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Exhibit 10.1

 
 
SUBSCRIPTION AGREEMENT
 
 
THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of October 31, 2008, by
and among IDO Security Inc. (formerly known as The Medical Exchange Inc.), a
Nevada corporation (the “Company”), and the subscribers identified on the
signature page hereto (each a “Subscriber” and collectively “Subscribers”).
 
WHEREAS, the Company and the Subscribers 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”); and
 
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Subscribers, as
provided herein, and the Subscribers, in the aggregate, shall purchase up to
$1,351,137.50 (the "Purchase Price") of principal amount of promissory notes of
the Company (“Note” or “Notes”), a form of which is annexed hereto as Exhibit A,
convertible into shares of the Company's common stock, $0.001 par value (the
"Common Stock") at a per share conversion price set forth in the Note
(“Conversion Price”); up to $3,377,843.75 stated value of Series A Preferred
Stock of the Company (“Preferred Stock”) convertible into the Common Stock,
subject to the rights and preferences in the Certificate of Designation in the
form annexed hereto as Exhibit B; and share purchase warrants (the “Warrants”),
in the form annexed hereto as Exhibit C, to purchase shares of Common Stock (the
“Warrant Shares”).  The Notes, shares of Common Stock issuable upon conversion
of the Notes (the “Note Conversion Shares”), the Preferred Stock and Shares of
Common Stock issuable upon conversion of the Preferred Stock (“Preferred
Conversion Shares”) (Note Conversion Shares and Preferred Conversion Shares are
collectively referred to herein as “Shares”), the Warrants and the Warrant
Shares are collectively referred to herein as the "Securities"; and
 
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
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 D (the "Escrow Agreement").
 
NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscribers hereby agree as
follows:
 
1.           Closing.   The “Closing Date” shall be deemed as of October 31,
2008. 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, upon the satisfaction or waiver of all conditions to
closing set forth in this Agreement.   Subject to the satisfaction or waiver of
the terms and conditions of this Agreement, on the Closing Date, each Subscriber
shall purchase and the Company shall sell to each Subscriber a Note in the
Principal Amount designated on the signature page hereto for the Purchase Price
indicated thereon and the amount of Preferred Stock described pursuant to
Section 3 below, and Warrants as described in Section 2 of this Agreement.

2.           Warrants.  On the Closing Date, the Company will issue and deliver
Warrants to the Subscribers.  One Class C Warrant will be issued for each Share
which would be issued on the Closing Date assuming the complete conversion of
the Notes issued on the Closing Date at the Conversion Price in effect on the
Closing Date.  The per Warrant Share exercise price to acquire a Warrant Share
upon exercise of a Class C Warrant shall be equal to $0.25.   The Class C
Warrants shall be exercisable until five (5) years after the Closing Date.
 
 
 

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3.           Preferred Stock.   On the Closing Date, the Company will issue and
deliver the Preferred Stock to the Subscribers.  The timely filing of the
Certificate of Designation and the timely issuance and delivery of the Preferred
Stock are material terms of this Agreement and failure to strictly comply with
the terms of this Section 3 shall be an Event of Default under the Notes.  Each
Subscriber will be issued shares of the Company’s Preferred Stock equal to 250%
of the Principal Amount of the Notes being issued to such Subscriber.

4.           Subscriber's Representations and Warranties.  Each Subscriber
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:
 
  (a)           Organization and Standing of the Subscribers.  If the Subscriber
is an entity, such Subscriber is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

  (b)           Authorization and Power.  Each Subscriber has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Notes, Preferred Stock and Warrants being sold to it hereunder.  The execution,
delivery and performance of this Agreement by such Subscriber and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required.  This
Agreement has been duly authorized, executed and delivered by such 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 such 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
such 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 such 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 such
Subscriber).  Such 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 Securities in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, such 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 filed on April 15, 2008 for the fiscal year ended December 31, 2007, the
quarterly reports for each of the three month periods ended March 31, 2008 and
June 30, 2008, together with all subsequent filings made with the Commission
available at the EDGAR website (hereinafter referred to collectively as the
"Reports").  In addition, the Subscriber may have received in writing from the
Company such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing, identified thereon
as OTHER WRITTEN INFORMATION (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. Each Subscriber,
severally and  not jointly, hereby represents that, in connection with the
Subscriber’s investment or the Subscriber’s decision to purchase the Securities,
except as herein provided, the Subscriber has not relied on any statement or
representation of any person, including any such statement or representation by
the Company or the placement agent or any of their respective controlling
persons,  officers, directors, partners, agents and employees or any of their
respective attorneys, except as specifically set forth in the Transaction
Documents.
 
 
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  (e)           Information on Subscriber.  The Subscriber is, and will be at
the time of the conversion of the Notes, Preferred Stock and exercise of the
Warrants, 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, which represents a speculative investment.  The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities.  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 Notes, Preferred Stock and Warrants.  On the
Closing Date, the Subscriber will purchase the Notes, Preferred Stock and
Warrants 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.
 
  (g)           Compliance with Securities Act.   The Subscriber understands and
agrees that the Securities have 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 Securities 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.  The Subscribers will comply with all
applicable rules and regulations in connection with the sales of the securities
including laws relating to short sales.
 
  (h)           Shares Legend.  The Shares, and the Warrant Shares shall bear
the following or similar legend:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.  THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED."
 
  (i)           Warrants Legend.  The Warrants shall bear the following or
similar legend:
 
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
 
 
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  (j)            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 THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
 
  (k)           Preferred Stock Legend.   The Preferred Stock shall bear the
following or similar legend:
 
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.  THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.”
 
  (l)           Communication of Offer.  The offer to sell the Securities 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.
 
  (m)          Authority; Enforceability.  This Agreement and other agreements
delivered together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their 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; and Subscriber has full power and authority
necessary to enter into this Agreement and such other agreements and to perform
its obligations hereunder and under all other agreements entered into by the
Subscriber relating hereto.
 
  (n)           Restricted Securities.   Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is
available.  Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities 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 includes each subsidiary 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.
 
 
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  (o)           No Governmental Review.  Each 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 Securities or the
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
 
  (p)           Correctness of Representations.  Each Subscriber represents as
to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to the Closing Date shall be true and correct as of the
Closing Date.
 
  (q)           Survival.  The foregoing representations and warranties shall
survive the Closing Date for a period of three years.
 
5.           Company Representations and Warranties.  The Company represents and
warrants to and agrees with each Subscriber that as of the date hereof and the
Closing Date and unless the Company notifies the Subscribers prior to the
Closing Date, as follows (except as set forth on the Schedule of Exceptions
delivered to the Subscribers with each numbered Schedule corresponding to the
section number herein or in the Reports):
 
  (a)           Due Incorporation.  The Company is a corporation or other entity
duly incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has the
requisite corporate power to own its properties and to carry on its business as
presently conducted.  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 purposes 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 and its Subsidiaries taken
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 30% 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.  The Company’s Subsidiaries as of the
Closing Date are set forth on Schedule 5(a).
 
  (b)           Outstanding Stock.  All issued and outstanding shares of capital
stock of the Company and Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable.
 
  (c)           Authority; Enforceability.  This Agreement, the Note, the
Preferred Stock, the Certificate of Designation, the Warrants, the Escrow
Agreement, the Intercreditor and Modification Agreement, and any other
agreements delivered together with this Agreement or in connection herewith
(collectively “Transaction Documents”) have been duly authorized, executed and
delivered by the Company and are valid and binding agreements of the Company
enforceable in accordance with their 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.
 
 
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  (d)           Additional Issuances.   There are no outstanding agreements or
preemptive or similar rights affecting the Company's Common Stock or 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 shares of Common Stock or equity of the
Company or Subsidiaries or other equity interest in the Company except as
described in the Reports or on Schedule 5(d).  The Common Stock of the Company
on a fully diluted basis outstanding as of the last Business Day preceding the
Closing Date is set forth on Schedule 5(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, the OTC Bulletin Board (the “Bulletin Board”)
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 Securities.  The Transaction Documents and the
Company’s performance of its obligations thereunder has been unanimously
approved by the Company’s Board of Directors.
 
  (f)           No Violation or Conflict.  Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities 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:
 
 (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) 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, charge or
encumbrance upon the Securities or any of the assets of the Company or any of
its Affiliates except as described herein; or
 
 (iii)         except as described in Schedule 5(d), 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)        will result in the triggering of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company; or
 
 
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  (g)           The Securities.  The Securities upon issuance:
 
 (i)           are, 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)          have been, or will be, duly and validly authorized and on the
date of issuance of the Shares upon conversion of the Notes and Preferred Stock
and the Warrant Shares and upon exercise of the Warrants, the Shares and Warrant
Shares will be duly and validly issued, fully paid and non-assessable and if
registered pursuant to the 1933 Act and resold pursuant to an effective
registration statement will be free trading and unrestricted;
 
 (iii)         will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the Company;
 
 (iv)        will not subject the holders thereof to personal liability by
reason of being such holders; and
 
 (v)         assuming the representations warranties of the Subscribers as set
forth in Section 4 hereof are true and correct, will not result in a violation
of Section 5 under the 1933 Act.
 
  (h)           Litigation.  There is no pending or, to the best knowledge of
the Company, 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
or the performance by the Company of its obligations under the Transaction
Documents.  Except as disclosed 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)            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 to facilitate the sale or resale
of the Securities or affect the price at which the Securities may be issued or
resold.
 
  (j)           Information Concerning Company.  The Reports and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein.   Since the date of the
financial statements included in the Reports, 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 and Other Written Information 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, taken
as a whole, not misleading in light of the circumstances when made.
 
  (k)           Stop Transfer.  The Company will not issue any stop transfer
order or other order impeding the sale, resale or delivery of any of the
Securities, 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.
 
  (l)           Defaults.   The Company is not in violation of its articles 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.
 
 
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  (m)          No Integrated Offering.   Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities 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 Bulletin Board which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder.  Nor will the Company nor any of its Affiliates take any action or
steps that would cause the offer or issuance of the Securities to be integrated
with other offerings which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder.  The Company will not conduct any offering other than the
transactions contemplated hereby that will be integrated with the offer or
issuance of the Securities, which would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder.
 
  (n)           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 Securities.
 
  (o)           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 businesses since December 31,
2007 and which, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect, except as disclosed in the Reports or on
Schedule 5(o).
 
  (p)           No Undisclosed Events or Circumstances.  Since December 31,
2007, 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.
 
  (q)           Capitalization.  The authorized and outstanding capital stock of
the Company and Subsidiaries as of the date of this Agreement and the Closing
Date (not including the Securities) are set forth in the Reports or on Schedule
5(d).  Except as set forth on Schedule 5(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.
 
  (r)           Dilution.   The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company’s equity or rights to receive equity of
the Company.  The board of directors of the Company has concluded, in its good
faith business judgment that the issuance of the Securities is in the best
interests of the Company.  The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes and Preferred Stock
and the Warrant Shares upon exercise of the Warrants, is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company or parties entitled to
receive equity of the Company.
 
 
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  (s)           No Disagreements with Accountants and Lawyers.  There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise between the Company and the accountants and lawyers
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.
 
  (t)           Investment Company.   Neither the Company nor any Affiliate of
the Company is an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.
 
  (u)           Foreign Corrupt Practices.  Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is  in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
 
  (v)           Reporting Company.  The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of Common
Stock registered pursuant to Section 12(g) of the 1934 Act.  Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.
 
  (w)           Listing.  The Company's Common Stock is quoted on the Bulletin
Board under the symbol IDOI.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.
 
  (x)           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 5(x) hereto.
 
  (y)           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 Notes hereunder, the Company does not intend to
incur debts that would be beyond its ability to pay as such debts mature.
 
  (z)           Company Predecessor and Subsidiaries.   The Company makes each
of the representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h),
(j), (l), (o), (p), (q), (s), (t), and (u) of this Agreement, as same relate to
the Subsidiary of the Company.  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 and its
predecessors.
 
 (AA)        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
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date.
 
 
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 (BB)         Survival.  The foregoing representations and warranties shall
survive the Closing Date for a period of three years.
 
6.           Regulation D Offering/Legal Opinion.  The offer and issuance of the
Securities to the Subscribers 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 Securities and other matters reasonably requested by
Subscribers.  A form of the legal opinion is annexed hereto as Exhibit E.  The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and Preferred Stock and exercise of
the Warrants pursuant to an effective registration statement, Rule 144 under the
1933 Act or an exemption from registration.

                 7.1.       Conversion of Note and Preferred Stock.
 
  (a)           Upon the conversion of a Note, interest, any sum due to the
Subscriber under the Transaction Documents, including Liquidated Damages,
Preferred Stock, or part thereof, 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 Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion.  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 usual 1933 Act restriction from transfer legend.  If and
when the Subscriber sells the Shares, assuming (i) a registration statement
registering such shares under the 1933 Act is effective and the prospectus, as
supplemented or amended, contained therein is current and (ii) the Subscriber or
its agent confirms in writing to the transfer agent that the Subscriber has
complied with the prospectus delivery requirements, the Company will reissue the
Shares without restrictive legend and the Shares will be free-trading, and
freely transferable.  In the event that the 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(b)(1)(i) of the 1933 Act, or for 90
days, if pursuant to other provision of Rule 144 of the 1933 Act.
 
  (b)           Subscriber will give notice of its decision to exercise its
right to convert the Note, interest, Preferred Stock, or part thereof by
telecopying, or otherwise delivering a completed Notice of Conversion (a form of
which is annexed as Exhibit A to the Note and the Certificate of Designation) to
the Company via confirmed telecopier transmission or otherwise pursuant to
Section 13(a) of this Agreement.  The Subscriber will not be required to
surrender the Note or stock certificate representing the Preferred Stock until
the Note or stock certificate representing the Preferred Stock has been fully
converted or satisfied.  Each date on which a Notice of Conversion is telecopied
to the Company in accordance with the provisions hereof by 6 PM (or if received
by the Company after 6 PM then the next business day) shall be deemed a
“Conversion Date.”  The Company will itself or cause the Company’s transfer
agent to transmit the Company's Common Stock certificates representing the
Shares issuable upon conversion of the Note or the Preferred Stock to the
Subscriber via express courier for receipt by such Subscriber within three (3)
business days after receipt by the Company of the Notice of Conversion (such
third day being the "Delivery Date").  In the event the Shares are
electronically transferable, then delivery of the Shares must be made by
electronic transfer provided request for such electronic transfer has been made
by the Subscriber.   A Note representing the balance of the Note or stock
certificate representing the balance of the Preferred Stock not so converted
will be provided by the Company to the Subscriber if requested by Subscriber,
provided the Subscriber delivers the original Note or stock certificate to the
Company. In the event that a Subscriber elects not to surrender a Note or stock
certificate representing the Preferred Stock for reissuance upon partial payment
or conversion of a Note or Preferred Stock, the Subscriber hereby indemnifies
the Company against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount then due under the Note or
Shares of Preferred Stock actually held.
 
 
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  (c)           The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 7.1 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, respectively later than the
Delivery Date or the Mandatory Redemption Payment Date (as hereinafter defined)
could result in economic loss to the Subscriber.  As compensation to the
Subscriber for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of Note
principal amount or stated value of Preferred Stock (and proportionately for
other amounts) being converted of the corresponding Shares which are not timely
delivered.  The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.  Furthermore, in addition to any other
remedies which may be available to the Subscriber, in the event that the Company
fails for any reason to effect delivery of the Shares within seven (7) business
days after the Delivery Date or make payment within seven (7) business days
after the Mandatory Redemption Payment Date (as defined in Section 7.2 below),
the Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company.
 
  (d)           Upon the increase by the Company of its authorized number of
shares of Common Stock no later than March 31, 2009, the Company agrees and
acknowledges that despite the pendency of a not yet effective registration
statement which includes for registration the Securities, the Subscriber is
permitted to and the Company will issue to the Subscriber Shares upon conversion
of the Note or Preferred Stock and Warrant Shares upon exercise of the
Warrants.  Such Shares will, if required by law, bear the legends described in
Section 4 above and if the requirements of Rule 144 under the 1933 Act are
satisfied, be resalable thereunder.

7.2.        Mandatory Redemption at Subscriber’s Election.  In the event (i) the
Company is prohibited from issuing Shares, (ii) upon the occurrence of any other
Event of Default (as defined in the Note or in this Agreement), that continues
for more than twenty (20) business days, (iii) a Change in Control (as defined
below), or (iv) of the liquidation, dissolution or winding up of the Company,
then at the Subscriber's election, the Company must pay to the Subscriber ten
(10) business days after request by the Subscriber (“Calculation Period”), a sum
of money determined by multiplying up to the outstanding principal amount of the
Note or stated value of Preferred Stock designated by the Subscriber by 120%
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Shares otherwise deliverable
or within ten (10) business days after request, whichever is sooner ("Mandatory
Redemption Payment Date"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal and interest or stated value of Preferred Stock
will be deemed paid and no longer outstanding.  Liquidated damages calculated
pursuant to Section 7.1(c) hereof, that have been paid or accrued for the ten
day period prior to the actual receipt of the Mandatory Redemption Payment by
the Subscriber shall be credited against the Mandatory Redemption Payment.  For
purposes of this Section 7.2, “Change in Control” shall mean (i) the Company no
longer having a class of shares publicly traded or listed on a Principal Market,
(ii) the Company becoming a Subsidiary of another entity (other than a
corporation formed by the Company for purposes of reincorporation in another
U.S. jurisdiction) and (iii) the sale, lease or transfer of substantially all
the assets of the Company or Subsidiaries.
 
 
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                 7.3.       Maximum Conversion.  The Subscriber shall not be
entitled to convert on a Conversion Date that amount of the Note or Preferred
Stock in connection with that number of shares of Common Stock which would be in
excess of the sum of (i) the number of shares of Common Stock beneficially owned
by the Subscriber and its Affiliates on a Conversion Date, and (ii) the number
of shares of Common Stock issuable upon the conversion of the Note or Preferred
Stock with respect to which the determination of this provision is being made on
a Conversion Date, which would result in beneficial ownership by the Subscriber
and its Affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such Conversion Date.  For the purposes of the provision to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder.  Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%.  The Subscriber may
increase the permitted beneficial ownership amount up to 9.99% upon and
effective after 61 days’ prior written notice to the Company.  The Subscriber
may allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 4.99% amount described above and which shall
be allocated to the excess above 4.99%.

7.4.        Injunction Posting of Bond.  In the event a Subscriber shall elect
to convert the Preferred Stock, a Note or part thereof, the Company may not
refuse conversion or exercise 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 from a court, on notice,
restraining and or enjoining conversion of all or part of such Note 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 outstanding principal and
interest of the Note, outstanding stated value of the Preferred Stock or
aggregate purchase price of the Shares which are sought to be subject to the
injunction, 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.

                 7.5.       Buy-In.   In addition to any other rights available
to the Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note or the Preferred Stock by the Delivery Date
and if after seven (7) business days after the Delivery Date 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 Common Stock which the Subscriber was entitled to receive upon
such conversion (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 principal and/or interest amount of the
Note, stated value of the Preferred Stock for which such conversion was not
timely honored 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 the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest or the Preferred Stock,
the Company shall be required to pay the Subscriber $1,000 plus interest. The
Subscriber shall provide the Company written notice and evidence indicating the
amounts payable to the Subscriber in respect of the Buy-In.

7.6         Adjustments.   The Conversion Price, Warrant exercise price and
amount of Shares issuable upon conversion of the Notes or the Preferred Stock
and exercise of the Warrants shall be equitably adjusted and as otherwise
described in this Agreement, the Notes, Certificate of Designation and Warrants.
 
 
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7.7.        Redemption.    The Notes, Preferred Stock and Warrants shall not be
redeemable or callable by the Company except as described in the Notes,
Certificate of Designation, Warrants and Subscription Agreement.

                 8.          Legal Fees.  The Company shall pay to Grushko &
Mittman, P.C., a cash fee of $18,000 (“Legal Fees”) as reimbursement for
services rendered to the Subscribers in connection with this Agreement and the
purchase and sale of the Notes, Preferred Stock and Warrants (the
“Offering”).  Reimbursement for estimated UCC searches and filing fees (less any
amounts paid prior to a Closing Date), and estimated printing and shipping costs
for the closing statements to be delivered to Subscribers, 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 Subscribers as follows:
 
  (a)           Stop Orders.  The Company will advise the Subscribers, within
twenty-four hours after it 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/Quotation.  The Company shall promptly secure the
quotation or listing of the Shares and Warrant Shares upon each national
securities exchange, or automated quotation system upon which they are or become
eligible for quotation or listing (subject to official notice of issuance) and
shall maintain same so long as any Notes, Preferred Stock or Warrants are
outstanding.  The Company will maintain the quotation or listing of its Common
Stock on the NYSE Alternext US, Nasdaq Capital Market, Nasdaq Global Market,
Nasdaq Global Select Market, 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.  As of the date of this
Agreement and the Closing Date, the Bulletin Board is and will be 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
Securities to the Subscribers and promptly provide copies thereof to Subscriber.
 
  (d)           Filing Requirements.  From the date of this Agreement and until
the last to occur of (i) two (2) years after the Closing Date, (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to an effective registration statement or are eligible for
resale pursuant to Rule 144, without regard to volume limitations or (iii) the
Notes and Preferred Stock are no longer outstanding (the date of occurrence of
the last such event being the “End Date”), the Company will (A) cause its Common
Stock 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 such registration or to terminate
or suspend its reporting and filing obligations under said acts until the End
Date.  Until the End Date, 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 Securities if required under Regulation D and to provide a copy thereof
to each Subscriber promptly after such filing.
 
 
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  (e)           Use of Proceeds.  The proceeds of the Offering will be employed
by the Company for working capital and general corporate purposes.   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 nor non-trade obligations outstanding
on a Closing Date except as described on Schedule 9(e).   Except as disclosed on
Schedule 9(e), for so long as any Notes are outstanding, the Company will not
prepay any financing related debt obligations nor redeem any equity instruments
of the Company.
 
  (f)           Reservation.   On or before March 31, 2009, and at all times
thereafter, the Company shall have reserved, pro rata, on behalf of each holder
of a Note, Preferred Stock or Warrant, from its authorized but unissued Common
Stock, a number of common shares equal to 125% of the amount of Common Stock
necessary to allow each holder of a Note to be able to convert all such
outstanding Notes, Preferred Stock and interest and 100% of the Warrant Shares
issuable upon exercise of the Warrants.
 
  (g)           DTC Program.  At all times that Notes, Preferred Stock or
Warrants are outstanding, the Company will employ as the transfer agent for the
Common Stock, Shares and Warrant Shares a participant in the Depository Trust
Company Automated Securities Transfer Program.
 
  (h)           Taxes.  From the date of this Agreement and until the End Date,
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.
 
  (i)            Insurance.  From the date of this Agreement and until the End
Date, 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.
 
  (j)            Books and Records.  From the date of this Agreement and until
the End Date, 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.
 
  (k)           Governmental Authorities.   From the date of this Agreement and
until the End Date, 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.
 
 
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  (l)           Intellectual Property.  From the date of this Agreement and
until the End Date, 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.
 
  (m)          Properties.  From the date of this Agreement and until the End
Date, 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.
 
  (n)           Confidentiality/Public Announcement.  From the date of this
Agreement and until the End Date, the Company agrees that except in connection
with a Form 8-K or any registration statements regarding the Subscribers’
Securities or in correspondence with the SEC regarding same, it will not
disclose publicly or privately the identity of the Subscribers unless expressly
agreed to in writing by a Subscriber or 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 undertakes to file a Form 8-K or make a public
announcement describing the Offering not later than the fourth business day
after the Closing Date.  Prior to filing or announcement, such Form 8-K or
public announcement will be provided to Subscribers for their review and
approval.  In the Form 8-K or public announcement, the Company will specifically
disclose the amount of Common Stock outstanding immediately after the
Closing.  Upon  delivery by the Company to Subscriber after the Closing Date of
any notice or information, in writing, electronically or otherwise, and while a
Note, Preferred Stock, Shares, Warrants, or Warrant Shares are held by
Subscriber, unless the  Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or Subsidiaries, the Company  shall within one business
day after any such delivery publicly disclose such  material,  nonpublic 
information on a Report on Form 8-K or otherwise.  In the event that
the Company believes that a notice or communication to Subscriber contains
material, nonpublic information, relating to the Company or Subsidiaries, the
Company shall so indicate to the Subscriber contemporaneously with delivery of
such notice or information.  In the absence of any such indication, the
Subscriber shall be allowed to presume that all matters relating to such notice
and information do not constitute material, nonpublic information relating to
the Company or Subsidiaries.
 
              (o)           Non-Public Information.  The Company covenants and
agrees that except for the Reports, Other Written Information and schedules and
exhibits to this Agreement, which information the Company undertakes to will
publicly disclose not later than the sooner of the required or actual filing
date of the Form 8-K described in Section 9(n) above, neither it nor any other
person acting on its behalf will at any time provide any 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 keep such information in confidence.  The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
 
  (p)           Negative Covenants.   So long as a Note is outstanding, 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:  (A) the Excepted
Issuances (as defined in Section 12 hereof), (B) (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; (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; and (g) up to $1,000,000 line of credit with a recognized
banking institution or up to $1,000,000 of inventory factoring for the Closing
Date’s ordinary course of business by a recognized factor which typically
conducts such factoring arrangements (each of (a) through (g), a “Permitted
Lien”), (C) indebtedness for borrowed money which is not senior or pari passu in
right of payment to the payment of the Notes or distribution of the Company’s
assets and (D) indebtedness which shall be used to repay the Notes;
 
 
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                                                              (ii)         amend
its certificate of incorporation, bylaws or its charter documents so as to
materially and 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.
 
  (iv)       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 $100,000 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; or
 
  (v)        prepay or redeem any financing related debt or past due obligations
outstanding as of the Closing Date except as described on Schedule 9(e).
 
  (q)           Offering Restrictions.    Until the expiration of the Exclusion
Period, which shall be defined as the sooner of (i) 180 days after the Closing
Date, or (ii) until the Shares and Warrant Shares have been resold or
transferred by the Subscribers pursuant to a registration statement or Rule 144
without regard to volume limitation, the Exclusion Period will be tolled or
reinstated, as the case may be, during the pendency of an Event of Default as
defined in the Note or Certificate of Designation, and/or during the pendency of
an Event of Default, except for the Excepted Issuances, the Company will not
enter into an agreement to issue nor issue any equity, convertible debt or other
securities convertible into Common Stock or equity of the Company nor modify any
of the foregoing which may be outstanding at anytime, without the prior written
consent of Subscribers holding 66.67% of the outstanding principal amounts of
the Notes, which consent may be withheld for any reason. For so long as the
Notes and Preferred Stock are outstanding, the Company will not enter into any
Equity Line of Credit or similar agreement, nor issue nor agree to issue any
floating or Variable Priced Equity Linked Instruments nor any of the foregoing
or equity with price reset rights (collectively, the “Variable Rate
Restrictions”).   For purposes hereof, “Equity Line of Credit” shall include any
transaction involving a written agreement between the Company and an investor or
underwriter whereby the Company has the right to “put” its securities to the
investor or underwriter over an agreed period of time and at an agreed price or
price formula, and “Variable Priced Equity Linked Instruments” shall include:
(A) any debt or equity securities which are convertible into, exercisable or
exchangeable for, or carry the right to receive additional shares of Common
Stock either (1) at any conversion, exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of or quotations for
Common Stock at any time after the initial issuance of such debt or equity
security, or (2) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date at any time after the initial
issuance of such debt or equity security due to a change in the market price of
the Company’s Common Stock since date of initial issuance, and (B) any
amortizing convertible security which amortizes prior to its maturity date,
where the Company is required or has the option to (or the investor in such
transaction has the option to require the Company to) make such amortization
payments in shares of Common Stock which are valued at a price that is based
upon and/or varies with the trading prices of or quotations for Common Stock at
any time after the initial issuance of such debt or equity security (whether or
not such payments in stock are subject to certain equity conditions).  The only
officer, director, employee and consultant stock option or stock incentive plan
currently in effect or contemplated by the Company is described on Schedule
5(d).
 
 
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  (r)           Seniority.   Except for Permitted Liens and as otherwise
provided for herein, until the Notes are fully satisfied or converted, the
Company shall not grant nor allow any security interest to be taken in the
assets of the Company or any Subsidiary; nor issue any debt, equity or other
instrument which would give the holder thereof directly or indirectly, a right
in any assets of the Company or any Subsidiary, equal or superior to any right
of the holder of a Note in or to such assets.
 
  (s)           Notices.   For so long as the Subscribers hold any Securities,
the Company will maintain as United States address and United States fax number
for notices purposes under the Transaction Documents.
 
10.         Covenants of the Company and Subscriber Regarding Indemnification.
 
  (a)           The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' 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 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 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)           Each 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 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 Subscribers, relating hereto.
 
 
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  (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
Securities.
 
  (d)           The procedures set forth in Section 11.1 shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.
 
11.1.      Indemnification and Contribution.
 
  (a)           In the event of a registration of any 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 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 Securities was
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 11.1(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 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 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 Securities 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 11.1(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.1(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 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 11.1(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 11.1 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 11.1 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 11.1; 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.
 
11.2.      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 Shares or Warrant Shares or any other
Common Stock held by a Subscriber 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(i) above (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 Shares
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 shall 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 later than two business days
after the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber.  As compensation to a Subscriber 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 purchase price 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 11.2 for an aggregate of thirty (30) days, then each Subscriber or
assignee holding Securities subject to such default may, at its option, require
the Company to redeem all or any portion of the Shares and Warrant Shares
subject to such default at a price per share equal to 120% of the Purchase Price
of such Common Stock and Warrant Shares (“Unlegended Redemption Amount”).  The
amount of the aforedescribed liquidated damages that have accrued or been paid
for the twenty day period prior to the receipt by the Subscriber of the
Unlegended Redemption Amount shall be credited against the Unlegended Redemption
Amount.  The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.
 
  (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.
 
 
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  (e)           In the event a Subscriber shall request delivery of Unlegended
Shares as described in Section 11.2 and the Company is required to deliver such
Unlegended Shares pursuant to Section 11.2, 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 or exercise of all or part of said Warrant shall have been
sought and obtained 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 purchase
price of the Common Stock and Warrant Shares 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.

11.3.      In the event commencing one hundred and eighty-one (181) days after
the issue date of the Notes, Preferred Stock and Warrants, a Subscriber is not
permitted to resell any of the Shares or Warrant Shares without any restrictive
legend, and such sales are not permitted as a result of the unavailability to
Subscriber of Rule 144(b) under the 1933 Act or any successor rule (a “144
Default”), and the sole reason for the 144 Default is that the Company is not
current in its SEC periodic filings, and Subscriber is not an Affiliate or
“control person” of the Company, then the Company shall pay such Subscriber as
liquidated damages and not as a penalty an amount equal to two percent (2%) for
each thirty (30) days (or such lesser pro-rata amount for any period less than
thirty (30) days) thereafter of the purchase price of the Shares and Warrant
Shares owned by such Subscriber during the pendency of the 144
Default.  Liquidated damages shall not be payable pursuant to this Section 11.3
in connection with Shares and Warrant Shares for such times as such Shares and
Warrant Shares may be sold by the holder thereof without restriction pursuant to
Section 144(b)(1) of the 1933 Act.

12.         Additional Agreements.
 
  (a)           Right of First Refusal.   Until one year after the Closing Date,
the Subscribers shall be given not less than ten (10) business days prior
written notice of any proposed sale by the Company of its common stock or other
securities or debt obligations, except in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of corporation or
other entity which holders of such securities or debt are not at any time
granted registration rights, (ii) the Company’s issuance of securities in
connection with strategic license agreements and other partnering arrangements
so long as such issuances are not for the primary purpose of raising capital and
which holders of such securities or debt are not at any time granted
registration rights, (iii) the Company’s issuance of Common Stock or the
issuances or grants of options to purchase Common Stock pursuant to director
stock option plans and employee stock purchase plans described on Schedule 12(a)
hereto at prices equal to or higher than the closing price of the Common Stock
on the issue date of any of the foregoing, except as provided in Schedule
12(a)(iv) as a result of the exercise of Warrants or conversion of Notes, or
Preferred Stock which are granted or issued pursuant to this Agreement or that
have been issued prior to the Closing Date on the same terms and conditions as
disclosed in a Report filed not less than five (5) days prior to the Closing
Date without amendment thereto, (v) the payment of any interest on the Notes and
Liquidated Damages pursuant to the Transaction Documents and (vi) the Company’s
issuance of up to 100,000 shares of the Company’s Common Stock (or securities
convertible into shares of common stock) to service providers as disclosed on
Schedule 12(a) herein (collectively the foregoing are “Excepted
Issuances”).  The Subscribers who exercise their rights pursuant to this Section
12(a) shall have the right during the ten (10) business days following receipt
of the notice to purchase such offered common stock, debt or other securities in
accordance with the terms and conditions set forth in the notice of sale in the
same proportion to each other as their purchase of Notes in the Offering.  In
the event such terms and conditions are modified during the notice period, the
Subscribers shall be given prompt notice of such modification and shall have the
right during the ten (10) business days following the notice of modification to
exercise such right.
 
 
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  (b)           Favored Nations Provision.   Other than in connection with the
Excepted Issuances, if at any time the Notes, Preferred Stock or Warrants are
outstanding, the Company shall offer, issue or agree to issue (the “Lower Price
Issuance”) any Common Stock or securities convertible into or exercisable for
shares of Common Stock (or modify any of the foregoing which may be outstanding)
to any person or entity at a price per share or conversion or exercise price per
share which shall be less than the Conversion Price in respect of the Shares ,
or if less than the Warrant exercise price in respect of the Warrant Shares,
without the consent of Subscribers holding 66.67% of the outstanding principal
amount of Notes, then the Company shall issue, for each such occasion,
additional shares of Common Stock to each Subscriber respecting those Notes,
Preferred Stock, Warrants and Shares that remain outstanding at the time of the
Lower Price Issuance so that the average per share purchase price of the shares
of Common Stock issued to the Subscriber (of only the Common Stock, Shares or
Warrant Shares still owned by the Subscriber) is equal to such other lower price
per share and the Conversion Price and Warrant exercise price shall
automatically be reduced to such other lower price.  The average Purchase Price
of the Shares and average exercise price in relation to the Warrant Shares shall
be calculated separately for the Shares and Warrant Shares.  The foregoing
calculation and issuance shall be made separately for Shares received upon
conversion of the Notes or Preferred Stock and separately for Warrant
Shares.  The delivery to the Subscriber of the additional shares of Common Stock
shall be not later than the closing date of the transaction giving rise to the
requirement to issue additional shares of Common Stock.  For purposes of the
issuance and adjustment described in this paragraph, the issuance of any
security of the Company carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in the issuance of the additional shares of Common Stock upon the
sooner of the agreement to or actual issuance of such convertible security,
warrant, right or option and again at any time upon any subsequent issuances of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the Conversion Price or Warrant exercise
price in effect upon such issuance.  The rights of the Subscriber set forth in
this Section 12 are in addition to any other rights the Subscriber has pursuant
to this Agreement, the Note, Preferred Stock, any Transaction Document, and any
other agreement referred to or entered into in connection herewith or to which
the Subscriber and Company are parties.  The Subscriber is also given the right
to elect to substitute any term or terms of any other offering in connection
with which the Subscriber has rights as described in Section 12(a), for any term
or terms of the Offering in connection with Securities owned by Subscriber as of
the date the notice described in Section 12(a) is required to be given to
Subscriber.
 
  (c)           Maximum Exercise of Rights.   In the event the exercise of the
rights described in Sections 12(a) and 12(b) would result in the issuance of an
amount of common stock of the Company that would exceed the maximum amount that
may be issued to a Subscriber calculated in the manner described in Section 7.3
of this Agreement, then the issuance of such additional shares of common stock
of the Company to such Subscriber will be deferred in whole or in part until
such time as such Subscriber is able to beneficially own such common stock
without exceeding the maximum amount set forth calculated in the manner
described in Section 7.3 of this Agreement.  The determination of when such
common stock may be issued shall be made by each Subscriber as to only such
Subscriber.
 
  (d)           Security Interest.   On or about December 24, 2007, subscribers
to an aggregate investment of $5,404,550 in Promissory Notes and Warrants of the
Company (“Initial Investment”) were granted a security interest in assets of the
Company.  The security interest was memorialized in a Security Agreement.  The
Company, subscribers to the Initial Investment and Subscribers herein will
execute such other agreements, documents and financing statements, including but
not limited to an Intercreditor and Modification Agreement and Modification,
Waiver and Consent Agreement reasonably requested by Subscribers to affirm and
modify the terms of such Security Agreement and financing statements, in order
to grant Subscribers herein a senior priority security interest in the assets of
the Company, which will be filed at the Company’s expense with such
jurisdictions, states and counties designated by the Subscribers.  The Company
will also execute all such documents reasonably necessary in the opinion of
Subscribers to memorialize and further protect the security interest described
herein.  The subscribers to the Initial Investment appointed a Collateral Agent
to represent them collectively in connection with the security interest.  The
appointment was pursuant to a Collateral Agent Agreement.  The subscribers to
the initial investment, the Company and Subscribers herein will execute such
other agreements necessary in order to provide that the Collateral Agent
Agreement dated as of December 24, 2007 as amended is the Collateral Agent
Agreement which shall govern the rights and obligations of the Subscribers to
the Initial Investment and Subscribers herein and shall remain in full force and
effect except as modified in the Intercreditor and Modification Agreement and in
the Modification, Waiver and Consent Agreement.  The Company agrees the Notes
and all sums due under the Notes and the Transaction Documents (as defined in
Section 5(c) above) are included in the term “Obligations” as defined in the
Security Agreement, as amended, and are secured by the Collateral (as defined in
the Security Agreement as amended) but such Obligations of the Offering herein
will have senior priority to the security interest granted to the Initial
Investors pursuant to the Security Agreement entered into in connection with the
Initial Investment.
 
 
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13.         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: IDO Security Inc., 17
State Street, New York, NY 10004, Fax: (646) 285-0026, with a copy by telecopier
only to: Aboudi & Brounstein, 3 Gavish St., Kfar Saba, Israel, Fax:
972-9-764-4834, 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, Fax: (212) 697-3575.

  (b)           Entire Agreement; Assignment.  This Agreement and other
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 13(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)           Damages.   In the event the Subscriber is entitled to receive
any liquidated damages pursuant to the Transactions, the Subscriber may elect to
receive the greater of actual damages or such liquidated damages.
 
  (g)           Independent Nature of Subscribers.     The Company acknowledges
that the obligations of each Subscriber under the Transaction Documents are
several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber under the Transaction Documents. The Company
acknowledges that each Subscriber has represented that the decision of each
Subscriber to purchase Securities has been made by such Subscriber independently
of any other Subscriber and independently of any information, materials,
statements or opinions as to the business, affairs, operations, assets,
properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions.  The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in a registration statement and (ii) review by, and
consent to, such registration statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  The Company
acknowledges that each Subscriber shall be entitled to independently protect and
enforce its rights, including without limitation, the rights arising out
of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose.  The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience of
the Company and not because Company was required or requested to do so by the
Subscribers.  The Company acknowledges that such procedure with respect to the
Transaction Documents in no way creates a presumption that the Subscribers are
in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
 
 
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  (h)           Consent.   As used in the Agreement, “consent of the
Subscribers” or similar language means the consent of holders of not less than
66.67% of the total of the Shares issued and issuable upon conversion of
outstanding Notes owned by Subscribers on the date consent is requested.
 
  (i)            Equal Treatment.   No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the parties to the Transaction Documents.
 
  (j)           Maximum Payments.   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.
 
  (k)           Calendar Days/Time Periods.   All references to “days” in the
Transaction Documents shall mean calendar days unless otherwise stated.  The
terms “business days” and “trading days” shall mean days that the New York Stock
Exchange is open for trading for three or more hours.  Time periods shall be
determined as if the relevant action, calculation or time period were occurring
in New York City.
 
  (l)           Maximum Liability.   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 Shares.
 
  (m)          Captions: Certain Definitions.  The captions of the various
sections and paragraphs of this Agreement have been inserted only for the
purposes of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement.  As used in this Agreement the term “person”
shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
 
  (n)          Severability.  In the event that any term or provision of this
Agreement shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by an authority having
jurisdiction and venue, that determination shall not impair or otherwise affect
the validity, legality or enforceability: (i) by or before that authority of the
remaining terms and provisions of this Agreement, which shall be enforced as if
the unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.
 
  (o)           Successor Laws.  References in the Transaction Documents to
laws, rules, regulations and forms shall also include successors to and
functionally equivalent replacements of such laws, rules, regulations and
forms.  A successor rule to Rule 144(b)(1)(i) shall include any rule that would
be available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding period.
 

 

 
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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.

  IDO SECURITY INC.     a Nevada corporation                    
By:
 
     
Name: Michael Goldberg
     
Title:  CEO
             
Dated as of October 31, 2008
 

SUBSCRIBER
NOTE
PRINCIPAL
AMOUNT
PREFERRED
STOCK
CLASS C WARRANTS
 
Name of Subscriber: ________________________
 
_________________________________________
 
Address: _________________________________
 
_________________________________________
 
Fax No.: _________________________________
 
 
 
 
________________________________________
(Signature)
By: