Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of June 29,
2007, by and among Dynamic Leisure, Corporation, a Minnesota corporation, with
headquarters located at 5680 West Cypress Street, Tampa, FL 33607 (the
“Company”), and the Buyers listed on Schedule I attached hereto (individually, a
“Buyer” or collectively “Buyers”).

WITNESSETH:

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

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Buyer(s), as provided
herein, and the Buyer(s) shall purchase up to Two Million Four Hundred Thousand
Dollars ($2,400,000) of secured convertible debentures (the “Convertible
Debentures”), which shall be convertible into shares of the Company’s common
stock, par value $.01 (the “Common Stock”) (as converted, the “Conversion
Shares”) of which Seven Hundred Thousand Dollars ($700,000) shall be funded on
the date hereof (the “First Closing”), Four Hundred Thousand Dollars ($400,000)
shall be funded on the date the registration statement (the “Registration
Statement”) is filed, pursuant to the Investor Registration Rights Agreement
dated the date hereof, with the United States Securities and Exchange Commission
(the “SEC”) (the “Registration Closing”) and the balance to be funded upon the
earlier to occur of the closing of a transaction by the Company to redeem its
promissory note held by NIR or the SEC declaring the Registration Statement
Effective (the “NIR Closing”) (each individually referred to as a “Closing”
collectively referred to as the “Closings”), for a total purchase price of up to
Two Million Four Hundred Thousand Dollars ($2,400,000), (the “Purchase Price”)
in the respective amounts set forth opposite each Buyer(s) name on Schedule I
(the “Subscription Amount”); and

WHEREAS, the obligation of the Buyers to purchase Convertible Debentures in the
Registration closing or the NIR Closing is subject to the Company showing
evidence satisfactory to the Buyers of additional investments of at least
$600,000 and a transference of the existing Senior lien to the Buyers; and

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the “Investor
Registration Rights Agreement”) pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated there under, and applicable state securities laws; and

WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an escrow
agreement substantially in the form of the Escrow Agreement attached hereto as
Exhibit B; and

 

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WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering Irrevocable Transfer Agent
Instructions substantially in the form attached hereto as Exhibit C (the
“Irrevocable Transfer Agent Instructions”); and

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Security Agreement
substantially in the form attached hereto as Exhibit D (the “Security
Agreement”) pursuant to which the Company has agreed to provide the Buyer a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement dated the date hereof) to secure Company’s obligations under this
Agreement, the Convertible Debenture, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the Security Agreement
(collectively, the “Transaction Documents”) or any other obligations of the
Company to the Buyer; and

NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Buyer(s) hereby agree as
follows:

 

1.

PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

(a)       Purchase of Convertible Debentures. Subject to the satisfaction (or
waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at Closing (as defined herein below) and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto.
Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
Amount set forth opposite his name on Schedule I in same-day funds or a check
payable to “James G. Dodrill II, P.A. as Escrow Agent for Dynamic Leisure
Corporation/Trafalgar Capital Investment Fund”, which Subscription Amount shall
be held in escrow pursuant to the terms of the Escrow Agreement (as hereinafter
defined) and disbursed in accordance therewith. Notwithstanding the foregoing, a
Buyer may withdraw his Subscription Amount and terminate this Agreement as to
such Buyer at any time after the execution hereof and prior to the First Closing
(as hereinafter defined).

(b)       Closing Date. The First Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the date hereof, subject to notification of satisfaction of the conditions to
the First Closing set forth herein and in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and the Buyer(s)) (the “First
Closing Date”), and the Second Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the date the Registration Statement is filed with the SEC, subject to
notification of satisfaction of the conditions to the Second Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the “Second Closing Date”) and the Third
Closing of the purchase and sale of the Convertible Debentures shall take place
at 10:00 a.m. Eastern Standard Time upon the earlier to occur of the closing of
a transaction by the Company to redeem its promissory note held by NIR or the
SEC declaring the Registration Statement Effective, subject to notification of
satisfaction of the conditions to the Third Closing set forth herein and in
Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the “Third Closing”) (collectively referred to as the
“Closing  

 

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Dates”).. The Closings shall occur on their respective Closing Dates at the
offices of James G. Dodrill II, P.A., 5800 Hamilton Way, Boca Raton, FL 33496
(or such other place as is mutually agreed to by the Company and the Buyer(s)).

(c)       Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closings, the aggregate proceeds of the sale of the
Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a
non-interest bearing escrow account with James G. Dodrill II, P.A., as escrow
agent (the “Escrow Agent”), pursuant to the terms of an escrow agreement between
the Company, the Buyer(s) and the Escrow Agent in the form attached hereto as
Exhibit B (the “Escrow Agreement”). Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Dates, (i) the Escrow Agent shall
deliver to the Company in accordance with the terms of the Escrow Agreement such
aggregate proceeds for the Convertible Debentures to be issued and sold to such
Buyer(s), minus the fees and expenses as set forth herein which shall be paid
directly from the gross proceeds held in escrow at each Closing by wire transfer
of immediately available funds and (ii) the Company shall deliver to each Buyer,
Convertible Debentures which such Buyer(s) is purchasing in amounts indicated
opposite such Buyer’s name on Schedule I, duly executed on behalf of the
Company.

(d)       “Closing Date Exchange Rate” means the Euro to US dollar spot exchange
rate as quoted in the London edition of the Financial Times on the Closing Date.

(e)       “Repayment Exchange Rate” means in relation to each date of a
Conversion Notice or date of a Redemption Notice, the Euro to US dollar spot
exchange rate as quoted in the London edition of the Financial Times on such
date.

(f)        If on the date of any Conversion Notice or Redemption Notice, the
Repayment Exchange Rate is less than the Closing Date Exchange Rate then the
number of Shares to be issued shall be increased by the same percentage as
results from dividing the Closing Date Exchange Rate by the relevant Repayment
Exchange Rate. By way of example, if the number of Shares to be issued in
respect of a particular Conversion Notice or Redemption Notice would, but for
this Clause 1(f), be 1,000 and if the Closing Date Exchange Rate is 1.80 and the
relevant Repayment Exchange Rate is 1.75, then 1,029 Shares will be issued in
relation to that Conversion Notice or Redemption Notice, as the case may be.

(g)       If on the Repayment Date or any Interest Repayment Date, the Cash
Payment Date Exchange Rate, as defined below is less than the Closing Date
Exchange Rate then the amount of cash required to satisfy the amounts due at
such time shall be increased by the same percentage as results from dividing the
Closing Date Exchange Rate by the relevant Cash Payment Date Exchange Rate.
“Cash Payment Date Exchange Rate” means in relation to each Repayment Date or
Interest Repayment Date the Euro to US dollar spot exchange rate as quoted in
the London edition of the Financial Times on such date. By way of example, if
the amount of cash required to repay all amounts due on such date would, but for
this Clause 1(g), be $1,000 and if the Closing Date Exchange Rate is 1.80 and
the relevant Repayment Date Exchange Rate is 1.75 then the amount of cash from
the Cash Payment required to repay all amounts due on such date will be
$1,028.57.

 

2.

BUYER’S REPRESENTATIONS AND WARRANTIES.

 

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Each Buyer represents and warrants, severally and not jointly, that:

(a)       Investment Purpose. Each Buyer is acquiring the Convertible Debentures
and, upon conversion of Convertible Debentures, the Buyer will acquire the
Conversion Shares then issuable, for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer reserves the right to dispose of the Conversion Shares at any time in
accordance with or pursuant to an effective registration statement covering such
Conversion Shares or an available exemption under the 1933 Act.

(b)       Accredited Investor Status. Each Buyer is an “Accredited Investor” as
that term is defined in Rule 501(a)(3) of Regulation D.

(c)       Reliance on Exemptions. Each Buyer understands that the Convertible
Debentures are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.

(d)       Information. Each Buyer and its advisors (and his or, its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to
rely on the Company’s representations and warranties contained in Section 3
below. Each Buyer understands that its investment in the Convertible Debentures
and the Conversion Shares involves a high degree of risk. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.

(e)       No Governmental Review. Each Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.

 

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(f)        Transfer or Resale. Each Buyer understands that except as provided in
the Investor Registration Rights Agreement: (i) the Convertible Debentures have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, or (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration requirements;
(ii) any sale of such securities made in reliance on Rule 144 under the 1933 Act
(or a successor rule thereto) (“Rule 144”) may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. The Company reserves
the right to place stop transfer instructions against the shares and
certificates for the Conversion Shares.

(g)       Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, GENERALLY ACCEPTABLE TO COMPANY’S COUNSEL, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

The legend set forth above shall be removed and the Company within three (3)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the 1933 Act or (ii) in connection with a
sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope reasonably
acceptable to counsel for the Company, to the effect that a public sale,
assignment or transfer of the Conversion Shares may be made without registration
under the 1933 Act.

 

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(h)       Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.

(i)        Receipt of Documents. Each Buyer and his or its counsel has received
and read in their entirety: (i) this Agreement and each representation, warranty
and covenant set forth herein, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, and the Irrevocable transfer Agent
Instructions; (ii) all due diligence and other information necessary to verify
the accuracy and completeness of such representations, warranties and covenants;
and (iii) answers to all questions each Buyer submitted to the Company regarding
an investment in the Company; and each Buyer has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.

(j)        Due Formation of Corporate and Other Buyers. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.

(k)       No Legal Advice From the Company. Each Buyer acknowledges, that it had
the opportunity to review this Agreement and the transactions contemplated by
this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.

 

3.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

Except as otherwise provided in the Company Disclosure Schedule delivered
herewith, and except as set forth in the Company’s SEC Documents filed with the
Securities and Exchange Commission pursuant to the 1934 Act, the Company
represents and warrants as of the date hereof and as of each Closing Date to
each of the Buyers that:

(a)       Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.

 

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(b)       Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions,
and any related agreements, and to issue the Convertible Debentures and the
Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions (as defined herein) and any related agreements by the Company
and the consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debentures, the
Conversion Shares and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion or exercise thereof, have been duly
authorized by the Company’s Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Security Agreement, the Investor
Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements have been duly executed and
delivered by the Company, (iv) this Agreement, the Security Agreement, the
Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
Transfer Agent Instructions and any related agreements constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors’ rights and remedies. The Company knows of no reason
why the Company cannot file the registration statement as required under the
Investor Registration Rights Agreement or perform any of the Company’s other
obligations under such documents.

(c)       Capitalization. The authorized capital stock of the Company consists
of 300,000,000 shares of Common Stock, par value $.01 per share and 20,000,000
shares of Preferred Stock. As of the date hereof, the Company has 13,844,495
shares of Common Stock and no shares of Preferred Stock issued and outstanding.
All of such outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company. As of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement) and (iv) there are no outstanding registration statements and there
are no outstanding comment letters from the SEC or any other regulatory agency.
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Convertible Debentures
as described in this Agreement. The Company has furnished to the Buyer true and
correct copies of

 

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the Company’s Certificate of Incorporation, as amended and as in effect on the
date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as
in effect on the date hereof (the “By-laws”), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.

(d)       Issuance of Securities. The Convertible Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be duly issued,
fully paid and nonassessable, are free from all taxes, liens and charges with
respect to the issue thereof. The Conversion Shares issuable upon conversion of
the Convertible Debentures have been duly authorized and reserved for issuance.
Upon conversion or exercise in accordance with the Convertible Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.

(e)       No Conflicts. The execution, delivery and performance of this
Agreement, the Irrevocable Transfer Agent Instructions, the Pledge Agreement and
the Escrow Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Articles of Incorporation or the By-laws or (ii), to the knowledge of the
Company, conflict with or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including United States federal and state securities
laws and regulations and the rules and regulations of The National Association
of Securities Dealers Inc.’s OTC Bulletin Board on which the Common Shares are
quoted) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected. To the knowledge of the Company, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or, any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company 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 or contemplated by this
Agreement in accordance with the terms hereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof, except for any required post-Closing notice filings under
applicable United States federal or state securities laws, if any.

(f)        SEC Documents: Financial Statements. Since January 13, 2006 the
Company has filed or furnished, as applicable, all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC under of
the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the
foregoing filed prior to the date hereof or amended after the date hereof and
all exhibits included therein and financial statements and schedules thereto

 

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and documents incorporated by reference therein, being hereinafter referred to
as the “SEC Documents”). The Company has delivered to the Buyers or their
representatives, or made available through the SEC’s website at
http://www.sec.gov, true and complete copies of the SEC Documents. As of their
respective dates, the financial statements of the Company disclosed in the SEC
Documents (the “Financial Statements”) complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such Financial Statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

(g)        No Material Misstatement or Omission. None of the Company’s SEC
Documents at the time of filing and none of the representation and warranties
made in this Agreement or any of the other Transaction Documents include any
untrue statements of material fact, nor do the Company’s SEC Documents at the
time of filing and none of the representations and warranties made in this
Agreement or any of the other Transaction Documents omit to state any material
fact required to be stated therein necessary to make the statements made, in
light of the circumstances under which they were made, not misleading.

(h)       Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents, have a material
adverse effect on the business, operations, properties, financial condition or
results of operations of the Company and its subsidiaries taken as a whole.

(i)        Acknowledgment Regarding Buyer’s Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm’s length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer’s
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company’s decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.

(j)        No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general

 

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solicitation or general advertising (within the meaning of Regulation D under
the 1933 Act) in connection with the offer or sale of the Convertible Debentures
or the Conversion Shares.

(k)       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 require registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act.

(l)        Employee Relations. Neither the Company nor any of its subsidiaries
is involved in any labor dispute nor, to the knowledge of the Company or any of
its subsidiaries, is any such dispute threatened. None of the Company’s or its
subsidiaries’ employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.

(m)      Intellectual Property Rights. The Company and its subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, and, to the knowledge of the Company there is no claim, action or
proceeding being made or brought against, or to the Company’s knowledge, being
threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing.

(n)       Environmental Laws. The Company and its subsidiaries are (i) in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.

(o)       Title. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.

(p)       Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses

 

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in which the Company and its subsidiaries are engaged. Neither the Company nor
any such subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.

(q)       Regulatory Permits. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

(r)        Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(s)       No Material Adverse Breaches, etc. Neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company’s officers has or is expected in the future to have a material adverse
effect on the business, properties, operations, financial condition, results of
operations or prospects of the Company or its subsidiaries. Neither the Company
nor any of its subsidiaries is in breach of any contract or agreement which
breach, in the judgment of the Company’s officers, has or is expected to have a
material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries.

(t)        Tax Status. The Company and each of its subsidiaries has made and
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

(u)       Certain Transactions. Except for arm’s length transactions pursuant to
which the Company makes payments in the ordinary course of business upon terms
no less favorable than the Company could obtain from third parties and other
than the grant of stock

 

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options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
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 corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

(v)       Fees and Rights of First Refusal. The Company is not obligated to
offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.

 

4.

COVENANTS.

(a)       Best Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.

(b)       Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or obtain an exemption for the
Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.

(c)       Reporting Status. Until the earlier of (i) the date as of which the
Buyer(s) may sell all of the Conversion Shares without restriction pursuant to
Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the
date on which (A) the Buyer(s) shall have sold all the Conversion Shares and (B)
none of the Convertible Debentures are outstanding (the “Registration Period”),
the Company shall file in a timely manner all reports required to be filed with
the SEC pursuant to the 1934 Act and the regulations of the SEC thereunder, and
the Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.

(d)       Use of Proceeds. The Company will use the proceeds from the sale of
the Convertible Debentures for general corporate and working capital purposes,
which, solely for the proceeds received from the Registration Closing or the NIR
Closing may include the repayment of outstanding debt and obligations pursuant
to outstanding settlement agreements.

(e)       Reservation of Shares. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion Shares and the issuance of the shares upon
exercise of the Warrants (as defined below). If at any time the Company does not
have available such shares of Common Stock as

 

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shall from time to time be sufficient to effect the conversion of all of the
Conversion Shares of the Company or the issuance of all shares upon exercise of
the Warrants, the Company shall file a preliminary proxy statement with the
Securities and Exchange Commission within ten (10) business day and shall call
and hold a special meeting of the shareholders as soon as practicable after such
occurrence, for the sole purpose of increasing the number of shares authorized.
The Company’s management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.

 

(f)

Fees and Expenses.

(i)        Each of the Company and the Buyer(s) shall pay all costs and expenses
incurred by such party in connection with the negotiation, investigation,
preparation, execution and delivery of this Agreement, the Escrow Agreement, the
Investor Registration Rights Agreement, the Security Agreement and the
Irrevocable Transfer Agent Instructions and any other documents relating to this
transaction. The Company shall pay the Buyer a commitment fee of seven percent
(7%) of the Purchase Price, which shall be paid directly from the proceeds of
and proportionally upon each Closing.

(ii)       The Company has agreed to pay a structuring fee to Buyer of Fifteen
Thousand Dollars ($15,000), one-half of which has been paid prior to the
execution of this Agreement and one-half of which shall be paid directly from
the proceeds of the First Closing.

(iii)      The Company shall issue to the Buyer warrants to purchase up to three
million (3,000,000) shares of the Company’s Common Stock for a period of five
(5) years at an exercise price equal to eight-five percent (85%) of the Volume
Weighted Average Price as reported by Bloomberg on the date of the First Closing
(“Warrants”). The Warrants shall be issued in full at the First Closing and
shall be exercised on a cash basis provided that the Company is not in Default
and the shares underlying the Warrants are subject to an effective registration
statement. In the event that the Purchase Price is not paid in full the Warrants
shall be reduced proportionally.

(iv)      The Company shall pay to the Buyer a Facility Commitment Fee equal to
two percent (2%) of the Purchase Price which shall be paid directly from the
proceeds of and proportionally upon each Closing.

(g)       Corporate Existence. So long as any of the Convertible Debentures
remain outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company’s assets or any similar transaction
or related transactions (each such transaction, an “Organizational Change”)
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of each Buyer. In any such case, the Company will make
appropriate provision with respect to such holders’ rights and interests to
insure that the provisions of this Section 4(g) will thereafter be applicable to
the Convertible Debentures.

 

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(h)       Transactions With Affiliates. So long as any Convertible Debentures
are outstanding, the Company shall not, and shall cause each of its subsidiaries
not to, enter into, amend, modify or supplement, or permit any subsidiary to
enter into, amend, modify or supplement any agreement, transaction, commitment,
or arrangement with any of its or any subsidiary’s officers, directors, persons
who were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a “Related Party”), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (d) any agreement
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. “Affiliate” for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. “Control” or “controls” for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.

(i)        Transfer Agent. The Company covenants and agrees that, in the event
that the Company’s agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).

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

(k)       Restriction on “Short” Position. Neither the Buyer nor any of its
affiliates have an open short position in the Common Stock of the Company, and
the Buyer agrees that it shall not, and that it will cause its affiliates not
to, engage in any short sales with respect to the Common Stock as long as any
Convertible Debentures shall remain outstanding.

 

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5.

TRANSFER AGENT INSTRUCTIONS.

The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing James G. Dodrill II, P.A. as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement). James
G. Dodrill II, P.A. shall be paid a cash fee of One Hundred Dollars ($100) for
every occasion they act pursuant to the Irrevocable Transfer Agent Instructions.
The Company shall not change its transfer agent without the express written
consent of the Buyer(s), which may be withheld by the Buyer(s) in its sole
discretion. Prior to registration of the Conversion Shares under the 1933 Act,
all such certificates shall bear the restrictive legend specified in Section
2(g) of this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(g) hereof (in the case of the
Conversion Shares prior to registration of such shares under the 1933 Act) will
be given by the Company to its transfer agent and that the Conversion Shares
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the Investor Registration
Rights Agreement. Nothing in this Section 5 shall affect in any way the Buyer’s
obligations and agreement to comply with all applicable securities laws upon
resale of Conversion Shares. If the Buyer(s) provides the Company with an
opinion of counsel, in form, scope and substance customary for opinions of
counsel in comparable transactions and reasonably acceptable to the Company’s
counsel, to the effect that registration of a resale by the Buyer(s) of any of
the Conversion Shares is not required under the 1933 Act, the Company shall
within two (2) business days instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

 

6.

CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing Dates, of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion:

(a)       Each Buyer shall have executed this Agreement, the Security Agreement,
the Escrow Agreement and the Investor Registration Rights Agreement and the
Irrevocable Transfer Agent Instructions and delivered the same to the Company.

 

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(b)       The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have
delivered the net proceeds to the Company by wire transfer of immediately
available U.S. funds pursuant to the wire instructions provided by the Company.

(c)       The representations and warranties of the Buyer(s) shall be true and
correct in all material respects as of the date when made and as of the Closing
Dates as though made at that time (except for representations and warranties
that speak as of a specific date), and the Buyer(s) shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer(s) at or prior to the Closing Dates.

(d)       The Company shall have filed a form UCC-1 with regard to the Pledged
Property and Pledged Collateral as detailed in the Security Agreement dated the
date hereof and provided proof of such filing to the Buyer(s).

 

7.

CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

The obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions:

(a)       The Company shall have executed this Agreement, the Security
Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable
Transfer Instructions, the Warrant and the Investor Registration Rights
Agreement, and delivered the same to the Buyer(s).

(b)       The trading in the Common Shares on the OTCBB shall not have been
suspended for any reason.

(c)       The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Dates as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Dates. If requested
by the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Dates, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Closing Dates regarding the
representation contained in Section 3(c) above.

(d)       The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.

 

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(e)       The Buyer(s) shall have received an opinion of counsel from counsel to
the Company in a form satisfactory to the Buyer(s).

(f)        The Company shall have provided to the Buyer(s) a certificate of good
standing from the secretary of state from the state in which the company is
incorporated.

(g)       As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Convertible Debentures, shares of Common Stock to effect the
conversion of all of the Conversion Shares then outstanding.

(h)       The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company’s transfer agent.

(i)        The Company shall have provided to the Buyer an acknowledgement, to
the satisfaction of the Buyer, from the Company’s independent certified public
accountants as to its ability to provide all consents required in order to file
a registration statement in connection with this transaction.

(j)        The Company shall have filed a form UCC-1 or such other forms as may
be required to perfect the Buyer’s interest in the Pledged Collateral as
detailed in the Security Agreement dated the date hereof and provided proof of
such filing to the Buyer(s).

(k)       The Company shall provide the Buyer a near term projection of the
Company’s cash flow that brings its burn rate to zero and demonstrates the
Company’s ability to fund its deficit until such time as this occurs.

 

8.

INDEMNIFICATION.

(a)       In consideration of the Buyer’s execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company’s other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Buyer Indemnitees”) from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified Liabilities”), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such

 

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Indemnitee by a third party and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Indemnities, any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Convertible Debentures or
the status of the Buyer or holder of the Convertible Debentures the Conversion
Shares, as a Buyer of Convertible Debentures in the Company. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities, which is permissible under applicable
law.

(b)       In consideration of the Company’s execution and delivery of this
Agreement, and in addition to all of the Buyer’s other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Company Indemnitees”) from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, (b) any breach of any
covenant, agreement or obligation of the Buyer(s) contained in this Agreement,
the Convertible Debentures, the Investor Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby or thereby
executed by the Buyer, or (c) any cause of action, suit or claim brought or made
against such Company Indemnitee based on material misrepresentations or due to a
material breach and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement, the Convertible Debentures, the
Investor Registration Rights Agreement or any other certificate instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

 

9.

GOVERNING LAW: MISCELLANEOUS.

(a)       Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Florida without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Broward County, Florida and expressly consent to
the jurisdiction and venue of the State Court sitting in Broward County, Florida
and the United States District Court for the Southern District of Florida for
the adjudication of any civil action asserted pursuant to this Paragraph.

(b)       Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.

 

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(c)       Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

(d)       Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

(e)       Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.

(f)        Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

If to the Company, to:

Dynamic Leisure Corporation

 

5680 West Cypress Street

 

Tampa, FL 33607

 

Attention: Mr. Dan Brandano, CEO

 

Telephone: (813) 877-6300

 

Facsimile: (813) 877-6333

 

 

With a copy to:

Crone Rozynko LLP

 

101 Montgomery Street

 

Suite 1950

 

San Francisco CA  94104-4154

 

Attn:  Alisande M. Rozynko, Partner

 

Telephone: (415) 955-8900

 

Facsimile: (415) 955-8910

 

 

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If to the Transfer Agent, to:

Bob Winterle, VP Operations

 

StockTrans, Inc.

 

44 W. Lancaster Ave

 

Ardmore, PA  19003

 

Telephone: (610) 649-7300

 

Facsimile: (610) 649-7302

 

 

With Copy to:

James G. Dodrill II, P.A.

 

5800 Hamilton Way

 

Boca Raton, FL 33496

 

Attention: Jim Dodrill, Esq.

 

Telephone: (561) 862-0529

 

Facsimile: (561) 892-7787

 

 

If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer’s counsel as set forth on Schedule I. Each party shall
provide five (5) days’ prior written notice to the other party of any change in
address or facsimile number.

(g)       Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.

(h)       No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

(i)        Survival. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date on which the
Convertible Debentures are converted in full. The Buyer(s) shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.

(j)        Publicity. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).

(k)       Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably

 

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request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.

(l)        Termination. In the event that the First Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company’s or the Buyer’s failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party’s
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated by the
Company pursuant to this Section 9(l), the Company shall remain obligated to pay
the Buyer(s) for the structuring fee described in Section 4(g) above.

(m)      No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

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IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

 

COMPANY:

 

DYNAMIC LEISURE CORPORATION

 

 

 

By:       /s/ Dan Brandano

 

Name:  Dan Brandano

 

Title:    CEO

 

 

 

BUYER:

 

 

 

TRAFALGAR CAPITAL SPECIALIZED

 

INVESTMENT FUND, LUXEMBOURG

 

By:       Trafalgar Capital Sarl

 

Its:       General Partner

 

 

 

By:       /s/ Andrew Garai

 

Name:  Andrew Garai

 

Title:    Chairman of the Board

 

 

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EXHIBIT A

 

FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT

 

 

23

 

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EXHIBIT B

 

FORM OF ESCROW AGREEMENT

 

 

24

 

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EXHIBIT C

 

TRANSFER AGENT INSTRUCTIONS

 

 

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SCHEDULE I

SCHEDULE OF BUYERS  

 

 

Name

Signature

Address/Facsimile
Number of Buyer

Amount of Subscription

 

 

 

 

Trafalgar Capital Specialized

By:  Trafalgar Capital Sarl

8-10 Rue Mathias Hardt

$   2,400,000

Investment Fund, Luxembourg

Its:  General Partner

BP 3023

 

 

 

L-1030 Luxembourg

 

 

 

Facsimile:

 

 

By: __________________

011-44-207-405-0161

 

 

Name:  Andrew Garai

And

 

 

Its:  Chairman of the Board

001-786-323-1651

 

 

Buyer’s Counsel:

 

James G. Dodrill II, P.A.

5800 Hamilton Way

Boca Raton, FL 33496

Telephone: (561) 862-0529

Facsimile: (561) 892-7787

 

 

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