STAR SCIENTIFIC INC
EXHIBIT 10.3
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<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>dex103.htm
<DESCRIPTION>EXHIBIT 10.3
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<TITLE>Exhibit 10.3</TITLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>SECURITIES PURCHASE AGREEMENT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>SECURITIES PURCHASE AGREEMENT</B> (&#147;<B>Agreement</B>&#148;) dated as of April 15, 2004, between STAR SCIENTIFIC,
INC., a Delaware corporation (the &#147;<B>Company</B>&#148;), <B>PORTSIDE GROWTH &amp; OPPORTUNITY FUND</B>, a Cayman Islands corporation (the &#147;<B>Purchaser</B>&#148;). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>W I T N E S S E T H</U>: </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>WHEREAS,</B> the Company desires to sell and issue to the Purchaser, and the Purchaser wishes to purchase from the Company: (i) an aggregate of
142,857 shares (the &#147;<B>Common Shares</B>&#148;) of the Company&#146;s common stock, par value $0.0001 per share (&#147;<B>Common Stock</B>&#148;), for a per share purchase price of $3.50 per share ( the &#147;<B>Per Share Purchase
Price</B>&#148;); </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>WHEREAS,</B> this Agreement provides for
an option (the &#147;<B>Option</B>&#148;) to the Purchaser to purchase an additional 134,048 shares (the &#147;<B>Option Shares</B>&#148; and together with the Common Shares, the &#147;<B>Shares</B>&#148;) of Common Stock at a per share price equal
to $3.73 (the &#147;<B>Exercise Price</B>&#148;) and on the terms and conditions set forth herein; and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>WHEREAS,</B> the Purchaser will have registration rights with respect to the Shares pursuant to the terms of that certain Registration Rights Agreement
to be entered into between the Company, and the Purchaser substantially in the form of <B><U>Exhibit A</U></B> hereto (&#147;<B>Registration Rights Agreement</B>&#148;). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>NOW, THEREFORE,</B> in consideration of the foregoing premises and the covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTICLE I<U> </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Purchase and Sale of Common Shares</U> </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 1.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Issuance of Common Shares</U>. Upon the following terms and conditions, the Company shall issue and sell to
Purchaser, and Purchaser shall purchase from the Company, the number of Common Shares set forth below Purchaser&#146;s name on the signature page to this Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 1.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Purchase Price</U>. The aggregate purchase price for the Common Shares and the Option
to be acquired by Purchaser (the &#147;<B>Purchase Price</B>&#148;) shall be the Purchase Price below such Purchaser&#146;s name set forth on the signature page to this Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 1.3&nbsp;&nbsp;&nbsp;&nbsp;<U>The Closing</U>. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(a) <I>Timing</I>. Subject to the fulfillment or waiver of the conditions set forth in Article V hereof, the purchase and
sale of the Common Shares shall take place at a closing (the &#147;<B>Closing</B>&#148;), on or about the date hereof or such other date as the Purchaser and the Company may agree upon (the &#147;<B>Closing Date</B>&#148;). </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) <I>Form of Payment and Closing</I>. On the Closing Date, the Company shall deliver to the Purchaser
all of the Common Shares purchased hereunder, issued in the name of the Purchaser in the amount set forth on the signature page. On the Closing Date the Purchaser shall deliver the Purchase Price by wire transfer of immediately available funds to an
account designated in writing by the Company. In addition, each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing. Subject to the payment of the
Purchase Price in accordance with this Agreement, the Common Shares will be fully paid for by the Purchaser as of the Closing Date. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 1.4&nbsp;&nbsp;&nbsp;&nbsp;<U>Option</U> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(a) Purchaser shall have the option to purchase up to a number of Option Shares equal to the amount set forth on the signature page (provided that such
number shall be appropriately adjusted for any stock splits, reverse stock splits, stock dividends, recapitalization or similar event), at a price per share equal to the Exercise Price (provided that such price shall be appropriately adjusted for
any stock splits, reverse splits, stock dividends, recapitalization or similar events). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(b) This option (the &#147;<B>Option</B>&#148;) may be exercised in whole or in part, at any time and from time to time commencing on the effective date of Registration Statement covering the Common Shares until 30
days after such date (the &#147;<B>Exercise Period</B>&#148;); <U>provided</U>, however, that each such exercise must be for an amount equal to at least $500,000. Upon delivery of a notice by Purchaser exercising its Option hereunder
(&#147;<B>Option Notice</B>&#148;), the Company shall be obligated to sell, issue and delivery to the Purchaser, and the Purchaser shall be obligated to purchase, the Option Shares, specified in the option exercise notice, subject to the terms of
this Section 1.4. Closing of any such purchase and sale (each an &#147;<B>Option Closing</B>&#148;) shall take place in the same manner as the Closing. At the Option Closing, the Company shall deliver certificates evidencing the Option Shares being
purchased against the payment of the purchase price therefor, which Option Closing shall occur within five (5) Trading Days of delivery of the Option Notice by Purchaser. As provided therein, the Registration Rights Agreement shall apply to the
Option Shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(i) <I>4.99% Limitation.</I> Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by Purchaser upon exercise of its Option pursuant to the terms hereof shall not exceed a number that, when added to the total number of shares of
Common Stock deemed beneficially owned by such Purchaser (other than by virtue of the ownership of securities or rights to acquire securities (including the Option) that have limitations on the Holder&#146;s right to convert, exercise or purchase
similar to the limitation set forth herein), as determined pursuant to the rules and regulations promulgated under Section 13(d) of the Exchange Act, including all shares of Common Stock deemed beneficially owned at such time (other than by virtue
of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) by persons that would be aggregated for purposes of determining whether a
group under Section 13(d) of the Exchange Act, exists, would exceed 4.99% of the total issued and outstanding shares of the Common Stock (the &#147;Restricted Ownership Percentage&#148;). Purchaser shall have the right (w) at any time and from time
to time to reduce its Restricted Ownership Percentage immediately upon notice to the Company and (x) </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(subject to waiver) at any time and from time to time, to increase its Restricted Ownership Percentage immediately in the
event of the announcement as pending or planned, of a Change in Control Transaction (as defined in the Company&#146;s 8% Senior Convertible Debentures (the &#147;Debentures&#148;)). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(ii) <I>Principal Market Regulation.</I> The Company shall not be obligated to issue any shares of Common Stock upon
exercise of the Option if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue (A) as Common Shares pursuant hereto, (B) upon exercise of the Option, (C) upon conversion of the
Company&#146;s 8% Senior Convertible Debentures Due March 25, 2006 issued to Manchester Securities Corp. (the &#147;<B>Debentures</B>&#148;), (D) upon exercises of the Warrants (as defined in the Debentures), (E) upon exercises of the Common Stock
Purchase Warrants dated March 25, 2004 issued to Financial West Group, Robert Schacter and Thomas Griesel (the issuances upon such exercises, the &#147;<B>Reedland Issuances</B>&#148;) and (F) in connection with any other sale, issuance or potential
issuance of Common Stock by the Company that may be considered by the Principal Market (as defined below) to be the same &#147;transaction,&#148; for purposes of NASD Rule 4350(i)(1)(D), as the issuance of Common Stock upon exercise of the Option
(such other sales, issuances or potential issuances, the &#147;<B>Other Related Offerings</B>&#148;), each without breaching the Company&#146;s obligations under the rules or regulations of the Principal Market (the &#147;<B>Principal Market
Cap</B>&#148;), which amount shall be calculated for all the Option as the amount of the Principal Market Cap less the aggregate number of shares of Common Stock issued or to be issued as contemplated by clauses (A) and (C) through (F) above, except
that such limitation shall not apply in the event that the Company (x) obtains the Shareholder Approval or (y) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably
satisfactory to the Purchaser. For purposes of the preceding sentence, the term &#147;<B>Shareholder Approval</B>&#148; shall mean the approval of the stockholders of the Company, in accordance with NASD Rule 4350(i) (or the equivalent thereof under
the rules of the Principal Market), of the transactions described in the Transaction Documents (for purposes of this sentence only, as such term is used in the Debentures) the Reedland Issuances, the transactions described in this Agreement and the
Other Related Offerings. Until such approval or written opinion is obtained, the Purchaser shall not be issued, upon exercise of the Option, shares of Common Stock in violation of this Section 1.4(b)(ii). <I></I> </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(iii) <I>Not Transferable. </I>The Option may not be transferred by the
Purchaser. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(iv) <I>No Fractional Shares or Scrip. </I>No
fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Option. As to any fraction of a share which the Purchaser would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(v) <I>Charges, Taxes and Expenses. </I>Issuances of certificates for the Option Shares shall be made without charge to the Purchaser for any issue tax or
other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Purchaser. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">3 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(vi) <I>No Rights as Shareholder until Exercise. </I>The Option does not entitle the Purchaser to any
voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon surrender of the Option and the payment of the purchase price therefor, the Option Shares so purchased shall be and be deemed to be issued to the
Purchaser as the record owner of such shares as of the close of business on the later of the date of such surrender or payment and this Option shall no longer be issuable with respect to such Option Shares. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(vii) <I>Blackout or Suspension.</I> In the event that the use of the
Registration Statement (as defined in the Registration Rights Agreement) or the Prospectus contained therein is suspended during the Exercise Period, the Exercise Period shall be extended by the length of any such suspension. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(viii) <I>Buy-In</I>. In addition to any other rights available to Purchaser,
if the Company improperly fails to deliver to the Purchaser a certificate or certificates representing the Option Shares pursuant to an exercise by the fifth Trading Day after the date of exercise the Option, and if after such fifth Trading Day the
Purchaser is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Purchaser of the Option Shares which the Purchaser anticipated receiving upon such
exercise (a &#147;<B>Buy-In</B>&#148;), then the Company shall (1) pay in cash to the Purchaser the amount by which (x) the Purchaser&#146;s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multiplying (A) the number of Option Shares that the Company was required to deliver to the Purchaser in connection with the exercise at issue by (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the Purchaser, either reinstate the portion of the Option and equivalent number of Option Shares for which such exercise was not honored (including the Purchaser&#146;s right to exercise the Option)
or deliver to the Purchaser the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Purchaser purchases Common Stock having a total
purchase price of $501,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $500,000, under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Purchaser $1,000. The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit Purchaser&#146;s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company&#146;s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Option as required pursuant to the terms hereof. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTICLE II<U> </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Representations and Warranties</U> </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 2.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Representations and Warranties of the Company</U>. The Company hereby makes the following representations and
warranties to the Purchaser as of the date hereof and the Closing Date: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">4 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(a) <I>Organization and Qualification; Material Adverse Effect</I>. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company does not have any subsidiaries (defined
as an entity which the Company has at least a 50% ownership interest in and control) other than the subsidiaries listed on <U>Schedule 2.1(a)</U> attached hereto (&#147;<B>Subsidiaries</B>&#148;). Except where specifically indicated to the contrary,
all references in this Agreement to subsidiaries shall be deemed to refer to all direct and indirect subsidiaries of the Company. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not reasonably be expected to have a Material Adverse
Effect. &#147;<B>Material Adverse Effect</B>&#148; means any adverse effect on the business, operations, properties, or financial condition of the Company and its Subsidiaries, and which is (either alone or together with all other adverse effects)
material to the Company and its Subsidiaries, if any, taken as a whole. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman"
SIZE="2">(b) <I>Authorization; Enforcement</I>. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, and the Registration Rights Agreement (the &#147;Transaction Documents&#148;) and to issue the
Shares in accordance with the terms hereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby, including the issuance of the Shares, have been duly
authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors (or any committee or subcommittee thereof) or stockholders is required, (iii) the Transaction Documents have been, or at
the Closing will be, duly executed and delivered by the Company, (iv) assuming they have been duly executed and delivered by the Purchaser, the Transaction Documents constitute, or at the Closing will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting
generally the enforcement of creditors&#146; rights and remedies or by other equitable principles of general application, and (B) to the extent the indemnification provisions contained in this Agreement and the Registration Rights Agreement may be
limited by applicable federal or state securities laws and (v) the Shares have been duly authorized and, upon issuance thereof and payment therefor in accordance with the terms of this Agreement, the Shares will be validly issued and free and clear
of any and all liens, claims and encumbrances for claims of the Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(c) <I>Capitalization.</I> Except as set forth on Schedule 2.1(c), as of the date hereof, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, of which as of the date hereof,
59,893,091 shares are issued and outstanding, 8,629,062 shares are issuable and reserved for issuance pursuant to the Company&#146;s stock option plans or securities exercisable or exchangeable for, or convertible into, shares of Common Stock, and
(ii) 100,000 shares of preferred stock, of which as of the date hereof no shares are issued. All of such outstanding shares have been, or upon issuance will be, validly issued, fully paid and nonassessable. As of the date hereof, except as described
in this Section 2.1(c) or disclosed in <U>Schedule 2.1(c)</U>, (i) no shares of the Company&#146;s capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iii)
there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act of 1933, as amended (&#147;<B>Securities Act&#148; or &#147;1933
Act</B>&#148;) (except the Registration Rights Agreement and except for the Registration Rights Agreement, dated as of March 25, 2004 between the Company and Manchester Securities Corp.), (iv) there are no outstanding securities of the Company
(other than the Debentures) or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound
to redeem a security of the Company or any of its Subsidiaries, (v) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance or exercise of the Shares or the Option as described in
this Agreement and (vi) the Company does not have any stock appreciation rights or &#147;phantom stock&#148; plans or agreements or any similar plan or agreement. The Company disclosed in its SEC Documents or has furnished to the Purchaser true and
correct copies of the Company&#146;s Certificate of Incorporation, as amended and as in effect on the date hereof (the &#147;<B>Certificate of Incorporation</B>&#148;), and the Company&#146;s By-laws, as in effect on the date hereof (the
&#147;<B>By-laws</B>&#148;), and the terms of all securities convertible or exchangeable into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d) <I>Issuance of Shares</I>. Upon issuance in accordance with this
Agreement (including the payment therefor in accordance with the terms of this Agreement), the Shares will be duly authorized, validly issued, fully paid and nonassessable and free from all taxes (other than transfer taxes where the Shares have been
transferred and other than any taxes due because of actions by Purchaser), liens and charges with respect to the issue thereof and, subject to applicable securities laws (i) the Shares will be entitled to be traded on the Principal Market (as
defined below) or the New York Stock Exchange, the American Stock Exchange or the Nasdaq Small Cap Market (each an <B>&#147;Approved Market&#148;</B>), and (ii) the holders of such Shares shall be entitled to all rights and preferences accorded to a
holder of Common Stock. As of the date of this Agreement, the outstanding shares of Common Stock are currently listed on the Principal Market. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(e) <I>No Conflicts</I>. Except as disclosed in <U>Schedule 2.1(e)</U>, the execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated hereby and thereby and issuance of the Shares will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations, preferences and
rights of any outstanding series of preferred stock of the Company or the By-laws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, except as would not reasonably be expected to have a Material Adverse Effect or (iii) result
in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">6 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">and regulations and the rules and regulations of the Nasdaq National Market (&#147;<B>Principal Market</B>&#148;) or
other principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in <U>Schedule 2.1(e)</U>, neither the Company nor its Subsidiaries is in violation of any term of, or in default under, (x) its certificate of incorporation, any certificate of designations, preferences and rights of
any outstanding series of preferred stock or By-laws or their organizational charter or by-laws, respectively, (y) any material contract, agreement, mortgage, indebtedness, indenture, instrument, or (z) any judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, the non-compliance with which (in the case of (x), (y) or (z)) would reasonably be expected to have a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency in order for it to
execute, deliver or perform any of its obligations under, or contemplated by, the Transaction Documents or the issuance of the Shares, in accordance with the terms hereof or thereof. Except as disclosed in <U>Schedule 2.1(e)</U>, all consents,
authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company complies with and is not in violation of the
listing requirements of the Principal Market. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(f) <I>SEC
Documents; Financial Statements</I>. Since January 1, 2003, the Company as well as its majority owned Subsidiaries have filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the &#147;<B>1934 Act</B>&#148;) (all of the foregoing filed prior to the date hereof and all exhibits and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the &#147;<B>SEC Documents</B>&#148;). The Company has delivered to the Purchaser or its representatives true and complete copies of any SEC Documents that were not filed electronically via EDGAR. As of their
respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(g) <I>Absence of Certain Changes</I>. Except as disclosed in <U>Schedule
2.1(g)</U>, the Company&#146;s Annual Report on Form 10-K for the year ended December 31, 2003 (the &#147;<B>Company&#146;s 10-K</B>&#148;), or any other SEC Document filed since March 31, 2004 there has been no </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">7 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">adverse change or adverse development in the business, properties, assets, operations, financial condition, prospects,
liabilities or results of operations of the Company or its Subsidiaries which has had or, to the knowledge of the Company or its Subsidiaries, is reasonably likely to have a Material Adverse Effect. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(h) <I>Absence of Litigation</I>. To the Company&#146;s
knowledge, there are no material pending or threatened legal proceedings, other than routine litigation incidential to the Company&#146;s business, to which the Company or any of its Subsidiaries is a party or of which any of their property is the
subject, (i) except as set forth in SEC Documents which were filed at least 10 days before the date hereof, (ii) except as set forth in the Company&#146;s 10-K, and (iii) except which individually and in the aggregate, respectively, would not be
reasonably likely to result in liability to the Company in excess of $50,000 and $100,000, respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(i) <I>Acknowledgment Regarding Purchaser&#146;s Purchase of Shares</I>. The Company acknowledges and agrees that Purchaser is acting solely in the
capacity of arm&#146;s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that Purchaser is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further represents to Purchaser that the Company&#146;s decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its representatives. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(j) <I>No Integrated Offering</I>. Except as set forth in <U>Schedule 2.1(j)</U>, 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 Option and Shares to the Purchaser to be integrated with prior offerings by the Company for purposes of the 1933
Act or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of the Principal Market or other Approved Market (as defined below), nor will the Company or any of its Subsidiaries take any
action or steps that would cause the offering of the Option and Shares to be integrated with other offerings. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(k) <I>Employee Relations</I>. Neither the Company nor any of its Subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened, the effect of which would be reasonably likely to result in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement. No
executive officer (as defined in Rule 501(f) of the 1933 Act) whose departure would be adverse to the Company has notified the Company in writing that such officer intends to leave the Company or otherwise terminate such officer&#146;s employment
with the Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(l) <I>Intellectual Property Rights</I>. The
Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">8 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">respective businesses as now conducted, except as would not reasonably expect to have a Material Adverse Effect. Except
as set forth on <U>Schedule 2.1(l)</U> or in the Company&#146;s 10-K, none of the Company&#146;s trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two (2) years from the date of this Agreement, except as would not be reasonably expected to
have a Material Adverse Effect. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(m) <I>Environmental Laws</I>. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants
(&#147;<B>Environmental Laws</B>&#148;), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where such noncompliance or failure to receive permits, licenses or approvals referred to in clauses (i), (ii) or (iii) above would reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(n) <I>Title</I>. The Company and
its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in the ordinary course of
business as currently conducted, in each case free and clear of all liens, encumbrances and defects except such as are described in <U>Schedule 2.1(n)</U> or such as do not materially interfere with the use of such property by the Company or any of
its Subsidiaries in the ordinary course of business as currently conducted. Any material real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with
such exceptions as do not materially interfere with the use made of such property and buildings by the Company and its Subsidiaries in the ordinary course of business as currently conducted. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(o) <I>Regulatory Permits</I>. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities, necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any written
notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit except as would reasonably be expected to have a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(p) <I>Internal Accounting Controls</I>. The Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management&#146;s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management&#146;s general or specific authorization and (iv) the recorded accountability
for assets is compared with the </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">9 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">existing assets at reasonable intervals and appropriate action is taken with respect to any differences. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(q) <I>Foreign Corrupt Practices Act</I>. Except as would not reasonably be
expected to have a Material Adverse Effect, neither the Company, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of acting for, or on behalf of, the Company, directly or
indirectly used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; directly or indirectly made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of the United States; or directly or indirectly made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government or party official or employee. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(r) <I>Tax Status</I>. Except as set forth in the Company&#146;s 10-K, the Company and each of its Subsidiaries has made or filed all United States
federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (i) has paid all taxes and other governmental assessments and charges, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith and (ii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and the Company is not aware of any basis for any such claim. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(s) <I>Certain Transactions</I>. Except as set forth on <U>Schedule 2.1(s)</U>, the Company 10-K, or the SEC Documents filed
on EDGAR at least thirty (30) Trading Days prior to the date hereof and except for arm&#146;s length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could
obtain from third parties and other than the grant of stock options disclosed on <U>Schedule 2.1(c)</U> or the Company&#146;s 10-K, none of the officers, directors or employees of the Company is presently a party to any transaction with the Company
or any of its Subsidiaries (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 corporation, partnership, trust or other entity in which any officer, director or any such employee has a substantial
interest or is an officer, director, trustee or partner. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(t)
<I>Disclosure</I>. The Company confirms that, neither the Company nor any other Person acting on its behalf has provided the Purchaser or its agents or counsel with any information that constitutes or might constitute material, non-public
information other than information which has subsequently been publicly disclosed. The Company understands and confirms that the Purchaser will rely on the foregoing representations and covenants in effecting transactions in securities of the
Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(u) <I>Application of Takeover Protections</I>. There
are no anti-takeover provisions contained in the Company&#146;s Certificate of Incorporation or otherwise which will or </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">10 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">would reasonably be expected to be triggered as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company&#146;s issuance of the Common Shares and the Purchaser&#146;s ownership of the Common Shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(v) <I>Rights Plan</I>. Neither the Company nor any of its Subsidiaries has adopted a shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of the Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(w) <I>Obligations</I>. Except to the extent (if any) specifically set forth in the Transaction Documents, the Company&#146;s obligations thereunder are not subject to any right of set off, counterclaim, delay or
reduction. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(x) <I>Form S-3</I>. The Company is eligible to
file the Registration Statement (as defined in the Registration Rights Agreement) for secondary offerings on Form S-3 (as in effect on the date of this Agreement) under the 1933 Act and rules promulgated thereunder. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(y) <I>No MFN or Variable Rate Transactions</I>. The Company has no
outstanding securities or other instruments issued pursuant to any MFN or Variable Rate Transaction. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2"><B>&#147;MFN Transaction&#148;</B> shall mean a transaction in which the Company issues or sells any securities in a capital raising transaction or series
of related transactions (the &#147;<B>MFN Offering</B>&#148;) which grants to the investor (the &#147;<B>MFN Investor</B>&#148;) the right to receive additional securities based upon future capital raising transactions of the Company on terms more
favorable than those granted to the MFN Investor in the MFN Offering. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman"
SIZE="2"><B>&#147;Variable Rate Transaction&#148;</B> shall mean a transaction in which the Company issues or sells, on or subsequent to the Closing Date (a) 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 (x) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Common Stock at any time after
the initial issuance of such debt or equity securities, or (y) with a fixed 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 (but excluding standard stock split anti-dilution provisions), or (b) any securities of the Company pursuant to an
&#147;equity line&#148; structure which provides for the sale, from time to time, of securities of the Company which are registered for resale pursuant to the 1933 Act. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(z) <I>Indebtedness</I>. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">Except as disclosed in <U>Schedule 2.1(z)</U> or in the Company&#146;s 10-K, neither the Company nor any of its Subsidiaries has any outstanding
Indebtedness (as defined below). For purposes of this Agreement: (i) &#147;Indebtedness&#148; of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services, (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">11 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired
with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or
similar arrangement which, in accordance with GAAP, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; and (ii) &#147;Contingent Obligation&#148; means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect
thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(aa)
<I>Sarbanes-Oxley Act</I>. The Company is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 and any and all applicable rules and regulations promulgated by the SEC thereunder, except where such noncompliance
would not have, individually or in the aggregate, a Material Adverse Effect. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(bb) <I>Investment Company Status</I>. The Company is not, and immediately after receipt of payment for the Debentures issued under this Agreement will not be, and &#147;<U>investment company</U>&#148; or an entity
&#147;<U>controlled</U>&#148; by an &#147;<U>investment company</U>&#148; within the meaning of the Investment Company Act of 1940, as amended (the &#147;<U>Investment Company Act</U>&#148;), and shall conduct its business in a manner so that it
will not become subject to the Investment Company Act. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(cc)
<I>Listing and Maintenance Requirements</I>. Since January 1, 2003, the Company has been in compliance with all listing and maintenance requirements for the Principal Market except, in each case, as could not reasonably be expected to result in a
Material Adverse Effect. Since January 1, 2003, the Company has not received any communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 2.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Representations and Warranties of the
Purchaser</U>. Purchaser hereby makes the following representations and warranties to the Company as of the date hereof and the Closing Date: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(a) <I>Accredited Investor Status; Sophisticated Purchaser</I>. The Purchaser is an &#147;accredited investor&#148; as that term is defined in Rule 501(a)
of Regulation D under the 1933 Act and is able to bear the risk of its investment in the Option and Shares. The </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">12 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits
and risks of the purchase of the Option and Shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b)
<I>Information</I>. The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company which have been requested and materials relating to the offer and sale of the Option
and Shares which have been requested by the Purchaser. The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by the
Purchaser or its advisors, if any, or its representatives shall modify, amend or affect the Purchaser&#146;s right to rely on the Company&#146;s representations and warranties contained in Section 2.1 above. The Purchaser understands that its
purchase of the Option and Shares involves a high degree of risk. The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Option and
Shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) <I>No Governmental Review</I>. The Purchaser
understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Option and Shares or the fairness or suitability of the investment in the Option
and Shares nor have such authorities passed upon or endorsed the merits thereof. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(d) <I>Legends</I>. The Company shall issue the Shares to the Purchaser without any legend except as described in Article VI below. The Purchaser covenants that, in connection with any transfer of Shares by the
Purchaser pursuant to the registration statement contemplated by the Registration Rights Agreement, it will comply with the applicable prospectus delivery requirements of the 1933 Act, provided that copies of a current prospectus relating to such
effective registration statement are or have been supplied to the Purchaser. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(e) <I>Authorization; Enforcement</I>. Each of this Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of the Purchaser and is a valid and binding
agreement of the Purchaser enforceable against the Purchaser in accordance with their terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable creditors&#146; rights and remedies. The Purchaser has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the
Security Agreement and the Registration Rights Agreement and each other agreement entered into by the parties hereto in connection with the transactions contemplated by this Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(f) <I>No Conflicts</I>. The execution, delivery and performance of this Agreement and the Registration Rights Agreement by
the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the certificate of incorporation, by-laws or other documents of organization of the Purchaser, (ii)
conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Purchaser is bound, or (iii) result in a violation of any law, rule, regulation or decree applicable to the Purchaser. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">13 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(g) <I>Purchase Representation</I>. The Purchaser is purchasing the Option and Common Shares for its own
account and not with a view to distribution in violation of any securities laws. The Purchaser has been advised and understands that neither the Shares nor the Option have been registered under the 1933 Act or under the &#147;blue sky&#148; laws of
any jurisdiction and may be resold only if registered pursuant to the provisions of the 1933 Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law.
The Purchaser has been advised and understands that the Company, in issuing the Shares, is relying upon, among other things, the representations and warranties of the Purchaser contained in this Section 2.2 in concluding that such issuance is a
&#147;private offering&#148; and is exempt from the registration provisions of the 1933 Act. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(h) <I>Rule 144</I>. The Purchaser understands that the Shares must be held indefinitely unless and until the Shares are registered under the 1933 Act or an exemption from registration is available. The Purchaser has
been advised or is aware of the provisions of Rule 144 promulgated under the 1933 Act. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT
FACE="Times New Roman" SIZE="2">(i) <I>Brokers</I>. The Purchaser has taken no action which would give rise to any claim by any person for brokerage commissions, finder&#146;s fees or similar payments by the Company or the Purchaser relating to this
Agreement or the transactions contemplated hereby. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(j)
<I>Reliance by the Company</I>. The Purchaser understands that the Option and Shares are being offered and sold in reliance on a transactional exemption from the registration requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of the Purchaser
to acquire the Option and the Shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(k) Except as set forth
in Section 2.1 of this Agreement, the Purchaser is not relying on any information provided by, or representations or warranties made by, the Company or its Subsidiaries or their respective directors, officers, employees or representatives.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(l) <I>Residency</I>. Purchaser is a resident of the
jurisdiction set forth on the signature page hereto. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Article
III<U> </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Covenants</U> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Securities Compliance</U>. The Company
shall notify the SEC and the Principal Market, in accordance with their requirements, of the transactions contemplated by this Agreement, and the Registration Rights Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.2&nbsp;&nbsp;&nbsp;&nbsp;<B>[Intentionally Omitted]</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Reservation of Shares</U>. The Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">14 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">effecting the exercise of the Option, such number of its shares of Common Stock as shall from time to time be sufficient
to effect the exercise of the Option in full, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the exercise of the Option, the Company will take such corporate action as may be
necessary to expeditiously increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including without limitation engaging in best efforts to obtain the requisite shareholder
approval. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.4&nbsp;&nbsp;&nbsp;&nbsp;<U>Best
Efforts</U>. The parties shall use their best efforts to satisfy timely each of the conditions described in Article V of this Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.5&nbsp;&nbsp;&nbsp;&nbsp;<U>Blue Sky Laws</U>. The Company shall take such actions as it reasonably determines are required to comply with all
&#147;blue sky&#148; laws applicable to the sale of the Option and Shares hereunder; provided, however, that the Company shall not be required in connection therewith to register or qualify as a foreign corporation in any jurisdiction where it is
not so qualified or to take any action that would subject it to service of process in suits or taxation, in each case, in any jurisdiction where it is not so subject. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.6&nbsp;&nbsp;&nbsp;&nbsp;<U>Publicity</U>. The Company shall, immediately upon the Closing: (i) issue a press
release with respect to such transactions, in the form of the press release attached as <B><U>Exhibit B</U></B> hereto and (ii) file a Report on 8-K with the SEC, which shall describe the transactions contemplated herein and which shall include the
Transaction Documents as exhibits. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section
3.7&nbsp;&nbsp;&nbsp;&nbsp;<U>Shareholder Rights Plan</U>. None of the acquisitions of the Shares nor the deemed beneficial ownership of shares of Common Stock prior to, or the acquisition of such shares pursuant to, this Agreement will in any event
under any circumstances trigger the &#147;poison pill&#148; provisions of any stockholders&#146; rights or similar agreements, or a substantially similar occurrence under any successor or similar plan. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.8&nbsp;&nbsp;&nbsp;&nbsp;<U>Non-Public Information</U>. The Company
covenants and agrees that neither it nor any other Person acting on its behalf will provide Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto Purchaser
shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the
Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 3.9&nbsp;&nbsp;&nbsp;&nbsp;<U>Purchaser
Undertaking in Connection with Legend Removal</U>. Purchaser covenants that it shall not sell, transfer, assign, hypothecate or pledge in any way any Shares issued without a Securities Legend in accordance with Article V except for sales (A) in
accordance with the terms of the Plan of Distribution section of the prospectus contained in the Registration Statement and in compliance with prospectus delivery requirements or (B) in compliance with the requirements of Rule 144 under the 1933
Act. Purchaser further undertakes to indemnify the Company against any loss, cost or expense, including reasonable legal fees, incurred as a result of such legend removal on Purchaser&#146;s behalf. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTICLE IV<U> </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Conditions to Closings</U> </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 4.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions Precedent to the Obligation of the Company to Sell</U>. The obligation hereunder of the Company to
issue and/or sell the Common Shares at the Closing is subject to the satisfaction, at or before the Closing, of each of the applicable conditions set forth below. These conditions are for the Company&#146;s sole benefit and may be waived by the
Company at any time in its sole discretion. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(a) <I>Accuracy of
the Purchaser&#146;s Representations and Warranties</I>. The representations and warranties of the Purchaser will be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) <I>Performance by the Purchaser</I>. Purchaser shall have
performed all agreements and satisfied all conditions required to be performed or satisfied by the Purchaser at or prior to the Closing, including payment of the Purchase Price to the Company as provided herein. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) <I>No Injunction.</I> No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by the Transaction
Documents. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 4.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions
Precedent to the Obligation of the Purchaser to Purchase</U>. The obligation hereunder of Purchaser, to acquire and pay for the Common Shares at the Closing is subject to the satisfaction, at or before the Closing, of each of the applicable
conditions set forth below. These conditions are for such Purchaser&#146;s benefit and may be waived by the Purchaser at any time in its sole discretion. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(a) <I>Accuracy of the Company&#146;s Representations and Warranties</I>. The representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties as of an earlier date, which shall be true and correct in all material respects as of such date).
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) <I>Performance by the Company</I>. The Company shall have
performed all agreements and satisfied all conditions required to be performed or satisfied by the Company at or prior to the Closing, including, without limitation, delivery of the Common Shares to the Purchaser. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(c) <I>Nasdaq Trading</I>. From the date hereof to the Closing Date, trading
in the Company&#146;s Common Stock shall not have been suspended by the SEC and trading in securities generally as reported by the Principal Market (or other Approved Market) shall not have been suspended or limited, and the Common Stock shall be
listed on the Principal Market or another Approved Market. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(d)
<I>No Injunction</I>. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents. The Nasdaq shall not have objected or indicated that it may object to the consummation of any of the transactions contemplated by this Agreement. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(e) <I>Opinion of Counsel</I>. At the Closing, the Purchaser shall have
received an opinion of counsel to the Company in the form attached hereto as <B><U>Exhibit C</U></B> and such other opinions, certificates and documents as the Purchaser or their counsel shall reasonably require incident to the Closing. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(f) <I>Registration Rights Agreement</I>. The Company and the Purchaser
shall have executed and delivered the Registration Rights Agreement in the form and substance of <B><U>Exhibit A</U></B> attached hereto. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(g) <I>Officer&#146;s Certificates</I>. The Company shall have delivered to the Purchaser a certificate in form and substance satisfactory to the
Purchaser and the Purchaser&#146;s counsel, executed by an officer of the Company, certifying as to satisfaction of closing conditions, incumbency of signing officers, and the true, correct and complete nature of the Certificate of Incorporation,
By-Laws, good standing and authorizing resolutions of the Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B>ARTICLE V<U> </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Legend and Stock</U>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Upon payment therefor as provided in this Agreement, the
Company will issue one or more Shares in the name of Purchaser and in such denominations to be specified by the Purchaser prior to (or from time to time subsequent to) Closing. Each certificate representing Shares prior to such Shares being
registered under the 1933 Act for resale or available for resale under Rule 144(k) under the 1933 Act, shall be stamped or otherwise imprinted with a legend in substantially the following form: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE &#147;SECURITIES ACT&#148;), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AFTER RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">THESE SECURITIES REPRESENTED HEREBY ARE ALSO SUBJECT TO RIGHTS AND
OBLIGATIONS AS SET FORTH IN A SECURITIES PURCHASE AGREEMENT DATED AS OF APRIL 14, 2004, AND A REGISTRATION RIGHTS AGREEMENT DATED AS OF APRIL 14, 2004, IN EACH CASE AMONG STAR SCIENTIFIC, INC. AND CERTAIN OTHER PARTIES THERETO AS SUCH MAY BE AMENDED
FROM TIME TO TIME. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">17 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The Company agrees to issue Shares, without the first legend set forth above with respect to the
Securities Act (the &#147;Securities Legend&#148;), at such time as (i) the holder thereof is permitted to dispose of such Shares pursuant to Rule 144(k) under the 1933 Act, or (ii) such securities have been registered under the 1933 Act, subject to
the undertaking in Section 3.9 above by the Purchaser; provided that in the case of clause (i) or (ii) the Company also agrees, upon request of Purchaser to reissue Shares without the legend set forth above with respect to rights and obligations
under this Agreement and the Registration Rights Agreement (the &#147;<B>Rights and Obligations Legend</B>&#148; and, together with the Securities Legend, the &#147;<B>Stock Legends</B>&#148;). </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Upon the Registration Statement, or registration statement covering the
Option Shares, becoming effective, the Company agrees to promptly, but no later than three (3) Trading Days thereafter, issue new certificates representing such Common Shares or Option Shares, as the case may be, without such Securities Legend. Any
Shares issued after such registration statement has become effective shall be free and clear of any Securities Legends. Notwithstanding the removal of such Securities Legend, the Purchaser agrees to comply with Section 3.9. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Subject to Section 3.9, nothing herein shall limit the right of any holder to
pledge these securities pursuant to a bona fide margin account or lending arrangement entered into in compliance with law, including applicable securities laws. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTICLE VI<U> </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Termination</U> </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 6.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination</U>. This Agreement, may be terminated by action of the Board of Directors of the Company or by the
Purchaser at any time if the Closing shall not have been consummated by the second business day following the date of this Agreement; provided, however, that the party (or parties) prepared to close shall retain its (or their) right to sue for any
breach by the other party (or parties). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTICLE VII<U>
</U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Indemnification</U> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 7.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Indemnification by the Company</U>. In
consideration of the Purchaser&#146;s execution and delivery of the this Agreement, and the Registration and acquiring the Shares hereunder and in addition to all of the Company&#146;s other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless Purchaser and all of its partners, officers, directors, employees, members and direct or indirect investors and any of the foregoing person&#146;s agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the &#147;<B>Purchaser Indemnitees</B>&#148;) from and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys&#146; fees and
disbursements (the &#147;<B>Purchaser Indemnified Liabilities</B>&#148;), incurred by any Indemnitee as a result of, or arising out </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">18 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Purchaser Indemnitee by a third party and arising out of or resulting from (i) the execution, delivery, performance, breach by the Company or
enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Shares and (d) the enforcement of this Section. Notwithstanding the foregoing, Purchaser Indemnified Liabilities shall not include any liability of any Indemnitee arising solely out of such Purchaser Indemnitee&#146;s willful
misconduct or fraudulent action(s). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Purchaser Indemnified
Liabilities which is permissible under applicable law. Nothwithstanding the foregoing, to the extent this Section overlaps with Section 6(a) of the Registration Rights Agreement, the amount of the Company&#146;s indemnification shall not exceed the
limitation contained in such provision. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section
7.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Indemnification by Purchaser</U>. In consideration of the Company&#146;s execution and delivery of the this Agreement and the Registration Rights Agreement and in addition to all of Purchaser&#146;s other obligations
under the Transaction Documents, Purchaser shall defend, protect, indemnify and hold harmless the Company and all of its partners, officers, directors, employees, members and direct or indirect investors and any of the foregoing person&#146;s agents
or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the &#147;Company Indemnitees&#148;) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Company Indemnitee is a party to the action for which indemnification hereunder is sought), and including
reasonable attorneys&#146; fees and disbursements (the &#147;Company Indemnified Liabilities&#148;), incurred by any Company Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Purchaser in the Transaction Documents or any other certificate or document contemplated hereby or thereby, or (b) any breach of any covenant, agreement or obligation of the Purchaser contained in the Transaction Documents or
any other certificate or document contemplated hereby or thereby. Notwithstanding the foregoing, Company Indemnified Liabilities shall not include any liability of any Company Indemnitee arising solely out of such Company Indemnitee&#146;s willful
misconduct or fraudulent action(s) and Purchaser shall not be responsible for Company Indemnified Liabilities under this Section 7.2 for an amount that exceeds the Purchase Price paid by Purchaser. To the extent that the foregoing undertaking by the
Purchaser may be unenforceable for any reason, the Purchaser shall make the maximum contribution to the payment and satisfaction of each of the Company Indemnified Liabilities which is permissible under applicable law. Notwithstanding the foregoing,
to the extent that this Section overlaps with Section 6(b) of the Registration Rights Agreement, the amount of the Purchaser&#146;s indemnification shall not exceed the limitation contained in such provision. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 7.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Procedure</U>. Each party entitled to
indemnification under this Article 7 (the &#147;<B>Indemnified Party</B>&#148;) shall give notice to the party required to provide indemnification (the </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">19 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">&#147;<B>Indemnifying Party</B>&#148;) promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim in any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at its own expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Article 7 except to the extent that the Indemnifying Party is materially and adversely affected by such failure to
provide notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such non-privileged information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>ARTICLE VIII<U> </U></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B><U>Governing Law; Miscellaneous</U> </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Governing Law</U>. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. 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, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO
THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF
PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY JURISDICTION, SUCH
INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER JURISDICTION. EACH PARTY HERETO
IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">20 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile signature shall be considered
due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Headings</U>. The headings of this Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section
8.4&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability</U>. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.5&nbsp;&nbsp;&nbsp;&nbsp;<U>Entire Agreement; Amendments; Waivers</U>. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(a) This Agreement supersedes all other prior oral or written agreements between the Purchaser, the Company, their
affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein (including the other Transaction Documents) contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be amended other than by an instrument in writing signed by the Company and the Purchaser, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2">(b) Purchaser may, as to itself only, at any time elect, by
notice to the Company, to waive (whether permanently or temporarily, and subject to such conditions, if any, as the Purchaser may specify in such notice) any of its rights under any of the Transaction Documents to acquire shares of Common Stock from
the Company, in which event such waiver shall be binding against the Purchaser in accordance with its terms; provided, however, that the voluntary waiver contemplated by this sentence may not reduce the Purchaser&#146;s obligations to the Company
under the Transaction Documents. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section
8.6&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing, must be delivered by (i) courier, mail or hand delivery or (ii)
facsimile, and will be deemed to have been delivered upon receipt. The addresses and facsimile numbers for such communications shall be: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">If to the Company: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Star Scientific, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">801 Liberty Way </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Chester, Virginia 23836 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Telephone:&nbsp;&nbsp;&nbsp;&nbsp;(804) 530-0535 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Facsimile:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(804) 530-8474 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Attention: Chief Financial Officer </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">21 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">With a copy to: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Star Scientific, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">7475 Wisconsin Ave. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Suite 850 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Bethesda, Maryland 20814 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">Telephone:&nbsp;&nbsp;&nbsp;&nbsp;(301) 654-8300 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">Facsimile:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(301) 654-9308 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Attention: Robert Pokusa, Esq. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">If to the Purchaser: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Portside Growth &amp; Opportunity Fund </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">c/o Ramius Capital Group </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">666 3rd Avenue, 26th Floor </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">New York, New York 10017 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(212) 845-7955 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">(212) 845-7999 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Attention: Jeff Smith </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Each party shall provide five (5) days prior written notice to the other party of any change in address, telephone number or
facsimile number. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender&#146;s facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.7&nbsp;&nbsp;&nbsp;&nbsp;<U>Successors and Assigns</U>. Except as otherwise provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns, including any Permitted Assignee (as defined below). The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the
Purchaser, including by merger or consolidation. Purchaser may assign some or all of its rights hereunder to any permitted assignee of the Shares to the extent such assignee signs a counterpart signature page to this Agreement or a joinder
agreement, in form and substance satisfactory to the Company, assuming the obligations of Purchaser under this Agreement, including, without limitation, Section 3.9 hereof (in each case, a &#147;<B>Permitted Assignee</B>&#148;); <U>provided</U>,
however, that any such assignment shall not release the Purchaser from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, subject to Section 3.9, the Purchaser shall be entitled to pledge the Shares in connection with a bona fide margin account. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">22 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.8&nbsp;&nbsp;&nbsp;&nbsp;<U>No Third Party Beneficiaries</U>. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.9&nbsp;&nbsp;&nbsp;&nbsp;<U>Survival</U>. The representations, warranties and agreements of the Company and the
Purchaser contained in the Agreement shall survive the Closing. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2">Section 8.10&nbsp;&nbsp;&nbsp;&nbsp;<U>Further Assurances</U>. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.11&nbsp;&nbsp;&nbsp;&nbsp;<U>No Strict Construction</U>. The
language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.12&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies</U>. Purchaser and each
Permitted Assignee shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders
have under any law. Any person having any rights under any provision of the Transaction Documents shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any
provision of the Transaction Documents and to exercise all other rights granted by law. Purchaser and each Permitted Assignee without prejudice may withdraw, revoke or suspend its pursuit of any remedy at any time prior to its complete recovery as a
result of such remedy. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section
8.13&nbsp;&nbsp;&nbsp;&nbsp;<U>Payment Set Aside</U>. To the extent that the Company makes a payment or payments to the Purchaser under the Transaction Documents or the Purchaser enforces or exercise their rights hereunder or 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. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.14&nbsp;&nbsp;&nbsp;&nbsp;<U>Days</U>. Unless the context refers to
&#147;business days&#148; or &#147;Trading Days&#148;, all references herein to &#147;days&#148; shall mean calendar days. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Section 8.15&nbsp;&nbsp;&nbsp;&nbsp;<U>Rescission and Withdrawal Right</U>. Notwithstanding anything to the contrary contained in (and without limiting
any similar provisions of) the Transaction Documents, wherever Purchaser exercises a right, election, demand or option under a Transaction Document and the Company or applicable Subsidiary does not fully perform its respective related obligations
within the periods therein provided, then Purchaser in its sole discretion may rescind or withdraw from time to time any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.<B></B> </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">23 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>* * * * * </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><I>[Signature Page Follows] </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">24 </FONT></P>


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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT FACE="Times New Roman" SIZE="2"><B>IN WITNESS WHEREOF</B>, the parties hereto have caused this Securities Purchase Agreement to be duly
executed as of the date and year first above written. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0">

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<TD WIDTH="41%"></TD></TR>
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<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>COMPANY:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>PURCHASER:</B></FONT></P></TD></TR>
<TR>
<TD HEIGHT="5" COLSPAN="3"></TD>
<TD HEIGHT="5" COLSPAN="2"></TD>
<TD HEIGHT="5" COLSPAN="4"></TD></TR>
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<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>STAR SCIENTIFIC, INC.</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>PORTSIDE GROWTH &amp;</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px; margin-left:2.50em; text-indent:-2.50em"><FONT
FACE="Times New Roman" SIZE="2"><B>OPPORTUNITYFUND</B></FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">/s/&nbsp;&nbsp;Paul L. Perito</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">/s/&nbsp;&nbsp;Jeffrey Smith</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Name:&nbsp;&nbsp;&nbsp;&nbsp;Paul L. Perito</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Name:&nbsp;&nbsp;&nbsp;&nbsp;Jeffrey Smith</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Title:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chairman, President &amp; C.O.O.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Title:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized Signatory</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>Purchase Price:</B>&nbsp;&nbsp;&nbsp;&nbsp;$500,000</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>Number of<BR>Common Shares Purchased:</B>&nbsp;&nbsp;&nbsp;&nbsp;142,857</FONT></TD></TR>
<TR>
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<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>Maximum Number<BR>of Option Shares:</B>&nbsp;&nbsp;&nbsp;&nbsp;134,048</FONT></TD></TR>
<TR>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>Residency:</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B><U>List of Schedules</U></B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(a)</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Subsidiaries</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(c)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Capitalization</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(e)</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">No Conflicts</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(g)</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Certain Changes</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(j)</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Other Transactions</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(l)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Intellectual Property Rights</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(n)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Title</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Schedule 2.1(s)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Certain Transactions</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
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<TD HEIGHT="8"></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B><U>List of Exhibits</U></B></FONT></TD>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
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<TD HEIGHT="8" COLSPAN="2"></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">EXHIBIT A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Registration Rights Agreement</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">EXHIBIT B</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Form of Press Release</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">EXHIBIT C</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Opinion of Counsel</FONT></TD>
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<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
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