Exhibit 10.1

INVESTMENT AGREEMENT

THIS INVESTMENT AGREEMENT (the “Agreement”) is dated as of January 13, 2006, by
and between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
“Buyer”) and TRANSAX INTERNATIONAL, LTD., a corporation organized and existing
under the laws of the state of Colorado (the “Company”).

Recitals:

WHEREAS, the Company and the Buyer are executing and delivering this Agreement
in reliance upon an exemption from securities registration pursuant to Section
4(2) or Rule 506 of Regulation D (“Regulation D”) as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “Securities Act”);

WHEREAS, the Company has authorized the designation of that certain series A
convertible preferred stock, no par value per share (the "Series A Preferred
Shares"), which shall be convertible into shares of the Company’s Common Stock,
par value $.00001 per share (the "Common Stock"), in accordance with the terms
of the Company’s Certificate of Designations of the Series A Preferred Stock of
Transax International, Ltd. attached hereto as Exhibit A (the "Certificate of
Designations");

WHEREAS, the Company has issued to the Buyer and the Buyer has purchased from
the Company a 12% Promissory Note dated May 17, 2005 with a principal balance of
$255,237 (the “Promissory Note”). The Buyer will surrender the Promissory Note
for conversion into the shares of Series A Preferred Shares and purchase
additional shares of Series A Preferred Shares as set forth below;

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Buyer, as provided
herein, and the Buyer shall purchase up to Sixteen Thousand (16,000) shares of
Series A Preferred Shares which shall be convertible into shares of Common Stock
(as converted, the “Conversion Shares”) for a purchase price of One Hundred
Dollars ($100) per share, of which the purchase of Eight Thousand (8,000) shares
of Series A Preferred Shares for a purchase price of Eight Hundred ($800,000)
(which is comprised of $255,237 consisting solely of the surrender of the
Promissory Note and $544,763 consisting of new funding) shall close within two
(2) business days following the date hereof (the “First Closing”), and the
purchase of Eight Thousand (8,000) shares of Series A Preferred Shares for a
purchase price of Eight Hundred Thousand Dollars ($800,000) shall close (2)
business days prior to the date the registration statement (the “Registration
Statement”) is filed, pursuant to the Investor Registration Rights Agreement (as
defined below), with the United States Securities and Exchange Commission (the
“SEC”) (the “Second Closing”) (individually referred to as a “Closing”
collectively referred to as the “Closings”) for a total of Sixteen Thousand
(16,000) shares of Series A Preferred Shares for an aggregate purchase price of
One Million Six Hundred Thousand Dollars ($1,600,000), (the “Purchase Price”);

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering an Investor Registration Rights
Agreement (the “Investor Registration Rights Agreement”) pursuant to which the
Company has agreed to

 

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provide certain registration rights under the Securities Act and the rules and
regulations promulgated there under, and applicable state securities laws;

WHEREAS, the aggregate proceeds of the sale of the Series A Preferred Shares
contemplated hereby shall be held in escrow pursuant to the terms of an Escrow
Agreement (the “Escrow Agreement”); and

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering Irrevocable Transfer Agent
Instructions (the “Irrevocable Transfer Agent Instructions”).

NOW, THEREFORE, in consideration of the mutual premises herein set forth and
certain other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:

 

Article I.

ISSUANCE OF SHARES AND RELATED TRANSACTIONS.

Section 1.01.  Purchase Price. The Purchase Price for the Series A Preferred
Shares shall be paid to the Company in immediately available funds on each
Closing Date (as set forth in Section 1.02 hereof.

Section 1.02.  Closing. The parties to this Agreement shall consummate the
transactions contemplated by this Agreement and the Company shall issue and sell
to the Buyer, as provided herein, and the Buyer shall purchase up to Sixteen
Thousand (16,000) shares of Series A Preferred Shares, which shall have the
right and designations set forth on the Certificate of Designations. The First
Closing of the purchase and sale of Eight Thousand (8,000) shares of the Series
A Preferred Shares shall take place within two (2) business days following the
date hereof, (or such other date as is mutually agreed to by the Company and the
Buyer) (the “First Closing Date”), and the Second Closing of the purchase and
sale of Eight Thousand (8,000) shares of the Series A Preferred Shares shall
take place two (2) business days prior to the date the Registration Statement is
filed with the SEC, (or such other date as is mutually agreed to by the Company
and the Buyer) (the “Second Closing Date”) (collectively referred to as the
“Closing Dates”); provided, in no event shall a Closing occur prior to the
satisfaction of the conditions precedent set forth in Sections 8, 9 and 10
hereof. The Closings shall take place at the offices of The Buyer or at such
other place as may be mutually agreed upon by the Buyer and the Company. At each
Closing, the Company shall deliver to the Buyer certificates representing the
shares of Series A Preferred Shares purchased.

Section 1.03.  Issuance of Shares. At each Closing, subject to the terms,
restrictions and conditions of this Agreement, the Buyer shall acquire, and the
Company shall sell, issue and deliver to the Buyer shares of Series A Preferred
Shares, which shall have the right and designations set forth on the Certificate
of Designations. All of the Series A Preferred Shares and the Conversion Shares
into which such the Series A Preferred Shares are convertible shall be free and
clear of all liens, claims, pledges, mortgages, restrictions, obligations,
security interests and encumbrances of any kind, nature and description
(collectively, “Encumbrances”).

Section 1.04.   Escrow Arrangement. Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Dates, (i) the Escrow Agent shall
deliver to the Company in accordance with the terms of the Escrow Agreement such
aggregate proceeds for

 

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the Series A Preferred Shares to be issued and sold to the Buyer, minus any
unpaid fees described in Section 14.09 hereof which shall be paid directly from
the gross proceeds held in escrow, (ii) the Buyer shall surrender to the Company
the Promissory Note consisting of a portion of the Purchase Price, and (iii) the
Company shall deliver to the Buyer the shares of Series A Preferred Shares which
the Buyer is purchasing.

 

Article II.

ADDITIONAL AGREEMENTS.

Section 2.01.   Transaction Documents.    Collectively this Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions shall be referred to as the “Transaction Documents.”

 

Article III.

COVENANTS.

Section 3.01.  Access and Inspection, Etc. The Company shall allow the Buyer and
its authorized representatives full access during normal business hours from and
after the date hereof and prior to the Closing Date to all of the properties,
books, contracts, commitments and records of the Company (collectively, the
“Records”) for the purpose of making such investigations as the Buyer may
reasonably request in connection with the transactions contemplated hereby, and
shall cause the Company to furnish the Buyer such information concerning its
affairs as the Buyer may reasonably request provided, however, that the Buyer
and its authorized representative shall agree to hold in strict confidence and
shall not make any disclosure or use any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Buyer or its authorized representatives are so notified, unless (i) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (ii) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Buyer has knowledge. The Company has caused and shall cause its personnel to
assist the Buyer in making such investigation and shall use their best efforts
to cause the counsel, accountants, engineers and other non-employee
representatives of the Company to be reasonably available to Buyer for such
purposes.

Section 3.02.   Public Announcements. The parties will consult with each other
before issuing any press releases or otherwise making any public statement with
respect to this Agreement or any of the transactions contemplated hereby and no
party will issue any such press release or make any such public statement
without the prior written consent of the other parties, except as may be
required by law or by the rules and regulations of any governmental authority or
securities exchange.

Section 3.03.   Best Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties shall use its best efforts in good faith to
take or cause to be taken as promptly as practicable all reasonable actions that
are within its power to cause to be fulfilled those conditions precedent to its
obligations or the obligations of the other parties to consummate the
transactions contemplated by this Agreement and the Transaction Documents that
are dependent upon its actions.  

 

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Section 3.04.   Use of Proceeds.         The Company covenants to the Buyer that
the net proceeds to be received by the Company in this transaction shall be used
for general corporate and working capital purposes, and for the repayment of
debts owed to the Buyer.

Section 3.05.  Further Assurances. The parties shall deliver any and all other
instruments or documents required to be delivered pursuant to, or necessary or
proper in order to give effect to, the provisions of this Agreement, including,
without limitation, to issue the Series A Preferred Shares and to consummate the
transactions contemplated by this Agreement and the Transaction Documents.

Section 3.06.  Rights of First Refusal. For a period of 18 months from the date
hereof, if the Company intends to raise additional capital by the issuance or
sale of capital stock of the Company, including without limitation shares of any
class of common stock, any class of preferred stock, options, warrants or any
other securities convertible or exercisable into shares of common stock (whether
the offering is conducted by the Company, underwriter, placement agent or any
third party) the Company shall be obligated to offer to the Buyers such issuance
or sale of capital stock, by providing in writing the principal amount of
capital it intends to raise and outline of the material terms of such capital
raise, prior to the offering such issuance or sale of capital stock  to any
third parties including, but not limited to, current or former officers or
directors, current or former shareholders and/or investors of the obligor,
underwriters, brokers, agents or other third parties.  The Buyers shall have ten
(10) business days from receipt of such notice of the sale or issuance of
capital stock to accept or reject all or a portion of such capital raising
offer.

 

Article IV.

NEGATIVE COVENANTS.  

The following covenants shall remain in effect for so long as any Series A
Preferred Shares are outstanding:

Section 4.01.   Lock-up Agreement. On the date hereof, the Company shall obtain
from each officer and director of the Company a lock-up agreement in the form
attached hereto as Exhibit 4.1. Such lock-up agreement shall limit sales of the
Company’s Common Stock for so long as the Series A Preferred Shares are
outstanding.

Section 4.02.   Corporate Existence. So long as any Series A Preferred Shares
are outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company’s assets or any similar transaction
or related transactions (each such transaction, an “Organizational Change”)
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of the Buyer. In any such case, the Company will make
appropriate provision with respect to such holders’ rights and interests to
insure that the provisions of this Section 4.02 will thereafter be applicable to
the Series A Preferred Shares.

Section 4.03.   No Indebtedness.      The Company shall not incur any
indebtedness for borrowed money or become a guarantor or otherwise contingently
liable for any such indebtedness except for trade payables or purchase money
obligations incurred in the ordinary course of business.

Section 4.04.   No Other Registration Statements.   Except with regard to the
registration statement to be filed pursuant to the Investor Registration Rights
Agreement (the

 

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“Permitted Registration Statements”), the Company shall not file any other
registration statements on any form (including but not limited to forms S-1,
SB-2, S-3 and S-8) without the prior written consent of the Buyer.

Section 4.05.   Restriction on Issuance of the Capital Stock. So long as any
Series A Preferred Shares are outstanding, the Company shall not, without the
prior written consent of the Buyer, (i) issue or sell shares of Common Stock or
Preferred Stock without consideration or for a consideration per share less than
the bid price of the Common Stock determined immediately prior to its issuance,
(ii) issue any preferred stock, warrant, option, right, contract, call, or other
security or instrument (“Convertible Security”) granting the holder thereof the
right to acquire Common Stock without consideration or for a consideration per
share less than the bid price of the Common Stock determined immediately prior
to the issuance of such Convertible Security, (iii) enter into any security
instrument granting the holder a security interest in any and all assets of the
Company, or (iv) file any registration statement on Form S-8

 

Article V.

REPRESENTATIONS, COVENANTS AND WARRANTIES OF THE COMPANY.

To induce the Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby, the Company represents and warrants to and
covenants with the Buyer as follows:

Section 5.01.  Organization; Compliance. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Colorado. The Company is: (a) entitled to own or lease its properties and to
carry on its business as and in the places where such business is now conducted,
and (b) duly licensed and qualified in all jurisdictions where the character of
the property owned by it or the nature of the business transacted by it makes
such license or qualification necessary, except where the failure to do so would
not result in a material adverse effect on the Company.

 

Section 5.02.

Capitalization and Related Matters.

(a)          As of the date hereof, the authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock and 20,000,000 shares of
Preferred Shares, par value $.0001(“Preferred Stock”), of which 31,590,949
shares of Common Stock and zero shares of Preferred Stock are issued and
outstanding. No Common Stock (i) was issued in violation of the preemptive
rights of any shareholder, or (ii) is held as treasury stock.

(b)          Except as set forth in the Company’s the Company’s Form 10-KSB for
the fiscal year ended December 31, 2004 and Form 10-QSB for the fiscal quarter
ended September 30, 2005 (the “SEC Documents”) there are no outstanding any
securities convertible into Common Stock or any other capital stock of the
Company nor any rights to subscribe for or to purchase, or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
such capital stock or securities convertible into such capital stock
(collectively, “Securities Rights”). The Company (i) is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its capital stock; or (ii) has no liability for dividends or other
distributions declared or accrued, but unpaid, with respect to any capital
stock.

 

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(c)          The Company is not a party to any agreement, understanding or
arrangement, direct or indirect, relating to any class or series of the
Company’s capital stock, including, without limitation, any voting agreement,
restriction on resale, shareholder agreement or registration rights agreement,
other than the Permitted Registration Rights Agreements.

 

Section 5.03.

Subsidiaries and Investments.

(a)          The SEC Documents disclose with respect to each Subsidiary (as
defined below) (i) its name, (ii) the jurisdiction of its organization,
(iii) the number of its authorized shares or other equity interests, (iv) the
number of its outstanding shares or other equity interests of each class or
series, and (v) the name of the owner and the number and percentage of
outstanding shares or other equity interests of each class or series of such
Subsidiary owned of record and, if different, owned beneficially by the Company
and any other person. All of the outstanding capital stock and other equity
interests of each of the Subsidiaries is validly issued, fully paid and
nonassessable and was issued in compliance with all applicable federal and state
securities or “blue sky” laws and regulations. There are no securities rights
relating to any shares of capital stock, other equity interests or other
securities of any of the Subsidiaries. The Company and the Subsidiaries have
good, marketable and exclusive title to the shares or other equity interests
disclosed in the SEC Documents as being owned by each of them, free and clear of
all Encumbrances. All rights and powers to vote such shares or other equity
interests are held exclusively by the Company, directly or indirectly through
one or more of the Subsidiaries, as the case may be. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and has the corporate power and authority
to own or lease its properties and to carry on its business as now conducted.
For the purposes hereof, a “Subsidiary” means any corporation, limited liability
company, partnership, joint venture or other entity in which the Company owns,
directly or indirectly, more than 20% of the outstanding voting securities or
equity interests.

(b)          Except as disclosed in SEC Documents, the Company does not own, nor
has it ever owned, any equity interest in any corporation, limited liability
company, partnership, joint venture or other entity.

 

Section 5.04.

Execution; No Inconsistent Agreements; Etc.

(a)          This Agreement is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy or similar laws affecting the enforcement of creditors'
rights generally, and the availability of equitable remedies.

(b)          The execution and delivery of this Agreement by the Company does
not, and the consummation of the transactions contemplated hereby will not,
constitute a breach or violation of the charter or bylaws of the Company, or a
default under any of the terms, conditions or provisions of (or an act or
omission that would give rise to any right of termination, cancellation or
acceleration under) any note, bond, mortgage, lease, indenture, agreement or
obligation to which the Company is a party, pursuant to which the Company
otherwise receives benefits, or to which any of the properties of the Company is
subject.

Section 5.05.  Corporate Records. The statutory records, including the stock
register and minute books of the Company, fully reflect all issuances, transfers
and redemptions of its capital stock, correctly show and will correctly show the
total number of shares of its

 

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capital stock issued and outstanding on the date hereof and on the Closing Date,
the charter or other organizational documents and all amendments thereto, and
bylaws as amended and currently in force.

 

Section 5.06.

Financial Statements.

(a)          The SEC Documents contain (i) the consolidated audited balance
sheet of the Company as of December 31, 2004, and the consolidated audited
consolidated profit and loss statement of the Company for the fiscal year ended
December 31, 2004 (the balance sheet as of December 31, 2004 is hereinafter
referred to as the “Company Balance Sheet”). All the foregoing financial
statements are referred to herein collectively as the “Company Financial
Statements.”

(b)          The Company Financial Statements have been and will be prepared in
accordance with U.S. GAAP, applied on a consistent basis (except that the
unaudited statements do not contain all the disclosures required by GAAP), and
fairly reflect and will reflect in all material respects the financial condition
of the Company as at the dates thereof and the results of the operations of the
Company for the periods then ended.

Section 5.07.  Liabilities. The Company has no material debt, liability or
obligation of any kind, whether accrued, absolute, contingent or otherwise,
except: (a) those reflected on the Company Balance Sheet, including the notes
thereto, and (b) liabilities incurred in the ordinary course of business since
January 1, 2004, none of which have had or will have a material adverse effect
on the financial condition of the Company.

Section 5.08.   Absence of Changes. Except as described in the SEC Documents and
in the other Schedules to this Agreement, there has not been any adverse change
in the business, assets, liabilities, results of operations or financial
condition of the Company or in its relationships with suppliers, customers,
employees, lessors or others other than changes in the ordinary course of
business, none of which, singularly or in the aggregate, have had or will have a
material adverse effect on the business, properties or financial condition of
the Company.

Section 5.09.   Title to Properties. The Company has good and marketable title
to all of its properties and assets, real and personal, including, but not
limited to, those reflected in the Company Balance Sheet (except as since sold
or otherwise disposed of in the ordinary course of business, or as expressly
provided for in this Agreement), free and clear of all Encumbrances of any kind
or character except: (a) those securing liabilities of the Company incurred in
the ordinary course (with respect to which no material default exists); (b)
liens of real estate and personal property taxes; and (c) imperfections of title
and Encumbrances, if any, which, in the aggregate (i) are not substantial in
amount; (ii) do not detract from the value of the property subject thereto or
impair the operations of the Company or; and (iii) do not have a material
adverse effect on the business, properties or assets of the Company.

Section 5.10.  Compliance With Law. The business and activities of the Company
has at all times been conducted in accordance with its articles of incorporation
and bylaws and any applicable law, regulation, ordinance, order, License
(defined below), permit, rule, injunction or other restriction or ruling of any
court or administrative or governmental agency, ministry, or body, except where
the failure to do so would not result in a material adverse effect on the
Company.

 

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Section 5.11.   Taxes. The Company has duly filed all material federal, state,
local and foreign tax returns and reports, and all returns and reports of all
other governmental units having jurisdiction with respect to taxes imposed on it
or on its income, properties, sales, franchises, operations or employee benefit
plans or trusts, all such returns were complete and accurate when filed, and all
taxes and assessments payable by the Company have been paid to the extent that
such taxes have become due. All taxes accrued or payable by the Company for all
periods through December 1, 2004 have been accrued or paid in full, whether or
not due and payable and whether or not disputed. The Company has withheld proper
and accurate amounts from its employees for all periods in full compliance with
the tax withholding provisions of applicable foreign, federal, state and local
tax laws. There are no waivers or agreements by the Company for the extension of
time for the assessment of any taxes. The tax returns of the Company have never
been examined by any authority or other administrative body or court of any
state or country. There are not now any examinations of the income tax returns
of the Company pending, or any proposed deficiencies or assessments against the
Company of additional taxes of any kind. The Company shall duly and timely
prepare and file all material federal, state, local and foreign tax returns and
reports for 2004, and all returns and reports of all other governmental units
having jurisdiction with respect to taxes imposed on the Company or on its
income, properties, sales, franchises, operations or employee benefit plans or
trusts, and all such returns will be complete and accurate when filed.

Section 5.12.  Real Properties. The Company does not have an interest in any
real property, except for the Leases (as defined below).

Section 5.13.  Leases of Real Property. All leases pursuant to which the Company
is lessee or lessor of any real property (the “Leases”) are listed in the SEC
Documents and are valid and enforceable in accordance with their terms. There is
not under any of such leases (a) any material default or any claimed material
default by the Company or any event of default or event which with notice or
lapse of time, or both, would constitute a material default by the Company and
in respect to which the Company has not taken adequate steps to prevent a
default on its part from occurring, or (b) to the knowledge of the Company, any
material default by any lessee of the Company or any event of default or event
which with notice or lapse of time, or both, would constitute a material default
by any lessee. The copies of the Leases heretofore furnished to Buyer are true,
correct and complete, and such Leases have not been modified in any respect
since the date they were so furnished, and are in full force and effect in
accordance with their terms. The Company is lawfully in possession of all real
properties of which they are a lessee (the “Leased Properties”).

Section 5.14.   Contingencies. Except as disclosed in the SEC Documents, there
are no actions, suits, claims or proceedings pending, or to the knowledge of the
Company threatened against, by or affecting, the Company in any court or before
any arbitrator or governmental agency that may have a material adverse effect on
the Company or which could materially and adversely affect the right or ability
of the Company to consummate the transactions contemplated hereby. To the
knowledge of the Company, there is no valid basis upon which any such action,
suit, claim, or proceeding may be commenced or asserted against it. There are no
unsatisfied judgments against the Company and no consent decrees or similar
agreements to which the Company is subject and which could have a material
adverse effect on the Company.

 

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Section 5.15.   Products Liability; Warranties; Insurance. The Company will have
not loss, damage, liability, fine, penalty, cost and expense (each, a
“Liability”) that is not fully covered by insurance relating to any product
manufactured, distributed or sold by the Company prior to the Closing, whether
or not such Liability is related to products that are defective or improperly
designed or manufactured or are in breach of any express or implied product
warranty.

 

Section 5.16.

Intellectual Property Rights.

(a)          The Company owns and possesses all right, title and interest in and
to, or has a valid license to use, all of the Proprietary Rights (as defined
below) necessary for the operation of its business as presently conducted and
none of such Proprietary Rights have been abandoned;

(b)          no claim by any third party contesting the validity,
enforceability, use or ownership of any such Proprietary Rights has been made,
is currently outstanding or, to the knowledge of the Company, is threatened, and
to the knowledge of the Company there is no reasonable basis for any such claim;

(c)          neither the Company nor any registered agent of any of the
foregoing has received any notice of, nor is the Company aware of any reasonable
basis for an allegation of, any infringement or misappropriation by, or conflict
with, any third party with respect to such Proprietary Rights, nor has the
Company, or any registered agent of any of them received any claim of
infringement or misappropriation of or other conflict with any Proprietary
Rights of any third party;

(d)          the Company has not infringed, misappropriated or otherwise
violated any Proprietary Rights of any third parties, and the Company is not
aware of any infringement, misappropriation or conflict which will occur as a
result of the continued operation of the Company as presently operated and as
contemplated to be operated or as a result of the consummation of the
transactions contemplated hereby; and

(e)          all employees who have contributed to or participated in the
conception and/or development of all or any part of the Proprietary Rights which
are not licensed to the Company from a third party either (i) have been party to
a "work-for-hire" arrangement or agreement with the Company, in accordance with
applicable federal and state law, that has accorded the Company full, effective,
exclusive, and original ownership of all tangible and intangible property
thereby arising, or (ii) have executed appropriate instruments of assignment in
favor of the Company as assignee that have conveyed to the Company full,
effective and exclusive ownership of all tangible and intangible property
thereby arising.

(f)           As used herein, the term “Proprietary Rights” means all
proprietary information of the Company, as the case may be, including all
patents, patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice), all trademarks, service
marks, trade dress, trade names, corporate names, domain names, copyrights, all
trade secrets, confidential information, ideas, formulae, compositions,
know-how, processes and techniques, drawings, specifications, designs, logos,
plans, improvements, proposals, technical and computer data, documentation and
software, financial, business and marketing plans, and related information and
all other proprietary, industrial or intellectual property rights

 

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relating to the business of the Company, including those proprietary, industrial
or intellectual property rights found at the Company’s websites listed in the
SEC Documents.

(g)          The consummation of the transactions contemplated by this Agreement
will not adversely affect the right of the Company to continue to use the
Proprietary Rights. To the extent that the registration of any Proprietary Right
is required by law, such Proprietary Right has been duly and validly registered
or filed, and any fees that are necessary to maintain in force any Proprietary
Rights or registrations thereof have been paid. The SEC Documents sets forth a
list and description of the copyrights, trademarks, service marks, trade dress,
trade names and domain names used or held by the Company and, where appropriate,
the date, serial or registration number, and place of any registration thereof.

Section 5.17.   Material Contracts. The SEC Documents contain a complete list of
all contracts of the Company that involve consideration in excess of the
equivalent of One Hundred Thousand Dollars ($100,000) or have a term of one year
or more (the “Material Contracts”). Except as disclosed in the SEC Documents:
(a) the Company has performed all material obligations to be performed by them
under all such contracts, and is not in material default thereof, and (b) no
condition exists or has occurred which with the giving of notice or the lapse of
time, or both, would constitute a material default by the Company or accelerate
the maturity of, or otherwise modify, any such contract, and (c) all such
contracts are in full force and effect. No material default by any other party
to any of such contracts is known or claimed by the Company to exist.

 

Section 5.18.

Employee Benefit Matters.

(a)          Except as disclosed in the SEC Documents, the Company does not
provide, nor is it obligated to provide, directly or indirectly, any benefits
for employees other than salaries, sales commissions and bonuses, including, but
not limited to, any pension, profit sharing, stock option, retirement, bonus,
hospitalization, insurance, severance, vacation or other employee benefits
(including any housing or social fund contributions) under any practice,
agreement or understanding.

(b)          Each employee benefit plan maintained by or on behalf of the
Company or any other party (including any terminated pension plans) which covers
or covered any employees or former employees of the Company (collectively, the
“Employee Benefit Plan”) is listed in the SEC Documents. The Company has
delivered to the Buyer true and complete copies of all such plans and any
related documents. With respect to each such plan: (a) no litigation,
administrative or other proceeding or claim is pending, or to the knowledge of
the Company, threatened or anticipated involving such plan; (b) there are no
outstanding requests for information by participants or beneficiaries of such
plan; and (c) such plan has been administered in compliance in all material
respects with all applicable laws and regulations.

(c)          The Company has timely made payment in full of all contributions to
all of the Employee Benefit Plans which the Company was obligated to make prior
to the date hereof; and there are no contributions declared or payable by the
Company to any Employee Benefit Plan which, as of the date hereof, has not been
paid in full.

Section 5.19.  Possession of Franchises, Licences, Etc. The Company: (a)
possesses all material franchises, certificates, licenses, permits and other
authorizations (collectively, the “Licences”) from governmental authorities,
political subdivisions or regulatory

 

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authorities that are necessary for the ownership, maintenance and operation of
its business in the manner presently conducted; (b) are not in violation of any
provisions thereof; and (c) have maintained and amended, as necessary, all
Licenses and duly completed all filings and notifications in connection
therewith.

Section 5.20.  Environmental Matters. Except as disclosed in the SEC Documents:
(i) the Company is not in violation, in any material respect, of any
Environmental Law (as defined below); (ii) the Company has received all permits
and approvals with respect to emissions into the environment and the proper
collection, storage, transport, distribution or disposal of Wastes (as defined
below) and other materials required for the operation of its business at present
operating levels; and (iii) the Company is not currently liable or responsible
for any material clean up, fines, liability or expense arising under any
Environmental Law, as a result of the disposal of Wastes or other materials in
or on the property of the Company (whether owned or leased), or in or on any
other property, including property no longer owned, leased or used by the
Company. As used herein, (a) “Environmental Laws” means, collectively, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, any other
“Superfund” or “Superlien” law or any other federal, or applicable state or
local statute, law, ordinance, code, rule, regulation, order or decree (foreign
or domestic) regulating, relating to, or imposing liability or standards of
conduct concerning, Wastes, or the environment; and (b) “Wastes” means and
includes any hazardous, toxic or dangerous waste, liquid, substance or material
(including petroleum products and derivatives), the generation, handling,
storage, disposal, treatment or emission of which is subject to any
Environmental Law.

Section 5.21.  Agreements and Transactions with Related Parties. Except as
disclosed on the SEC Documents the Company is not, a party to any contract,
agreement, lease or transaction with, or any other commitment to, (a) a
shareholder, (b) any person related by blood, adoption or marriage to
shareholder, (c) any director or officer of the Company, (d) any corporation or
other entity in which any of the foregoing parties has, directly or indirectly,
at least five percent (5.0%) beneficial interest in the capital stock or other
type of equity interest in such corporation or other entity, or (e) any
partnership in which any such party is a general partner or a limited partner
having a five percent (5%) or more interest therein (any or all of the foregoing
being herein referred to as a “Related Party” and collectively as the “Related
Parties”). Without limiting the generality of the foregoing, except as set forth
in the SEC Documents, (a) no Related Party, directly or indirectly, owns or
controls any assets or properties which are or have been used in the business of
the Company, and (b) no Related Party, directly or indirectly, engages in or has
any significant interest in or connection with any business: (i) which is or
which within the last two (2) years has been a competitor, customer or supplier
of, or has done business with, the Company, or (ii) which as of the date hereof
sells or distributes products or provides services which are similar or related
to the products or services of the Company.

Section 5.22.   Business Practices. Except as disclosed in the SEC Documents,
the Company has not, at any time, directly or indirectly, made any contributions
or payment, or provided any compensation or benefit of any kind, to any
municipal, county, state, federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, or any
candidate for political office. The Company’s books, accounts and

 

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records (including, without limitation, customer files, product packaging and
invoices) accurately describe and reflect, in all material respects, the nature
and amount of the Company’s products, purchases, sales and other transactions.
Without limiting the generality of the foregoing, the Company has not engaged,
directly or indirectly, in: (a) the practice known as “double-invoicing” or the
use or issuance of pro-forma or dummy invoices; or (b) the incorrect or
misleading labeling, marketing or sale of refurbished goods as new goods.

Section 5.23.  Shareholder Matters. None of the matters set forth in this
Agreement require the approval of the Company’s shareholders.

Section 5.24.  Full Disclosure. No representation or warranty of the Company
contained in this Agreement, and none of the statements or information
concerning the Company contained in this Agreement and the Schedules, contains
or will contain any untrue statement of a material fact nor will such
representations, warranties, covenants or statements taken as a whole omit 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.

 

Article VI.

REPRESENTATIONS AND WARRANTIES OF BUYER.

To induce the Company to enter into this Agreement and to consummate the
transactions contemplated hereby, the Buyer represent and warrant to and
covenant with the Company as follows:

Section 6.01.   Organization. The Buyer is a limited partnership duly organized,
validly existing and in good standing under the laws of the state of Delaware.
The Buyer has all requisite power and authority to execute, deliver and carry
out the terms of this Agreement and the consummation of the transactions
contemplated herein.

 

Section 6.02.

Execution; No Inconsistent Agreements; Etc.

(a)          The execution and delivery of this Agreement and the performance of
the transactions contemplated hereby have been duly and validly authorized and
approved by the Buyer and this Agreement is a valid and binding agreement of the
Buyer, enforceable against the Buyer in accordance with its terms, except as
such enforcement may be limited by bankruptcy or similar laws affecting the
enforcement of creditors' rights generally, and the availability of equitable
remedies.

(b)          The execution and delivery of this Agreement by the Buyer does not,
and the consummation of the transactions contemplated hereby will not,
constitute a breach or violation of the charter or bylaws of the Buyer, or a
default under any of the terms, conditions or provisions of (or an act or
omission that would give rise to any right of termination, cancellation or
acceleration under) any material note, bond, mortgage, lease, indenture,
agreement or obligation to which the Buyer is a party, pursuant to which any of
them otherwise receive benefits, or by which any of their properties may be
bound.

 

Section 6.03.

Securities Laws.

(a)          The Buyer is purchasing the Series A Preferred Shares for
investment purposes.

 

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(b)          Investment Representations. The Buyer has been offered the
opportunity to ask questions of, and receive answers from the Company’s
management, and the Buyer has been given full and complete access to all
available information and data relating to the business and assets of the
Company and has obtained such additional information about the Company as the
Buyer has deemed necessary in order to evaluate the opportunities, both
financial and otherwise, with respect to the Company and, except as set forth
herein, has not relied on any representation, warranty or other statement
concerning the Company and its evaluation of the decision to consummate the
transactions contemplated herein. In its judgment, the Buyer is sufficiently
familiar with the Company to enable the Buyer to proceed with the transactions
contemplated hereby.

(c)          The Buyer is an “accredited investor” as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act.

(d)          The Buyer is a sophisticated investor familiar with the type of
risks inherent in the acquisition of securities such as the Series A Preferred
Shares.

 

Article VII.

CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING.

The Company covenants and agrees that between the date hereof and the Closing
Date:

Section 7.01.  Business in the Ordinary Course. Except as set forth in the SEC
Documents, the business of the Company shall be conducted only in the ordinary
course, and consistent with past practice. Without limiting the generality of
the foregoing, and except as set forth in the SEC Documents or as otherwise
approved by the Buyer:

(a)          Except for the transaction contemplated hereby, the Company shall
not enter into any contract, agreement or other arrangement which would
constitute a Material Contract, except for contracts to sell or supply goods or
services to customers in the ordinary course of business at prices and on terms
substantially consistent with the prior operating practices of the Company;

(b)          except for sales of personal property in the ordinary course of its
business, the Company shall not sell, assign, transfer, mortgage, convey,
encumber or otherwise dispose of, or cause the sale, assignment, transfer,
mortgage, conveyance, encumbrance or other disposition of any of the assets or
properties of the Company or any interest therein;

(c)          the Company shall not acquire any material assets, except
expenditures made in the ordinary course of business as reasonably necessary to
enable the Company to conduct its normal business operations and to maintain its
normal inventory of goods and materials, at prices and on terms substantially
consistent with current market conditions and prior operating practices;

(d)          the books, records and accounts of the Company shall be maintained
in the usual, regular and ordinary course of business on a basis consistent with
prior practices and in accordance with GAAP;

(e)          the Company shall use its best efforts to preserve its business
organization, to preserve the good will of its suppliers, customers and others
having business

 

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relations with the Company, and to retain the services of key employees and
agents of the Company;

(f)           except as it may terminate in accordance with the terms of this
Agreement, the Company shall keep in full force and effect, and not cause a
default of any of its obligations under, each of their contracts and
commitments;

(g)          the Company shall duly comply in all material respects with all
laws applicable to it and to the conduct of its business;

(h)          the Company shall not create, incur or assume any liability or
indebtedness, except in the ordinary course of business consistent with past
practices;

(i)           other than as contemplated in this Agreement, the Company shall
not apply any of its assets to the direct or indirect payment, discharge,
satisfaction or reduction of any amount payable directly or indirectly to or for
the benefit of any shareholder or any Related Party; and

(j)           the Company shall not take or omit to take any action which would
render any of the representations or warranties untrue or misleading, or which
would be a breach of any of the covenants.

Section 7.02.   No Material Changes. Except as contemplated in this Agreement,
the Company shall not materially alter its organization, capitalization, or
financial structure, practices or operations. Without limiting the generality of
the foregoing:

(a)          no change shall be made in the articles of incorporation and bylaws
of the Company;

(b)          no change shall be made in the authorized or issued capital stock
of the Company;

(c)          the Company shall not issue or grant any right or option to
purchase or otherwise acquire any of its capital stock or other securities;

(d)          no dividend or other distribution or payment shall be declared or
made with respect to any of the capital stock of the Company; and

(e)          no change shall be made affecting the banking arrangements of the
Company.

Section 7.03.   Notification. Each party to this Agreement shall promptly notify
the other parties in writing of the occurrence, or threatened occurrence, of any
event that would constitute a breach or violation of this Agreement by any party
or that would cause any representation or warranty made by the notifying party
in this Agreement to be false or misleading in any respect. The Company will
promptly notify the Buyer of any event that could have a material adverse effect
on the business, assets, financial condition or prospects of the Company. The
Company shall have the right to update the Schedules to this Agreement
immediately prior to Closing; provided, if such update discloses any breach of a
representation, warranty, covenant or obligation of the Company, the Buyer shall
have the rights to then exercise its available rights and remedies hereunder.

 

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Article VIII.

CONDITIONS TO OBLIGATIONS OF ALL PARTIES.

The obligation of the Buyer and the Company to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before
each Closing, of each of the following conditions; any or all of which may be
waived in whole or in part by the joint agreement of the Buyer and the Company:

Section 8.01.  Absence of Actions. No action or proceeding shall have been
brought or threatened before any court or administrative agency to prevent the
consummation or to seek damages in a material amount by reason of the
transactions contemplated hereby, and no governmental authority shall have
asserted that the within transactions (or any other pending transaction
involving the Buyer or the Company when considered in light of the effect of the
within transactions) shall constitute a violation of law or give rise to
material liability on the part of the Company or the Buyer.

Section 8.02.  Consents. The parties shall have received from any suppliers,
lessors, lenders, lien holders or governmental authorities, bodies or agencies
having jurisdiction over the transactions contemplated by this Agreement, or any
part hereof, such consents, authorizations and approvals as are necessary for
the consummation hereof.

 

Article IX.

CONDITIONS TO OBLIGATIONS OF THE BUYER.

All obligations of the Buyer to consummate the transactions contemplated by this
Agreement are subject to the fulfillment and satisfaction of each and every of
the following conditions on or prior to the Closing, any or all of which may be
waived in whole or in part by the Buyer:

Section 9.01.  Representations and Warranties. The representations and
warranties contained in Section 5 of this Agreement and in any certificate,
instrument, schedule, agreement or other writing delivered by or on behalf of
the Company in connection with the transactions contemplated by this Agreement
shall be true, correct and complete in all material respects (except for
representations and warranties which are by their terms qualified by
materiality, which shall be true, correct and complete in all respects) as of
the date when made and shall be deemed to be made again at and as of the Closing
Dates and shall be true, correct and complete at and as of such time in all
material respects (except for representations and warranties which are by their
terms qualified by materiality, which shall be true, correct and complete in all
respects).

Section 9.02.  Certificate of Designations. The Company shall have filed the
Certificate of Designations for the Series A Preferred Shares with the Secretary
of State of the Company’s state of incorporation and provided the Buyer a
stamped filed copy.                                          

Section 9.03.   Compliance with Agreements and Conditions. The Company shall
have performed and complied with all material agreements and conditions required
by this Agreement to be performed or complied with by it prior to or on the
Closing Dates.

Section 9.04.  Absence of Material Adverse Changes. No material adverse change
in the business, assets, financial condition, or prospects of the Company shall
have occurred, no substantial part of the assets of the Company not
substantially covered by insurance shall have been destroyed due to fire or
other casualty, and no event shall have occurred which

 

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has had or will have a material adverse effect on the business, assets,
financial condition or prospects of the Company.

Section 9.05.  Board Approval. The Company’s Board of Directors shall have taken
the action required by them pursuant to this Agreement, including an amendment
to the Company’s articles of incorporation to adopt the rights and preferences
of the Series A Preferred Shares, authorize issuance of the Series A Preferred
Shares and the Conversion Shares to be issued upon conversion of the Series A
Preferred Shares and the reservation of the Conversion Shares to be issued upon
conversion of the Series A Preferred Shares.

Section 9.06.  Other Agreements. The Company shall have executed and delivered
to the Buyer the Transaction Documents all in a form acceptable to the Buyer.

Section 9.07.   Other Documents. The Company shall have delivered to the Buyer
such other documents and instruments as the Buyer deems reasonably necessary or
desirable to consummate the transactions contemplated hereby.

Section 9.08.  The Buyer shall have received an opinion of counsel from
Kirkpatrick & Lockhart Nicholson Graham, LLP in a form satisfactory to the
Buyer.

Section 9.09.  The Company shall have provided to the Buyer a certificate of
good standing from the secretary of state from the state in which the company is
incorporated.

Section 9.10.  The Company shall have provided to the Buyer an acknowledgement,
to the satisfaction of the Buyer, from the Company’s certified public
accountants as to its ability to provide all consents required in order to file
a registration statement in connection with this transaction. All documents
delivered to the Buyer shall be in form and substance reasonably satisfactory to
the Buyer.

Section 9.11.   Additional Condition to the Second Closing.       The Company
shall have certified that the Company will file the Registration Statement with
the SEC in compliance with the rules and regulations promulgated by the SEC for
filing thereof within two (2) business days after the Second Closing.

 

Article X.

CONDITIONS TO OBLIGATIONS OF THE COMPANY.

All of the obligations of the Company to consummate the transactions
contemplated by this Agreement are subject to the fulfillment and satisfaction
of each and every of the following conditions on or prior to the Closing, any or
all of which may be waived in whole or in part by the Company:

Section 10.01.              Representations and Warranties. The representations
and warranties contained in Section 7 of this Agreement and in any certificate,
instrument, schedule, agreement or other writing delivered by or on behalf of
the Buyer in connection with the transactions contemplated by this Agreement
shall be true and correct in all material respects (except for representations
and warranties which are by their terms qualified by materiality, which shall be
true, correct and complete in all respects) when made and shall be deemed to be
made again at and as of the Closing Date and shall be true at and as of such
time in all material respects (except for representations and warranties which
are by their terms qualified by materiality, which shall be true, correct and
complete in all respects).

 

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Section 10.02.               Compliance with Agreements and Conditions. The
Buyer shall have performed and complied with all material agreements and
conditions required by this Agreement to be performed or complied with by the
Buyer prior to or on the Closing Date.

 

Article XI.

EVENTS OF DEAULT.  

Section 11.01.              An “Event of Default”, wherever used herein, means
any one of the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):

(a)          The Company shall fail to observe or perform any covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision contained herein or in any Transaction Document which is not cured
within any applicable cure period;

(b)          The Company or any subsidiary of the Company shall commence, or
there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any subsidiary of the Company
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary of the Company or there is commenced against the
Company or any subsidiary of the Company any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of sixty one (61) days;
or the Company or any subsidiary of the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary of the Company suffers
any appointment of any custodian, private or court appointed receiver or the
like for it or any substantial part of its property which continues undischarged
or unstayed for a period of sixty one (61) days; or the Company or any
subsidiary of the Company makes a general assignment for the benefit of
creditors; or the Company or any subsidiary of the Company shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary of the Company
shall call a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Company or any subsidiary of
the Company shall by any act or failure to act expressly indicate its consent
to, approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary of the Company for the
purpose of effecting any of the foregoing;

(c)          The Company or any subsidiary of the Company shall default in any
of its obligations under any other obligation or any mortgage, credit agreement
or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding One Hundred Thousand Dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;

 

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(d)          The Common Stock shall cease to be quoted for trading or listed for
trading on the American Stock Exchange, Nasdaq OTC Bulletin Board (“OTC”),
Nasdaq Capital Market, the Nasdaq National Market, or New York Stock Exchange
(each, a “Subsequent Market”) and shall not again be quoted or listed for
trading thereon within five (5) Trading Days of such delisting; or

(e)          The Company shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a conversion
or the Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests for
conversions of the Series A Preferred Shares in accordance with the terms
hereof.

Section 11.02.              During the time that any Series A Preferred Shares
are outstanding, if any Event of Default has occurred, all of the outstanding
principal and dividends under the Series A Preferred Shares shall be immediately
due and payable notwithstanding any limitations contained in the Certificate of
Designations or the Transaction Documents. Upon an event of default the Holders
shall have the right (but not the obligation) to convert the entire amount of
the Series A Preferred Shares outstanding as provided for in the Certificate of
Designations. Upon an Event of Default, notwithstanding any other provision
contained herein, in the Certificate of Designations or any Transaction
Document, the Holder shall have no obligation to comply with or adhere to any
limitations, if any, on the conversion or sale of the Series A Preferred Stock.

 

Article XII.

INDEMNITY.

Section 12.01.            Indemnification by the Company. The Company
(hereinafter collectively called the “Company Indemnitor”) shall defend,
indemnify and hold harmless the Buyer, their respective general partners, direct
and indirect parent corporations, subsidiaries and affiliates, their officers,
members, directors, employees, attorneys and agents (hereinafter collectively
called the “Buyer Indemnitees”) against and in respect of any and all loss,
damage, liability, fine, penalty, cost and expense, including reasonable
attorneys' fees and amounts paid in settlement (collectively, the “Buyer
Losses”), suffered or incurred by any Buyer Indemnitee by reason of, or arising
out of:

(a)          any misrepresentation, breach of warranty or breach or
nonfulfillment of any covenant, obligation or agreement of the Company contained
in this Agreement or in any certificate, schedule, instrument or document
delivered to the Buyer by or on behalf of the Company pursuant to the provisions
of this Agreement (without regard to materiality thresholds contained therein);
and

(b)          any liabilities of the Company of any nature whatsoever (including
tax liability, penalties and interest), whether accrued, absolute, contingent or
otherwise, (i) existing as of the date of the Company Balance Sheet, and
required to be shown therein in accordance with GAAP, to the extent not
reflected or reserved against in full in the Company Balance Sheet; or (ii)
arising or occurring between January 1, 2005 and the date of this Agreement,
except for liabilities arising in the ordinary course of business, none of which
shall have a material adverse effect on the Company.

Section 12.02.              Indemnification by the Buyer. The Buyer (hereinafter
called the “Buyer Indemnitors”) shall defend, indemnify and hold harmless the
Company, its

 

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direct and indirect parent corporations, subsidiaries and affiliates, their
officers, members, directors, employees, attorneys and agents (hereinafter
called “Company Indemnitee”) against and in respect of any and all loss, damage,
liability, cost and expense, including reasonable attorneys' fees and amounts
paid in settlement (collectively, “Company Losses”), suffered or incurred by
Company Indemnitee by reason of or arising out of any misrepresentation, breach
of warranty or breach or non-fulfillment of any material covenant, obligation or
agreement of the Buyer contained in this Agreement or in any other certificate,
schedule, instrument or document delivered to the Company by or on behalf of the
Buyer pursuant to the provisions of this Agreement (without regard to
materiality thresholds contained therein).

 

Section 12.03.

Defense of Claims.

(a)          Each party seeking indemnification hereunder (an “Indemnitee”): (i)
shall provide the other party or parties (the “Indemnitor”) written notice of
any claim or action by a third party for which an Indemnitor may be liable under
the terms of this Agreement, within ten (10) days after such claim or action
arises and is known to Indemnitee, and (ii) shall give the Indemnitor a
reasonable opportunity to participate in any proceedings and to settle or defend
any such claim or action. The expenses of all proceedings, contests or lawsuits
with respect to such claims or actions shall be borne by the Indemnitor. If the
Indemnitor wishes to assume the defense of such claim or action, the Indemnitor
shall give written notice to the Indemnitee within ten (10) days after notice
from the Indemnitee of such claim or action, and the Indemnitor shall thereafter
assume the defense of any such claim or liability, through counsel reasonably
satisfactory to the Indemnitee, provided that Indemnitee may participate in such
defense at their own expense, and the Indemnitor shall, in any event, have the
right to control the defense of the claim or action. The failure of an
Indemnitee to give any notice required by this Section shall not affect any of
such party’s rights under this Section or otherwise, except and to the extent
that such failure is actually prejudicial to the rights or obligations of the
Indemnitor.

(b)          If the Indemnitor shall not assume the defense of, or if after so
assuming it shall fail to defend, any such claim or action, the Indemnitee may
defend against any such claim or action in such manner as they may deem
appropriate and the Indemnitees may settle such claim or litigation on such
terms as they may deem appropriate but subject to the Indemnitor's approval,
such approval not to be unreasonably withheld; provided, however, that any such
settlement shall be deemed approved by the Indemnitor if the Indemnitor fails to
object thereto, by written notice to the Indemnitee, within fifteen (15) days
after the Indemnitor's receipt of a written summary of such settlement. The
Indemnitor shall promptly reimburse the Indemnitee for the amount of all
expenses, legal and otherwise, incurred by the Indemnitee in connection with the
defense and settlement of such claim or action.

(c)          If a non-appealable judgment is rendered against any Indemnitee in
any action covered by the indemnification hereunder, or any lien attaches to any
of the assets of any of the Indemnitee, the Indemnitor shall immediately upon
such entry or attachment pay such judgment in full or discharge such lien
unless, at the expense and direction of the Indemnitor, an appeal is taken under
which the execution of the judgment or satisfaction of the lien is stayed. If
and when a final judgment is rendered in any such action, the Indemnitor shall
forthwith pay such judgment or discharge such lien before any Indemnitee is
compelled to do so.

 

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Section 12.04.               Waiver. The failure of any Indemnitee to give any
notice or to take any action hereunder shall not be deemed a waiver of any of
the rights of such Indemnitee hereunder, except to the extent that Indemnitor is
actually prejudiced by such failure.

 

Article XIII.

TERMINATION.

Section 13.01.              Termination. This Agreement may be terminated at any
time on or prior to the Closing:

 

(a)

By mutual consent of the Buyer and the Company; or

(b)          At the election of the Buyer if: (i) a Company has breached or
failed to perform or comply with any of its representations, warranties,
covenants or obligations under this Agreement; or (ii) any of the conditions
precedent set forth in Section 3, 4, 6, 9 or 10 are not satisfied as and when
required by this Agreement; or (iii) the First Closing has not been consummated
by within five (5) business days from the date hereof; or

(c)          At the election of the Company if: (i) the Buyer has breached or
failed to perform or comply with any of its representations, warranties,
covenants or obligations under this Agreement; or (ii) any of the conditions
precedent set forth in Section 7, 9, or 11 are not satisfied as and when
required by this Agreement; or (iii) the First Closing has not been consummated
by within five (5) business days from the date hereof.

Section 13.02.               Manner and Effect of Termination. Written notice of
any termination (“Termination Notice”) pursuant to this Section 13 shall be
given by the party electing termination of this Agreement (“Terminating Party”)
to the other party or parties (collectively, the “Terminated Party”), and such
notice shall state the reason for termination. The party or parties receiving
Termination Notice shall have a period of ten (10) days after receipt of
Termination Notice to cure the matters giving rise to such termination to the
reasonable satisfaction of the Terminating Party. If the matters giving rise to
termination are not cured as required hereby, this Agreement shall be terminated
effective as of the close of business on the tenth (10th) day following the
Terminated Party's receipt of Termination Notice. Upon termination of this
Agreement prior to the consummation of the Closing and in accordance with the
terms hereof, this Agreement shall become void and of no effect, and none of the
parties shall have any liability to the others, except that nothing contained
herein shall relieve any party from: (a) its obligations under Sections 3.2 and
3.3; or (b) liability for its intentional breach of any representation, warranty
or covenant contained herein, or its intentional failure to comply with the
terms and conditions of this Agreement or to perform its obligations hereunder.

 

Article XIV.

MISCELLANEOUS.

 

Section 14.01.

Notices.

(a)          All notices, requests, demands, or other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given upon receipt if delivered in person, or upon the expiration of two (2)
days after the date sent, if sent by federal express (or similar overnight
courier service) to the parties at the following addresses:

 

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If to the Company, to:

Transax International, Ltd.

 

5201 Blue Lagoon Drive, 8th Floor

 

Miami, FL 33126

 

Attention:         Chief Executive Officer

 

 

 

 

With a copy to:

Kirkpatrick & Lockhart Nicholson Graham, LLP

 

201 South Biscayne Boulevard, Suite 2000

 

Miami, Florida 33131

 

Attention:         Clayton E. Parker, Esq.

 

Telephone:       (305) 539-3306

 

Facsimile:        (305) 328-7095

 

 

 

 

If to the Buyer, to:

Cornell Capital Partners, LP

 

101 Hudson Street, Suite 3700

 

Jersey City, NJ 07302

 

Attention:         Mark A. Angelo

 

Telephone:       (201) 985-8300

 

Facsimile:         (201) 985-8744

 

 

 

 

With copy to:

David Gonzalez Troy Rillo, Esq.

 

101 Hudson Street, Suite 3700

 

Jersey City, NJ 07302

 

Telephone:       (201) 985-8300

 

Facsimile:         (201) 985-1964

 

Each party shall provide five (5) days’ prior written notice to the other party
of any change in address or facsimile number.

(b)          Notices may also be given in any other manner permitted by law,
effective upon actual receipt. Any party may change the address to which
notices, requests, demands or other communications to such party shall be
delivered or mailed by giving notice thereof to the other parties hereto in the
manner provided herein.

Section 14.02.               Survival. The representations, warranties,
agreements and indemnifications of the parties contained in this Agreement or in
any writing delivered pursuant to the provisions of this Agreement shall survive
any investigation heretofore or hereafter made by the parties and the
consummation of the transactions contemplated herein and shall continue in full
force and effect after the Closing.

Section 14.03.             Counterparts; Interpretation. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, and all of which shall constitute one and the same instrument. This
Agreement supersedes all prior discussions and agreements between the parties
with respect to the subject matter hereof, and this

 

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Agreement contains the sole and entire agreement among the parties with respect
to the matters covered hereby. All Schedules hereto shall be deemed a part of
this Agreement. This Agreement shall not be altered or amended except by an
instrument in writing signed by or on behalf of all of the parties hereto. No
ambiguity in any provision hereof shall be construed against a party by reason
of the fact it was drafted by such party or its counsel. For purposes of this
Agreement: “herein”, “hereby”, “hereunder”, “herewith”, “hereafter” and
“hereinafter” refer to this Agreement in its entirety, and not to any particular
subsection or paragraph. References to “including” means including without
limiting the generality of any description preceding such term. Nothing
expressed or implied in this Agreement is intended, or shall be construed, to
confer upon or give any person other than the parties hereto any rights or
remedies under or by reason of this Agreement.

Section 14.04.               Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New Jersey without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard exclusively in Hudson County, New Jersey, and
expressly consent to the jurisdiction and venue of the Superior Court of New
Jersey, sitting in Hudson County, New Jersey and the United States District
Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any
civil action asserted pursuant to this paragraph. Each party hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action in the forum selected
hereby.

Section 14.05.               Successors and Assigns; Assignment. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, executors, legal representatives, and successors;
provided, however, that the Company may not assign this Agreement or any rights
hereunder, in whole or in part.

Section 14.06.               Partial Invalidity and Severability. All rights and
restrictions contained herein may be exercised and shall be applicable and
binding only to the extent that they do not violate any applicable laws and are
intended to be limited to the extent necessary to render this Agreement legal,
valid and enforceable. If any terms of this Agreement not essential to the
commercial purpose of this Agreement shall be held to be illegal, invalid or
unenforceable by a court of competent jurisdiction, it is the intention of the
parties that the remaining terms hereof shall constitute their agreement with
respect to the subject matter hereof and all such remaining terms shall remain
in full force and effect. To the extent legally permissible, any illegal,
invalid or unenforceable provision of this Agreement shall be replaced by a
valid provision which will implement the commercial purpose of the illegal,
invalid or unenforceable provision.

Section 14.07.               Waiver. Any term or condition of this Agreement may
be waived at any time by the party which is entitled to the benefit thereof, but
only if such waiver is evidenced by a writing signed by such party. No failure
on the part of a party hereto to exercise, and no delay in exercising, any
right, power or remedy created hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy by any such
party preclude any other future exercise thereof or the exercise of any other
right, power or remedy. No waiver by any party hereto to any breach of or
default in any term or condition of this Agreement shall constitute a waiver of
or assent to any succeeding breach of or default in the same or any other term
or condition hereof.

 

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Section 14.08.             Headings. The headings as to contents of particular
paragraphs of this Agreement are inserted for convenience only and shall not be
construed as a part of this Agreement or as a limitation on the scope of any
terms or provisions of this Agreement.

Section 14.09.             Expenses.

(a)          Fees and Expenses. Each of the Company and the Buyer shall pay all
costs and expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of this Agreement and all
related documents to this transaction. The Company shall pay the Buyer a fee
equal One Hundred Twenty One Thousand Twenty Nine Dollars ($121,029), of which
$49,029 shall be paid directly from the gross proceeds held in escrow of the
First Closing and $72,000 shall be paid directly from the gross proceeds held in
escrow of the Second Closing.

(b)          Warrant.            The Company shall issue to the Buyer (i) a
warrant to purchase Two Million Five Hundred Thousand (2,500,000) shares of the
Company’s Common Stock for a period of five (5) years at an exercise price of
$0.20 per share, and (ii) (i) a warrant to purchase Two Million Five Hundred
Thousand (2,500,000) shares of the Company’s Common Stock for a period of five
(5) years at an exercise price of $0.30 per share ((i) and (ii) are collectively
referred to as the “Warrant”). The shares of Common Stock issuable under the
Warrant shall collectively be referred to as the “Warrant Shares.”

Section 14.10.               Finder’s Fees. The Buyer represent to the Company
that no broker, agent, finder or other party has been retained by it in
connection with the transactions contemplated hereby and that no other fee or
commission have been agreed to by the Buyer to be paid for or on account of the
transactions contemplated hereby. The Company represents to the Buyer that no
broker, agent, finder or other party has been retained by the Company in
connection with the transactions contemplated hereby and that no other fee or
commission has been agreed by the Company to be paid for or on account of the
transactions contemplated hereby.

Section 14.11.              Acceptance by Fax. This Agreement shall be accepted,
effective and binding, for all purposes, when the parties shall have signed and
transmitted to each other, by telecopier or otherwise, copies of the signature
pages hereto.

Section 14.12.              Attorneys Fees. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
provision of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees, court costs and all expenses (including, without
limitation, all such fees, costs and expenses incident to appellate, bankruptcy,
post-judgment and alternative dispute resolution proceedings), incurred in that
action or proceeding, in addition to any other relief to which such party may be
entitled.

Section 14.13.           NO JURY TRIAL. THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT AND ANY DOCUMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,

 

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STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties have executed this Investment Agreement as of
the date first above written.

 

 

COMPANY:

 

TRANSAX INTERNATIONAL, LTD.

 

 

 

By:  /s/ Stephen Walters

 

Name: Stephen Walters

 

Title:   President and CEO

 

 

 

BUYER:

 

CORNELL CAPITAL PARTNERS, LP

 

 

 

By:       Yorkville Advisors, LLC

 

Its:        General Partner

 

 

 

By: _________________________________

 

Name:   Mark A. Angelo

 

Its:        President and Portfolio Manager

 

 

 

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EXHIBIT 4.1

LOCKUP AGREEMENT

The undersigned hereby agrees that for so long as the Series A Preferred Shares
are outstanding (the “Lock-up Period”), he, she or it will not, directly or
indirectly, without the prior written consent of the Buyer, issue, offer, agree
or offer to sell, sell, grant an option for the purchase or sale of, transfer,
pledge, assign, hypothecate, distribute or otherwise encumber or dispose of any
securities of the Company, including common stock or options, rights, warrants
or other securities underlying, convertible into, exchangeable or exercisable
for or evidencing any right to purchase or subscribe for any common stock
(whether or not beneficially owned by the undersigned), or any beneficial
interest therein (collectively, the “Securities”) except in accordance with the
volume limitations set forth in Rule 144(e) of the General Rules and Regulations
under the Securities Act of 1933, as amended.

In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company’s securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned’s investment in
the Company.

Dated: _______________, 2005

 

Signature

 

____________________________________

Name:_______________________________

Address:_____________________________

City, State, Zip Code:___________________

 

____________________________________

Print Social Security Number

or Taxpayer I.D. Number

 

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