SUBSCRIPTION AGREEMENT
 
 
THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of January 16, 2007, by
and between Innofone.com, Incorporated, a Nevada corporation (the “Company”),
and Lakewood Group LLC (“Subscriber”).
 
WHEREAS, the Company and the Subscriber are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the “1933 Act”).
 
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Subscriber, as
provided herein, and the Subscribers, in the aggregate, shall subscribe to One
Million Dollars ($1,000,000) (the "Principal Amount") of promissory notes of the
Company with an original discount of twenty percent (20%) (“Note” or if more
than one, “Notes”), a form of which is annexed hereto as Exhibit A. The original
discount shall be reduced to ten percent (10%) as described in the Note, should
the Company prepay the Note in full within 45 days of the Closing Date as
defined below. The Notes are sometimes referred to herein as the "Securities";
and
 
WHEREAS, the aggregate proceeds of the sale of the Notes contemplated hereby
shall be held in escrow pursuant to the terms of a Funds Escrow Agreement to be
executed by the parties substantially in the form attached hereto as Exhibit B
(the "Escrow Agreement").
 
NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscriber hereby agree as
follows:
 
1. Closing. Subject to the satisfaction or waiver of the terms and conditions of
this Agreement, on the Closing Date, Subscriber shall purchase and the Company
shall sell to Subscriber a Note in the Principal Amount of $1,000,000 for the
purchase price of $800,000 (“Purchase Price”). The consummation of the
transactions contemplated herein shall take place at the offices of Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, as soon
as practicable following the satisfaction or waiver of all conditions to closing
set forth in this Agreement (the “Closing Date”).

2. Additional Transactions With Company Chief Executive Officer and President.

(a) Stock Pledge. Alex Lightman, the Chief Executive Officer and President of
the Company (“Pledgor”) will pledge 4,000,000 Shares (subject to increase) of
the Company’s $.001 par value Common Stock (“Common Stock” and “Pledged Shares”)
as security for the Company’s obligations to the Subscriber. The pledge will be
memorialized in a Stock Pledge Agreement, a form of which is annexed hereto as
Exhibit C. Pledgor will also provide a personally guaranty the payment of the
Note. The personal guaranty will be memorialized in a Guaranty, a form of which
is annexed hereto as Exhibit D.

(b) Stock Sale. Contemporaneously with the Closing, Pledgor will sell to the
Subscriber 825,000 Shares of Common Stock (“Purchased Shares”) for the
consideration stated in a stock purchase agreement to be entered into between
Mr. Lightman and Sellers.

3. Subscriber's Representations and Warranties. Subscriber hereby represents and
warrants to and agrees with the Company that:

 

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(a) Organization and Standing of the Subscriber. Subscriber is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has the requisite power to own its assets and to carry on its
business.

(b) Authorization and Power. Subscriber has the requisite power and authority to
enter into and perform this Agreement and to purchase the Notes being sold to it
hereunder. The execution, delivery and performance of this Agreement by
Subscriber and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action, and no further
consent or authorization of such Subscriber, its Board of Managers or members is
required. This Agreement has been duly authorized, executed and delivered by
Subscriber and constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of the Subscriber enforceable against the
Subscriber in accordance with the term hereof.
 
(c) No Conflicts. The execution, delivery and performance of this Agreement and
the consummation by Subscriber of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of such
Subscriber’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 Subscriber 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 Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on Subscriber). Subscriber 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 to purchase the Notes in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.

(d) Information on Company. The Subscriber has been furnished with or has had
access at the EDGAR Website of the Commission to the Company's Form 10-KSB for
the year ended June 30, 2006 and all periodic reports filed with the Commission
thereafter but not later than five days before the Closing Date (hereinafter
referred to as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
 
(e) Information on Subscriber. The Subscriber is, and will be on the Closing
Date, an "accredited investor", as such term is defined in Regulation D
promulgated by the Commission under the 1933 Act, is experienced in investments
and business matters, has made investments of a speculative nature and has
purchased securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such knowledge and
experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase of the Note, which represents a speculative investment.
The Subscriber has the authority and is duly and legally qualified to purchase
and own the Note. The Subscriber is able to bear the risk of such investment for
an indefinite period and to afford a complete loss thereof. The information set
forth on the signature page hereto regarding the Subscriber is accurate.
 
(f) Purchase of Note. On the Closing Date, the Subscriber will purchase the Note
as principal for its own account for investment only and not with a view toward,
or for resale in connection with, the public sale or any distribution thereof,
but Subscriber does not agree to hold the Note for any minimum amount of time.

 
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(g) Compliance with Securities Act. The Subscriber understands and agrees that
the Note has not been registered under the 1933 Act or any applicable state
securities laws, by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that such
Note must be held indefinitely unless a subsequent disposition is registered
under the 1933 Act or any applicable state securities laws or is exempt from
such registration. Notwithstanding anything to the contrary contained in this
Agreement, Subscriber may transfer (without restriction and without the need for
an opinion of counsel) the Note to its Affiliates (as defined below) provided
that each such Affiliate is an “accredited investor” under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an “Affiliate” of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
when employed in connection with the Company includes each Subsidiary [as
defined in Section 4(a)] of the Company. For purposes of this definition,
“control” means the power to direct the management and policies of such person
or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
 
(h) Note Legend. The Note shall bear the following legend:
 
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO INNOFONE.COM, INCORPORATED THAT SUCH REGISTRATION IS NOT
REQUIRED."
 
(i) Communication of Offer. The offer to sell the Note was directly communicated
to the Subscriber by the Company. At no time was the Subscriber presented with
or solicited by any leaflet, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or solicited or invited
to attend a promotional meeting otherwise than in connection and concurrently
with such communicated offer.
 
(j) No Governmental Review. Subscriber understands that no United States federal
or state agency or any other governmental or state agency has passed on or made
recommendations or endorsement of the Note or the suitability of the investment
in the Note nor have such authorities passed upon or endorsed the merits of the
offering of the Note.

(k) Correctness of Representations. Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless such Subscriber otherwise notifies the Company prior to the Closing Date
shall be true and correct as of the Closing Date.

(l) Survival. The foregoing representations and warranties shall survive the
Closing Date for a period of three years after the Closing Date.
 
4. Company Representations and Warranties. The Company represents and warrants
to and agrees with Subscriber that except as set forth in the Reports or the
Other Written Information and as otherwise qualified in the Transaction
Documents [as defined in Section 4(c)]:
 

 
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(a) Due Incorporation. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its properties and to
carry on its business is disclosed in the Reports. The Company is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect. For purpose of
this Agreement, a “Material Adverse Effect” shall mean a material adverse effect
on the financial condition, results of operations, properties or business of the
Company taken individually, or in the aggregate, as a whole. For purposes of
this Agreement, “Subsidiary” means, with respect to any entity at any date, any
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity) of which more than
50% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company’s Subsidiaries as of the
Closing Date are set forth on Schedule 4(a) hereto.
 
(b) Outstanding Stock. All issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable.
 
(c) Authority; Enforceability. This Agreement, the Note, the Escrow Agreement,
Stock Pledge Agreement, and any other agreements delivered together with this
Agreement or in connection herewith including in connection with the
transactions described in Section 3 above (collectively “Transaction Documents”)
have been duly authorized, executed and delivered by the Company and are valid
and binding agreements enforceable against the Company in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations thereunder.
 
(d) Additional Issuances. There are no outstanding agreements or preemptive or
similar rights affecting the Company's or any of its Subsidiaries’ Common Stock
or other equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any Common Stock or
equity of the Company except as described on Schedule 4(d). The Common Stock and
all other equity of the Company and its Subsidiaries on a fully diluted basis
outstanding as of the last trading day preceding the Closing Date is set forth
on Schedule 4(d).
 
(e) Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, any Principal Market (as defined in Section 9(b) of
this Agreement), nor the Company's shareholders is required for the execution by
the Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Note.
 
(f) No Violation or Conflict. Assuming the representations and warranties of the
Subscriber in Section 3 are true and correct, neither the issuance and sale of
the Note nor the performance of the Company’s obligations under this Agreement
and all other agreements entered into by the Company relating thereto by the
Company will:
 

 
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(i) violate, conflict with, result in a breach of, or constitute a default (or
an event which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default in any material respect) under (A) the
articles or certificate of incorporation, charter or bylaws of the Company, (B)
to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or over the
properties or assets of the Company or any of its Affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its Affiliates is a
party, by which the Company or any of its Affiliates is bound, or to which any
of the properties of the Company or any of its Affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its Affiliates is a party except the
violation, conflict, breach, or default of which would not have a Material
Adverse Effect; or
 
(ii) result in the creation or imposition of any Lien (as defined in Section
9(o)(i)) upon the Note or any of the assets of the Company or any of its
Affiliates other then a Permitted Lien (as defined in Section 9(o)(i)); or
 
(iii) result in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor or equity
holder of the Company, nor result in the acceleration of the due date of any
obligation of the Company; or
 
(iv) result in the activation of any piggy-back registration rights of any
person or entity holding securities or debt of the Company or having the right
to receive securities of the Company.
 
(g) The Note. Each of the Note upon issuance; the Purchased Shares upon the
Closing Date and the Pledged Shares upon release or sale by or on behalf of
Subscriber (if ever):
 
(i) is, or will be, free and clear of any security interests, liens, claims or
other encumbrances, subject to restrictions upon transfer under the 1933 Act and
any applicable state securities laws;

(ii) has been, or will be, duly and validly authorized and on the date of
issuance of will be or will have been duly and validly issued and fully paid and
nonassessable and, if registered pursuant to the 1933 Act and resold pursuant to
an effective registration statement, will be free trading and unrestricted
except to the extent of any restrictions pursuant to the 1933 Act or the
Exchange Act that may be applicable to any Subscriber due to such Subscriber’s
affiliate or insider status with respect to the Company or such Subscriber’s
possession of material non-public information with respect to the Company;
 
(iii) will not have been issued or sold in violation of any preemptive, right of
first offer, right of first refusal or other similar rights of the holders of
any securities or debt of the Company or any other person having such rights;
 
(iv) will not subject the holders thereof to personal liability by reason of
being such holders provided Subscriber’s representations herein are true and
accurate and Subscriber takes no actions or fails to take any actions required
by Subscriber for such purchase to be in compliance with applicable laws and
regulations; and
 
(v) will have been issued in reliance upon an exemption from the registration
requirements of and will not result in a violation of Section 5 under the 1933
Act provided Subscriber’s representations herein are true and accurate and
Subscriber takes no actions or fails to take any actions required for their
purchase to be in compliance with applicable laws and regulations.

 
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(h) Litigation. Except as described in the Reports, there is no pending or, to
the best knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company of any of the Transaction Documents or
the performance by the Company of its obligations under the Transaction
Documents except as described in the Reports. There is no pending or, to the
best knowledge of the Company, basis for or threatened action, suit, proceeding
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.
 
(i) Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934 (the “1934 Act”) and has a class of common shares registered pursuant to
Section 12(g) of the 1934 Act. Pursuant to the provisions of the 1934 Act,
except as disclosed on Schedule 4(i) hereto, the Company has timely filed all
reports and other materials required to be filed thereunder with the Commission
during the preceding thirty-six months.
 
(j) No Market Manipulation. The Company and its Affiliates have not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock or affect the price at which Common Stock may be
issued or resold, provided, however, that this provision shall not prevent the
Company from engaging in investor relations/public relations activities
consistent with past practices.
 
(k) Information Concerning Company. The Reports contain all material information
relating to the Company and its operations and financial condition as of their
respective dates and all the information required to be disclosed therein. Since
the last day of the fiscal year of the most recent audited financial statements
included in the Reports (“Latest Financial Date”), and except as modified in the
Other Written Information or in the Schedules hereto, there has been no Material
Adverse Event relating to the Company's business, financial condition or affairs
not disclosed in the Reports. The Reports including the financial statements
therein do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
Subscriber acknowledges the Company’s disclosure made in a Form 8-K filed by the
Company with the Commission on December 29, 2006 relating to its financial
statements.
 
(l) Stop Transfer. The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Pledged Shares or
Purchased Shares, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to the Subscriber.
 
(m) Defaults. The Company is not in violation of its certificate of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to the
Company’s knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect.
 
(n) Not an 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 offer of the Note pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the OTC Bulletin Board
(“Bulletin Board”) which would impair the exemptions relied upon herein or the
Company’s ability to timely comply with its obligations hereunder. Nor will the
Company or any of its Affiliates take any action or steps that would cause the
offer or issuance of the Note to be integrated with other offerings which would
impair the exemptions relied upon herein or the Company’s ability to timely
comply with their obligations set forth in the Transaction Documents. The
Company will not conduct any offering other than the transactions contemplated
hereby that will be integrated with the offer or issuance of the Note, which
would impair the exemptions relied upon herein or the Company’s or Pledgor’s
ability to timely comply with their respective obligations.
 

 
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(o) No General Solicitation. Neither the Company, nor any of its Affiliates, nor
to its knowledge, 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 1933 Act) in connection with the offer or sale of the
Note, Pledged Stock or Purchased Stock.
 
(p) Listing. The Company's common stock is quoted on the Bulletin Board under
the symbol IMEN.OB. The Company has not received any oral or written notice that
its common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation. The Company satisfies all the requirements for
the continued quotation of its common stock on the Bulletin Board.
 
(q) No Undisclosed Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, which are not disclosed in
the Reports and Other Written Information, other than those incurred in the
ordinary course of the Company’s businesses since the Latest Financial Date and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed on Schedule 4(q).
 
(r) No Undisclosed Events or Circumstances. Since the Latest Financial Date, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.
 
(s) Capitalization. The authorized and outstanding capital stock of the Company
and each Subsidiary as of the date of this Agreement and the Closing Date are
set forth on Schedule 4(d). Except as set forth on Schedule 4(d), there are no
options, warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company or any of its Subsidiaries. All of the
outstanding shares of Common Stock of the Company and Subsidiaries have been
duly and validly authorized and issued and are fully paid and nonassessable.
 
(t) No Disagreements with Accountants and Lawyers. There are no disagreements of
any kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers, nor have there been any such
disagreements during the two years prior to the Closing Date.

(u) Transfer Agent/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 transfer
agent is set forth on Schedule 4(u) hereto.

(v) Investment Company. Neither the Company nor any Affiliate is an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

 
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(w) Solvency. Based on the financial condition of the Company as of the Closing
Date after giving effect to the receipt by the Company of the proceeds from the
sale of the Note, (i) the Company’s fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).

(x) Subsidiary Representations. The Company makes each of the representations
contained in Sections 4(a), (b), (c), (d), (e), (f), (h), (k), (m), (q), (r),
(t), (v) and (w) of this Agreement, as same relate to each Subsidiary of the
Company.

(y) Company Predecessor. All representations made by or relating to the Company
of a historical or prospective nature and all undertakings described in Sections
9(g) through 9(l) shall relate, apply and refer to the Company, Subsidiaries and
their predecessors, if any.

(z) Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscriber
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date.
 
(AA) Survival. The foregoing representations and warranties shall survive for a
period of three years after the Closing Date.
 
5. Regulation D Offering. The offer, issuance and sale of the Note and Purchased
Shares to the Subscriber is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Note and other matters reasonably requested by Subscriber. A
form of the legal opinion is annexed hereto as Exhibit E. At the Company’s
option, the Company will provide, at the Company's expense or reimburse
Subscriber, for such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Note, Pledged Shares, and Purchased
Shares pursuant to an effective registration statement, Rule 144 under the 1933
Act or an exemption from registration.
6. Broker’s Commission. The Company on the one hand, and Subscriber on the other
hand, agrees to indemnify the other against and hold the other harmless from any
and all liabilities to any persons claiming brokerage commissions or similar
fees on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. The Company
represents that there are no parties entitled to receive fees, commissions, or
similar payments in connection with the offering described in this Agreement.

7. Due Diligence Fee. The Company will pay a due diligence fee of $25,000 (“Due
Diligence Fee”). The Due Diligence Fee will be paid at the Subscriber’s election
out of the funds deposited pursuant to the Escrow Agreement or at the
Subscriber’s election withheld from the Purchase Price. The Subscriber will not
receive additional Common Stock as an additional due diligence fee.
 

 
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8. Legal Fees. The Company shall pay to Grushko & Mittman, P.C., a cash fee of
$20,000 (“Legal Fees”) (of which $10,000 has been paid prior to Closing) as
reimbursement for services rendered to the Subscriber in connection with this
Agreement and the purchase and sale of the Note (the “Offering”). The Legal Fees
and reimbursement for estimated UCC searches, credit and background
investigations, if any (less any amounts paid prior to a Closing Date), will be
payable on the Closing Date out of funds held pursuant to the Escrow Agreement.
 
9. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows:
 
(a) Stop Orders. The Company will advise the Subscriber, within two business
days after the Company receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
 
(b) Listing. The Company will maintain the listing or quotation of its Common
Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq National
Market System, Bulletin Board, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock (the “Principal Market”)), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. For so long as the Subscriber owns any
Purchased Shares or Pledged Shares remain subject to the Stock Pledge Agreement,
the Company will provide the Subscriber copies of all notices it receives
notifying the Company of the threatened and actual delisting or exclusion from
quotation of the Common Stock from any Principal Market. As of the date of this
Agreement, the Bulletin Board is the Principal Market.
 
(c) Market Regulations. The Company shall notify the Commission, the Principal
Market and applicable state authorities, in accordance with their requirements,
of the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Note to the
Subscriber and promptly provide copies thereof to Subscriber.
 
(d) Filing Requirements. From the date of this Agreement and until the sooner of
(i) two (2) years after the Closing Date, or (ii) until all the Purchased Shares
have been resold or transferred by all the Subscriber pursuant to a registration
statement or pursuant to Rule 144, without regard to volume limitations and no
sum remains outstanding under the Note (“Compliance Period”), the Company will
(A) cause its Common Stock to continue to be registered under Section 12(b) or
12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend its reporting and filing obligations under said acts during the
Compliance Period. During the Compliance Period, the Company will continue the
listing or quotation of the Common Stock on a Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market. The Company agrees to timely file a
Form D with respect to the Note if required under Regulation D and to provide a
copy thereof to each Subscriber promptly after such filing.
 
(e) Use of Proceeds. The proceeds of the Offering will be employed by the
Company for the purposes set forth on Schedule 9(e) hereto. Except as set forth
on Schedule 9(e), the Purchase Price may not and will not be used for accrued
and unpaid officer and director salaries, payment of financing related debt,
redemption of outstanding notes or equity instruments of the Company, litigation
related expenses or settlements, brokerage fees, nor non-trade obligations
outstanding on a Closing Date.
 

 
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(f) Taxes. During the Compliance Period, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.
 
(g) Insurance. During the Compliance Period, the Company will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company’s line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than one hundred percent (100%) of the insurable value of the
property insured less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated and to
the extent available on commercially reasonable terms.
 
(h) Books and Records. During the Compliance Period, the Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a consistent
basis.
 
(i) Governmental Authorities. During the Compliance Period, the Company shall
duly observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.
 
(j) Intellectual Property. During the Compliance Period, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business, unless it is sold for value.
 
(k) Properties. During the Compliance Period, the Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.
 
(l) Confidentiality/Public Announcement. During the Compliance Period, the
Company agrees that except in connection with a Form 8-K or the Registration
Statement or as otherwise required in any other Commission filing or as required
by law, it will not disclose publicly or privately the identity of the
Subscriber unless expressly agreed to in writing by Subscriber, only to the
extent required by law and then only upon five days prior notice to Subscriber.
In any event and subject to the foregoing, the Company shall file a Form 8-K or
make a public announcement describing the Offering not later than the first
business day after the Closing Date. In the Form 8-K or public announcement, the
Company will specifically disclose the amount of common stock outstanding
immediately after the Closing. A form of the proposed Form 8-K or public
announcement to be employed in connection with the Closing is annexed hereto as
Exhibit F.
 

 
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(m) Non-Public Information. The Company covenants and agrees that neither it nor
any other person acting on its behalf will provide Subscriber or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Subscriber shall have agreed
in writing to receive such information. The Company understands and confirms
that each Subscriber shall be relying on the foregoing representations in
effecting transactions in securities of the Company. The Company will offer to
the Subscriber an opportunity to review and comment on the Registration
Statement thereto between three and five business days prior to the proposed
filing date thereof.

(n) Additional Negative Covenants. So long as the Notes are outstanding and
during the pendency of an Event of Default (as defined in the Note), without the
consent of the Subscriber, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:

(i) create, incur, assume or suffer to exist any pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
security title, mortgage, security deed or deed of trust, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Uniform Commercial
Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired except for (i) the Excepted
Issuances [as defined on Schedule 9(n)], (ii) (a) Liens imposed by law for taxes
that are not yet due or are being contested in good faith and for which adequate
reserves have been established in accordance with generally accepted accounting
principles; (b) carriers’, warehousemen’s, mechanics’, material men’s,
repairmen’s and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than 30 days
or that are being contested in good faith and by appropriate proceedings; (c)
pledges and deposits made in the ordinary course of business in compliance with
workers’ compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (e) Liens created with respect to the financing of the purchase of new
property in the ordinary course of the Company’s business up to the amount of
the purchase price of such property, or (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property (each of (a) through (g), a “Permitted Lien”) and (iii) indebtedness
for borrowed money which is not senior or pari passu in right of payment to the
payment of the Notes;
 
(ii) amend its certificate of incorporation or bylaws so as to adversely affect
any rights of the Subscriber;
 
(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire or
make any dividend or distribution in respect of any of its Common Stock,
preferred stock, or other equity securities other than to the extent permitted
or required under the Transaction Documents or as described on Schedule
9(n) subpart (vi);
 
(iv) prepay any financing related or other outstanding debt obligations except
as described on Schedule 9(n), subpart (vi); or
 
(v) engage in any transactions with any officer, director, employee or any
Affiliate of the Company, including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $50,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company.

 
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(o) Sale of Pledged Shares and Purchased Shares. Upon the transfer of Pledged
Shares or Purchased Shares, the Company shall, at its own cost and expense, take
all necessary action, including obtaining and delivering, an opinion of counsel
to assure that the Company's transfer agent shall issue stock certificates in
the name of transferee, or its permitted nominee or such other persons as
designated by Subscriber and in such denominations to be specified upon transfer
representing the number of shares of Common Stock issuable upon such Pledged
Shares and Purchased Shares. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that the certificates representing such shares shall
contain no legend other than the required 1933 Act restriction from transfer
legend. If and when the Subscriber transfers the Pledged Shares and Purchased
Shares, assuming (i) a registration statement is effective and the prospectus,
as supplemented or amended, contained therein is current and (ii) the Subscriber
confirms in writing to the transfer agent that the Subscriber has complied with
the prospectus delivery requirements, the restrictive legend will be removed and
such Pledged Shares and Purchased Shares will be free trading, and freely
transferable. In the event that the Pledged Shares and Purchased Shares are sold
in a manner that complies with an exemption from registration, the Company will
promptly instruct its counsel to issue to the transfer agent an opinion
permitting removal of the legend (indefinitely, if pursuant to Rule 144(k) of
the 1933 Act).
 
(p) Preservation of Corporate Existence. The Company shall preserve and maintain
its corporate existence, rights, privileges and franchises in the jurisdiction
of its incorporation, and qualify and remain qualified, as a foreign corporation
in each jurisdiction in which such qualification is necessary in view of its
business or operations and where the failure to qualify or remain qualified
might reasonably have a Material Adverse Effect upon the financial condition,
business or operations of the Company and its Subsidiaries taken as a whole.
 
10. Covenants of the Company and Subscriber Regarding Indemnification.
 
(a) The Company agrees to indemnify, hold harmless, reimburse and defend the
Subscriber, the Subscriber’s officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
Company or material breach of any warranty by Company in this Agreement or in
any Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any material
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into by
the Company and Subscriber relating hereto.
 
(b) Subscriber agrees to indemnify, hold harmless, reimburse and defend the
Company and each of the Company’s officers, directors, agents, Affiliates,
control persons against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company or any such person which results, arises out of or is based
upon (i) any material misrepresentation by such Subscriber in this Agreement or
in any Exhibits or Schedules attached hereto, or other agreement delivered
pursuant hereto; or (ii) after any applicable notice and/or cure periods, any
material breach or default in performance by such Subscriber of any covenant or
undertaking to be performed by such Subscriber hereunder, or any other agreement
entered into by the Company and Subscriber, relating hereto.
 
(c) In no event shall the liability of any Subscriber or permitted successor
hereunder or under any Transaction Document or other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of the Purchased
Shares.

 
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(d) The procedures set forth in Section 11.6 shall apply to the indemnification
set forth in Sections 10(a) and 10(b) above.
 
11.1. Registration Rights. The Company hereby grants the following registration
rights to holders of the Purchased Shares and Pledged Shares. Other than for the
exclusive registration of the securities underlying that certain equity swap by
and between the Company and Cogent Capital, LLC as described in the Reports, if
the Company at any time proposes to register any of its securities under the
1933 Act for sale to the public, whether for its own account or for the account
of other security holders or both, except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
Warrant Shares and the other shares of Common Stock held by or purchaseable by
Subscriber as set forth on Schedule 11.1 (“Registrable Securities”) for sale to
the public, provided the Registrable Securities are not otherwise registered for
resale by the Subscribers or Holder pursuant to an effective registration
statement, each such time it will give at least fifteen (15) days' prior written
notice to the record holder of the Registrable Securities of its intention so to
do. Upon the written request of the holder, received by the Company within ten
(10) days after the giving of any such notice by the Company, to register any of
the Registrable Securities not previously registered, the Company will cause
such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so registered
by the holder of such Registrable Securities (the “Seller” or “Sellers”). The
Subscriber or any transferee of the Pledged Shares (as the case may be) will be
deemed the holder or Seller of the Pledged Shares for so long as the Pledged
Shares remain subject to the Stock Pledge Agreement. Unless instructed in
writing to the contrary, the Subscribers hereby automatically exercise the
registration rights granted in this Section 11.1. The Seller is hereby given the
same rights and benefits as any other party identified in such registration. In
the event that any registration pursuant to this Section 11.1 shall be, in whole
or in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1 without
thereby incurring any liability to the Seller due to such withdrawal or delay.
The holder of Registrable Securities may elect to receive the registration
rights applicable to any other holder of securities (except the Company)
included for resale in a Registration Statement in lieu of the registration
rights granted to such holder as described in Sections 11.2 through 11.6 hereto.
 
11.2. Registration Procedures. If and whenever the Company is required by the
provisions of Section 11.1 to effect the registration of any Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:
 
(a) subject to the timelines provided in this Agreement, prepare and file with
the Commission a registration statement required by Section 11, with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com) on or before the first business day thereafter that the
Company receives notice that (i) the Commission has no comments or no further
comments on the Registration Statement, and (ii) the registration statement has
been declared effective (failure to timely provide notice as required by this
Section 11.2(a) shall be a material breach of the Company’s obligation and an
Event of Default as defined in the Notes and a Non-Registration Event as defined
in Section 11.4 of this Agreement);
 

 
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(b) prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
 
(c) furnish to the Sellers, at the Company’s expense, such number of copies of
the registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
 
(d) use its commercially reasonable best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or “blue sky” laws of New York and such jurisdictions as the Sellers
shall request in writing, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
 
(e) if applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
 
(f) notify the Subscribers within twenty-four hours of the Company’s becoming
aware that a prospectus relating thereto is required to be delivered under the
1933 Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Registrable
Securities;
 
(g) provided same would not be in violation of the provision of Regulation FD
under the 1934 Act, make available for inspection by the Sellers, and any
attorney, accountant or other agent retained by the Seller or underwriter, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, attorney,
accountant or agent in connection with such registration statement; and
 
(h) provide to the Sellers copies of the Registration Statement and amendments
thereto five business days prior to the filing thereof with the Commission. 
 
11.3. Provision of Documents. In connection with each registration described in
this Section 11, each Seller will furnish to the Company in writing such
information and representation letters reasonably requested by the Company with
respect to itself and the proposed distribution by it as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
 
11.4. Non-Registration Events. The Company and the Subscriber agree that the
Sellers will suffer damages if the Company does not comply with its obligations
set forth in Section 11.1.
 
11.5. Expenses. All expenses incurred by the Company in complying with Section
11, including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including reasonable counsel fees) incurred
in connection with complying with state securities or “blue sky” laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and fee of one counsel for
all Sellers are called “Registration Expenses.” All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any additional counsel to the Seller, are called
"Selling Expenses." The Company will pay all Registration Expenses in connection
with the registration statement under Section 11. Selling Expenses in connection
with each registration statement under Section 11 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

 
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11.6. Indemnification and Contribution.
 
(a) In the event of a registration of any Registrable Securities under the 1933
Act pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
 
(b) In the event of a registration of any of the Registrable Securities under
the 1933 Act pursuant to Section 11, each Seller severally but not jointly will,
to the extent permitted by law, indemnify and hold harmless the Company, and
each person, if any, who controls the Company within the meaning of the 1933
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the 1933
Act pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the net proceeds actually
received by the Seller from the sale of Purchased Shares covered by such
registration statement.

 
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(c) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 11.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
 
(d) In order to provide for just and equitable contribution in the event of
joint liability under the 1933 Act in any case in which either (i) a Seller, or
any controlling person of a Seller, makes a claim for indemnification pursuant
to this Section 11.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
 
11.7. Delivery of Unlegended Shares.
 
(a) Within three (3) business days (such third business day being the
“Unlegended Shares Delivery Date”) after the business day on which the Company
has received (i) a notice that Registrable Securities have been sold pursuant to
a registration statement or Rule 144 under the 1933 Act, (ii) a representation
that the prospectus delivery requirements, or the requirements of Rule 144, as
applicable and if required, have been satisfied, and (iii) the original share
certificates representing the shares of Common Stock that have been sold, and
(iv) in the case of sales under Rule 144, customary representation letters of
the Subscriber and/or Subscriber’s broker regarding compliance with the
requirements of Rule 144, the Company, at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver to its transfer
agent (with copies to Subscriber) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends
including the legend set forth in Section 4 above, reissuable pursuant to any
effective and current Registration Statement described in Section 11 of this
Agreement or pursuant to Rule 144 under the 1933 Act (the “Unlegended Shares”);
and (z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Common Stock certificate, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer or
otherwise on or before the Unlegended Shares Delivery Date.

 
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(b) In lieu of delivering physical certificates representing the Unlegended
Shares, if the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer program, upon request of a
Subscriber, so long as the certificates therefor do not bear a legend and the
Subscriber is not obligated to return such certificate for the placement of a
legend thereon, the Company must cause its transfer agent to electronically
transmit the Unlegended Shares by crediting the account of Subscriber’s prime
Broker with DTC through its Deposit Withdrawal Agent Commission system. Such
delivery must be made on or before the Unlegended Shares Delivery Date.

(c) The Company understands that a delay in the delivery of the Unlegended
Shares pursuant to Section 11 hereof after the Unlegended Shares Delivery Date
could result in economic loss to Subscriber. As compensation for such loss, the
Company agrees to pay late payment fees (as liquidated damages and not as a
penalty) to the Subscriber for late delivery of Unlegended Shares in the amount
of $100 per business day after the Delivery Date for each $10,000 of sales price
anticipated to have been received by Subscriber in connection with such sale of
the Unlegended Shares subject to the delivery default. If during any 360 day
period, the Company fails to deliver Unlegended Shares as required by this
Section 11.7 for an aggregate of thirty (30) days, then each Subscriber or
assignee holding Registrable Securities subject to such default may, at its
option, require the Company to redeem all or any portion of such Registrable
Securities subject to such default at a price per share equal to 120% of the
sales price anticipated to have been received by Subscriber in connection with
such sale (“Unlegended Redemption Amount”).
 
(d) In addition to any other rights available to a Subscriber, if the Company
fails to deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.

(e) In the event a Subscriber shall request delivery of Unlegended Shares as
described in Section 11.7 and the Company is required to deliver such Unlegended
Shares pursuant to Section 11.7, the Company may not refuse to deliver
Unlegended Shares based on any claim that such Subscriber or any one associated
or affiliated with such Subscriber has been engaged in any violation of law, or
for any other reason, unless, an injunction or temporary restraining order from
a court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount of
the aggregate market value of the Common Stock which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber’s favor. Market Value shall mean the highest Ask price of
the Common Stock during the three hundred and sixty-five days preceding the date
the injunction or temporary restraining order is requested from a court.

 
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12. Miscellaneous.
 
(a) Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, 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: (i) if to the Company, to: Innofone.com, Incorporated,
1431 Ocean Avenue, Suite 1500, Santa Monica, CA 90401, Attn: Alex Lightman, CEO
and President, telecopier: (310) 458-2844, with a copy by telecopier only to:
Arthur Marcus, Esq., and Peter J. Gennuso, Esq., Gersten Savage LLP, 600
Lexington Avenue, New York, NY 10022, telecopier (212) 980-5192, and (ii) if to
the Subscriber, to: the one or more addresses and telecopier numbers indicated
on the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575.
 
(b) Entire Agreement; Assignment. This Agreement and the Transaction Documents
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties. Neither the Company nor the Subscribers
have relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith. No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.
 
(c)  Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile signature and delivered by facsimile transmission.
 
(d) Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
conflicts of laws principles that would result in the application of the
substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the civil or state courts of New York or in the federal
courts located in New York County. The parties and the individuals executing
this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
 

 
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(e) Specific Enforcement, Consent to Jurisdiction. To the extent permitted by
law, the Company and Subscriber acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this 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 one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity. Subject to Section 12(d) hereof, each of the Company,
Subscriber and any signator hereto in his personal capacity 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 in New York 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. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
 
(f) Nothing contained herein or in any document referred to herein or delivered
in connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Subscriber and thus refunded to the Company.
 

 

 
[THIS SPACE INTENTIONALLY LEFT BLANK]
 
 
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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
 

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 
INNOFONE.COM, INCORPORATED
 
a Nevada corporation
                 
By: /s/ Alex Lightman
 
Name: Alex Lightman
 
Title: CEO and President
     
Dated: January 16, 2007

SUBSCRIBER
NOTE PRINCIPAL AMOUNT
PURCHASE PRICE
LAKEWOOD GROUP LLC
152 West 57th Street, 54th Floor
New York, NY 10019
Fax: (732) 364-3555
 
 
 
 
/s/
(Signature)
By:
$1,000,000.00
$800,000.00

 

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LIST OF EXHIBITS AND SCHEDULES
 
 

 
Exhibit A
Form of Note

 

 
Exhibit B
Escrow Agreement

 

 
Exhibit C
Form of Stock Pledge Agreement

 

 
Exhibit D
Form of Guaranty

 

 
Exhibit E
Form of Legal Opinion

 

 
Exhibit F
Form of 8-K or Public Announcement

 

 
Schedule 4(a)
Subsidiaries

 

 
Schedule 4(d)
Additional Issuances / Capitalization

 

 
Schedule 4(q)
Undisclosed Liabilities

 

 
Schedule 4(u)
Transfer Agent

 

 
Schedule 9(e)
Use of Proceeds

 

 
Schedule 9(n)
Excepted Issuances

 

 
Schedule 11.1
Other Registrable Securities

 
 

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