities and
obligations of the Borrower to the Bank or any Bank Affiliate at any time, whether or not such are
then due, whether or not demand has been made and whether or not other collateral is then
available to the Bank or any Bank Affiliate.

     The term “Bank Affiliate” as used in this Note shall mean any “Affiliate” of the Bank or any
lender acting as a participant under any loan arrangement between the
Bank and the Borrower. The
term “Affiliate” shall mean with respect to any person, (a) any person which, directly or
indirectly through one or more intermediaries controls, or is controlled by, or is under common
control with, such person, or (b) any

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person who is a director or officer (i) of such person, (ii) of any subsidiary of such person, or
(iii) any person described in clause (a) above. For purposes of this definition, control of a
person shall mean the power, direct or indirect, (x) to vote 5% or more of the Capital Stock having
ordinary voting power for the election of directors (or comparable equivalent) of such person, or
(y) to direct or cause the direction of the management and policies of such person whether by
contract or otherwise Control may be by ownership, contract, or
otherwise.

2.2 Release of the Bank. The Borrower hereby confirms that as of the date hereof it has
no claim, set-off, counterclaim, defense, or other cause of action against the Bank including, but
not limited to, a defenses of usury, any claim or cause of action at common law, in equity,
statutory or otherwise, in contract or in tort, for fraud, malfeasance, misrepresentation,
financial loss, usury, deceptive trade practice, or any other loss, damage or liability of any
kind, including, without limitation, any claim to exemplary or punitive damages arising out of any
transaction between the Borrower and the Bank. To the extent that any such set-off, counterclaim,
defense, or other cause of action may exist or might hereafter arise based on facts known or
unknown that exist as of this date, such set-off, counterclaim, defense and other cause of action
is hereby expressly and knowingly waived and released by the Borrower. The Borrower acknowledges
that this release is part of the consideration to the Bank for the financial and other
accommodations granted by the Bank in this Agreement.

2.3 Costs and Expenses. The Borrower shall pay to the Bank on demand any and all costs and
expenses (including, without limitation, reasonable attorneys’ fees and disbursements, court
costs, litigation and other expenses) incurred or paid by the Bank in establishing, maintaining,
protecting or enforcing any of the Bank’s rights or any of the obligations owing by the Borrower
to the Bank, including, without limitation, any and all such costs and expenses incurred or paid
by the Bank in defending the Bank’s security interest in, title or right to, the Collateral or in
collecting or attempting to collect or enforcing or attempting to
enforce payment of the Loan.

2.4 Indemnification. The Borrower shall indemnify, defend and hold the Bank and the Bank
Affiliates and their directors, officers, employees, agents and attorneys (each an “Indemnitee”)
harmless against any claim brought or threatened against any Indemnitee by the Borrower or any
guarantor or endorser of the obligations of the Borrower to the Bank, or any other person (as well
as from attorneys’ fees and expenses in connection therewith) on account of the Bank’s relationship
with the Borrower, or any guarantor or endorser of the obligations of the Borrower to the Bank
(each of which may be defended, compromised, settled or pursued by the Bank with counsel of the
Bank’s election, but at the expense of the Borrower), except for any claim arising out of the gross
negligence or willful misconduct of the Bank. The within indemnification shall survive payment of
the obligations of the Borrower to the Bank, and/or any termination, release or discharge executed
by the Bank in favor of the Borrower.

2.5
Severability. If any provision of this Agreement or portion of such provision or the
application thereof to any person or circumstance shall to any extent be held invalid or
unenforceable, the remainder of this Agreement (or the remainder of such provision) and the
application thereof to other persons or circumstances shall not be affected thereby.

2.6
Counterparts. This Agreement may be executed in two or more counterparts, each of which
shall be an original, but all of which shall constitute but one agreement.

2.7
Complete Agreement. This Agreement and the other Loan Documents constitute the entire
agreement and understanding between and among the parties hereto relating to the subject matter
hereof, and supersedes all prior proposals, negotiations, agreements and understandings among the
parties hereto with respect to such subject matter.

2.8
Binding Effect of Agreement. This Agreement shall be binding upon and inure to the benefit of
the respective heirs, executors, administrators, legal representatives, successors and assigns of
the parties hereto, and shall remain in full force and effect (and the Bank shall be entitled to rely
thereon) until
released in writing by the Bank. The Bank may transfer and assign this Agreement and deliver the

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Collateral to the assignee, who shall thereupon have all of the rights of the Bank; and the Bank
shall then be relieved and discharged of any responsibility or liability with respect to this
Agreement and the Collateral. Except as expressly provided herein or in the other Loan Documents,
nothing, expressed or implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other
Loan Documents

2.9
Further Assurances. The Borrower will from time to time execute and deliver to the Bank
such documents, and take or cause to be taken, all such other further action, as the Bank may
request in order to effect and confirm or vest more securely in the Bank all rights contemplated by
this Agreement (including, without limitation, to correct clerical errors) or to vest more fully in
or assure to the Bank the security interest in the Collateral or to comply with applicable statute
or law and to facilitate the collection of the Collateral (including, without limitation, the
execution of stock transfer orders and stock powers, endorsement of promissory notes and
instruments and notifications to obligors on the Collateral). To the extent permitted by applicable
law, the Borrower authorizes the Bank to file financing statements, continuation statements or
amendments without the Borrower’s signature appearing thereon, and any such financing statements,
continuation statements or amendments may be signed by the Bank on behalf of the Borrower, if
necessary, and may be filed at any time in any jurisdiction. The Bank may at any time and from time
to time file financing statements, continuation statements and amendments thereto which contain any
information required by the Ohio Uniform Commercial Code, Ohio Revised Code Chapter 1309 as amended
from time to time (the “Code”) for the sufficiency or filing office acceptance of any financing
statement, continuation statement or amendment, including whether the Borrower is an organization,
the type of organization and any organization identification number issued to the Borrower. The
Borrower agrees to furnish any such information to the Bank promptly
upon request. In addition, the
Borrower shall at any time and from time to time take such steps as the Bank may reasonably request
for the Bank (i) to obtain an acknowledgment, in form and substance satisfactory to the Bank, of
any bailee having possession of any of the Collateral that the bailee holds such Collateral for the
Bank, (ii) to obtain “control” (as defined in the Code) of any Collateral comprised of deposit
accounts, electronic chattel paper, letter of credit rights or investment property, with any
agreements establishing control to be in form and substance satisfactory to Bank, and (iii)
otherwise to insure the continued perfection and priority of the Bank’s security interest in any of
the Collateral and the preservation of its rights therein. The Borrower hereby constitutes the Bank
its attorney-in-fact to execute, if necessary, and file all filings required or so requested for
the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; and such
power, being coupled with an interest, shall be irrevocable until this Agreement terminates in
accordance with its terms, all obligations of the Borrower to the Bank are irrevocably paid in full
and the Collateral is released

2.10 Amendments and Waivers. This Agreement may be amended and the Borrower may take any
action herein prohibited, or omit to perform any act herein required to be performed by it, if the
Borrower shall obtain the Bank’s prior written consent to each such amendment, action or omission
to act. No delay or omission on the part of the Bank in exercising any right hereunder shall
operate as a waiver of such right or any other right and waiver on any one or more occasions shall
not be construed as a bar to or waiver of any right or remedy of the Bank on any future occasion

2.11
Terms of Agreement. This Agreement shall continue in force and effect so long as any
obligation of the Borrower to Bank shall be outstanding and is supplementary to each and every other agreement
between the Borrower and Bank and shall not be so construed as to limit or otherwise derogate from any
of the rights or remedies of Bank or any of the liabilities, obligations or undertakings of the Borrower
under any such agreement, nor shall any contemporaneous or subsequent agreement between the
Borrower and the Bank be construed to limit or otherwise derogate from any of the rights or remedies of
Bank or any of the liabilities, obligations or undertakings of the Borrower hereunder, unless such other
agreement specifically refers to this Agreement and expressly so provides

2.12
Notices. Any notices under or pursuant to this Agreement shall be deemed duly received and
effective if delivered in hand to any officer of agent of the Borrower or Bank, or if mailed by
registered or
certified mail, return receipt requested, addressed to the Borrower or Bank at the address set
forth in this
Agreement or as any party may from time to time designate by written notice to the other party.

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2.13
Ohio Law. This Agreement has been executed or completed and is to be performed in
Ohio, and it and all transactions thereunder or pursuant thereto shall be governed as to
interpretation, validity, effect, rights, duties and remedies of the parties thereunder and in all
other respects by the laws of Ohio.

2.14
Reproductions. This Agreement and ail documents which have been or may be hereinafter
furnished by Borrower to the Bank may be reproduced by the Bank by any photographic, photostatic,
microfilm, xerographic or similar process, and any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the regular course of
business).

2.15
Venue. Borrower irrevocably submits to the nonexclusive jurisdiction of any Federal or
state court sitting in Ohio, over any suit, action or proceeding arising out of or relating to
this Agreement, Borrower irrevocably waives to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding brought in any such court and any claim that the same has been brought
in an inconvenient forum. Borrower irrevocably appoints the Secretary of State of the State of
Ohio as its authorized agent to accept and acknowledge on its behalf any and all process which may
be served in any such suit, action or proceeding, consents to such process being served (i) by
mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested,
to Borrower’s address shown above or as notified to the Bank and (ii) by serving the same upon
such agent, and agrees that such service shall in every respect be deemed effective service upon
Borrower.

2.16 JURY WAIVER. BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY,
AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, WAIVE (A) ANY AND ALL RIGHTS TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS AGREEMENT, THE OBLIGATIONS, ALL MATTERS
CONTEMPLATED HEREBY AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CAN NOT BE, OR HAS NOT
BEEN WAIVED. THE BORROWER CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS REPRESENTATIVES, AGENTS
OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT IN THE EVENT OF ANY
SUCH PROCEEDING SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.

2.17
Warrant of Attorney. Each of the undersigned authorizes any attorney at law to
appear in any Court of Record in the State of Ohio or in any other state or territory of the
United States after the above indebtedness becomes due, whether by acceleration or otherwise, to
waive the issuing and service of process, and to confess judgment against any one or more of the
undersigned in favor of the Bank for the amount then appearing due together with costs of suit,
and thereupon to waive all error and all rights of appeal and stays of execution. No such judgment
or judgments against less than all of the undersigned shall be a bar to a subsequent judgment or
judgments against any one or more of the undersigned against whom judgment has not been obtained
hereon; this being a joint and several warrant of attorney to confess judgment. The attorney at
law authorized hereby to appear for the undersigned may be an attorney at law representing the
Bank, and the undersigned hereby expressly waive any conflict of interest that may exist by virtue
of such representation. The undersigned also agree that the attorney acting for the undersigned as
set forth in this Section may be compensated by the Bank for such
services.

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WARNING—BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY
ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A
COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.

	 	 	 	 	 	 	 
	 	 	John D Oil & Gas Company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Richard M Osborne	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard M Osborne CEO	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Greg Osborne	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Greg Osborne, President	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 /s/ C. Jean Mihitsch	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	C. Jean Mihitsch CFO	 	 

	 	 	 	 	 
	Accepted: RBS Citizens, N.A. d/b/a Charter One  
	 
	 	 	 	 
	By:

	 	/s/ Robert Dracon	 	 
	 

	 	 	 	 
	Name: Robert Dracon	 	 
	Title: Vice President	 	 

6EX-4.1

 

EXHIBIT 4.1

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of February 29,
2008, between Hartville Group, Inc., a Nevada corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively, the “Purchasers”).

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

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

ARTICLE I.

DEFINITIONS

     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

     “Acquiring Person” shall have the meaning ascribed to such term in Section 4.5.

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

     “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person as
such terms are used in and construed under Rule 405 under the Securities Act.

     “Board of Directors” means the board of directors of the Company.

     “Business Day” means any day except Saturday, Sunday, any day which is a
federal legal holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action to close.

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

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

     “Commission” means the United States Securities and Exchange Commission.

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

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

     “Company Counsel” means Baker & Hostetler, LLP.

     “Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

     “Discussion Time” shall have the meaning ascribed to such term in Section
3.2(f).

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

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

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

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

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

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

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

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

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

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

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

     “Per Share Purchase Price” equals $1.50, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar transactions of
the Common Stock that occur after the date of this Agreement.

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

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

     “Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.

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

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

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

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

     “Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.

     “Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.

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     “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or reservation
of borrowable shares of Common Stock).

     “Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Subscription Amount,” in
United States dollars and in either immediately available funds or through the cancellation
of indebtedness owed to such Purchaser, including without limitation the Bridge Loans (as
defined below).

     “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a), and shall, where applicable, include any subsidiary of the Company formed or
acquired after the date hereof.

     “Trading Day” means a day on which the principal Trading Market is open for
trading.

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

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

     “Transfer Agent” means OTC Stock Transfer Inc., Attn: Stephanie Campbell, the
current transfer agent of the Company, with a facsimile number of (801) 486-0562, and any
successor transfer agent of the Company.

     “Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.12(b).

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

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majority in interest of the Shares then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.

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

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

ARTICLE II.

PURCHASE AND SALE

     2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree
to purchase, up to an aggregate of $2,250,000 of Shares and Warrants. Each Purchaser shall deliver
to the Company via wire transfer or a certified check immediately available funds or through the
cancellation of indebtedness owed to such Purchaser, including without limitation those certain
bridge loans dated January 2, 2008 in the aggregate principal amount of $500,000 (the “Bridge
Loans”), equal to its Subscription Amount and the Company shall deliver to each Purchaser its
respective Shares and a Warrant as determined pursuant to Section 2.2(a), and the Company and each
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at the offices of FWS or such other location as the parties shall mutually agree.

     2.2 Deliveries.

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

     (i) this Agreement duly executed by the Company;

     (ii) a legal opinion of Company Counsel, substantially in the form of
Exhibit A attached hereto;

     (iii) a certificate evidencing a number of Shares equal to such Purchaser’s
Subscription Amount divided by the Per Share Purchase Price, registered in the name
of such Purchaser; and

     (iv) a Warrant registered in the name of such Purchaser to purchase up to a
number of shares of Common Stock equal to 50% of the Shares issuable to
such Purchaser hereunder, with an exercise price equal to $1.50, subject to
adjustment therein.

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

5

 

     (i) this Agreement duly executed by such Purchaser; and

     (ii) such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company or through the cancellation of indebtedness owed
to such Purchaser, including without limitation the Bridge Loans.

     2.3 Closing Conditions.

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

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

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

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

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

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

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

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

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

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

6

 

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

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure
Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedules, the Company hereby makes the following
representations and warranties to each Purchaser:

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

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

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

7

 

Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and no further action is
required by the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each Transaction Document
to which it is a party has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except: (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be limited by
applicable law.

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

     (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by the Company of
the Transaction Documents, other than: (i) the filings required pursuant to
Section 4.4 of this Agreement, (ii) application(s) to each applicable Trading Market
for the listing of the Securities for trading thereon in the time and manner required
thereby, and (iii) the filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws.

     (f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents, will be

8

 

duly
and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents. The
Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will
be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents. The
Company has reserved from its duly authorized capital stock the maximum number of shares of
Common Stock issuable pursuant to this Agreement and the Warrants.

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

     (h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has

9

 

received a valid
extension of such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange Act, as
applicable, and none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company has never been an issuer subject to Rule 144(i)
under the Securities Act. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in such financial statements
or the notes thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.

     (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports, except
as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i)
there has been no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any agreements
to purchase or redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no event,
liability or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial condition,
that would be required to be disclosed by the Company under applicable securities laws at
the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this
representation is made.

     (j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory authority

10

 

(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.

     (k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s relationship
with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive covenant in
favor of any third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect to any of
the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where the failure
to be in compliance could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.

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

     (m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal, state, local or

11

 

foreign regulatory authorities necessary to conduct their respective businesses as described
in the SEC Reports, except where the failure to possess such permits could not reasonably be
expected to result in a Material Adverse Effect (“Material Permits”), and neither
the Company nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.

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

     (o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service
marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights as described in the SEC Reports as necessary or material
for use in connection with their respective businesses and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where failure to
do so could not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

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

     (q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any

12

 

transaction with
the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.

     (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure controls and procedures to
ensure that information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s certifying
officers have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the Company’s most recently filed periodic
report under the Exchange Act (such date, the “Evaluation Date”). The Company
presented in its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as such term is
defined in the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.

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

     (t) Private Placement. Assuming the accuracy of the Purchasers representations
and warranties set forth in Section 3.2, no registration under the Securities

13

 

Act is
required for the offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does not contravene
the rules and regulations of the Trading Market.

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

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

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

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

     (y) Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms that
neither it nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands and confirms
that the Purchasers will rely on the foregoing representation in effecting transactions
in securities of the Company. All disclosure furnished by or on behalf of the Company to
the Purchasers regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, is true and correct and does not
contain any untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances under which they
were made, not misleading. The press releases disseminated by the

14

 

Company during the twelve
months preceding the date of this Agreement taken as a whole do not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the circumstances under
which they were made and when made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in Section 3.2
hereof.

     (z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of (i) the Securities Act which would require the
registration of any such securities under the Securities Act, or (ii) any applicable
shareholder approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated. 

     (aa) Solvency. Based on the consolidated financial condition of the Company as
of the Closing Date, after giving effect to the receipt by the Company of the proceeds from
the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as they
mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on
its business as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 3.1(aa) sets forth as of the date thereof all outstanding secured
and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the
ordinary course of business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (z) the present value of any lease payments in excess
of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.

15

 

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

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

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

     (ee) Accountants. The Company’s accounting firm is set forth on Schedule
3.1(ee) of the Disclosure Schedules. To the knowledge and belief of the Company, such
accounting firm: (i) is a registered public accounting firm as required by the Exchange Act
and (ii) shall express its opinion with respect to the financial statements to be included
in the Company’s Annual Report for the year ending December 31, 2007.

     (ff) No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to arise, between
the Company and the accountants and lawyers formerly or presently employed by the Company
which could affect the Company’s ability to perform any of its obligations under any of the
Transaction Documents, and the Company is current with respect to any fees owed to its
accountants and lawyers.

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

16

 

into this Agreement and
the other Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

     (hh) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f)
and 4.13 hereof), it is understood and acknowledged by the Company that: (i) none of the
Purchasers have been asked by the Company to agree, nor has any Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities for any
specified term; (ii) that past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a “short” position in the Common Stock and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (y) one or more Purchasers may engage in hedging activities at various
times during the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect to
Securities are being determined, and (z) such hedging activities (if any) could reduce the
value of the existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the Transaction
Documents.

     (ii) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or
to result in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the Securities.

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

     (a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization
with full right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations hereunder and thereunder. The execution and delivery of the Transaction
Documents and performance by such Purchaser of the transactions

17

 

contemplated by the
Transaction Documents have been duly authorized by all necessary corporate or similar action
on the part of such Purchaser. Each Transaction Document to which it is a party has been
duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance, injunctive relief
or other equitable remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.

     (b) Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the Securities Act
or any applicable state securities law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser’s right to sell the
Securities in compliance with applicable federal and state securities laws) in violation of
the Securities Act or any applicable state securities law. Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business.

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

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

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

     (f) Short Sales and Confidentiality Prior To The Date Hereof. Other than
consummating the transactions contemplated hereunder, such Purchaser has not, nor has any
Person acting on behalf of or pursuant to any understanding with such Purchaser,

18

 

directly or
indirectly executed any purchases or sales, including Short Sales, of the securities of the
Company during the period commencing from the time that such Purchaser first received a term
sheet (written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder until the date
hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers managing other
portions of such Purchaser’s assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement. Other than to
other Persons party to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction (including the existence and
terms of this transaction).

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

     4.1 Transfer Restrictions.

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

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

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH

19

 

EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED
INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED
BY SUCH SECURITIES.

     The Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and, if required under the terms of such arrangement, such
Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company and no legal
opinion of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge. At the
appropriate Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities.

     (c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof), (i) while a registration
statement covering the resale of such security is effective under the Securities Act, (ii)
following any sale of such Shares or Warrant Shares pursuant to Rule 144, (iii) if such
Shares or Warrant Shares are eligible for sale under Rule 144, without the requirement for
the Company to be in compliance with the current public information required under Rule 144
as to such Underlying Shares and without volume or manner-of-sale restrictions, or (iv) if
such legend is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to promptly issue a legal opinion to the Transfer Agent if
required by the Transfer Agent to effect the removal of the legend hereunder. If all or any
portion of a Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, such Warrant Shares shall be issued
free of all legends. The Company agrees that following
such time as such legend is no longer required under this Section 4.1(c), it will, no
later than three Trading Days following the delivery by a Purchaser to the Company or the
Transfer Agent of a certificate representing Shares or Warrant Shares, as the case may be,
issued with a restrictive legend (such third Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends. The Company may not make
any notation on its records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section 4. Certificates for Securities subject
to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by
crediting the account of the Purchaser’s prime broker with the Depository Trust Company
System as directed by such Purchaser.

20

 

     (d) In addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Shares or Warrant Shares (based on the VWAP of the Common Stock on the date such Securities
are submitted to the Transfer Agent) delivered for removal of the restrictive legend and
subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5)
Trading Days after such damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered without a legend. Nothing herein shall
limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief.

     (e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that
such Purchaser will sell any Securities pursuant to the registration requirements of the
Securities Act.

     4.2 Furnishing of Information. If the Common Stock is not registered under Section 12(b)
or 12(g) of the Exchange Act on the date hereof, the Company agrees to cause the Common Stock to be
registered under Section 12(g) of the Exchange Act on or before the 60th calendar day
following the date hereof. Until the earliest of the time that (i) no Purchaser owns Securities or
(ii) the Warrants have expired, the Company covenants to maintain the registration of the Common
Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c)
such information as is required for the Purchasers to sell the Securities under Rule 144. The
Company further covenants that it will take such further action as any holder of Securities may
reasonably request, to the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the requirements of the exemption
provided by Rule 144. Upon a cashless exercise of the Warrants, the holding period for purpose of
Rule 144 shall tack back to the original date of issuance of such Warrants.

     4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the Purchasers or that would
be integrated with the offer or sale of the Securities to the Purchasers for purposes of the rules
and regulations of any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before the closing of
such subsequent transaction.

     4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York
City time) on the Trading Day immediately following the date hereof, issue a Current Report on Form
8-K, disclosing the material terms of the transactions contemplated hereby, and

21

 

including the
Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release nor otherwise make any
such public statement without the prior consent of the Company, with respect to any press release
of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld or delayed, except if such
disclosure is required by law, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the
prior written consent of such Purchaser, except (a) as required by federal securities law in
connection with (i) the filing of final Transaction Documents (including signature pages thereto)
with the Commission and (b) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this clause (b).

     4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person”
under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such
plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.

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

     4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for working capital
purposes and shall not use such proceeds for: (a) the satisfaction of any portion of the Company’s
debt (other than payment of trade payables in the ordinary course of the Company’s business and
prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the
settlement of any outstanding litigation.

     4.8 Indemnification of Purchasers. Subject to the provisions of this Section 4.8,
the Company will indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any other title), each
Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,

22

 

partners or employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity,
or any of them or their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right
to assume the defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more than one such
separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y)
for any settlement by a Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a
loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement
or in the other Transaction Documents.

     4.9 Reservation of Common Stock. As of the date hereof, the Company has reserved and
the Company shall continue to reserve and keep available at all times, free of preemptive rights, a
sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares
pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants. 

     4.10
Listing of Common Stock. (a) The Company hereby agrees to use best efforts to
maintain the listing of the Common Stock on a Trading Market, and as soon as reasonably practicable
following the Closing to list all of the Shares and Warrant Shares on such Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded on any other Trading
Market, it will then include in such application all of the Shares and Warrant Shares, and will
take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed
on such other Trading Market as promptly as possible. The

23

 

Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market
and will comply in all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Trading Market

     4.11 Equal Treatment of Purchasers. No consideration (including any modification of
any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

     4.12 Subsequent Equity Sales.

     (b) From the date hereof until 180 days after the Closing Date, neither the Company nor
any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, that the 180 day period set forth in this Section 4.12
shall be extended for the number of Trading Days during such period in which trading in the
Common Stock is suspended by any Trading Market.

     (c) From the date hereof until such time as no Purchaser holds any of the Securities,
the Company shall be prohibited from effecting or entering into an agreement to effect any
subsequent financing involving a Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or include the
right to receive additional shares of Common Stock either (A) at a conversion price,
exercise price or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after the initial
issuance of such debt or equity securities or (B) with a conversion, exercise or exchange
price that is subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for the
Common Stock or (ii) enters into any agreement, including, but not limited to, an equity
line of credit, whereby the Company may sell securities at a future determined price. Any
Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any
such issuance, which remedy shall be in addition to any right to collect damages.

     (d) Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an
Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

     4.13 Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on
its behalf or pursuant to any understanding with it, will execute any Short Sales during the period
commencing with the Discussion Time and ending at such time the transactions contemplated by

24

 

this
Agreement are first publicly announced as described in Section 4.4. Each Purchaser, severally and
not jointly with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.4,
such Purchaser will maintain the confidentiality of the existence and terms of this transaction and
the information included in the Transaction Documents and the Disclosure Schedules.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby
that it will not engage in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as described in Section
4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and
the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set forth above shall
only apply with respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.

     4.14 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy thereof, promptly
upon request of any Purchaser. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale
to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of
the United States, and shall provide evidence of such actions promptly upon request of any
Purchaser.

     4.15 Capital Changes. Until the one year anniversary of the Closing Date, the Company
shall not undertake a reverse or forward stock split or reclassification of the Common Stock
without the prior written consent of the Purchasers holding a majority in interest of the Shares.

     4.16 Registration Rights. 

     (a) Piggy-Back Registration Rights. If, at any time, the Company shall
determine to proceed with the preparation and filing of a registration statement, in
connection with the proposed offer and sale of any of its securities by it or any of its
security holders (other than a registration statement on Form S-4, S-8 or other similar
limited purpose form), the Company will give written notice of its determination to the
Purchasers. Upon receipt of a written request from the Purchasers within thirty calendar
days after receipt of any such notice from the Company, the Company will, except as herein
provided, cause all the Shares and Warrant Shares issued or issuable to the Purchasers, to
the extent requested by the Purchasers, to be included in such registration statement, all
to the extent required to permit the sale or other disposition by the
Purchasers of such shares of Common Stock. The obligation of the Company under this Section 4.16(a) shall be
unlimited as to the number of registration statements to which it applies.

     (b) Registration Procedures. In the case of each registration effected by the
Company pursuant to Section 4.16 hereof, the Company will keep the Purchaser advised,

25

 

in writing, as to the initiation of each registration and as to the completion thereof. At its
expense, the Company will:

	 	i.	 	Keep such registration effective until the earlier
of (i) 24 months and (ii) all securities covered by such registration
statement have been sold or may be sold without volume or manner-of-sale
restrictions pursuant to Rule 144, without the requirement for the
Company to be in compliance with the current public information
requirement under Rule 144, as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company’s transfer agent and the affected Purchasers
(the “Effectiveness Period”); provided, however,
that (i) such Effectiveness Period shall be extended for a period of time
equal to the period Purchaser refrains from selling any shares of Common
Stock included in such registration at the request of an underwriter of
securities of the Company or at the request of the Company or a Trading
Market, and (ii) in the case of any registration of securities on Form
S-3 or comparable successor form which are intended to be offered on a
continuous or delayed basis, such Effectiveness Period shall be extended,
if necessary, to keep the registration statement effective until all
securities are sold, provided that applicable rules and regulations under
the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which (x)
includes any prospectus required by Section 10(a)(3) of the Securities
Act or (y) reflects facts or events representing a material or
fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be
included in (x) and (y) hereof to be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement;
	 
	 	ii.	 	Prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to a disposition of all
securities covered by such registration statement;
	 
	 	iii.	 	Furnish to each Purchaser and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with
the Commission or received by the Company, one copy of the registration
statement and any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto in both electronic
and print format, and (ii) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements
thereto, and such other documents as each Purchaser may reasonably
request in order to facilitate the disposition of the shares of Common
Stock owned by such Purchaser;
	 
	 	iv.	 	Notify each Purchaser at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of
the happening of any

26

 

	 	 	 	event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or incomplete in light of the circumstances then existing, and
at the request of such Purchaser, prepare and furnish to it a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to such Purchaser, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or incomplete in light of
the circumstances then existing;
	 
	 	v.	 	Use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a registration
statement, and, if such an order is issued, to obtain the withdrawal of
such order at the earliest possible moment and to notify each Purchaser
(or, in the event of an underwritten offering, the managing underwriters)
of the issuance of such order and the resolution thereof;
	 
	 	vi.	 	Cause all such shares of Common Stock to be listed
or included for quotation on a Trading Market on which the Common Stock
is then listed, traded or included for quotation;
	 
	 	vii.	 	Provide a transfer agent and registrar for all such shares of Common Stock and CUSIP number for all such shares of Common
Stock, in each case not later than the effective date of such
registration;
	 
	 	viii.	 	Make available for inspection by the Purchasers,
any underwriter participating in any disposition pursuant to such
registration statement and any attorney or accountant retained by the
Purchasers or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company and cause the Company’s officers and directors to supply all
information reasonably requested by Purchaser, any underwriter, attorney or
accountant in connection with such registration statement;
	 
	 	ix.	 	Furnish to each Purchaser or its counsel a copy of
all documents filed with and all correspondence from or to the Commission
in connection with any such registration;
	 
	 	x.	 	Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission;
	 
	 	xi.	 	In connection with any underwritten offering
pursuant to a registration statement, enter into any underwriting
agreement reasonably necessary to effect the offer and sale of
securities, provided such underwriting agreement contains customary
underwriting provisions and provided, further, that if the managing
underwriter so requests, the underwriting

27

 

	 	 	 	agreement will contain customary indemnification and contribution provisions;
	 
	 	xii.	 	Hold in confidence and not make any disclosure of
information concerning each Purchaser provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or
state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
registration statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body
of competent jurisdiction or (iv) such information has been made
generally available to the public other than by disclosure in violation
of this or any other agreement; and, upon learning that disclosure of
such information concerning the Purchaser is sought in or by a court or
governmental body of competent jurisdiction or through other means, give
prompt notice to Purchaser and, at its expense, undertake appropriate
action to prevent disclosure of, or to obtain a protective order for,
such information; and
	 
	 	xiii.	 	Take all other reasonable actions necessary to
expedite and facilitate disposition by each Purchaser of the shares of
Common Stock pursuant to the registration statement.

     (c) Registration Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless each
Purchaser, the officers, directors, members, partners, agents, brokers (including brokers
who offer and sell securities as principal as a result of a pledge or any failure to perform
under a margin call of Common Stock), investment advisors and employees (and any other
Persons with a functionally equivalent role of a Person holding such titles, notwithstanding
a lack of such title or any other title) of each of them, each Person who controls any such
Purchaser (within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, members, stockholders,
partners, agents and employees (and any other Persons with a functionally equivalent
role of a Person holding such titles, notwithstanding a lack of such title or any other
title) of each such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as
incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a
material fact contained in a registration statement, any prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of any
prospectus or supplement thereto, in light of the circumstances under which they were made)
not misleading or (2) any violation or alleged violation by the Company of the Securities
Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in
connection with the performance of its obligations under this Agreement, except to the
extent, but only to the extent, that such untrue statements or omissions are based solely
upon information regarding such Purchaser furnished in writing to the Company by such

28

 

Purchaser expressly for use therein, or to the extent that such information relates to such
Purchaser or such Purchaser’s proposed method of distribution of the Common Stock included
in such registration statement and was reviewed and expressly approved in writing by such
Purchaser expressly for use in a registration statement, such prospectus or in any amendment
or supplement thereto. The Company shall notify the Purchasers promptly of the institution,
threat or assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.

     (d) Registration Indemnification by Purchasers. Each Purchaser shall, severally
and not jointly, indemnify and hold harmless the Company, its directors, officers, agents
and employees, each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by applicable law,
from and against all Losses, as incurred, to the extent arising out of or based solely upon:
(x) such Purchaser’s failure to comply with the prospectus delivery requirements of the
Securities Act or (y) any untrue or alleged untrue statement of a material fact contained in
any registration statement, any prospectus, or in any amendment or supplement thereto or in
any preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make the
statements therein not misleading (i) to the extent, but only to the extent, that such
untrue statement or omission is contained in any information so furnished in writing by such
Purchaser to the Company specifically for inclusion in such registration statement or such
prospectus or (ii) to the extent that such information relates to such Purchaser’s proposed
method of distribution of Common Stock included in such registration statement and was
reviewed and expressly approved in writing by such Purchaser expressly for use in a
registration statement, such prospectus or in any amendment or supplement thereto. In no
event shall the liability of any selling Purchaser hereunder be greater in amount than the
dollar amount of the net proceeds received by such Purchaser upon the sale of the Common Stock giving rise to such indemnification
obligation.

     (e) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have
the right to assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that, the failure of any Indemnified Party to
give such notice shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

          An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses of

29

 

such
counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the
named parties to any such Proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall
reasonably believe that a material conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party
shall not have the right to assume the defense thereof and the reasonable fees and expenses
of no more than one separate counsel shall be at the expense of the Indemnifying Party).
The Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably withheld or
delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any Indemnified
Party is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of such
Proceeding.

          Subject to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within
ten Trading Days of written notice thereof to the Indemnifying Party; provided, that, the
Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such
fees and expenses applicable to such actions for which such Indemnified Party is judicially
determined not to be entitled to indemnification hereunder.

     (f) Contribution. If the indemnification under Section 4.16(c) or 5(d) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless
for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable
by such Indemnified Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other
fees or expenses incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for

30

 

such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.

          The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 4.16(f) were determined by pro rata allocation or by any other
method of allocation that does not take into account the equitable considerations referred
to in the immediately preceding paragraph. Notwithstanding the provisions of this Section
4.16(f), no Purchaser shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the net proceeds actually received by such Purchaser from the
sale of the Common Stock subject to the Proceeding exceeds the amount of any damages that
such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.

          The indemnity and contribution agreements contained in this Section are in addition to
any liability that the Indemnifying Parties may have to the Indemnified Parties.

ARTICLE V.

MISCELLANEOUS

     5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before March 3, 2008; provided, however, that no such
termination will affect the right of any party to sue for any breach by the other party (or
parties).

     5.2 Fees and Expenses. At the Closing, the Company has agreed to pay FWS, counsel to
Midsummer Capital, LLC (“Midsummer”), for its legal fees and expenses at Closing. Except
as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

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

     5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of: (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number

31

 

set forth on the signature pages attached hereto on a day that is not a Trading Day or later than
5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual
receipt by the party to whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.

     5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and the
Purchasers holding at least 67% of the Shares then outstanding or, in the case of a waiver, by the
party against whom enforcement of any such waived provision is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right.

     5.6 Headings. The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

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

     5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.8 and 4.16(c).

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

32

 

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

     5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Shares and Warrant Shares.

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

     5.12 Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the intention of the parties
that they would have executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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

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

33

 

new certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance of such replacement
Securities.

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

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

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

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

34

 

which such partial
liquidated damages or other amounts are due and payable shall have been canceled.

     5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not be a Business Day,
then such action may be taken or such right may be exercised on the next succeeding Business Day.

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

     5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT
BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY. 

(Signature Pages Follow)

35

 

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

	 	 	 	 	 
	HARTVILLE GROUP, INC. 

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 

 Address for Notice:

3840 Greentree Avenue, SW

Canton, Ohio 44706

Fax:

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

36

 

[PURCHASER SIGNATURE PAGES TO HTVL SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser:
__________________________________________________________________________________

Signature of Authorized Signatory of Purchaser: ___________________________________________________________

Name of
Authorized Signatory: _________________________________________________________________________

Title of Authorized Signatory: __________________________________________________________________________

Email Address of Authorized Signatory: __________________________________________________________________

Fax Number of Authorized Signatory: ____________________________________________________________________

Address for Notice of Purchaser:

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

Subscription Amount (cash Subscription Amount $872,155.46 plus $250,000 cancellation of bridge note
plus accrued interest thereon): $1,125,000.00

Shares: 750,000

Warrant Shares: 375,000

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

37

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