Exhibit 10.1

 

EXECUTION ORIGINAL

 

PREFERRED STOCK PURCHASE AGREEMENT

 

BETWEEN

 

COMPUTER SOFTWARE INNOVATIONS, INC.,

a Delaware corporation formerly known as VerticalBuyer, Inc.

 

AND

 

BARRON PARTNERS LP

 

DATED

 

February 10, 2005

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PREFERRED STOCK PURCHASE AGREEMENT

 

This PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”) is made and entered
into as of the 10th day of February, 2005 between COMPUTER SOFTWARE INNOVATIONS,
INC., a corporation organized and existing under the laws of the State of
Delaware and formerly known as VerticalBuyer, Inc. (the “Company”), and BARRON
PARTNERS LP, a Delaware limited partnership (the “Investor”).

 

PRELIMINARY STATEMENT:

 

WHEREAS, the Investor wishes to purchase from the Company, upon the terms and
subject to the conditions of this Agreement, Seven Million Two Hundred Seventeen
Thousand Seven Hundred Thirty-six (7,217,736) shares of preferred stock of the
Company, with such preferred stock being as described in the Certificate of
Designation, Rights and Preferences (the “Certificate of Designation”) in
substantially the form attached hereto as Exhibit A (the “Preferred Stock”) for
the Purchase Price set forth in Section 1.3.23 hereof. Subject to the
limitations set forth herein and in the Certificate of Designation, the
Preferred Stock shall be convertible into shares of common stock of the Company
at any time at a conversion price of Zero and 6986/10,000 Dollars ($0.6986) per
share (the “Conversion Value”). In addition, the Company will issue to the
Investor two Common Stock Purchase Warrants (the “Warrants”) to purchase up to
an additional Seven Million Two Hundred Seventeen Thousand Seven Hundred
Thirty-six (7,217,736) shares of common stock of the Company at exercise prices
as stated in the Warrants; and

 

WHEREAS, the parties intend to memorialize the purchase and sale of such
Preferred Stock and the Warrants.

 

NOW, THEREFORE, in consideration of the mutual covenants and premises contained
herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby conclusively acknowledged, the parties hereto, intending to
be legally bound, agree as follows:

 

ARTICLE I

 

INCORPORATION BY REFERENCE, SUPERSEDER AND DEFINITIONS

 

1.1 Incorporation by Reference. The foregoing recitals and the Exhibits and
Schedules attached hereto and referred to herein, are hereby acknowledged to be
true and accurate, and are incorporated herein by this reference.

 

1.2 Superseder. This Agreement, to the extent that it is inconsistent with any
other instrument or understanding among the parties governing the affairs of the
Company, shall supersede such instrument or understanding to the fullest extent
permitted by law. A copy of this Agreement shall be filed at the Company’s
principal office.

 

PREFERRED STOCK PURCHASE AGREEMENT BETWEEN

COMPUTER SOFTWARE INNOVATIONS, INC. AND BARRON PARTNERS LP

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1.3 Certain Definitions. For purposes of this Agreement, the following
capitalized terms shall have the following meanings (all capitalized terms used
in this Agreement that are not defined in this Article 1 shall have the meanings
set forth elsewhere in this Agreement):

 

1.3.1 “1933 Act” means the Securities Act of 1933, as amended.

 

1.3.2 “1934 Act” means the Securities Exchange Act of 1934, as amended.

 

1.3.3 “Affiliate” means a Person or Persons directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common control with
the Person(s) in question. The term “control,” as used in the immediately
preceding sentence, means, with respect to a Person that is a corporation, the
right to the exercise, directly or indirectly, of more than 50 percent of the
voting rights attributable to the shares of such controlled corporation and,
with respect to a Person that is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such controlled Person.

 

1.3.4 “Charter” means the Certificate of Incorporation of the Company, as the
same may be amended from time to time.

 

1.3.5 “Closing” shall mean the Closing of the transactions contemplated by this
Agreement on the Closing Date following the consummation of the Merger.

 

1.3.6 “Closing Date” means the date on which the payment of the Purchase Price
(as defined herein) by the Investor to the Company is completed pursuant to this
Agreement to purchase the Preferred Stock and Warrants, which shall occur on or
before February 28, 2005.

 

1.3.7 “Common Stock” means shares of common stock of the Company, with a par
value of $0.001 per share.

 

1.3.8 “CSI” means Computer Software Innovations, Inc., a South Carolina
corporation.

 

1.3.9 “Delaware Act” means the Delaware General Corporation Law, as amended.

 

1.3.10 “Dividends” shall mean (i) the cash dividend in the amount of Nine
Hundred Sixty Thousand and no/100 Dollars ($960,000) to be paid by CSI to the
Original Shareholders at or prior to Closing; and (ii) the dividend declared and
payable in the aggregate amount of Two Million Five Hundred Thousand and no/100
Dollars ($2,500,000.00) by CSI to the Original Shareholders under the terms of
subordinated promissory notes to be issued by CSI at or prior to Closing (the
“Dividend Notes”).

 

PREFERRED STOCK PURCHASE AGREEMENT BETWEEN

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1.3.11 “Effective Date” shall mean the date the Registration Statement of the
Company covering the Shares is declared effective by the SEC.

 

1.3.12 “Escrow Agent” shall mean Leatherwood Walker Todd & Mann, P.C., in its
capacity as Escrow Agent under the Escrow Agreement.

 

1.3.13 “Escrow Agreement” shall mean the Escrow Agreement among the Company,
CSI, the Investor and Leatherwood Walker Todd & Mann, P.C., as Escrow Agent,
attached hereto as Exhibit E.

 

1.3.14 “Exempt Issuance” means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder, and (c) securities
issued pursuant to acquisitions or strategic transactions, provided any such
issuance shall only be to a Person which is, itself or through its subsidiaries,
an operating company in a business synergistic with the business of the Company
and in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.

 

1.3.15 “Investor Funds” shall mean an amount equal to the Purchase Price and the
$1,875,200.00 Investor Subordinated Loan.

 

1.3.16 “Investors Subordinated Promissory Note” shall mean the Subordinated
Promissory Note in the form attached hereto as Exhibit C evidencing the Investor
Subordinated Loan, pursuant to Section 2.3 hereof.

 

1.3.17 “Law or Laws” shall mean any federal, state, foreign or local law,
statute, ordinance, rule, regulation, order, judgment or decree.

 

1.3.18 “Maximum Ventures” shall mean Maximum Ventures, Inc., a New York
corporation, and party to the Stock Purchase Agreement.

 

1.3.19 “Material Adverse Effect” shall mean any adverse effect on the business,
operations, properties or financial condition of the Company that is material
and adverse to the Company and its subsidiaries and affiliates, taken as a whole
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other material agreement.

 

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1.3.20 “Merger” shall mean the merger of CSI into the Company pursuant to the
Merger Agreement.

 

1.3.21 “Merger Agreement” shall mean the Agreement and Plan of Merger between
the Company and CSI attached hereto as Exhibit F pursuant to which CSI will
merge into the Company.

 

1.3.22 “Merger Notes” shall mean, collectively, those five (5) Promissory Notes
payable to the Original Shareholders in the Merger in the aggregate amount of
$3,624,800, pursuant to the terms of the Merger Agreement.

 

1.3.23 “Original Shareholders” means Nancy K. Hedrick, Joe G. Black, Beverly N.
Hawkins, Thomas P. Clinton and William J. Buchanan, being all of the
Shareholders of CSI.

 

1.3.24 “Original Shareholders Subordinated Promissory Note” shall mean the
Subordinated Promissory Note in the form attached hereto as Exhibit C evidencing
the Original Shareholder Subordinated Loan, pursuant to Section 2.3 hereof.

 

1.3.25 “Person” means an individual, partnership, firm, limited liability
company, trust, joint venture, association, corporation, or any other legal
entity.

 

1.3.26 “Purchase Price” means the $5,042,250.00 paid by the Investor to the
Company for the Preferred Stock and the Warrants.

 

1.3.27 “Registration Rights Agreement” shall mean the registration rights
agreement between the Investor and the Company attached hereto as Exhibit B.

 

1.3.28 “Registration Statement” shall mean the registration statement under the
1933 Act to be filed with the SEC for the registration of the Shares pursuant to
the Registration Rights Agreement.

 

1.3.29 “SEC” means the Securities and Exchange Commission.

 

1.3.30 “SEC Documents” shall mean the Company’s latest Form 10-K or 10-KSB as of
the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the
Proxy Statement (if any) for its latest fiscal year as of the time in question
until such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.

 

1.3.31 “Shares” shall mean, collectively, the shares of Common Stock issuable
upon conversion of the Preferred Stock and those shares of Common Stock issuable
upon exercise of the Warrants.

 

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1.3.32 “Stock Option Holders” shall mean Keone Trask, Steve Messer, Laurin
Oswald, Cindy Welborn, Burt Lancaster, Scott Garrett and Lisa Alexander, all
being employees or former employees of CSI.

 

1.3.33 “Stock Purchase Agreement” shall mean that certain Stock Purchase
Agreement dated January 31, 2005 by and between Maximum Ventures and CSI,
whereby CSI purchased approximately 77% of the issued and outstanding Common
Stock of the Company.

 

1.3.34. “Stock Split” shall mean that 40 to 1 reverse stock split authorized by
the Board of Directors and shareholders of the Company on January 31, 2005 to
take effect February 10, 2005.

 

1.3.35 “Subsequent Financing” shall mean any offer and sale of shares of
Preferred Stock or debt that is convertible into shares of Common Stock or
otherwise senior or superior to the Preferred Stock.

 

1.3.36 “Transaction Documents” shall mean this Agreement, all Schedules and
Exhibits attached hereto and all other documents and instruments to be executed
and delivered by the parties in order to consummate the transactions
contemplated hereby, including, but not limited to the documents and instruments
listed in Sections 3.2 and 3.3 hereof.

 

1.3.37 “Warrants” shall mean the Common Stock Purchase Warrants in the form
attached hereto Exhibit D.

 

ARTICLE II

 

SALE AND PURCHASE OF PREFERRED STOCK

AND WARRANTS

 

2.1 Sale of Preferred Stock and Issuance of Warrants.

 

(a) Upon the terms and subject to the conditions set forth herein, and in
accordance with applicable law, the Company agrees to sell to the Investor, and
the Investor agrees to purchase from the Company, at Closing Seven Million Two
Hundred Seventeen Thousand Seven Hundred Thirty-six (7,217,736) shares of
Preferred Stock and the Warrants for the Purchase Price. The Purchase Price
shall be paid by the Investor to the Company on the Closing Date by a wire
transfer of the Purchase Price into escrow to be held by the Escrow Agent
pursuant to the terms of the Escrow Agreement. The Company shall cause the
Preferred Stock and the Warrants to be issued to the Investor upon the release
of the Purchase Price to the Company by the Escrow Agent pursuant to the terms
of the Escrow Agreement. The Company shall register the Shares pursuant to the
terms and conditions of a Registration Rights Agreement attached hereto as
Exhibit B.

 

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(b) The Preferred Stock shall be convertible by the Investor into an aggregate
total of Seven Million Two Hundred Seventeen Thousand Seven Hundred Thirty-six
(7,217,736) shares of Common Stock (the “Conversion Shares”); provided, however,
that the Investor shall not be entitled to convert the Preferred Stock into
shares of Common Stock that would result in beneficial ownership by the Investor
and its affiliates of more than 4.99% of the then outstanding number of shares
of Common Stock on such date; provided, however, that the Investor may revoke
the restriction described in this section upon sixty-one (61) days prior written
notice from the Investor to the Company. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the 1934 Act and Regulation 13d-3 thereunder.

 

(c) Upon execution and delivery of this Agreement and the Company’s receipt of
the Purchase Price from the Escrow Agent pursuant to the terms of the Escrow
Agreement, the Company shall issue to the Investor two Warrants to purchase an
aggregate of Seven Million Two Hundred Seventeen Thousand Seven Hundred
Thirty-six (7,217,736) shares of Common Stock at exercise prices as stated in
the Warrants, all pursuant to the terms and conditions of the Warrants in the
forms attached hereto as Exhibit D; provided, however, that the Investor shall
not be entitled to exercise the Warrants and receive shares of Common Stock that
would result in beneficial ownership by the Investor and its affiliates of more
than 4.99% of the then outstanding number of shares of Common Stock on such
date; provided, however, that the Investor may revoke the restriction described
in this section upon sixty-one (61) days prior written notice from the Investor
to the Company. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
1934 Act and Regulation 13d-3 thereunder.

 

2.2 Purchase Price. The Purchase Price shall be delivered by the Investor in the
form of a wire transfer made payable to the Escrow Agent in United States
Dollars from the Investor pursuant to the Escrow Agreement and shall be paid by
the Escrow Agent to the Company pursuant to the Escrow Agreement at Closing.

 

2.3 Subordinated Loans. In order to facilitate the Merger, each of the Original
Shareholders has agreed pursuant to the terms of the Merger Agreement to each
make a loan to the Company in amounts that will aggregate $1,875,200.00
(collectively, the “Original Shareholders Subordinated Loan”). The Original
Shareholders Subordinated Loan shall be funded by the deferral of cash
consideration that would have otherwise been payable to such Original
Shareholders in the Merger, and shall be effective as of the closing of the
Merger. The Investor hereby agrees to make a loan in the same amount and on the
same terms as the Original Shareholders Subordinated Loan (the “Investor
Subordinated Loan”), which shall be funded by deposit with the Escrow Agent and
shall be effective as of Closing. The “Original Shareholders Subordinated Loan”
and the “Investor Subordinated Loan” are hereinafter collectively referred to
the “Subordinated Loans.” Both Subordinated Loans shall be evidenced by
Subordinated Promissory Notes in the forms attached hereto collectively as
Exhibit C (the “Subordinated Promissory Note”), and shall be subordinated to
claims of

 

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Senior Debt (as such term is defined in the Subordinated Promissory Note) of the
Company pursuant to the terms of the Subordinated Promissory Note; provided,
however, that the Investor Subordinated Promissory Note, the Original
Shareholders Subordinated Promissory Note, the Merger Note, and the Dividend
Notes shall rank pari passu each between and among each other. The Subordinated
Loans shall be unsecured, bear interest at the prime rate of interest as
published by Bank of America plus two percent (2%) per annum payable quarterly,
and mature fifteen (15) months from the Closing Date. The Company shall cause
the Investor Subordinated Promissory Note to be issued to the Investor upon the
release of the amount of such loan to the Company by the Escrow Agent pursuant
to the terms of the Escrow Agreement.

 

2.4 Reimbursement of Investor. At Closing, the Investor was to be reimbursed
Eighty-one Thousand Seven Hundred Twenty-six and 50/100 Dollars ($81,726.50)
relating to Investor’s prepayment of certain fees or expenses (the
“Prepayments”). Investor and the Company have agreed that Investor shall not be
reimbursed for the Prepayments but that the amount of the Prepayments shall be
paid to the Company for reimbursement of legal expenses relating to the
transactions described herein.

 

ARTICLE III

 

CLOSING DATE AND DELIVERIES AT CLOSING

 

3.1 Closing. The Closing of the transactions contemplated by this Agreement,
unless expressly determined herein, shall be held at the offices of the Escrow
Agent, at 1:00 P.M. local time, on the Closing Date or on such other date and at
such other place as may be mutually agreed by the parties, including closing by
facsimile with originals to follow.

 

3.2 Deliveries by the Company. In addition to and without limiting any other
provision of this Agreement, the Company agrees to deliver, or cause to be
delivered, to the Escrow Agent under the Escrow Agreement, at or prior to
Closing, the following:

 

  (a) An executed Agreement with all Exhibits and Schedules attached hereto;

 

  (b) The two executed Warrants;

 

  (c) The executed Registration Rights Agreement;

 

  (d) Proof that options representing the rights of the Stock Option Holders to
purchase shares of common stock of CSI have been canceled in part, thereby
leaving the Stock Option Holders options, to be assumed by the Company, to
purchase an aggregate of 268,343 shares of Common Stock following the closing of
the Merger;

 

  (e) Proof that the Company has declared and paid the Dividends to the Original
Shareholders in the form of cash and the Dividend Notes;

 

  (f) The executed Merger Agreement;

 

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  (g) Certifications in form and substance acceptable to the Company and the
Investor from any and all brokers or agents involved in the transactions
contemplated hereby as to the amount of commission or compensation payable to
such broker or agent as a result of the consummation of the transactions
contemplated hereby and from the Company or Investor, as appropriate, to the
effect that reasonable reserves for any other commissions or compensation that
may be claimed by any broker or agent have been set aside;

 

  (h) Evidence of approval of the Board of Directors and Shareholders of the
Company of the Transaction Documents and the transactions contemplated hereby;

 

  (i) Evidence of approval of the Board of Directors of CSI of payment of the
Dividends and the Board of Directors and Shareholders of CSI of the Transaction
Documents to which it is a party and the transactions contemplated;

 

  (j) Certificate of the President and the Secretary of the Company that the
Certificate of Designation has been adopted and filed;

 

  (k) Certificates of Existence or Authority to Transact Business of the Company
issued by each of the Secretaries of State for South Carolina, Georgia and North
Carolina;

 

  (l) An opinion from the Company’s counsel concerning the Transaction Documents
and the transactions contemplated hereby in form and substance reasonably
acceptable to Investor;

 

  (m) The Merger Notes;

 

  (n) Evidence of CSI’s ownership of the shares of Common Stock purchased from
Maximum Ventures pursuant to the Stock Purchase Agreement;

 

  (o) Certificate of the President and the Secretary of the Company that the
Amendment to the Certificate of Incorporation of the Company effecting the Stock
Split and the change of name of the Company has been adopted and filed;

 

  (p) Certificate of the President and the Secretary of the Company that the
Certificate of Merger effecting the Merger has been adopted and filed;

 

  (q) The Investors Subordinated Promissory Note;

 

  (r) Stock Certificate in the name of Investor evidencing the Preferred Stock;

 

  (s) The executed Escrow Agreement;

 

  (t) The Dividend Notes;

 

  (u) The Original Shareholders Subordinated Promissory Note; and

 

  (v) Such other documents or certificates as shall be reasonably requested by
Investor or its counsel.

 

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3.3 Deliveries by Investor. In addition to and without limiting any other
provision of this Agreement, the Investor agrees to deliver, or cause to be
delivered, to the Escrow Agent under the Escrow Agreement, at or prior to
closing, the following:

 

  (a) A deposit in the amount of the Investor Funds;

 

  (b) The executed Agreement with all Exhibits and Schedules attached hereto;

 

  (c) The executed Registration Rights Agreement;

 

  (d) Certifications in form and substance acceptable to the Company and the
Investor from any and all brokers or agents involved in the transactions
contemplated hereby as to the amount of commission or compensation payable to
such broker or agent as a result of the consummation of the transactions
contemplated hereby and from the Company or Investor as appropriate to the
effect that reasonable reserves for any other commissions or compensation that
may be claimed by any broker or agent have been set aside;

 

  (e) Evidence of authority of general partner of Investor to enter into the
Transaction Documents and the transactions contemplated hereby;

 

  (f) Certificate of Existence of Investor issued by the Secretary of State of
Delaware;

 

  (g) The executed Escrow Agreement; and

 

  (h) Such other documents or certificates as shall be reasonably requested by
the Company or its counsel.

 

In the event any document provided to the other party in Sections 3.2 and 3.3
herein is provided by facsimile, the party shall forward an original document to
the other party within seven (7) business days.

 

3.4 Further Assurances. The Company and the Investor shall, upon request, on or
after the Closing Date, cooperate with each other (specifically, the Company
shall cooperate with the Investor, and the Investor shall cooperate with the
Company) by furnishing any additional information, executing and delivering any
additional documents and/or other instruments and doing any and all such things
as may be reasonably required by the parties or their counsel to consummate or
otherwise implement the transactions contemplated by this Agreement.

 

3.5 Waiver. The Investor may waive any of the requirements of Section 3.2 of
this Agreement, and the Company at its discretion may waive any of the
provisions of Section 3.3 of this Agreement. The Investor may also waive any of
the requirements of the Company under the Escrow Agreement.

 

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ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE

COMPANY

 

The Company represents and warrants to the Investor as of the date hereof and as
of Closing (which warranties and representations shall survive the Closing
regardless of what examinations, inspections, audits and other investigations
the Investor has heretofore made or may hereinafter make with respect to such
warranties and representations) as follows:

 

4.1 Organization and Qualification. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and is
duly qualified to do business in any other jurisdiction by virtue of the nature
of the businesses conducted by it or the ownership or leasing of its properties,
except where the failure to be so qualified will not, when taken together with
all other such failures, have a Material Adverse Effect on the business,
operations, properties, assets, financial condition or results of operation of
the Company.

 

4.2 Charter and By-Laws. The complete and correct copies of the Company’s
Charter and By-Laws, as amended or restated as of the date hereof and as of
Closing, are attached hereto as Schedules 4.2.1 and 4.2.2, respectively, and
each is a complete and correct copy of such document as in or to be in effect on
the date hereof and as of Closing.

 

4.3 Capitalization.

 

4.3.1 As of the date of this Agreement, following the effectuation of the 40 to
1 Stock Split, the authorized capital stock of the Company consists of
50,000,000 shares of Common Stock ($.001 par value) and 5,000,000 shares of
preferred stock ($.001 par value), of which approximately 453,529 shares of
Common Stock are issued and outstanding. As of Closing, following the issuance
by the Company of the Preferred Stock to the Investor, the authorized capital
stock of the Company will consist of 40,000,000 shares of Common Stock ($.001
par value) and 15,000,000 shares of preferred stock ($.001 par value), of which
approximately 2,631,752 shares of Common Stock (consisting of approximately
2,526,904 shares to be issued to the Original Shareholders in the Merger and
approximately 104,848 existing publicly held shares) and 7,217,736 shares of
preferred stock shall be issued and outstanding. As of Closing, the Stock Option
Holders will hold options to purchase an aggregate of 268,343 shares of Common
Stock. All outstanding shares of capital stock have been duly authorized and are
validly issued, and are fully paid and nonassessable and free of preemptive
rights. All shares of capital stock described above to be issued have been duly
authorized and when issued, will be validly issued, fully paid and nonassessable
and free of preemptive rights.

 

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4.3.2 Except pursuant to this Agreement and as set forth in Schedule 4.3 hereto,
and as set forth in the Company’s SEC Documents, filed with the SEC, as of the
date hereof and as of Closing, there are not now outstanding options, warrants,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any class of capital stock of the Company, or agreements,
understandings or arrangements to which the Company is a party, or by which the
Company is or may be bound, to issue additional shares of its capital stock or
options, warrants, scrip or rights to subscribe for, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, any shares of any class of its capital stock. The Company has
no convertible debt. No shares of Common Stock of the Company are subject to any
reset features which could result in additional shares being issued.

 

4.3.3 The Company at Closing (i) will have full right, power, and authority to
sell, assign, transfer, and deliver to the Investor, the Preferred Stock, the
Warrants and the Investor Subordinated Promissory Note hereunder, free and clear
of all liens, charges, claims, options, pledges, restrictions, and encumbrances
whatsoever, except for the transfer restrictions described in Sections 7.2 and
7.3 hereof; and (ii) upon conversion of the Preferred Stock or exercise of the
Warrants, the Investor will acquire good and marketable title to shares of
Common Stock free and clear of all liens, charges, claims, options, pledges,
restrictions, and encumbrances whatsoever, except for the transfer restrictions
described in Sections 7.2 and 7.3.

 

4.4 Authority. The Company has all requisite corporate power and authority to
execute and deliver this Agreement, the Preferred Stock, the Warrants, the
Investor Subordinated Promissory Note, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby,
including the Merger and other transactions described in the Merger Agreement
The execution and delivery of this Agreement by the Company and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby except as disclosed in this Agreement. This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.

 

4.5 No Conflict; Required Filings and Consents. The execution and delivery of
this Agreement by the Company does not, and the performance by the Company of
its obligations hereunder will not: (i) conflict with or violate the Charter or
By-Laws of the Company; (ii) to the knowledge of the Company, conflict with,
breach or violate any Laws in effect as of the date of this Agreement or Closing
and applicable to the Company; or (iii) except as set forth in Schedule 4.5
attached hereto, result in any breach of, constitute a default (or an event that
with notice or lapse of time or both would become a default) under, give to any
other entity any right of termination, amendment, acceleration or cancellation
of, require payment under, or result in the creation of a lien or encumbrance on
any of the properties or assets of the Company pursuant to any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or

 

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other instrument or obligation to which the Company is a party or by which the
Company or any of its properties or assets is bound. Excluded from the foregoing
are such violations, conflicts, breaches, defaults, terminations, accelerations,
creations of liens, or encumbrances that would not, in the aggregate, have a
Material Adverse Effect.

 

4.6 Report and Financial Statements. The Company’s Annual Report on Form 10-KSB,
filed on July 26, 2004 with the SEC contains the audited financial statements of
the Company as of December 31, 2003 and the Company has previously provided to
the Investor the audited financial statements of CSI as of December 31, 2003 and
for the six months ended June 30, 2004 and the unaudited financial statements of
CSI for the eleven month period ending November 30, 2004 (collectively, the
“Financial Statements”). Each of the balance sheets contained in or incorporated
by reference into any such Financial Statements (including the related notes and
schedules thereto) fairly presented the financial position of the Company or
CSI, as the case may be, as of its date, and each of the statements of income
and changes in stockholders’ equity and cash flows or equivalent statements in
such Financial Statements (including any related notes and schedules thereto)
fairly presents, changes in stockholders’ equity and changes in cash flows, as
the case may be, of the Company or CSI, as applicable, for the periods to which
they relate, in each case in accordance with United States generally accepted
accounting principles (“U.S. GAAP”) consistently applied during the periods
involved, except in each case as may be noted therein, subject to normal
year-end audit adjustments in the case of unaudited statements. Except as noted
therein, the books and records of the Company have been, and are being,
maintained in all material respects in accordance with U.S. GAAP without
variances and any other applicable legal and accounting requirements and reflect
only actual transactions.

 

4.7 Compliance with Applicable Laws. The Company is not in violation of, or to
the knowledge of the Company, under investigation with respect to and has not
been given notice or been charged with the violation of any Laws, except for
violations which individually or in the aggregate do not have a Material Adverse
Effect.

 

4.8 Brokers. Except as set forth on Schedule 4.8, no broker, finder or
investment banker is entitled to any brokerage, finder’s or other fee or
Commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.

 

4.9 SEC Documents. The Company is a publicly held company and has made available
to the Investor after demand true and complete copies of any requested SEC
Documents. The Company reports to the SEC pursuant to Section 15(d) of the 1934
Act, and to the Company’s knowledge, the Common Stock is quoted and traded on
the OTC Bulletin Board of the National Association of Securities Dealers, Inc.
The Company has received no notice, either oral or written, with respect to any
planned or threatened discontinuation of the quotation or trading of the Common
Stock on the OTC Bulletin Board. The Company has not provided to the Investor
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. As of

 

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their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act, and rules and regulations of the SEC
promulgated thereunder and the SEC Documents did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

 

4.10 Litigation. No litigation, claim, or other proceeding before any court or
governmental agency is pending or, to the knowledge of the Company, threatened
against the Company or CSI, the prosecution or outcome of which may have a
Material Adverse Effect.

 

4.11 Exemption from Registration. Subject to the accuracy of the Investor’s
representations in Article V, except as required pursuant to the Registration
Rights Agreement, the sale of the Preferred Stock and Warrants by the Company to
the Investor will not require registration under the 1933 Act, but may require
registration under New York state securities law if applicable to the Investor.
When validly converted in accordance with the terms of the Preferred Stock, and
upon exercise of the Warrants in accordance with their terms, the Shares will be
duly and validly issued, fully paid, and non-assessable. The Company is issuing
the Preferred Stock and the Warrants in accordance with and in reliance upon the
exemption from securities registration afforded, inter alia, by Rule 506 under
Regulation D as promulgated by the SEC under the 1933 Act, and/or Section 4(2)
of the 1933 Act; provided, however, that certain filings and registrations may
be required under state securities “blue sky” laws depending upon the residency
of the Investor.

 

4.12 No General Solicitation or Advertising in Regard to this Transaction.
Neither the Company nor any of its Affiliates nor, to the knowledge of the
Company, any Person acting on its or their behalf (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D as promulgated by the SEC under the 1933 Act) or general
advertising with respect to the sale of the Preferred Stock, or (ii) made any
offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Preferred Stock,
under the 1933 Act, except as required herein.

 

4.13 No Material Adverse Effect. Except as set forth in Schedule 4.13 attached
hereto, since June 30, 2004, no event or circumstance resulting in a Material
Adverse Effect has occurred or exists with respect to the Company or CSI. To the
knowledge of the Company, no material supplier has given notice, oral or
written, that it intends to cease or reduce the volume of its business with the
Company or CSI from historical levels. Since June 30, 2004, no event or
circumstance has occurred or exists with respect to the Company or CSI or its
businesses, properties, prospects, operations or financial condition, that, by
itself or in the aggregate would be determined to have a Material Adverse Effect
upon the Company.

 

4.14 Material Non-Public Information. The Company has not disclosed to the
Investors any material non-public information that according to applicable law,
rule or regulation, should have been disclosed publicly by the Company prior to
the date hereof but which has not been so disclosed.

 

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4.15 Internal Controls And Procedures. Each of the Company and CSI maintains
books and records and internal accounting controls which provide reasonable
assurance that all transactions to which the Company, CSI or any subsidiary is a
party or by which its properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in accordance with U.S.
generally accepted accounting principles.

 

4.16 Full Disclosure. No representation or warranty made by the Company in this
Agreement and no certificate or document furnished or to be furnished to the
Investor pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading,
subject to any limitation, qualification or caveat expressly contained in such
statement.

 

4.17 Independent Board. As of the date of this Agreement, the Board of Directors
of the Company consists of three independent directors. At Closing, following
the Merger, the Board of Directors of the Company shall consist of five
directors, three of whom shall be independent. As of the date of this Agreement,
the Audit and Compensation Committees of the Board of Directors of the Company
are comprised, and at the Closing will be comprised, of independent directors.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

 

The Investor represents and warrants to the Company as of the date hereof and as
of Closing that:

 

5.1 Organization and Standing of the Investor. The Investor is a limited
partnership duly formed, validly existing and in good standing under the laws of
the State of Delaware. The state in which any offer to purchase shares hereunder
was made or accepted by such Investor is the state shown as such Investor’s
address. The Investor was not formed for the purpose of investing solely in the
Preferred Stock, the Warrants or the shares of Common Stock which are the
subject of this Agreement.

 

5.2 Authorization and Power. The Investor has the requisite power and authority
to enter into and perform this Agreement and to purchase the securities being
sold to it hereunder. The execution, delivery and performance of this Agreement
by the Investor and the consummation by the Investor of the transactions
contemplated hereby have been duly authorized by all necessary partnership
action where appropriate. This Agreement and the Registration Rights Agreement
have been duly executed and delivered by the Investor and at the Closing shall
constitute valid and binding obligations of the Investor enforceable against the
Investor in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

 

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5.3 No Conflicts. The execution, delivery and performance of this Agreement and
the consummation by the Investor of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of such Investor’s
organizational documents or bylaws where appropriate or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which the Investor is a party, or result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Investor or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a Material Adverse Effect on such Investor). The Investor is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of such Investor’s obligations under this Agreement or to
purchase the securities from the Company in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, the
Investor is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.

 

5.4 Financial Risks. The Investor acknowledges that such Investor is able to
bear the financial risks associated with an investment in the securities being
purchased by the Investor from the Company and that it has been given full
access to such records of the Company and the subsidiaries and to the officers
of the Company and the subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation. The Investor is capable of evaluating
the risks and merits of an investment in the securities being purchased by the
Investor from the Company by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business matters and
the Investor is capable of bearing the entire loss of its investment in the
securities being purchased by the Investor from the Company.

 

5.5 Accredited Investor. The Investor is (i) an “accredited investor” as that
term is defined in Rule 501 of Regulation D promulgated under the 1933 Act by
reason of Rule 501(a)(3) and (6), (ii) experienced in making investments of the
kind described in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its officers or its general
partner or officers thereof and professional advisors (who are not affiliated
with or compensated in any way by the Company or any of its affiliates or
selling agents), to protect its own interests in connection with the
transactions described in this Agreement, and the related documents, and (iv)
able to afford the entire loss of its investment in the securities being
purchased by the Investor from the Company.

 

5.6 Brokers. Except as set forth in Schedule 4.8, no broker, finder or
investment banker is entitled to any brokerage, finder’s or other fee or
Commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Investor.

 

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5.7 Knowledge of Company. The Investor and such Investor’s advisors, if any,
have been, upon request, furnished with all materials relating to the business,
finances and operations of the Company and CSI and materials relating to the
offer and sale of the securities being purchased by the Investor from the
Company. The Investor and such Investor’s advisors, if any, have been afforded
the opportunity to ask questions of the Company and CSI and have received
complete and satisfactory answers to any such inquiries.

 

5.8 Risk Factors. The Investor understands that such Investor’s investment in
the securities being purchased by the Investor from the Company involves a high
degree of risk. The Investor understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the securities being purchased by the Investor
from the Company. The Investor warrants that such Investor is able to bear the
complete loss of such Investor’s investment in the securities being purchased by
the Investor from the Company.

 

5.9 Investment Intent. The Investor is acquiring the Preferred Stock and
Warrants for the Investor’s own account as an investment and without an intent
to sell, transfer or distribute the Preferred Stock and Warrants.

 

5.10 Full Disclosure. No representation or warranty made by the Investor in this
Agreement and no certificate or document furnished or to be furnished to the
Company pursuant to this Agreement contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading subject to any
limitation, qualification or caveat expressly contained in such statement.
Except as set forth or referred to in this Agreement, Investor does not have any
agreement or understanding with any person relating to acquiring, holding,
voting or disposing of any equity securities of the Company.

 

5.11 Payment of Certain Commissions and Fees. Upon Closing, from the Investor
Funds, the Escrow Agent shall pay to Liberty Company, LLC (“Liberty”) as its
commission for assistance to the Investor with the purchase of the Preferred
Stock, Two Hundred Seventy-five Thousand and No/100 Dollars ($275,000.00).
Following Closing, upon the closing by the Company and Royal Bank of Canada of a
credit facility and a funding by such bank thereunder, the Company shall pay,
pursuant to prior agreement with the Investor, a fee equal to three percent (3%)
of the total amount of such credit facility, less Twenty-one Thousand Two
Hundred and No/100 Dollars ($21,200.00) representing funds previously advanced
to Liberty.

 

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ARTICLE VI

COVENANTS OF THE COMPANY

 

6.1 Registration Rights. The Company shall cause the Registration Rights
Agreement to remain in full force and effect according to the provisions of the
Registration Rights Agreement and the Company shall comply in all material
respects with the terms thereof.

 

6.2 Reservation Of Common Stock. At the Closing, the Company shall have reserved
and the Company shall continue to reserve and keep available at all times shares
of Common Stock for the purpose of enabling the Company to issue the shares of
Common Stock underlying the Preferred Stock and Warrants.

 

6.3 Compliance with Laws. The Company hereby agrees to comply in all respects
with the Company’s reporting, filing and other obligations under the Laws.

 

6.4 Exchange Act Registration. The Company will (a) will continue its obligation
to report to the SEC under Section 15(d) of the 1934 Act or (b) shall register
under Section 12(b) or (g) under the 1934 Act and thereafter shall continue to
be registered thereunder, and in either case will use its best efforts to comply
in all respects with its reporting and filing obligations under the 1934 Act,
and will not take any action or file any document (whether or not permitted by
the 1934 Act or the rules thereunder) to terminate or suspend any such
registration or to terminate or suspend such reporting and filing obligations
under the 1934 Act until the Investor has disposed of all of [its] securities
purchased hereunder from the Company.

 

6.5 Corporate Existence; Conflicting Agreements. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company. The
Company shall not enter into any agreement, the terms of which agreement would
restrict or impair the right or ability of the Company to perform any of its
obligations under this Agreement or any of the other agreements attached as
exhibits hereto.

 

6.6 Preferred Stock. From and after the Closing Date and continuing for a period
of three (3) years thereafter, the Company will not issue any shares of
preferred stock of the Company which are convertible into shares of Common Stock
of the Company other than on a conversion ratio which is fixed, except in the
case of normal adjustments which may include anti-dilution provisions, among
other things, but which shall not include in any case the conversion ratio of
such shares of preferred stock based on the market price of the Common Stock
after the date of closing of the issuance of such shares of preferred stock.

 

6.7 Convertible Debt. For a period of three years from the Closing, the Company
will not issue any convertible debt.

 

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6.8 Reset Equity Deals. For a period of three years from the Closing, the
Company will not enter into any transactions that have any reset features that
could result in additional shares being issued.

 

6.9 Chief Financial Officer. Within ninety (90) days following the Closing, the
Company will have caused the employment of a Chief Financial Officer for the
Company, who has experience with public companies. If no such Chief Financial
Officer is employed by such time, the Company shall pay to the Investor, as
liquidated damages and not as a penalty, an amount equal to twenty-four percent
(24%) of the Purchase Price per annum, payable monthly, until such time as a
Chief Financial Officer with such experience is appointed. The parties agree
that the only damages payable for a violation of the terms of this Section 6.11
shall be such liquidated damages. Nothing shall preclude the Investor from
pursuing other remedies or obtaining specific performance or other equitable
relief with respect to other sections of this Agreement. The parties hereto
agree that the liquidated damages provided for in this Section 6.11 constitute a
reasonable estimate of the damages that may be incurred by the Investor by
reason of the failure of the Company to employ a Chief Financial Officer in
accordance with the provision hereof.

 

6.10 Use of Proceeds. The Company will use the proceeds from the sale of the
Preferred Stock and the Warrants (excluding amounts paid by the Company for
legal and administrative fees in connection with the sale of such securities)
and the Investor Subordinated Loan for working capital and the repayment of the
Dividend Notes and the Merger Note.

 

6.11 Right of First Refusal. Until such time as all of the Preferred Stock shall
have been converted into Common Stock, the Investor and the Original
Shareholders shall have the right to participate in any subsequent funding by
the Company on a pro rata basis at eighty percent (80%) of the offering price.

 

6.12 Insider Selling. The earliest any “Insiders” can start selling their shares
shall be two years from Closing. Insiders shall include all officers and
directors of the Company. Andrew Barron Worden and the Investor shall not be
considered “Insiders.”

 

6.13 Employment and Consulting Contracts. Employment and consulting contracts
with officers and directors at time of Closing and for two years thereafter
shall not contain: any bonuses not related directly to increases in earnings;
any car allowances not approved by the unanimous vote of the board of directors;
any anti-dilution or reverse split protection provisions for shares, options or
warrants; any deferred compensation; any unreasonable compensation or benefit
clauses; or any termination clauses of over eighteen (18) months of salary. This
clause may be waived conditionally in specific instances by the Investor.

 

6.14 Notice of Intent to Sell or Merge Company. The Company will give Investor
seventy (70) days notice before the event of a sale of all or substantially all
of the assets of the Company or the merger or consolidation of the Company in a
transaction in which the Company is not the surviving entity. The Investor shall
have the right to waive such notice requirement.

 

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6.15 Sale or Merger of Company. In the event of a sale or merger of
substantially all of the Company, other than pursuant to the Merger Agreement,
then the 4.99% restriction in the Preferred Stock and in the Warrants will
immediately be terminated and the Investors will have the right to convert the
Preferred Stock and exercise the Warrants concurrent with the sale, subject to
the conversion by the Investor of the Preferred Stock and the payment by the
Investor to the Company of the aggregate exercise price of the Warrant.

 

6.16 Subsequent Equity Sales. From the date hereof until such time as the
Investor no longer holds any of the securities purchased from the Company
hereunder, the Company shall be prohibited from effecting or entering into an
agreement to effect any Subsequent Financing involving a “Variable Rate
Transaction” or an “MFN Transaction” (each as defined below). The term “Variable
Rate Transaction” shall mean a transaction in which the Company issues or sells
(i) any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock. The term “MFN Transaction” shall mean a transaction in which
the Company issues or sells any securities in a capital raising transaction or
series of related transactions which grants to an investor the right to receive
additional shares based upon future transactions of the Company on terms more
favorable than those granted to such investor in such offering. The Investor
shall be entitled to obtain injunctive relief against the Company to preclude
any such issuance, which remedy shall be in addition to any right to collect
damages. Notwithstanding the foregoing, this Section 6.16 shall not apply in
respect of an Exempt Issuance.

 

ARTICLE VII

 

COVENANTS OF THE INVESTOR

 

7.1 Compliance with Law. Subject to the Company’s compliance with Laws and this
Agreement, the Investor’s trading activities with respect to shares of the
Company’s Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and rules and regulations of any
public market on which the Company’s Common Stock is listed.

 

7.2 Transfer Restrictions. The Investor acknowledges that (1) the Preferred
Stock, Warrants and shares of Common Stock underlying the Preferred Stock and
Warrants have not been registered under the provisions of the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Investor shall have delivered to the Company an

 

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opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Preferred Stock, Warrants and the shares of
Common Stock underlying the Preferred Stock and Warrants to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; and (2) any sale of the Preferred Stock, Warrants and shares of
Common Stock underlying the Preferred Stock and Warrants made in reliance on
Rule 144 promulgated under the 1933 Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller, or the person through
whom the sale is made, may be deemed to be an underwriter, as that term is used
in the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder.

 

7.3 Restrictive Legend. The Investor acknowledges and agrees that the Preferred
Stock, the Warrants and the shares of Common Stock underlying the Preferred
Stock and Warrants, and, until such time as the shares of Common Stock
underlying the Preferred Stock and Warrants have been registered under the 1933
Act and sold in accordance with an effective registration statement,
certificates and other instruments representing any of such shares, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such securities):

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, OR
(3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT.”

 

ARTICLE VIII

 

CONDITIONS PRECEDENT TO THE COMPANY’S OBLIGATIONS

 

The obligation of the Company to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date, of the
following conditions:

 

8.1 No Termination. This Agreement shall not have been terminated pursuant to
Article X hereof.

 

8.2 Representations True and Correct. The representations and warranties of the
Investor contained in this Agreement shall be true and correct in all material
respects on and as of the Closing with the same force and effect as if made on
as of the Closing.

 

8.3 Compliance with Covenants. The Investor shall have performed and complied in
all material respects with all covenants, agreements, and conditions required by
this Agreement to be performed or complied by it prior to or at the Closing.

 

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8.4 No Adverse Proceedings. As of Closing Date, no action or proceeding shall be
pending by any public authority or individual or entity before any court or
administrative body to restrain, enjoin, or otherwise prevent the consummation
of this Agreement or the transactions contemplated hereby or to recover any
damages or obtain other relief as a result of the transactions proposed hereby.

 

ARTICLE IX

 

CONDITIONS PRECEDENT TO INVESTOR’S OBLIGATIONS

 

The obligation of the Investor to consummate the transactions contemplated
hereby shall be subject to the fulfillment, on or prior to Closing unless
specified otherwise, of the following conditions:

 

9.1 Closing of Merger. The Company shall close the Merger Agreement with CSI and
all representations and warranties of the Company and CSI contained therein
shall be true and correct in all material respects and all covenants and
obligations of the Company and CSI contained therein shall have been satisfied.

 

9.2 No Termination. This Agreement shall not have been terminated pursuant to
Article X hereof.

 

9.3 Representations True and Correct. The representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects on and as of Closing with the same force and effect as if made on as of
Closing.

 

9.4 Compliance with Covenants . The Company shall have performed and complied in
all material respects with all covenants, agreements, and conditions required by
this Agreement to be performed or complied by it prior to or at Closing.

 

9.5 No Adverse Proceedings. As of Closing, no action or proceeding shall be
pending by any public authority or individual or entity before any court or
administrative body to restrain, enjoin, or otherwise prevent the consummation
of this Agreement or the transactions contemplated hereby or to recover any
damages or obtain other relief as a result of the transactions proposed hereby.

 

9.6 Minimum Cash and Accounts Receivable. On the Closing Date, the aggregate
amount of cash on hand and trade accounts receivable reflected on the books and
records of CSI as of the Closing Date shall not be less than $2,500,000;
provided, however, in determining the total amount of trade accounts receivable,
only eighty-five percent (85%) of trade accounts receivable with an aging of
less than ninety (90) days shall be included and no trade accounts receivable
aged more than ninety (90) days shall be included.

 

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9.7 SEC Filings. The Company shall have filed with the SEC one or more Current
Reports on Form 8-K reporting the acquisition by CSI of the Common Stock owned
by Maximum Ventures, the change of control of the Company and the Stock Split.
Within the period required thereunder, the Company shall file with the SEC an
additional Form 8-K reporting the Company’s entering into the Merger Agreement
and this Agreement and the consumation of the Merger. All information contained
in such reports shall be true, correct and complete in all material respects.

 

ARTICLE X

 

TERMINATION, AMENDMENT AND WAIVER

 

10.1 Termination. This Agreement may be terminated at any time prior to the
Closing:

 

10.1.1 by mutual written consent of the Investor and the Company;

 

10.1.2 by the Company upon a material breach of any representation, warranty,
covenant or agreement on the part of the Investor set forth in this Agreement,
or by the Investor upon a material breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
by the non-breaching party if any representation or warranty of the Company or
the Investor, respectively, shall have become untrue, in either case such that
any of the conditions set forth in Article VIII or Article IX hereof would not
be satisfied (a “Terminating Breach”), and such breach shall, if capable of
cure, not have been cured within five (5) business days after receipt by the
party in breach of a notice from the non-breaching party setting forth in detail
the nature of such breach.

 

10.2 Effect of Termination. Except as otherwise provided herein, in the event of
the termination of this Agreement pursuant to Section 10.1 hereof, there shall
be no liability on the part of the Company or the Investor or any of their
respective officers, directors, agents or other representatives and all rights
and obligations of any party hereto shall cease; provided that in the event of a
Terminating Breach, the breaching party shall be liable to the non-breaching
party for all costs and expenses incurred by the non-breaching party not to
exceed $100,000.00.

 

10.3 Amendment. This Agreement may be amended by the parties hereto any time
prior to the Closing by an instrument in writing signed by the parties hereto.

 

10.4 Waiver. At any time prior to the Closing, the Company or the Investor, as
appropriate, may: (a) extend the time for the performance of any of the
obligations or other acts of the other party or; (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto which have been made to it or them; or (c) waive compliance with
any of the agreements or conditions contained herein for its or their benefit.
Any such extension or waiver shall be valid only if set forth in an instrument
in writing signed by the party or parties to be bound hereby.

 

PREFERRED STOCK PURCHASE AGREEMENT BETWEEN

COMPUTER SOFTWARE INNOVATIONS, INC. AND BARRON PARTNERS LP

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ARTICLE XI

 

GENERAL PROVISIONS

 

11.1 Transaction Costs. Except as otherwise provided herein, each of the parties
shall pay all its costs and expenses (including attorney fees and other legal
costs and expenses and accountants’ fees and other accounting costs and
expenses) incurred by that party in connection with this Agreement; provided
that if the parties close this Agreement, the Company shall reimburse the
Investor’s legal fees and costs, not to exceed $70,000.00.

 

11.2 Indemnification. The Investor agrees to indemnify, defend and hold the
Company (following the Closing Date) and its officers and directors harmless
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities or damages, including interest, penalties and
reasonable attorney’s fees, that it shall incur or suffer, which arise out of or
result from any breach of this Agreement by such Investor or failure by such
Investor to perform with respect to any of its representations, warranties or
covenants contained in this Agreement or in any exhibit or other instrument
furnished or to be furnished under this Agreement. The Company agrees to
indemnify, defend and hold the Investor harmless against and in respect of any
and all claims, demands, losses, costs, expenses, obligations, liabilities or
damages, including interest, penalties and reasonable attorney’s fees, that it
shall incur or suffer, which arise out of, result from or relate to any breach
of this Agreement or failure by the Company to perform with respect to any of
its representations, warranties or covenants contained in this Agreement or in
any exhibit or other instrument furnished or to be furnished under this
Agreement. In no event shall the Company or the Investor be entitled to recover
consequential or punitive damages resulting from a breach or violation of this
Agreement nor shall any party have any liability hereunder in the event of gross
negligence or willful misconduct of the indemnified party. In the event of a
breach of this Agreement by the Company, the Investor shall be entitled to
pursue a remedy of specific performance upon tender into court of an amount
equal to the Purchase Price hereunder. The indemnification by the Investor shall
be limited to $500,000.00.

 

11.3 Headings. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

 

11.4 Entire Agreement. This Agreement (together with the Schedule, Exhibits,
Warrants and documents referred to herein) constitute the entire agreement of
the parties and supersede all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof.

 

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11.5 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given (i) on the date they are delivered if
delivered in person; (ii) on the date initially received if delivered by
facsimile transmission followed by registered or certified mail confirmation;
(iii) on the date delivered by an overnight courier service; or (iv) on the
third business day after it is mailed by registered or certified mail, return
receipt requested with postage and other fees prepaid as follows:

 

If to the Company:

 

Computer Software Innovations, Inc.

1661 East Main Street, Suite A

Easley, South Carolina 29642

Attention: Nancy K. Hedrick

 

With a copy to:

 

Leatherwood Walker Todd & Mann, P.C.

300 E. McBee Avenue, Suite 500

Greenville, South Carolina 29601

Facsimile No.: 864-240-2479

Attn: Richard L. Few, Jr., Esq.

 

If to the Investor:

 

Barron Partners LP

730 Fifth Avenue, 9th Floor

New York, New York 10019

Attn: Andrew Barron Worden

 

With a copy to:

 

DLA Piper Rudnick Gray Cary US LLP

203 N. LaSalle Street

Suite 1900

Chicago, Illinois 60601

Attn: John H. Heuberger, Esq.

 

11.6 Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any such term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in

 

PREFERRED STOCK PURCHASE AGREEMENT BETWEEN

COMPUTER SOFTWARE INNOVATIONS, INC. AND BARRON PARTNERS LP

PAGE 25 OF 29

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good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

 

11.7 Binding Effect. All the terms and provisions of this Agreement whether so
expressed or not, shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective administrators, executors, legal
representatives, heirs, successors and assignees.

 

11.8 Preparation of Agreement. This Agreement shall not be construed more
strongly against any party regardless of who is responsible for its preparation.
The parties acknowledge each contributed and is equally responsible for its
preparation.

 

11.9 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law.

 

11.10 Jurisdiction. This Agreement shall be exclusively governed by and
construed in accordance with the laws of the State of New York. If any action is
brought among the parties with respect to this Agreement or otherwise, by way of
a claim or counterclaim, the parties agree that in any such action, and on all
issues, the parties irrevocably waive their right to a trial by jury. Exclusive
jurisdiction and venue for any such action shall be the Federal Courts serving
the State of New York. In the event suit or action is brought by any party under
this Agreement to enforce any of its terms, or in any appeal therefrom, it is
agreed that the prevailing party shall be entitled to reasonable attorneys fees
to be fixed by the arbitrator, trial court, and/or appellate court.

 

11.11 Further Assurances, Cooperation. Each party shall, upon reasonable request
by the other party, execute and deliver any additional documents necessary or
desirable to complete the transactions herein pursuant to and in the manner
contemplated by this Agreement. The parties hereto agree to cooperate and use
their respective best efforts to consummate the transactions contemplated by
this Agreement.

 

11.12 Survival The representations, warranties, covenants and agreements made
herein shall survive the Closing of the transaction contemplated hereby.

 

11.13 Third Parties Except as disclosed in this Agreement, nothing in this
Agreement, whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any persons other than the
parties hereto and their respective administrators, executors, legal
representatives, heirs, successors and assignees. Nothing in this Agreement is
intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement, nor shall any provision give any third
persons any right of subrogation or action over or against any party to this
Agreement.

 

PREFERRED STOCK PURCHASE AGREEMENT BETWEEN

COMPUTER SOFTWARE INNOVATIONS, INC. AND BARRON PARTNERS LP

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11.14 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay
on the part of any party hereto in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty, covenant or agreement herein, nor shall
any single or partial exercise of any such right preclude other or further
exercise thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

 

11.15 Time of Execution. This Agreement has been executed as of the date first
written above after 5:00 p.m. Eastern Standard Time.

 

11.16 Counterparts. This Agreement may be executed in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement. A facsimile transmission of this
signed Agreement shall be legal and binding on all parties hereto.

 

[SIGNATURES ON FOLLOWING PAGE]

 

PREFERRED STOCK PURCHASE AGREEMENT BETWEEN

COMPUTER SOFTWARE INNOVATIONS, INC. AND BARRON PARTNERS LP

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[INTENTIONALLY OMITTED]

 

PREFERRED STOCK PURCHASE AGREEMENT BETWEEN

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IN WITNESS WHEREOF, the Investor and the Company have as of the date first
written above executed this Agreement.

 

THE COMPANY:

 

COMPUTER SOFTWARE INNOVATIONS, INC.

A Delaware corporation formerly known as VerticalBuyer, Inc.

By:

 

/s/ Nancy K. Hedrick

--------------------------------------------------------------------------------

    Nancy K. Hedrick

Title:

  President and Chief Executive Officer INVESTOR: BARRON PARTNERS LP

By:

  Barron Capital Advisors LLC, its General Partner

By:

 

/s/ Andrew Barron Worden

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    Andrew Barron Worden, Managing Member     730 Fifth Avenue, 9th Floor    
New York NY 10019