SECURITIES PURCHASE AGREEMENT
 
BY AND BETWEEN
 
THEATER XTREME ENTERTAINMENT GROUP, INC.
 
AND
 
KINZER TECHNOLOGY, LLC
 

 

 
MARCH 6, 2007
 
 
 
 

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TABLE OF CONTENTS
 

   
Page              
 ARTICLE I DEFINITIONS
1
    1.1
Definitions
1
ARTICLE II PURCHASE AND SALE
5
    2.1
Closing
5
2.2
Deliveries.
5
ARTICLE III REPRESENTATIONS AND WARRANTIES
5
3.1
Representations and Warranties of the Company
5
3.2
Representations and Warranties of Purchaser
16
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES
18
4.1
Transfer Restrictions.
18
4.2
Acknowledgment of Dilution
20
4.3
Furnishing of Information
20
4.4
Integration
20
4.5
Reservation and Listing of Conversion Shares.
20
4.6
Exercise Procedures
21
4.7
Securities Laws Disclosure; Publicity
21
4.8
Shareholder Rights Plan
22
4.9
[INTENTIONALLY DELETED.]
22
4.10
No Impairment
22
4.11
Indemnification of Purchaser
22
4.12
Blue Sky Filings
23
4.13
Piggy-Back Registrations
23
ARTICLE V MISCELLANEOUS
23

 
 
 
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5.1
Fees and Expenses
23
5.2
Entire Agreement
23
5.3
Notices
24
5.4
Amendments; Waivers
24
5.5
Headings
24
5.6
Successors and Assigns
24
5.7
No Third-Party Beneficiaries
25
5.8
Governing Law
25
5.9
Survival
25
5.10
Execution
25
5.11
Severability
26
5.12
Rescission and Withdrawal Right
26
5.13
Replacement of Securities
26
5.14
Remedies
26
5.15
Payment Set Aside
26
5.16
Usury
27
5.17
Liquidated Damages
27
5.18
Construction
27

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EXHIBITS:
 
Exhibit A Form of Debenture
Exhibit B Form of Warrant

SCHEDULES:

Schedule 3.1(d) Conflicts
Schedule 3.1(e) Filings, Consents and Approvals
Schedule 3.1(z) Indebtedness
Schedule 3.1(ee) Senior Indebtedness

 
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SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of March 6,
2007 by and between Theater Xtreme Entertainment Group, Inc., a Florida
corporation (the “Company”), and Kinzer Technology, LLC, a Virginia limited
liability company (“Purchaser”).

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

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

ARTICLE I
DEFINITIONS
 
1.1  Definitions
 
. In addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms that are not otherwise defined herein have the respective meanings given
to such terms in the Debenture or Warrant (as defined herein), and (b) the
following terms have the respective meanings set forth in this Section 1.1:
 
“Affiliate” of a Person means any other Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with the first such Person.

“Cancelled Debenture” means that certain Seven Hundred Thousand Dollar
($700,000.00) debenture purchased by Purchaser pursuant to that certain
Securities Purchase Agreement by and between the Company and Purchaser dated
December 22, 2006, and which is being surrendered to the Company by Purchaser
and cancelled pursuant to the terms of this Agreement.

“Cash Amount” shall have the meaning ascribed to such term in Section 4.5(c).

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

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchaser’s obligations to surrender the
Cancelled Debenture and pay the Purchase Price, and (ii) the Company’s
obligations to deliver the Debenture and Warrant have been satisfied or waived.

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
 
 
 
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“Commission” means the Securities and Exchange Commission.

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

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

“Company Counsel” means Ballard Spahr Andrews and Ingersoll, LLP with offices at
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania, 19103−7599.

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

“Debenture” means the 10% Debenture to be issued by the Company to Purchaser
pursuant to the terms of this Agreement at the Closing in the form of Exhibit A
attached hereto.

“Designated Officers” means Scott R. Oglum, Kenneth D. Warren, and James J.
Vincenzo, the Chief Executive Officer, President, and Chief Financial Officer of
the Company, respectively.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

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

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

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

“Form 8-K Filing” shall have the meaning ascribed to such term in Section 4.7.

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

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

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

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

“Lien” means a lien, charge, security interest, pledge, encumbrance, right of
first refusal, preemptive right or other preferential arrangement or
restriction.
 
 
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“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

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

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.16.

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

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

“Proceeding” means an action, claim, suit, arbitration, inquiry, notice of
violation, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced
or, to the knowledge of the Designated Officers, threatened.

“Purchase Price” shall have the meaning ascribed to such term in Section 2.1.

“Purchaser Counsel” means Duane Morris LLP with offices at 1180 West Peachtree
Street, Suite 700, Atlanta, Georgia 30309-3449.

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

“Registrable Securities” means (i) all Warrant Shares, (ii) any additional
shares of Common Stock issuable in connection with any anti-dilution provisions
in the Warrant (in each case, without giving effect to any limitations on
exercise set forth in the Warrant), and (iii) any securities issued or issuable
upon any stock split, dividend or other distribution, recapitalization or
similar event with respect to the foregoing.

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

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents.

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

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

“Securities” means the Debenture, the Warrant and the Warrant Shares.
 
 
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“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated hereunder.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).
“Subsidiary” with respect to a Person, means another Person more than 50% of the
equity and voting interests of which are owned, directly or indirectly, by the
first such Person.

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

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

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

“Transfer Agent” means Stock Trans, Inc., with a mailing address of 44 W.
Lancaster Avenue, Ardmore, Pennsylvania 19003 and a facsimile number of (610)
649−7302, and any successor transfer agent of the Company.

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

“Warrant” means the Common Stock purchase warrant to be delivered to Purchaser
pursuant to the terms of this Agreement at the Closing in accordance with
Section 2.2(a) hereof, in the form of Exhibit B attached hereto.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrant.
 
 
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ARTICLE II  
 
PURCHASE AND SALE
 
2.1  Closing.
 
 Upon the terms and subject to the conditions set forth herein, substantially
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company shall and hereby agrees to sell, and Purchaser, shall and
hereby agrees to purchase, the Warrant and Two Million Seven Hundred Thousand
Dollars ($2,700,000.00) in principal amount of the Debenture. On the Closing
Date, (a) Purchaser shall (i) deliver to the Company, via wire transfer, Two
Million Dollars ($2,000,000.00) (the “Purchase Price”) in immediately available
funds, and (ii) surrender to the Company for cancellation the Cancelled
Debenture, (b) the Company shall deliver to Purchaser the Debenture and Warrant,
and (c) the Company and Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set
forth in Section 2.2, the Closing shall occur at the offices of Purchaser
Counsel or such other location as the parties shall mutually agree.
 
2.2  Deliveries.
 
(a)  On the Closing Date, the Company shall deliver or cause to be delivered to
Purchaser the following:
 
(i)  a legal opinion of Company Counsel, in a form reasonably acceptable to
Purchaser Counsel;
 
(ii)  the Debenture registered in the name of Purchaser;
 
(iii)  the Warrant registered in the name of Purchaser; and
 
(iv)  any other document reasonably requested by Purchaser or Purchaser Counsel
in connection with the transactions contemplated hereunder.
 
(b)  On the Closing Date, Purchaser shall deliver or cause to be delivered to
the Company the following:
 
(i) the Purchase Price (less all accrued but unpaid interest under the Cancelled
Debenture) by wire transfer to the account as specified in writing by the
Company; and
 
(ii) the Cancelled Debenture.
 
ARTICLE III  
 
REPRESENTATIONS AND WARRANTIES
 
3.1  Representations and Warranties of the Company.
 
 The Company hereby makes the following representations and warranties to
Purchaser:
 
(a)  Subsidiaries. The Company does not directly or indirectly control or own
any interest in any other Person.
 
 
 
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(b)  Organization and Qualification. The Company is an entity duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with the requisite power and authority to own, lease and use its
properties and assets and to carry on its business as currently conducted. The
Company is not in violation or default of any of the provisions of its articles
of incorporation or bylaws. The Company is duly qualified to conduct business
and is in good standing as a foreign corporation in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company, or (iii) a material adverse effect on the Company’s ability to
perform fully on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”), and no Proceeding has
been instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or qualification.
 
(c)  Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution, delivery and performance of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company and no further consent or
action is required by the Company, its Board of Directors or its stockholders in
connection therewith other than actions necessary to satisfy the Company’s
post-closing obligations under the Transaction Documents including, to the
extent necessary, making the Required Filings. Each Transaction Document has
been duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and legally binding
obligation of the Company enforceable against the Company in accordance with its
terms except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies, and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
 
(d)  No Conflicts. Except as set forth on Schedule 3.1(d) attached hereto, the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate any
provision of the Company’s articles of incorporation or bylaws, (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien upon any
of the properties or assets of the Company, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company debt or otherwise) or other understanding to
which the Company is a party or by which any property or asset of the Company is
bound or affected, or (iii) subject to the Required Filings, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company is subject (including federal and state
 
 
 
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securities laws and regulations), or by which any property or asset of the
Company is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.
 
(e)  Filings, Consents and Approvals. Except as set forth on Schedule 3.1(e),
the Company is not required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section 4.7,
and (ii) such filings (if any) as are required to be made under applicable state
securities laws (collectively, the “Required Filings”). All filings of the
Company required to be filed with federal, state, local or governmental
authorities (including the Federal Trade Commission) in connection with the
Company’s sale of franchises are current as of the date of this Agreement.
 
(f)  Issuance of the Securities. The Debenture and Warrant are duly authorized
and, when issued and paid for in accordance with this Agreement, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than those provided for in the Transaction
Documents. The Warrant Shares, when issued and paid for by Purchaser in
accordance with the terms of the Transaction Documents, will: (i) be validly
issued, fully paid and nonassessable; (ii) be issued in compliance with an
exemption from registration under all applicable federal and state securities
laws; and (iii) be free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Warrant Shares at least equal to the
Required Minimum.
 
(g)  Capitalization. The capitalization of the Company is as follows: 50,000,000
shares of Common Stock, par value $.001 per share, are authorized, of which
19,847,425 shares are issued and outstanding on the date hereof, and 5,000,000
shares of preferred stock, without par value, are authorized, of which no shares
are issued or outstanding. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. In addition to the
Warrant offered for sale to Purchaser hereunder, there are three outstanding
warrants to purchase 440,000 shares of Common Stock in the aggregate at an
exercise price of $1.00 per share and one outstanding warrant to purchase
560,000 shares of Common Stock at an exercise price of $1.10 per share. There
are no other outstanding warrants or options, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents other than pursuant to the exercise of employee stock
options under the Company’s stock option plans or the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase plan
or pursuant to the warrants referred to in the preceding sentence. The issuance
and sale of the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than Purchaser) and will
not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities.
 
 
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All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance and
sale of the Securities. There are no stockholders’ agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
holder of securities of the Company.
 
(h)  SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two (2) years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. Except to the extent set forth in that certain
letter dated February 27, 2007 from the Commission to the Company (the
“Commission’s Letter”), as of their respective dates of filing with the
Commission, the SEC Reports, together with any amendments thereto, complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable. Notwithstanding the Commission’s Letter, none of
the SEC Reports, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except to the extent set forth in the
Commission’s Letter, the financial statements of the Company included in the SEC
Reports (the “Financial Statements”) comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Except to
the extent set forth in the Commission’s Letter, the Financial Statements have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in the Financial Statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP and are subject to routine year-end adjustments which
are not material in the aggregate. Notwithstanding the Commission’s Letter, the
Financial Statements fairly present in all material respects the financial
position of the Company as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, year-end audit adjustments as referred to
above. The Company has never had and does not currently have any off-balance
sheet arrangements (as defined in Item 303(c)(2) of Regulation S-B as
promulgated by the Commission) that have had, or are reasonably likely to have,
a current or future effect on the Company’s financial condition, changes in
financial condition, revenues or expense, results of operations, liquidity,
capital expenditures or capital resources. The Company will respond to that
certain letter dated February 27, 2007 from the Commission to the Company in a
timely manner, and the Company’s response to the Commission and any amendments
to its SEC Reports in connection therewith will not have a Material Adverse
Effect.
 
 
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(i)  Material Changes. Since the date of the latest audited financial statements
included in the SEC Reports, except as specifically disclosed in a subsequent
SEC Report filed prior to the date hereof, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables, new real
estate leases, and accrued expenses incurred in the ordinary course of business
consistent with past practice, and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its business, properties, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made that has not
been publicly disclosed at least one Trading Day prior to the date that this
representation is made.
 
(j)  Litigation. There is no Proceeding pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents, or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect.
Neither the Company, nor any director or officer thereof, is or has been the
subject of any Proceeding involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission or the Federal Trade
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
under the Exchange Act or the Securities Act.
 
(k)  Labor Relations. No labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company which
could reasonably be expected to result in a Material Adverse Effect. None of the
Company’s employees is a member of a union that relates to such employee’s
relationship with the Company, and the Company is not a party to a collective
bargaining agreement, and the Company believes that its relationships with its
employees are good. No executive officer, to the knowledge of the Company, is or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company to any liability with respect to any of the foregoing
matters. The Company is in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where
 
 
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the failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
 
(l)  Compliance. The Company (i) is not in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company under), nor has the
Company received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement,
contract or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental body,
or (iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business, including franchise laws, and all
such laws that affect the environment, except in each case as could not have or
reasonably be expected to result in a Material Adverse Effect.
 
(m)  Regulatory Permits. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct its business as described in the SEC
Reports, except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and the Company has not received any notice of Proceedings relating
to the revocation or modification of any certificates, authorizations or permits
applicable to the Company.
 
(n)  Title to Assets. The Company has good and marketable title in fee simple to
all real property owned by it that is material to the business of the Company
and good and marketable title in all personal property owned by it that is
material to the business of the Company, in each case free and clear of all
Liens, except for purchase money security interests, Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company are held by it under valid, subsisting and enforceable
leases with which the Company is in material compliance.
 
(o)  Patents and Trademarks. The Company has, or has rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade
names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary for use in connection with its
business as described in the SEC Reports and which the failure to so have would
have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). The Company has not received a notice (written or otherwise) that the
Intellectual Property Rights used by the Company violates or infringes upon the
rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of its intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
 
 
 
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(p)  Insurance. The Company is insured against such losses and risks and in such
amounts as management of the Company believes to be prudent. The Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
 
(q)  Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is currently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $60,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company, and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
 
(r)  Sarbanes-Oxley; Internal Accounting Controls. The Company is in compliance
with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. If applicable to the Company on the
date hereof, the Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. If applicable to the
Company on the date hereof, the Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation Date”). The Company presented in
its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s internal control
over financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
 
(s)  Brokerage or Finder’s Fees. No brokerage or finder’s fees or commissions
are or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions
 
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contemplated by the Transaction Documents. Purchaser shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this subsection (s) that may be
due in connection with the transactions contemplated by the Transaction
Documents.
 
(t)  Private Placement. Assuming the accuracy of Purchaser’s representations and
warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to Purchaser as
contemplated hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
 
(u)  Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act of 1940,
as amended.
 
(v)  Registration Rights. Other than Purchaser, no Person has any right to cause
the Company to effect the registration under the Securities Act of any
securities of the Company, except for any such rights which have been satisfied
by the Company.
 
(w)  Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has not, in the
twelve (12) months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements. Trading in the Common Stock
has not been suspended by the Commission or the Company’s principal Trading
Market.
 
(x)  Disclosure. Subject to the limitations acknowledged by Purchaser in Section
3.2(f)(iii), all disclosure furnished by or on behalf of the Company to
Purchaser regarding the Company, its business and the transactions contemplated
hereby, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve (12) months prior to the Closing Date did not contain, at the time of
their respective releases, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements, in light of the circumstances under which they were made
and when made, not misleading. The Company acknowledges and agrees that
Purchaser makes no or has made no representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
 
 
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(y)  No Integrated Offering. Assuming the accuracy of Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provision of any Trading Market on which any of the securities of the Company
are listed or designated.
 
(z)  Solvency. Based on the financial condition of the Company as of the Closing
Date after giving effect to the receipt by the Company of the proceeds from the
sale of the Securities hereunder: (i) the fair saleable value of the Company’s
assets exceeds the amount that will be required to be paid on or in respect of
the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The balance sheet of the Company at
December 31, 2006, contained in the SEC Reports sets forth as of the date
thereof all outstanding secured and unsecured Indebtedness of the Company, or
for which the Company has any commitments. Since December 31, 2006, the Company
has not incurred any Indebtedness except as set forth on Schedule 3.1(z). For
the purposes of this Agreement, “Indebtedness” shall mean: (a) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business); (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. The Company is not in default with respect
to any Indebtedness. Except as set forth on Schedule 3.1(z), there is no
outstanding Indebtedness of the Company owed to any Person who owns directly or
indirectly five percent (5%) or more of the issued and outstanding capital stock
of the Company.
 
(aa)  Tax Status. The Company has properly completed and timely filed all
necessary federal, state and foreign income and franchise tax returns required
to be filed by it, and has paid all taxes shown to be payable thereon or which
are otherwise due and payable by it or as to which claim for payment has been
made. There is (i) no claim for any tax that is an encumbrance against any of
the Company’s assets and properties, (ii) no audit of any tax return relating to
the Company that is being conducted with respect to the Company, and (iii) no
extension of any statute of limitations on the assessment of any tax with
respect to the Company.
 
 
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The Company has no knowledge of a tax deficiency which has been asserted or
threatened against the Company. The Company has withheld all amounts required to
be withheld by law from payment made to any Person, whether that Person is an
employee, independent contractor, or otherwise.
 
(bb)  No General Solicitation. Neither the Company nor any Person acting on
behalf of the Company has offered or sold any securities of the Company by any
form of general solicitation or general advertising.
 
(cc)  Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other Person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any Person acting on its behalf of
which the Company has knowledge) which is in violation of law, or (iv) violated
in any material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended.
 
(dd)  Accountants. The Company’s accounting firm is Morison Cogen LLP. To the
knowledge and belief of the Company, such accounting firm is a registered public
accounting firm as required by the Exchange Act.
 
(ee)  Seniority. Except as set forth on Schedule 3.1(ee), as of the Closing
Date, no Indebtedness or other claim against the Company is senior to the
Debenture in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise, other than indebtedness secured by
purchase money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as to the
property covered thereby).
 
(ff)  No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind currently existing, or reasonably anticipated by the Company to
arise, between the Company on the one hand and the accountants and lawyers
formerly or currently engaged by the Company on the other hand.
 
(gg)  Acknowledgment Regarding Purchaser’s Purchase of the Securities. The
Company acknowledges and agrees that Purchaser is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby. The Company further acknowledges that
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 thereby and any advice given by Purchaser or any of
its respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to
Purchaser’s purchase of the Securities. The Company further represents to
Purchaser that the Company’s decision to enter into the Transaction Documents
has been based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its representatives. 
 
 
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(hh)  Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Section 3.2(g) hereof), it is understood and acknowledged by the Company: (i)
that Purchaser has not been asked to agree, nor has Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold any
securities of the Company for any specified term; (ii) that future open market
or other transactions by Purchaser with respect to securities of the Company
after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities;
and (iii) that Purchaser shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (a) Purchaser may engage in
hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Warrant Shares deliverable with respect to Securities are being determined
and (b) such hedging activities (if any) could reduce the value of the existing
stockholders’ equity interests in the Company at and after the time that the
hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.
 
(ii)  Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company.
 
(jj)  Contracts. All of the Company’s material contracts, agreements,
understandings and arrangements, whether written or oral (collectively, the
“Contracts”) are valid, subsisting, in full force and effect and binding upon
the Company and the other parties thereto. The Company is not in default under
any of the Contracts. To the knowledge of the Company, no other party to any
such Contract is in default thereunder, nor does any condition exist that with
notice or lapse of time or both would constitute a default by such other party
thereunder, except as would not be reasonably expected to have a Material
Adverse Effect.
 
(kk)  Employee Benefit Plans. The SEC Reports describe all material employee
benefit plans (including any “multiple employer plan” within the meaning of the
Code or ERISA), arrangements, policies, programs, agreements or commitments
maintained by the Company (collectively, the “Plans”). Except as would not
reasonably be expected to have a Material Adverse Effect, (i) each Plan (and
related trust, insurance contract or fund) has been established and administered
in accordance with its terms, and complies in form and in operation with the
applicable requirements of ERISA and the Code and other applicable law and
regulation, (ii) no claim with respect to the administration or the investment
of the assets of any Plan (other than routine claims for benefits) is pending
and all contributions (including all employer contributions and employee salary
reduction contributions) which are due have been paid to each Plan, (iii) each
Plan that is intended to be qualified under Section 401(a) of the Code is so
qualified and has been so qualified during the period since its adoption; each
trust created under any such Plan is exempt from tax under Section 501(a) of the
Code and has been so
 
 
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exempt since its creation and (iv) there are no unfunded obligations under any
Plan which are not fully reflected on the Financial Statements.
 
(ll)  Product Liability Claims. There have been no: (i) product or service
warranty claims made by the Company’s customers which were not reimbursed or
assumed by the Company’s suppliers other than routine claims in the ordinary
course of business; (ii) product recalls by the Company; or (iii) product and/or
service warranties outstanding or currently being offered by the Company to its
customers (other than those of third parties for which the Company has no
obligation or responsibility and the Company’s standard quality guarantee to
replace any defective product or service) other than 30-day installation
warranties for which the Company receives no additional consideration and
longer-term service warranties for which the Company does receive additional
consideration. Furthermore, neither the Company nor any of its predecessors in
interest have been subject to any product or service liability claim relating to
any of the Company’s products, services, or operation of business of the Company
and, to the knowledge of the Company, no such claim is threatened and no
circumstance or condition exists that would reasonably be expected to give rise
to such a claim.
 
(mm)  Environmental Claims. There are no environmental claims, or environmental
liabilities, pending or, to the knowledge of the Company, threatened against the
Company by any Person (including, without limitation, any governmental entity)
relating to: (i) any of the assets or properties of the Company; (ii) any
property currently or formerly operated, occupied or leased by the Company; or
(iii) any current or former product of the Company that has been manufactured,
sold, transported or disposed of. In addition, the Company has not released any
hazardous material. The Company is in compliance with all environmental laws.
 
3.2  Representations and Warranties of Purchaser.
 
Purchaser hereby makes the following representations and warranties to the
Company:
 
(a)  Organization; Authority. Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The
execution, delivery and performance by Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Purchaser. Each Transaction Document to which it
is a party has been duly executed by Purchaser and, when delivered in accordance
with the terms hereof and thereof, will constitute the valid and legally binding
obligation of Purchaser, enforceable against it in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law. The Purchaser’s Federal taxpayer
identification number and mailing address for notices have been provided to the
Company.
 
(b)  Own Account. Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state
 
 
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securities law. Purchaser is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities
or any part thereof, has no present intention of distributing any of such
Securities in violation of the Securities Act or any applicable state securities
law and has no direct or indirect arrangement or understandings with any other
Person to distribute or regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser’s right to sell the
Securities in compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state securities law.
Purchaser is acquiring the Securities hereunder in the ordinary course of its
business.
 
(c)  Purchaser Status. At the time Purchaser was offered the Securities, it was,
and at the date hereof it is, either: (i) an “accredited investor” as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act, or
(ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act. Purchaser is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act.
 
(d)  Experience of Purchaser. Purchaser has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the investment in the Securities, and has so evaluated
the merits and risks of such investment. Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
 
(e)  General Solicitation. Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
 
(f)  Available Information. Purchaser understands and acknowledges that
 
(i)  Purchaser has been given access to, and prior to the execution of the
Transaction Documents, an opportunity to ask questions of and receive answers
from, the Company concerning the terms and conditions of the offering of the
Securities and to obtain any other information that Purchaser requested with
respect to the Company’s operations and Purchaser’s proposed investment in the
Company in order to evaluate the investment and verify the accuracy of all
information furnished to it regarding the Company;
 
(ii)  Purchaser has been given access to all of the SEC Reports; and
 
(iii)  Financial projections have been provided to Purchaser by the Company as
part of the information sought by Purchaser, that such projections are based on
assumptions made by the Designated Officers as to Company operations, that
although such assumptions are believed by the Designated Officers to be
reasonable, not all assumptions will actually eventuate and therefore, such
projections represent possible but not necessarily the most likely financial
results for the Company, and that such projections must therefore be viewed as
estimates only, and there can be no assurance of their accuracy.
 
 
 
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(g)  Purchases, Sales and Confidentiality Prior To The Date Hereof. Other than
the transactions contemplated hereunder, Purchaser has not, nor has any
Affiliate of Purchaser, purchased or sold (including Short Sales) any securities
of the Company during the period commencing from December 23, 2006 and ending on
the date hereof. Purchaser and its Affiliates have used reasonable efforts to
maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).
 
ARTICLE IV  
OTHER AGREEMENTS OF THE PARTIES
 
4.1  Transfer Restrictions.
 
(a)  Purchaser acknowledges that the Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of the Securities other than (i) pursuant to an effective registration
statement or Rule 144, (ii) to the Company, (iii) to an Affiliate of Purchaser
or, (iv) in connection with a pledge as contemplated in Section 4.1(b), the
Company may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the Company,
the form and substance of which opinion shall be reasonably satisfactory to the
Company and the Transfer Agent, to the effect that such transfer does not
require registration of such transferred Securities under the Securities Act. In
the case of (iii) and (iv) above, as a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement.
 
(b)  Purchaser agrees to the imprinting, so long as is required by this Section
4.1, of a legend on any of the Securities, as applicable, in substantially the
following form:
 
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
 
The Company acknowledges and agrees that Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and which agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, Purchaser may transfer
 
 
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pledged or secured Securities to the pledgees or secured parties. Such a pledge
or transfer would not be subject to approval of the Company and no legal opinion
of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge. At
Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities including, if the
Securities are subject to registration with the Commission under the Securities
Act, the preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
 
(c)  Certificates evidencing the Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof) restricting transfer
of the Warrant Shares under the Securities Act: (i) while a registration
statement covering the resale of such security is effective under the Securities
Act, (ii) following any sale of such Warrant Shares pursuant to Rule 144, (iii)
if such Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). Under any such circumstances the Company shall cause its
counsel to issue a legal opinion to the Transfer Agent (if required by the
Transfer Agent) to effect the removal of the legend hereunder. If all or any
portion of a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the Warrant Shares, or if such
Warrant Shares may be sold under Rule 144(k) or if such legend on the Warrant
Shares is not otherwise required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the staff
of the Commission) then such Warrant Shares shall be issued free of all legends.
The Company agrees that at such time as such legend is no longer required under
this Section 4.1(c), it will, no later than three Trading Days following the
delivery by Purchaser to the Company or the Transfer Agent of a certificate
representing Warrant Shares, issued with a restrictive legend (such third
Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to the Transfer Agent that enlarge the restrictions
on transfer set forth in this Section. If possible, certificates for Warrant
Shares subject to legend removal hereunder shall be transmitted by the Transfer
Agent to Purchaser by crediting the account of Purchaser’s prime broker with the
Depository Trust Company System.
 
(d)  In addition to Purchaser’s other available remedies, the Company shall pay
to Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $2,000 of Warrant Shares (based on the VWAP of the Common Stock on the date
such Securities are submitted to the Transfer Agent) delivered for removal of
the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have begun
to accrue) for each Trading Day after the second Trading Day following the
Legend Removal Date until such certificate is delivered without a legend.
Nothing herein shall limit Purchaser’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and Purchaser shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
 
 
 
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(e)  Purchaser agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company’s reliance that Purchaser will sell any Securities
pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a registration statement,
they will be sold in compliance with the plan of distribution set forth therein
and upon compliance with the prospectus delivery requirement.
 
4.2  Acknowledgment of Dilution.
 
 The Company acknowledges that the issuance of the Securities may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial. The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue the
Warrant Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against Purchaser and regardless of the dilutive effect that
such issuance may have on the ownership of the other stockholders of the
Company.
 
4.3  Furnishing of Information.
 
 As long as Purchaser owns Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to Purchaser and make publicly available in accordance with
Rule 144(c) such information as is required for Purchaser to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as Purchaser may reasonably request, to the extent required from time to
time to enable Purchaser to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.
 
4.4  Integration.
 
 The Company shall not, and shall use its best efforts to ensure that no
Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to Purchaser or that would be integrated with
the offer and sale of the Securities for purposes of the rules and regulations
of any Trading Market.
 
4.5  Reservation and Listing of Conversion Shares.
 
(a)  The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction
Documents.
 
(b)  The Company shall (i) in the time and manner required by each Trading
Market, prepare and file with such Trading Market an additional shares listing
application covering all of the shares of Common Stock issued or issuable under
the Transaction Documents, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for listing on each Trading Market as soon as
possible thereafter, (iii) provide to Purchaser evidence of such listing, and
(iv) maintain the listing of such Common Stock on each such Trading Market.
 
 
 
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(c)  In the case of a breach by the Company of Section 4.5(a), in addition to
the other remedies available to Purchaser, Purchaser shall have the right to
require the Company to either: (i) use its best efforts to obtain the required
shareholder approval necessary to permit the issuance of such shares of Common
Stock as soon as is possible, but in any event not later than the seventy-fifth
(75th) day after such notice, or (ii) within five Trading Days after delivery of
a written notice, pay cash to Purchaser, as liquidated damages and not as a
penalty, in an amount equal to the number of shares of Common Stock not issuable
by the Company multiplied by one hundred fifteen percent (115%) of the average
VWAP over the ten (10) Trading Days immediately prior to the date of such notice
or, if greater, the ten (10) Trading Days immediately prior to the date of
payment (the “Cash Amount”). If Purchaser elects the first option under the
preceding sentence and the Company fails to obtain the required shareholder
approval on or prior to the seventy-fifth (75th) day after such notice, then
within three Trading Days after such seventy-fifth (75th) day, the Company shall
pay the Cash Amount to such Purchaser, as liquidated damages and not as a
penalty.
 
4.6  Exercise Procedures.
 
 The form of Notice of Exercise included in the Warrant sets forth the totality
of the procedures required of Purchaser in order to exercise the Warrant other
than the payment for Warrant Shares. No additional legal opinion or other
information or instructions shall be required of Purchaser to exercise the
Warrant. The Company shall honor exercises of the Warrant and shall deliver
Warrant Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
 
4.7  Securities Laws Disclosure; Publicity.
 
 Within the time prescribed by law, the Company shall file a Current Report on
Form 8-K with the Commission (the “Form 8-K Filing”) describing the terms of the
transactions contemplated by the Transaction Documents and including as exhibits
to such Form 8-K Filing each of the Transaction Documents, in the form required
by the Exchange Act. Thereafter, the Company shall timely file any filings and
notices required by the Commission or applicable law with respect to the
transactions contemplated hereby and provide copies thereof to Purchaser
promptly after filing. The Company shall, at least two (2) Trading Days prior to
the filing or dissemination of any disclosure required by this paragraph,
provide a copy thereof to Purchaser for its review. The Company and Purchaser
shall consult with each other in issuing any press releases or otherwise making
public statements or filings and other communications with the Commission or any
regulatory agency or Trading Market with respect to the transactions
contemplated hereby, and neither party shall issue any such press release or
otherwise make any such public statement, filing or other communication without
the prior consent of the other, except if such disclosure is required by law, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser or any of its Affiliates, or include the name of Purchaser or any
of its Affiliates in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of Purchaser, except to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide Purchaser with prior notice of such
disclosure. The Company shall not, and shall cause each of its officers,
directors, employees and agents not to, provide Purchaser or any of its
Affiliates with any material nonpublic information regarding the Company from
and after the filing of the Form 8-K Filing without the express written consent
of Purchaser. In the event of a breach of the foregoing covenant by the Company
or any of its or officers, directors, employees and agents, in
 
 
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addition to any other remedy provided herein or in the Transaction Documents,
Purchaser shall have the right to require the Company to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material nonpublic information. Neither Purchaser nor any of its
Affiliates shall have any liability to the Company or any of its officers,
directors, employees, shareholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor Purchaser shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby.
 
4.8  Shareholder Rights Plan.
 
No claim will be made or enforced by the Company or, with the consent of the
Company, any other Person, that Purchaser is an “Acquiring Person” under any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or similar anti-takeover plan or
arrangement in effect or hereafter adopted by the Company, or that Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving the Securities under the Transaction Documents or under any
other agreement between the Company and the Purchaser.
 
4.9  [INTENTIONALLY DELETED.]
 
4.10  No Impairment.
 
At all times after the date hereof, the Company will not take or permit any
action, or cause or permit any Affiliate to take or permit any action that
impairs or adversely affects the rights of Purchaser under the Transaction
Documents.
 
4.11  Indemnification of Purchaser.
 
 Subject to the provisions of this Section 4.11, the Company will indemnify and
hold Purchaser and its directors, officers, Affiliates, shareholders, members,
partners, employees and agents (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents, or (b) any Proceeding
instituted against any Purchaser Party in connection with or as a result of the
transactions contemplated by the Transaction Documents (unless such Proceeding
is based upon a breach of Purchaser’s representations, warranties or covenants
under the Transaction Documents or any conduct by Purchaser which constitutes
fraud, gross negligence, willful misconduct, or malfeasance). If any Proceeding
shall be brought against any Purchaser Party in respect of which indemnity may
be sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party. Any Purchaser Party shall have the right to employ separate
counsel in any such Proceeding and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel, or (iii)
in such Proceeding there is, in the reasonable opinion of such separate counsel,
a material conflict on any material issue between the position of the Company
and the position of such Purchaser Party, in which case the Company shall be
responsible for the reasonable fees
 
 
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and expenses of no more than one such separate counsel for all Purchaser
Parties. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party’s breach of any of
the representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents. Purchaser’s
rights to indemnification set forth herein shall not be deemed waived or
otherwise effected by any investigation made, or any knowledge acquired, by
Purchaser.
 
4.12  Blue Sky Filings.
 
 The Company shall take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to qualify the Securities for,
sale to Purchaser at the Closing under applicable securities or “Blue Sky” laws
of the states of the United States, and shall provide evidence of such actions
promptly upon request of Purchaser.
 
4.13  Piggy-Back Registrations.
 
 If at any time there is not an effective registration statement covering all of
the Registrable Securities and the Company shall determine to prepare and file
with the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit plans, then the Company shall send to Purchaser a written notice of such
determination and, if within fifteen (15) days after the date of such notice,
Purchaser shall so request in writing, subject to customary lead underwriter
cutbacks, the Company shall include in such registration statement all or any
part of such Registrable Securities Purchaser requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 4.13 that are eligible for
resale pursuant to Rule 144 or that are the subject of a then effective
registration statement. All fees and expenses of the registration and sale shall
be borne by the Company whether or not any Registrable Securities are sold
pursuant to a registration statement, provided that the Company shall not be
responsible for broker or similar commissions of Purchaser. The Company shall
also indemnify Purchaser pursuant to customary terms.
 
ARTICLE V
MISCELLANEOUS
 
5.1  Fees and Expenses.
 
 Except as expressly set forth in the Transaction Documents to the contrary,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp taxes and other taxes and duties
levied in connection with the delivery of the Securities to Purchaser.
 
5.2  Entire Agreement.
 
The Transaction Documents, together with the exhibits and schedules thereto,
contain the entire understanding of the parties with respect to the subject
 
 
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matter hereof and supersede all prior and contemporaneous agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
However, the parties acknowledge and agree that the Transaction Documents do not
supersede that certain Securities Purchase Agreement (including the definitive
exhibits and schedules thereto) by and between the parties hereto dated December
22, 2006, which shall survive pursuant to the terms thereof. At or after the
Closing, and without further consideration, the Company will execute and deliver
to Purchaser such further documents as may be reasonably requested in order to
give practical effect to the intention of the parties under the Transaction
Documents.
 
5.3  Notices.
 
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile prior to 5:30 p.m. (New York City time)
on a Trading Day, (b) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c)
the 2nd Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The facsimile number and address for
such notices and communications shall be as set forth on the signature pages
attached hereto with respect to the Company, and as set forth in writing with
respect to Purchaser.
 
5.4  Amendments; Waivers.
 
 No provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and Purchaser or,
in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right. 
 
5.5  Headings.
 
 The headings herein are for convenience of reference only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
 
5.6  Successors and Assigns.
 
This Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of Purchaser. Purchaser may assign any or all of its rights under this
Agreement to any Person to whom Purchaser assigns or transfers any Securities,
as applicable, provided that (i) such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to “Purchaser,” (ii) such transferee is an “accredited
investor” as defined in Rule 501(a) under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act, or
(iii) such transfer does not violate any representation or warranty made in this
Agreement by Purchaser.
 
 
 
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5.7  No Third-Party Beneficiaries.
 
 This Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.11. 
 
5.8  Governing Law.
 
All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party agrees
that all legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in Albany, New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in Albany, New York for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such Proceeding is improper or is an
inconvenient venue for such Proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. The parties hereto hereby irrevocably
waive to the fullest extent permitted by applicable law any and all right to a
trial by jury in any Proceeding arising out of or relating to any of the
Transaction Documents or the transactions contemplated thereby. If either party
shall commence an action or proceeding to enforce any provisions of the
Transaction Documents, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its reasonable attorneys’ fees and
other reasonable costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
 
5.9  Survival.
 
 The representations, warranties, agreements and covenants contained herein
shall survive the Closing and the delivery of the Securities, provided that the
representations and warranties shall only survive for the applicable statute of
limitations.
 
5.10  Execution.
 
 This Agreement may be executed in two or more counterparts, all of which when
taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof. 
 
 
 
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5.11  Severability.
 
 If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void, or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
 
5.12  Rescission and Withdrawal Right.
 
 Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) any of the other Transaction Documents, whenever
Purchaser exercises a right, election, demand, or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then Purchaser may, prior to the performance of
the Company’s obligations, rescind or withdraw, in its sole discretion from time
to time upon written notice to the Company, any relevant exercise (as
contemplated in this Section 5.12) in whole or in part without prejudice to its
future actions and rights; provided, however, in the case of a rescission of an
exercise of a Warrant, Purchaser shall be required to return any shares of
Common Stock delivered in connection with any such rescinded exercise notice.
 
5.13  Replacement of Securities.
 
 If any certificate or instrument evidencing any Securities is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation thereof (in the case of mutilation),
or in lieu of and substitution therefor, a new certificate or instrument, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction and upon provision of an indemnity reasonably
acceptable to the Company and the Transfer Agent. The applicant for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance
of such replacement Securities.
 
5.14  Remedies.
 
 In addition to being entitled to exercise all rights provided herein or granted
by law, including recovery of damages, Purchaser and the Company will be
entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations contained in the Transaction
Documents and hereby agrees to waive and not to assert in any Proceeding for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
 
5.15  Payment Set Aside.
 
 To the extent that the Company makes a payment or payments to Purchaser
pursuant to any Transaction Document or Purchaser enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof
 
 
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are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person under
any law (including, without limitation, any bankruptcy law, state or federal
law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
 
5.16  Usury.
 
 To the extent it may lawfully do so, the Company hereby agrees not to insist
upon or plead or in any manner whatsoever claim, and will resist any and all
efforts to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by Purchaser in order to enforce any
right or remedy under any Transaction Document. Notwithstanding any provision to
the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents
for payments in the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the “Maximum Rate”), and, without limiting the
foregoing, in no event shall any rate of interest or default interest, or both
of them, when aggregated with any other sums in the nature of interest that the
Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed
by law and applicable to the Transaction Documents is increased or decreased by
statute or any official governmental action subsequent to the date hereof, the
new maximum contract rate of interest allowed by law will be the Maximum Rate
applicable to the Transaction Documents from the effective date forward, unless
such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by Purchaser to the unpaid principal balance of any
such indebtedness or be refunded to the Company, the manner of handling such
excess to be at Purchaser’s election.
 
5.17  Liquidated Damages.
 
 The Company’s obligations to pay any partial liquidated damages or other
amounts owing under the Transaction Documents is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages and
other amounts have been paid notwithstanding the fact that the instrument or
security pursuant to which such partial liquidated damages or other amounts are
due and payable shall have been canceled.
 
5.18  Construction.
 
 The parties agree that each of them and/or their respective counsel has
reviewed and had an opportunity to revise the Transaction Documents and,
therefore, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of the Transaction Documents or any amendments hereto.
 
[Remainder of Page Intentionally Left Blank]

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

 
THEATER XTREME ENTERTAINMENT GROUP, INC.
 

 
By: /s/ Scott R. Oglum
 
Title: Chief Executive Officer
 
Address: 250 Corporate Blvd.
 
Suites E & F
 
Newark, DE 19702
 
Facsimile: 302-455-1612
 

 
With a copy to (which shall not constitute notice):
 
Ballard Spahr Andrews & Ingersoll, LLP
 
1735 Market Street, 51st Floor
 
Philadelphia, Pennsylvania 19103−7599
 
Attention: Steven King
 
Facsimile: 215-864-9961

 

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[Counterpart signature page to that certain Securities Purchase Agreement by and
between Theater Xtreme Entertainment Group, Inc. and Kinzer Technology, LLC,
dated March 6, 2007.]
 

 
KINZER TECHNOLOGY, LLC
 

 
By: /s/                                                 
 
Title: Authorized Representative

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Exhibits and Schedules to the Securities Purchase Agreement have been intentionally omitted.
      

 
 

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