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Exhibit 10.1
 
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
 
AGREEMENT
 
 
 
Dated as of March 3, 2006
 
 
 
among
 
 
 
IMPART MEDIA GROUP, INC.
 
 
 
and
 
 
 
THE PURCHASERS LISTED ON EXHIBIT A
 
 

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TABLE OF CONTENTS

   
PAGE
     
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1
     
Section 1.1
Purchase and Sale of Stock
1
Section 1.2
The Conversion Shares
1
Section 1.3
Purchase Price and Closing
2
Section 1.4
Warrants
2
     
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2
     
Section 2.1
Representations and Warranties of the Company
2
Section 2.2
Representations, Warranties and Covenants of the Purchasers
14
     
ARTICLE III
COVENANTS
16
     
Section 3.1
Securities Compliance
16
Section 3.2
Registration and Listing
17
Section 3.3
Inspection Rights
17
Section 3.4
Compliance with Laws
17
Section 3.5
Keeping of Records and Books of Account
17
Section 3.6
Reporting Requirements
17
Section 3.7
Amendments
18
Section 3.8
Other Agreements; Amendments
18
Section 3.9
Intentionally Omitted.
18
Section 3.10
Status of Dividends
18
Section 3.11
Use of Proceeds
19
Section 3.12
Reservation of Shares
19
Section 3.13
Transfer Agent Instructions
19
Section 3.14
Disposition of Assets
20
Section 3.15
Reporting Status
20
Section 3.16
Disclosure of Transaction
21
Section 3.17
Disclosure of Material Information
21
Section 3.18
Pledge of Securities
21
Section 3.19
Form SB-2 Eligibility
21
Section 3.20
Restrictions on Certain Issuances of Securities
22
Section 3.21
Future Financings; Right of First Offer and Refusal.
22
     
ARTICLE IV
CONDITIONS
24
     
Section 4.1
Conditions Precedent to the Obligation of the Company to Sell the Shares
24
Section 4.2
Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares
24

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ARTICLE V
STOCK CERTIFICATE LEGEND
26
     
Section 5.1
Legend
26
     
ARTICLE VI
INDEMNIFICATION
27
     
Section 6.1
General Indemnity
27
Section 6.2
Indemnification Procedure
28
     
ARTICLE VII
MISCELLANEOUS
29
     
Section 7.1
Fees and Expenses
29
Section 7.2
Specific Enforcement, Consent to Jurisdiction.
29
Section 7.3
Entire Agreement; Amendment
30
Section 7.4
Notices
30
Section 7.5
Waivers
31
Section 7.6
Headings
31
Section 7.7
Successors and Assigns
31
Section 7.8
No Third Party Beneficiaries
31
Section 7.9
Governing Law
31
Section 7.10
Survival
32
Section 7.11
Counterparts
32
Section 7.12
Publicity
32
Section 7.13
Severability
32
Section 7.14
Further Assurances
32

 
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT 
 
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”)
is dated as of March 3, 2006 by and among Impart Media Group, Inc., a Nevada
corporation (the “Company”), and each of the Purchasers of shares of Series A
Convertible Preferred Stock of the Company whose names are set forth on Exhibit
A hereto (individually, a “Purchaser” and collectively, the “Purchasers”).

The parties hereto agree as follows:
 
ARTICLE I
 
PURCHASE AND SALE OF PREFERRED SHARES

Section 1.1    Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the number of shares of the
Company’s Series A Convertible Preferred Stock, par value $.001 per share (the
“Preferred Shares”), set forth opposite such Purchaser’s name on Exhibit A
hereto and Warrants (as defined in Section 1.4 hereof) to purchase the number of
shares of the Company’s common stock, par value $.001 per share (the “Common
Stock”) set forth opposite such Purchaser’s name on Exhibit A hereto. The
aggregate purchase price for the Preferred Shares and the Warrants (as defined
in Section 1.4 hereof) shall be $4,500,000. The designation, rights, preferences
and other terms and provisions of the Series A Convertible Preferred Stock are
as set forth in the Certificate of Designation of the Relative Rights and
Preferences of the Series A Convertible Preferred Stock attached hereto as
Exhibit B (the “Certificate of Designation”) which shall be filed prior to
Closing. The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon (i) the exemption from
registration of the Securities under Section 5 of the Securities Act of 1933, as
amended (the “Securities Act”) afforded by Rule 506 of Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the
“Commission”), or by Section 4(2) of the Securities Act, and (ii) all applicable
state securities laws and regulations in the several states where Preferred
Shares are sold by the Company.
 
Section 1.2    The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of shares of Common
Stock equal to one hundred ten percent (110%) of the number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Preferred Shares and exercise of the Warrants then outstanding. The
Company has authorized and has reserved and covenants to continue to reserve,
free of preemptive rights and other similar contractual rights of stockholders,
such number of shares of Preferred Stock as shall from time to time be
sufficient to effect the sale and issuance of the Preferred Shares. Any shares
of Common Stock issuable upon conversion of the Preferred Shares and exercise of
the Warrants (and such shares when issued) are herein referred to as the
“Conversion Shares” and the "Warrant Shares", respectively. The Preferred
Shares, the Conversion Shares and the Warrant Shares are sometimes collectively
referred to as the “Shares”-.
 

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Section 1.3    Purchase Price and Closing. The Company agrees to issue and sell
to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of
Preferred Shares and Warrants set forth opposite their respective names on
Exhibit A. The aggregate purchase price of the Preferred Shares and Warrants
being acquired by each Purchaser is set forth opposite such Purchaser’s name on
Exhibit A (for each such Purchaser, the “Purchase Price” and collectively
referred to as the “Purchase Prices”). The closing of the purchase and sale of
the Preferred Shares and Warrants shall take place at the offices of Kramer
Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York, New York
10036 (the “Closing”) at 1:00 p.m. (eastern time) or at such other time and
place as the Purchasers and the Company may agree upon, upon the satisfaction of
each of the conditions set forth in Article IV hereof (the “Closing Date”).
Subject to the terms and conditions of this Agreement, at the Closing, the
Company shall deliver or cause to be delivered to each Purchaser (x) a stock
certificate representing the number of Preferred Shares set forth opposite the
name of such Purchaser on Exhibit A hereto, (y) a Warrant to purchase such
number of shares of Common Stock as is set forth opposite the name of such
Purchaser on Exhibit A attached hereto and (z) any other deliveries as required
by Article IV. Funding with respect to the Closing shall take place by wire
transfer of immediately available funds on or prior to the Closing Date.
 
Section 1.4    Warrants. Upon the following terms and conditions, the Purchasers
shall be issued Warrants, in substantially the form attached hereto as Exhibit C
(the "Warrants"), to purchase a number of shares of Common Stock equal to one
hundred percent (100%) of the number of Conversion Shares initially issuable
upon conversion of such Purchaser’s Preferred Shares purchased, at an exercise
price per share equal to $1.55 and a term of three (3) years following the
Closing Date. The number of shares of Common Stock issuable upon exercise of the
Warrants issuable to each Purchaser is set forth opposite such Purchaser’s name
on Exhibit A attached hereto.
 
 
ARTICLE II
 
REPRESENTATIONS AND WARRANTIES

Section 2.1    Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchasers, except as
set forth in the Company’s disclosure schedule delivered with this Agreement as
follows:
 
(a)    Organization, Good Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Nevada and has the requisite corporate power to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted.
The Company does not have any subsidiaries except as set forth in the Company’s
Form 10-KSB for the year ended December 31, 2004, including the accompanying
financial statements (the “Form 10-KSB”), or in the Company’s Form 10-QSB for
the fiscal quarters ended September 30, 2005, June 30, 2005 and March 31, 2005
(collectively, the “Form 10-QSB”), or on Schedule 2.1(a) hereto. The Company and
each such subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
Section 2.1(c) hereof) on the Company.
 
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(b)    Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and perform this Agreement, the Registration Rights
Agreement attached hereto as Exhibit D (the “Registration Rights Agreement”),
the Escrow Agreement by and among the Company, the Purchasers and the escrow
agent, dated as of the date hereof, substantially in the form of Exhibit E
attached hereto (the “Escrow Agreement”), the Irrevocable Transfer Agent
Instructions (as defined in Section 3.13), the Certificate of Designation, and
the Warrants (collectively, the “Transaction Documents”) and to issue and sell
the Shares and the Warrants in accordance with the terms hereof. The execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required. This Agreement has been duly executed and delivered by
the Company. The other Transaction Documents will have been duly executed and
delivered by the Company at the Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its 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, creditor’s rights and remedies or by other
equitable principles of general application.
 
(c)    Capitalization. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of the date hereof are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company’s
Common Stock and Series A Convertible Preferred Stock have been duly and validly
authorized and issued, are fully paid, non-assessable and free and clear of
pre-emptive rights, other than the rights of first refusal set forth on Schedule
2.1(c) hereto which have been duly waived in writing by the holders thereof in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock are entitled to preemptive rights or registration rights
and there are no outstanding options, warrants, scrip, rights to subscribe to,
call or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and the Registration Rights
Agreement or on Schedule 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as set forth on
Schedule 2.1(c) hereto, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing complied with
all applicable Federal and state securities laws, and no stockholder has a right
of rescission or claim for damages with respect thereto. The Company has
furnished or made available to the Purchasers true and correct copies of the
Company’s Articles of Incorporation as in effect on the date hereof (the
“Articles”), and the Company’s Bylaws as in effect on the date hereof (the
“Bylaws”). For the purposes of this Agreement, “Material Adverse Effect” means
any material adverse effect on the business, operations, properties, prospects,
or financial condition of the Company and its subsidiaries 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 obligations under this
Agreement in any material respect.
 
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(d)    Issuance of Shares. The Preferred Shares and the Warrants to be issued at
the Closing have been duly authorized by all necessary corporate action and the
Preferred Shares, when paid for or issued in accordance with the terms hereof,
shall be validly issued and outstanding, fully paid and nonassessable and, in
the case of the Preferred Shares, entitled to the rights and preferences set
forth in the Certificate of Designation. When the Conversion Shares and the
Warrant Shares are issued in accordance with the terms of the Certificate of
Designation and the Warrants, respectively, such shares will be duly authorized
by all necessary corporate action and validly issued and outstanding, fully paid
and nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock. Except as described in Schedule 2.1(d) hereto, the
issuance and sale of the Preferred Shares and the Warrants hereunder will not
obligate the Company to issue any shares of Common Stock , Preferred Stock or
other securities to any other Person (other than the Purchasers) and will not
result in the adjustment of the exercise, conversion, exchange or reset price of
any outstanding security of the Company.
 
(e)    No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the performance by the Company of its obligations
under the Certificate of Designation and the consummation by the Company of the
transactions contemplated herein and therein do not and will not (i) violate any
provision of the Company’s Articles or Bylaws, (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, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation 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 its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission or state securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto, and the Certificate
of Designation); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchasers herein.
 
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(f)    Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and, since October 31, 2004, the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the “Commission
Documents”). The Company has delivered or made available to each of the
Purchasers true and complete copies of the Commission Documents filed with the
Commission since April 30, 2004. The Company has not provided to the Purchasers
any material non-public information or other information which, according to
applicable law, rule or regulation, was required to have been disclosed publicly
by the Company but which has not been so disclosed, other than with respect to
the transactions contemplated by this Agreement and the information, if any,
disclosed on Schedule 2.1(i) hereto. At the times of their respective filings,
the Form 10-KSB and the Form 10-QSB complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and, as of their respective dates,
none of the Form 10-KSB and the Form 10-QSB contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Commission Documents comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
(“GAAP”) applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
subsidiaries as of 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).
 
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(g)    Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person’s ownership. For the purposes of this
Agreement, “subsidiary” shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
 
(h)    No Material Adverse Change. Except as disclosed in any Commission
Document, since December 31, 2004, the Company has not experienced or suffered
any Material Adverse Effect.
 
(i)     No Undisclosed Liabilities. Except as set forth on Schedule 2.1(i)
hereto or as disclosed in any Commission Document, neither the Company nor any
of its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company’s
or its subsidiaries respective businesses since December 31, 2004 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
 
(j)     No Undisclosed Events or Circumstances. Except as set forth on Schedule
2.1(j) hereto or as disclosed in any Commission Document, no event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.
 
(k)    Indebtedness. The Form 10-KSB, Form 10-QSB or Schedule 2.1(k) hereto sets
forth as of a recent date all outstanding secured and unsecured Indebtedness of
the Company or any subsidiary, or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $100,000 (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 $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth on Schedule 2.1(k),
neither the Company nor any subsidiary is in default with respect to any
Indebtedness.
 
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(l)     Title to Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the Form
10-KSB, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those disclosed in the Form 10-KSB,
Form 10-QSB or on Schedule 2.1(l) hereto or such that, individually or in the
aggregate, do not cause a Material Adverse Effect. All said leases of the
Company and each of its subsidiaries are valid and subsisting and in full force
and effect.
 
(m)    Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-KSB, Form
10-QSB or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary or any officers or
directors of the Company or subsidiary in their capacities as such.
 
(n)    Compliance with Law. The business of the Company and the subsidiaries has
been and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except as
set forth in the Form 10-KSB, Form 10-QSB, or such that, individually or in the
aggregate, do not cause a Material Adverse Effect. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
 
(o)    Taxes. The Company and each of the subsidiaries has accurately prepared
and filed all federal, state and other tax returns required by law to be filed
by it, has paid or made provisions for the payment of all taxes shown to be due
and all additional assessments, and adequate provisions have been and are
reflected in the financial statements of the Company and the subsidiaries for
all current taxes and other charges to which the Company or any subsidiary is
subject and which are not currently due and payable. None of the federal income
tax returns of the Company or any subsidiary have been audited by the Internal
Revenue Service. The Company has no knowledge of any additional assessments,
adjustments or contingent tax liability (whether federal or state) of any nature
whatsoever, whether pending or threatened against the Company or any subsidiary
for any period, nor of any basis for any such assessment, adjustment or
contingency.
 
(p)    Certain Fees. Except as set forth in this Agreement or on Schedule 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary or any Purchaser with respect to the
transactions contemplated by this Agreement.
 
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(q)    Disclosure. Neither this Agreement or the Schedules hereto nor any other
documents, certificates or instruments furnished to the Purchasers by or on
behalf of the Company or any subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
 
(r)    Operation of Business. The Company and each of the subsidiaries owns or
possesses all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Commission Documents
and on Schedule 2.1(r) hereto, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without any
conflict with the rights of others.
 
(s)    Environmental Compliance. The Company and each of its subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. The Form 10-KSB or Form 10-QSB describes all material permits, licenses
and other authorizations issued under any Environmental Laws to the Company or
its subsidiaries. “Environmental Laws” shall mean all applicable laws relating
to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
 
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(t)    Books and Record Internal Accounting Controls. The books and records of
the Company and its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
subsidiary. The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’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 actions is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company is made known to the certifying officers by others within those
entities, particularly during the period in which the Company's most recently
filed period report under the Exchange Act, as the case may be, is being
prepared. The Company's certifying officers have evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the most
recent periodic reporting period 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, except with
respect to the remediation of the material weakness in internal control over
financial reporting and the ineffectiveness of disclosure controls and
procedures as described in the Commission Documents, there have been no
significant changes in the Company's internal control over financial reporting
(as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) or, to
the Company's knowledge, in other factors that could significantly affect the
Company's internal control over financial reporting.
 
(u)    Material Agreements. Except as set forth in the Commission Documents or
on Schedule 2.1(u) hereto, neither the Company nor any subsidiary is a party to
any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to a registration statement on Form S-3 or applicable
form (collectively, “Material Agreements”) if the Company or any subsidiary were
registering securities under the Securities Act. Except as set forth on Schedule
2.1(u) or in the Commission Documents, the Company and each of its subsidiaries
has in all material respects performed all the obligations required to be
performed by them to date under the foregoing agreements, have received no
notice of default and are not in default under any Material Agreement now in
effect, the result of which could cause a Material Adverse Effect. All Material
Agreements are in full force and effect on the date hereof and except as
disclosed on Schedule 2.1(u) or set forth in the Commission Documents, the
Company has not received any notice of the intention of any party to terminate
any Material Agreement. Except as set forth on Schedule 2.1(u) or in the
Commission Documents, no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company’s Preferred
Shares, other Preferred Stock, if any, or its Common Stock.
 
(v)    Transactions with Affiliates. Except as set forth in the Commission
Documents or on Schedule 2.1(v) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company or any subsidiary on the one
hand, and (b) on the other hand, any officer, employee, consultant or director
of the Company, or any of its subsidiaries, or any person owning any capital
stock of the Company or any subsidiary or any member of the immediate family of
such officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
 
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(w)    Securities Act of 1933. Based in material part upon the representations
herein of the Purchasers, the Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares and the Warrants hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Shares, the Warrants or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any person, or
has taken or will take any action so as to bring the issuance and sale of any of
the Shares and the Warrants under the registration provisions of the Securities
Act and applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Shares and the Warrants.
 
(x)    Governmental Approvals. Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a Form D and a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designation with the Secretary of State for the State of Nevada,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations under
the Transaction Documents.
 
(y)    Employees. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y) hereto. Except
as set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y) hereto,
neither the Company nor any subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such subsidiary. Since
December 31, 2004 , no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
 
(z)    Absence of Certain Developments. Except as provided on Schedule 2.1(z)
hereto or as disclosed in the Commission Documents, since December 31, 2004,
neither the Company nor any subsidiary has:
 
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(i)     issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
 
(ii)    borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company’s or such subsidiary’s business;
 
(iii)   discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business;
 
(iv)   declared or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
 
(v)    sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business;
 
(vi)   sold, assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade secrets or other intangible assets or intellectual property
rights, or disclosed any proprietary confidential information to any person
except to customers in the ordinary course of business or to the Purchasers or
their representatives;
 
(vii)          suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
 
(viii)         made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
 
(ix)           made capital expenditures or commitments therefor that aggregate
in excess of $100,000;
 
(x)    entered into any other transaction other than in the ordinary course of
business, or entered into any other material transaction, whether or not in the
ordinary course of business;
 
(xi)   made charitable contributions or pledges in excess of $25,000;
 
(xii)          suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;

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(xiii)         experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
 
(xiv)         effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its subsidiaries; or
 
(xv)          entered into an agreement, written or otherwise, to take any of
the foregoing actions.
 
(aa)         Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a “holding company” or a “public utility company” as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an “investment company” or a company “controlled” by an “investment
company,” within the meaning of the Investment Company Act of 1940, as amended.
 
(bb)         ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its subsidiaries. The
execution and delivery of this Agreement and the issuance and sale of the
Preferred Shares will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity that
owns a beneficial interest in any of the Purchasers, is an “employee pension
benefit plan” (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a “party in interest” (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term “Plan” shall mean
an “employee pension benefit plan” (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
 
(cc)         Dilutive Effect. The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designation and its
obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interest of other stockholders of the Company.
 
(dd)         No Integrated Offering. 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 the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings. The Company does
not have any registration statement pending before the Commission or currently
under the Commission’s review and except as set forth on Schedule 2.1(dd)
hereto, since July 1, 2005, the Company has not offered or sold any of its
equity securities or debt securities convertible into shares of Common Stock.
 
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(ee)         Sarbanes-Oxley Act. The Company is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), and the rules and regulations promulgated thereunder, that are effective,
and intends to comply with other applicable provisions of the Sarbanes-Oxley
Act, and the rules and regulations promulgated thereunder, upon the
effectiveness of such provisions.
 
(ff)         Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that the
decision of each Purchaser to purchase Securities pursuant to this Agreement has
been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for the placement agent and
such counsel does not represent the Purchasers and the Purchasers have retained
their own individual counsel with respect to the transactions contemplated
hereby.  The Company acknowledges that it has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers. The
Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Purchasers are in any way
acting in concert or as a group with respect to the Transaction Documents or the
transactions contemplated hereby or thereby.
 
(gg)         DTC Status. The Company’s transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company’s transfer
agent is set forth on Schedule 2.1(gg) hereto.
 
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(hh)         Investment Company Act. The Company is not, and as a result of and
immediately upon the Closing will not be, an “investment company” or a company
controlled by an “investment company”, within the meaning of the Investment
Company Act of 1940, as amended.
 

Section 2.2    Representations, Warranties and Covenants of the Purchasers. Each
of the Purchasers hereby makes the following representations, warranties and
covenants to the Company with respect solely to itself and not with respect to
any other Purchaser:
 
(a)    Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
 
(b)    Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Preferred
Shares and Warrants being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, or partners, as the case may be, is required. Each
of this Agreement and the Registration Rights Agreement has been duly
authorized, executed and delivered by such Purchaser and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with the terms
thereof, 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, creditor’s rights and remedies or by other equitable principles of general
application.
 
(c)    No Conflicts. The execution, delivery and performance of this Agreement
and the Registration Rights Agreement and the consummation by such Purchaser of
the transactions contemplated hereby and thereby or relating hereto do not and
will not (i) result in a violation of such Purchaser’s charter documents or
bylaws or other organizational documents 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 or
obligation to which such Purchaser is a party or by which its properties or
assets are bound, 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
such Purchaser 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 Purchaser). Such Purchaser 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 its obligations under this Agreement or the Registration Rights Agreement or
to purchase the Preferred Shares or acquire the Warrants in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
 
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(d)    Acquisition for Investment. Each Purchaser is acquiring the Preferred
Shares and the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Each
Purchaser does not have a present intention to sell the Preferred Shares or the
Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; provided, however, that by making the
representations herein and subject to Section 2.2(h) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants 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 and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company’s stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company.
 
(e)    Status of Purchasers. Such Purchaser is an “accredited investor” as
defined in Regulation D promulgated under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act and such Purchaser is not a broker-dealer.
 
(f)    Opportunities for Additional Information. Each Purchaser acknowledges
that such Purchaser has had the opportunity to ask questions of and receive
answers from, or obtain additional information from, the executive officers of
the Company concerning the financial and other affairs of the Company, and to
the extent deemed necessary in light of such Purchaser’s personal knowledge of
the Company’s affairs, such Purchaser has asked such questions and received
answers to the full satisfaction of such Purchaser, and such Purchaser desires
to invest in the Company. Neither such inquiries nor any other due diligence
investigation conducted by the Purchasers shall modify, amend or affect the
Purchasers’ right to rely on the Company’s representations and warranties
contained in this Agreement.
 
(g)    No General Solicitation. Each Purchaser acknowledges that the Preferred
Shares and the Warrants were not offered to such Purchaser by means of any form
of general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio, or
(ii) any seminar or meeting to which such Purchaser was invited by any of the
foregoing means of communications.
 
(h)    Rule 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
 
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(i)     General. Such Purchaser understands that the Shares are being offered
and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
 
(j)     Independent Investment. Except as may be disclosed in any filings with
the Commission by the Purchasers under Section 13 and/or Section 16 of the
Exchange Act, no Purchaser has agreed to act with any other Purchaser for the
purpose of acquiring, holding, voting or disposing of the Shares purchased
hereunder for purposes of Section 13(d) under the Exchange Act, and each
Purchaser is acting independently with respect to its investment in the Shares.
 
(k)    Short Sales. Each Purchaser covenants that neither it nor any affiliates
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales (as defined below) during the period after the date that such
Purchaser first received a term sheet from the Company or any other person or
entity setting forth the material terms of the transactions contemplated
hereunder until the date that the transactions contemplated by this Agreement
are first publicly announced as described in Section 3.16 hereof. For purposes
hereof, “Short Sales” shall include all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act.
 
(l)     Confidentiality. The Purchaser agrees that it will not disclose, and
will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
 
 
ARTICLE III
 
COVENANTS
 
The Company covenants with each of the Purchasers as follows, which covenants
are for the benefit of the Purchasers and their permitted assignees (as defined
herein).
 
Section 3.1    Securities Compliance. The Company shall notify the Commission in
accordance with their rules and regulations, of the transactions contemplated by
any of the Transaction Documents, including filing a Form D with respect to the
Preferred Shares, Warrants, Conversion Shares and Warrant Shares as required
under Regulation D, and shall take all other necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares to the Purchasers or subsequent holders. 
 
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Section 3.2    Registration and Listing. The Company will cause its Common Stock
to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the OTC Bulletin Board or other exchange or
market on which the Common Stock is trading. 
 
Section 3.3    Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than two percent (2%) of the total combined voting
power of all voting securities then outstanding, for purposes reasonably related
to such Purchaser’s interests as a stockholder to examine and make reasonable
copies of and extracts from the records and books of account of, and visit and
inspect the properties, assets, operations and business of the Company and any
subsidiary (but only to the extent not contractually required of the Company or
any subsidiary to be kept confidential), and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees. 
 
Section 3.4    Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
the noncompliance of which could have a Material Adverse Effect.
 
Section 3.5    Keeping of Records and Books of Account. The Company shall keep
and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
 
Section 3.6    Reporting Requirements. If the Commission ceases making periodic
reports filed under Section 13 of the Exchange Act available via the Internet,
then at a Purchaser’s request the Company shall furnish the following to such
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Preferred Shares or shall beneficially own any Preferred Shares, or shall own
Conversion Shares which, in the aggregate, represent more than 2% of the total
combined voting power of all voting securities then outstanding:
 
(a)    Quarterly Reports filed with the Commission on Form 10-QSB as soon as
practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission;
 
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(b)    Annual Reports filed with the Commission on Form 10-KSB as soon as
practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and
 
(c)    Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
 
Section 3.7    Amendments. The Company shall not, without the prior written
consent of the holders of at least seventy-five percent (75%) of the Preferred
Shares then outstanding, amend or waive any provision of the Articles or Bylaws
of the Company in any way that would adversely affect the liquidation
preferences, dividends rights, conversion rights, voting rights or redemption
rights of the Preferred Shares; provided, however, that any creation and
issuance of another series of Junior Stock (as defined in the Certificate of
Designation) or any other class or series of equity securities which by its
terms shall rank on parity with the Preferred Shares shall not be deemed to
materially and adversely affect such rights, preferences or privileges.
 
Section 3.8    Other Agreements; Amendments. The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document; provided, however, that the foregoing clause shall in no
way restrict the Company from entering into any senior secured financing
agreement or instrument with Laurus Master Fund, Ltd. (“Laurus”), including
without limitation, any supplement or modification to, or amendment or
substitution of, the Company’s existing credit facility with Laurus (a “Laurus
Facility”). The Company shall not amend or waive any provision of the Articles
or Bylaws of the Company in any way that would adversely affect the exercise
rights, voting rights, conversion rights or redemption rights of the holders of
the Preferred Shares.
 
Section 3.9    Intentionally Omitted.
 
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Section 3.10   Status of Dividends. The Company covenants and agrees that (i) no
Federal income tax return or claim for refund of Federal income tax or other
submission to the Internal Revenue Service will adversely affect the Preferred
Shares, any other series of its Preferred Stock, or the Common Stock, and any
deduction shall not operate to jeopardize the availability to Purchasers of the
dividends received deduction provided by Section 243(a)(1) of the Code or any
successor provision, (ii) in no report to shareholders or to any governmental
body having jurisdiction over the Company or otherwise will it treat the
Preferred Shares other than as equity capital or the dividends paid thereon
other than as dividends paid on equity capital unless required to do so by a
governmental body having jurisdiction over the accounts of the Company or by a
change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company’s current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as “Convertible
Preferred Stock” in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends paid
by the Company on the Preferred Shares out of the Company’s current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers’ expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes, or
(ii) in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.
 
Section 3.11   Use of Proceeds. The net proceeds from the sale of the Preferred
Shares will be used by the Company for working capital and general corporate
purposes and not to redeem any Common Stock or securities convertible,
exercisable or exchangeable into Common Stock or to settle any outstanding
litigation except as set forth on Schedule 2.1(m); provided, however, that
nothing in this Section 3.11 shall prohibit the Company from using all or a
portion of the net proceeds for the acquisitions of assets or capital stock of
any other entity. 
 
Section 3.12    Reservation of Shares. So long as any of the Preferred Shares or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, no less
than one hundred ten percent (110%) the aggregate number of shares of Common
Stock needed to provide for the issuance of the Conversion Shares and the
Warrant Shares.
 
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Section 3.13   Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of each Purchaser or its respective
nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by each Purchaser to the Company upon conversion of
the Preferred Shares or exercise of the Warrants in the form of Exhibit F
attached hereto (the “Irrevocable Transfer Agent Instructions”). All such
certificates shall bear the restrictive legend specified in Section 5.1 of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 3.13 will be given by
the Company to its transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 3.13 shall affect in any way each Purchaser’s obligations and
agreements set forth in Section 5.1 to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Shares. If, prior to the
registration statement covering the Shares being declared effective, a Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Shares may be
made without registration under the Securities Act or a Purchaser provides the
Company with reasonable assurances that the Shares can be sold pursuant to Rule
144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.13 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.13 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.13, that the Purchasers shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
 
Section 3.14   Disposition of Assets. So long as at least thirty-five percent
(35%) of the original Liquidation Preference Amount of the Preferred Shares
remain outstanding, neither the Company nor any Subsidiary shall sell, transfer
or otherwise dispose of any of its properties, assets and rights including,
without limitation, its software and intellectual property, to any person except
for sales to customers in the ordinary course of business or with the prior
written consent of the holders of a majority of the Preferred Shares then
outstanding. Notwithstanding the foregoing sentence, no consent of the
Purchasers shall be required with respect to any such sale, transfer or other
disposition by the Company or any Subsidiary if such sale, transfer or other
disposition is made pursuant to an exercise by Laurus of any of its rights, or
the performance by the Company or any Subsidiary of any their respective
obligations, under a Laurus Facility.
 
Section 3.15   Reporting Status. So long as a Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the Commission pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
 
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Section 3.16   Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the “Press Release”) as soon as practicable after the Closing but in no event
later than one hour after the Closing; provided, however, that if the Closing
occurs after 4:00 P.M. Eastern Time on any Trading Day, the Company shall issue
the Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. The Company shall also file with the Commission a
Current Report on Form 8-K (the “Form 8-K”) describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Registration Rights Agreement, the Certificate of Designation,
the form of each Warrant and the Press Release) as soon as practicable following
the Closing Date but in no event more than two (2) Trading Days following the
Closing Date, which Press Release and Form 8-K shall be subject to prior review
and comment by counsel to the placement agent. "Trading Day" means any day
during which the OTC Bulletin Board (or other principal exchange on which the
Common Stock is traded) shall be open for trading. 
 
Section 3.17   Disclosure of Material Information. The Company covenants and
agrees that neither it nor any other person acting on its behalf has provided or
will provide any Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
to disclosure of such information the Company identifies such information as
being material, non-public information and provides the Purchasers or their
respective agents or counsel, as applicable, with the opportunity to accept or
refuse to accept such material, non-public information for review and any
Purchaser wishing to obtain such information shall have executed a written
agreement regarding the confidentiality and use of such information.  The
Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company. It is expressly agreed by each Purchaser that any disclosure made to
such Purchaser pursuant to the covenants of the Company hereunder or under any
other Transaction Document shall not be deemed a breach of the provisions of
this Section 3.17.
 
Section 3.18   Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Common Stock. The pledge of Common Stock shall not be deemed to be a transfer,
sale or assignment of the Common Stock hereunder, and no Purchaser effecting a
pledge of Common Stock shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Common Stock to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Common Stock may reasonably request in
connection with a pledge of the Common Stock to such pledgee by a Purchaser.
 
Section 3.19   Form SB-2 Eligibility. The Company currently meets, and will take
all necessary action to continue to meet, the "registrant eligibility" and
transaction requirements set forth in the general instructions to Form SB-2
applicable to "resale" registrations on Form SB-2 during the Effectiveness
Period (as defined in the Registration Rights Agreement) and the Company shall
file all reports required to be filed by the Company with the Commission in a
timely manner so as to maintain such eligibility for the use of Form SB-2.
 
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Section 3.20   Intentionally Omitted.
 
Section 3.2    Future Financings; Right of First Offer and Refusal. 
 
(a)    For a period of one (1) year following the Closing Date, the Company
covenants and agrees to promptly notify (in no event later than five (5) Trading
Days after making or receiving an applicable offer) in writing (a "Rights
Notice") the Purchasers of the terms and conditions of any proposed offer or
sale to, or exchange with (or other type of distribution to) any third party (a
“Subsequent Financing”), of Common Stock or any securities convertible,
exercisable or exchangeable into Common Stock, including convertible debt
securities (collectively, the "Financing Securities"). The Rights Notice shall
describe, in reasonable detail, the proposed Subsequent Financing, the names and
investment amounts of all investors participating in the Subsequent Financing,
the proposed closing date of the Subsequent Financing, which shall be within
twenty (20) calendar days from the date of the Rights Notice, and all of the
terms and conditions thereof and proposed definitive documentation to be entered
into in connection therewith. The Rights Notice shall provide each Purchaser an
option (the “Rights Option”) during the seven (7) Trading Days following
delivery of the Rights Notice (the “Option Period”) to inform the Company
whether such Purchaser will purchase up to its pro rata portion of the
securities being offered in such Subsequent Financing on the same, absolute
terms and conditions as contemplated by such Subsequent Financing. Each
Purchaser shall have an additional three (3) Trading Days to fund the purchase
of the securities being offered in such Subsequent Financing. If any Purchaser
elects not to participate in such Subsequent Financing, the other participating
Purchasers may participate in such non-participating Purchaser’s share on a
pro-rata basis so long as, with respect to any such participating Purchaser,
such participation in the aggregate does not exceed the total Purchase Price of
such participating Purchasers hereunder. For purposes of this Section, all
references to “pro rata” means, for any Purchaser electing to participate in
such Subsequent Financing, the percentage obtained by dividing (x) the total
number of Preferred Shares purchased by such Purchaser at the Closing by (y) the
total number of Preferred Shares purchased by all of the participating
Purchasers at the Closing. Delivery of any Rights Notice constitutes a
representation and warranty by the Company that there are no other material
terms and conditions, arrangements, agreements or otherwise except for those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional compensation based on changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party;
provided that all of the material terms and conditions of the closing are
substantially the same as those provided to the Purchasers in the Rights Notice.
If the closing of the proposed Subsequent Financing does not occur within
fifteen (15) days following that date, any closing of the contemplated
Subsequent Financing or any other Subsequent Financing shall be subject to all
of the provisions of this Section 3.21(a), including, without limitation, the
delivery of a new Rights Notice. The provisions of this Section 3.21(a) shall
not apply to issuances of securities in a Permitted Financing.
 
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(b)    Notwithstanding anything to the contrary contained in this Section
3.21(a), to the extent that the Financing Securities are secured debt
securities, the terms and conditions of this Section 3.21(a) shall be subject to
and subordinate to any right of first refusal of Laurus under any Laurus
Facility with respect to such secured debt securities (a “Laurus Senior Right of
First Refusal”). For so long as Laurus has a Laurus Senior Right of First
Refusal, paragraph (a) above shall be modified to provide that the Company shall
deliver the Rights Notice described in paragraph (a) above to the Purchasers not
later than five (5) Trading Days after the earlier of the (i) the expiration
date of Laurus’s option period to exercise the Laurus Senior Right of First
Refusal or (ii) the date on which Laurus provides notice to the Company of
Laurus’ waiver of the Laurus Senior Right of First Refusal. 
 
(c)    For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company’s securities
generating gross proceeds to the Company of not less than $20 million in which
the price per share is at least $4.00 (subject to appropriate adjustment in the
event of any stock dividend, stock split, stock distribution or combination with
respect to the Common Stock), (iii) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities issued or outstanding on or
prior to the date hereof or issued pursuant to this Agreement and the
Certificate of Designation, (iv) the Warrant Shares, (v) securities issued in
connection with bona fide strategic license agreements or other partnering
arrangements so long as such issuances are not for the primary purpose of
raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company’s stock option plans as they now exist
and employee stock purchase plans as they now exist, (vii) any warrants or
shares of Common Stock issuable upon exercise of such warrants issued to the
placement agent and its designees for the transactions contemplated by this
Agreement and (viii) the payment of any dividends in shares of Common Stock
pursuant to the Certificate of Designation.
 
(d)    For a period of two (2) years following the Closing Date, if the Company
enters into any Subsequent Financing having material terms more favorable than
the material terms governing the Preferred Shares, then the Purchasers shall
have the right to benefit from such more favorable terms or, in their sole
discretion, may exchange the Preferred Shares, valued at the Liquidation
Preference Amount (as defined in the Certificate of Designation), together with
accrued but unpaid dividends (which dividend payments shall be payable, at the
sole option of the Purchasers, in cash or in the form of the new securities to
be issued in the Subsequent Financing), for the securities issued or to be
issued in the Subsequent Financing. The Company covenants and agrees to promptly
notify in writing the Purchasers of the terms and conditions of any such
proposed Subsequent Financing. The provisions of this Section 3.21(c) shall not
apply to issuances of securities in a Permitted Financing or the issuance of
secured debt securities issued to Laurus pursuant to an exercise of a Laurus
Senior Right of First Refusal.
 
ARTICLE IV 

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CONDITIONS

Section 4.1    Conditions Precedent to the Obligation of the Company to Sell the
Shares. The obligation hereunder of the Company to issue and sell the Preferred
Shares and the Warrants to the Purchasers is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion.
 
(a)    Accuracy of Each Purchaser’s Representations and Warranties. The
representations and warranties of each Purchaser in this Agreement shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for (i) representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date and (ii) representations
and warranties qualified as to materiality which shall be true and correct in
all respects as of the date when made and as of the Closing Date.
 
(b)    Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
 
(c)    No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
 
(d)    Delivery of Purchase Price. The Purchase Price for the Preferred Shares
and Warrants has been delivered to the Escrow Agent by each Purchaser at the
Closing Date.
 
(e)    Delivery of Transaction Documents. The Transaction Documents shall have
been duly executed and delivered by the Purchasers and, with respect to the
Escrow Agreement, the escrow agent, to the Company.
 
Section 4.2    Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser’s sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
 
(a)    Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all material respects as of
such date.
 
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(b)    Performance by the Company. The Company shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing.
 
(c)    No Suspension, Etc. Trading in the Company’s Common Stock shall not have
been suspended by the Commission or the OTC Bulletin Board, and, at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets (“Bloomberg”) shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities.
 
(d)    No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
 
(e)    No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
 
(f)    Certificate of Designation of Rights and Preferences. Prior to the
Closing, the Certificate of Designation in the form of Exhibit C attached hereto
shall have been filed with the Secretary of State of Nevada.
 
(g)    Opinion of Counsel, Etc. At the Closing, the Purchasers shall have
received an opinion of counsel to the Company, dated the date of the Closing, in
the form of Exhibit G hereto, and such other certificates and documents as the
Purchasers or its counsel shall reasonably require incident to the Closing.
 
(h)    Registration Rights Agreement. At the Closing, the Company shall have
executed and delivered the Registration Rights Agreement to each Purchaser.
 
(i)     Certificates. The Company shall have executed and delivered to the
Purchasers the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and Warrants being acquired by such Purchaser
at the Closing (in such denominations as such Purchaser shall request).
 
(j)     Resolutions. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to such Purchaser (the "Resolutions").
 
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(k)    Reservation of Shares. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of the
Warrants, a number of shares of Common Stock equal to one hundred ten percent
(110%) of the aggregate number of Conversion Shares issuable upon conversion of
the Preferred Shares and Warrant Shares issuable upon exercise of the Warrants.
 
(l)     Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.
 
(m)    Escrow Agreement. At the Closing, the Company and the escrow agent shall
have executed and delivered the Escrow Agreement to each Purchaser.
 
(n)    Secretary’s Certificate. The Company shall have delivered to such
Purchaser a secretary’s certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Closing, and (v) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
 
(o)    Officer’s Certificate. The Company shall have delivered to the Purchasers
a certificate of an executive officer of the Company, dated as of the Closing
Date, confirming the accuracy of the Company’s representations, warranties and
covenants as of such Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.2 as of the Closing
Date.
 
(p)    Material Adverse Effect. No Material Adverse Effect shall have occurred
at or before the Closing Date.
 
 
ARTICLE V
 
STOCK CERTIFICATE LEGEND

Section 5.1    Legend. Each certificate representing the Preferred Shares and
the Warrants, and, if appropriate, securities issued upon conversion thereof,
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or “blue sky” laws):
 
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR IMPART MEDIA GROUP, INC. SHALL HAVE RECEIVED AN OPINION
OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

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The Company agrees to reissue certificates representing any of the Conversion
Shares and the Warrant Shares, without the legend set forth above if at such
time, prior to making any transfer of any such securities, such holder thereof
shall give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares or the Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and has
become effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act.
The Company will respond to any such notice from a holder within three (3)
business days. In the case of any proposed transfer under this Section 5.1, the
Company will use reasonable efforts to comply with any such applicable state
securities or "blue sky" laws, but shall in no event be required, (x) to qualify
to do business in any state where it is not then qualified, (y) to take any
action that would subject it to tax or to the general service of process in any
state where it is not then subject, or (z) to comply with state securities or
“blue sky” laws of any state for which registration by coordination is
unavailable to the Company. The restrictions on transfer contained in this
Section 5.1 shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this Agreement.
Whenever a certificate representing the Conversion Shares or Warrant Shares is
required to be issued to a Purchaser without a legend, in lieu of delivering
physical certificates representing the Conversion Shares or Warrant Shares
(provided that a registration statement under the Securities Act providing for
the resale of the Warrant Shares and Conversion Shares is then in effect and
such Purchaser complies with all applicable securities laws in connection with
the sale, including, without limitation, the prospectus delivery requirements),
the Company shall cause its transfer agent to electronically transmit the
Conversion Shares or Warrant Shares to a Purchaser by crediting the account of
such Purchaser's Prime Broker with the Depository Trust Company through its
Deposit Withdrawal Agent Commission system (to the extent not inconsistent with
any provisions of this Agreement).
 
ARTICLE VI
 
INDEMNIFICATION

Section 6.1    General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein.
 
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Section 6.2    Indemnification Procedure. Any party entitled to indemnification
under this Article VI (an “indemnified party”) will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VI except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the indemnified party a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. In the event that the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party’s
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VI to the contrary, the indemnifying
party shall not, without the indemnified party’s prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.
 
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ARTICLE VII
 
MISCELLANEOUS

Section 7.1    Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, 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, provided that the Company shall pay all actual attorneys' fees
and expenses (including disbursements and out-of-pocket expenses) incurred by
the Purchasers in connection with (i) the preparation, negotiation, execution
and delivery of this Agreement, the Certificate of Designation, the Warrants,
the Registration Rights Agreement and the transactions contemplated thereunder,
which payment shall be made at Closing (unless this Agreement is terminated in
accordance with its terms, in which case such payment shall be made upon
termination of this Agreement) and shall not exceed $17,500, (ii) the filing and
declaration of effectiveness by the Commission of the Registration Statement (as
defined in the Registration Rights Agreement) and (iii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with the enforcement of this Agreement
or any of the other Transaction Documents, including, without limitation, all
reasonable attorneys' fees and expenses. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the
Preferred Shares pursuant hereto. The Company shall also pay all actual
attorneys' fees and expenses (including disbursements and out-of-pocket
expenses) of Lowenstein Sandler P.C. incurred by Enable Capital Management,
which payment shall be made at Closing (unless this Agreement is terminated in
accordance with its terms, in which case such payment shall be made upon
termination of this Agreement) and shall not exceed $10,000.
 
Section 7.2    Specific Enforcement, Consent to Jurisdiction. 
 
(a)    The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that certain of the provisions of this
Agreement, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
 
(b)    Each of the Company and the Purchasers (i) hereby irrevocably submits to
the jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof 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 in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted
by law.
 
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Section 7.3    Entire Agreement; Amendment. This Agreement and the Transaction
Documents contains the entire understanding and agreement of the parties with
respect to the matters covered hereby and, except as specifically set forth
herein or in the Transaction Documents or the Certificate of Designation,
neither the Company nor any of the Purchasers makes any representations,
warranty, covenant or undertaking with respect to such matters and they
supersede all prior understandings and agreements with respect to said subject
matter, all of which are merged herein. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the Company and
the holders of at least seventy-five percent (75%) of the Preferred Shares then
outstanding, and no provision hereof may be waived other than by an a written
instrument signed by the Company in instances when enforcement of any such
amendment or waiver is sought against the Company and by the holders of at least
seventy-five percent (75%) of the Preferred Shares then outstanding in instances
when enforcement of any such amendment or waiver is sought against the
Purchasers. No such amendment shall be effective to the extent that it applies
to less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents or
the Certificate of Designation unless the same consideration is also offered to
all of the parties to the Transaction Documents or holders of Preferred Shares,
as the case may be.
 
Section 7.4    Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
 
If to the Company:
 
Impart Media Group, Inc.
1300 North Northlake Way
Seattle, Washington 98103
Attention: Chief Executive Officer
Tel. No.: (206) 633-1852
Fax No.: (206) 633-2768
     
with copies (which shall not constitute notice) to:
 
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue, 10th Floor
New York, New York 10022
Attention: Eric M. Hellige
Tel. No.: (212) 326-0846
Fax No.: (212) 326-0806

 
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If to any Purchaser:
 
At the address of such Purchaser set forth on Exhibit A to this Agreement, with
copies to Purchaser’s counsel as set forth on Exhibit A or as specified in
writing by such:
     
with copies (which shall not constitute notice) to:
 
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel No.: (212) 715-9100
Fax No.: (212) 715-8000

 
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days written notice of such changed address to the other party
hereto.
 
Section 7.5    Waivers. No waiver by either party 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 other provisions, 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 accruing
to it thereafter.
 
Section 7.6    Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
 
Section 7.7    Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.  This Agreement may not be assigned by a party hereto without the prior
written consent of the Company or the Purchasers, as applicable; provided,
however, that a Purchaser may assign its rights and delegate its duties
hereunder in whole or in part to an affiliate of such Purchaser which shall be
an “accredited investor” as defined in Rule 501(a) of Regulation D, as amended,
under the Securities Act, and which shall agree in writing to be bound by the
terms and conditions of this Agreement.
 
Section 7.8    No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
 
Section 7.9    Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.
 
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Section 7.10   Survival. The representations and warranties of the Company and
the Purchasers contained in Article II shall survive the execution and delivery
hereof and the Closing until the date two (2) years from the Closing Date, and
the agreements and covenants set forth in Articles I, III, VI and VII of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder until the Purchasers in the aggregate beneficially own (determined in
accordance with Rule 13d-3 under the Exchange Act) less than 10% of the total
combined voting power of all voting securities then outstanding, provided, that
Sections 3.1, 3.2, 3.4, 3.5, 3.8, 3.9, 3.10, 3.12, 3.13, 3.14, 3.15. 3.17, 3.18,
3.19, 3.20 and 3.21 shall not expire until the Registration Statement required
by Section 2 of the Registration Rights Agreement is no longer required to be
effective under the terms and conditions of Registration Rights Agreement (or,
in the case of any of the foregoing Sections which pertain to the Preferred
Shares and/or the Warrants, then such Sections shall expire once there are no
further Preferred Shares or Warrants outstanding, as applicable) (the “Survival
Period”). Expiration of the Survival Period shall not affect the rights of any
Purchaser under Article VI hereof in respect of any specific claim for
indemnification made in writing by such Purchaser and received by the Company
prior to such expiration.
 
Section 7.11   Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
 
Section 7.12   Publicity. The Company agrees that it will not disclose, and will
not include in any public announcement, the name of the Purchasers without the
consent of the Purchasers unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
 
Section 7.13   Severability. The provisions of this Agreement, the Certificate
of Designation and the Registration Rights Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or
more of the provisions or part of the provisions contained in this Agreement,
the Certificate of Designation or the Registration Rights Agreement shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement, the Certificate of Designation or the
Registration Rights Agreement shall be reformed and construed as if such invalid
or illegal or unenforceable provision, or part of such provision, had never been
contained herein, so that such provisions would be valid, legal and enforceable
to the maximum extent possible.
 
Section 7.14   Further Assurances. From and after the date of this Agreement,
upon the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Preferred
Shares, the Conversion Shares, the Warrants, the Warrant Shares, the Certificate
of Designation, and the Registration Rights Agreement.
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
 
 

 
IMPART MEDIA GROUP, INC.
         
By: /s/Joseph Martinez
 
Name: Joseph Martinez
 
Title: Chief Financial Officer
         
PURCHASER:
     
Enable Growth Partners LP
         
By: /s/Brendan O’Neil
 
Name: Brendan O’Neil
 
Title: Principal and Portfolio Manager
     
Enable Opportunity Partners LP
         
By: /s/Brendan O’Neil
 
Name: Brendan O’Neil
 
Title: Principal and Portfolio Manager
         
Pierce Diversified Strategy Master Fund LLC
         
By: /s/Brendan O’Neil
 
Name: Brendan O’Neil
 
Title: Principal and Portfolio Manager

 
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Gryphon Master Fund, L.P.
         
By:/s/E.B. Lyon, IV
 
Name: E.B. Lyon, IV
 
Title: Authorized Agent
         
GSSF Master Fund, LP
         
By: /s/E.B. Lyon, IV
 
Name: E.B. Lyon, IV
 
Title: Authorized Agent
         
Hudson Bay Fund LP
         
By: /s/Yoav Roth
 
Name: Yoav Roth
 
Title: Portfolio Manager

 
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