SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of January 26,
2011, by and between MICRO IMAGING TECHNOLOGY, INC., a California corporation,
with headquarters located at 970 Calle Amanecer - Suite F, San Clemente, CA
92673 (the “Company”), and ASHER ENTERPRISES, INC., a Delaware corporation, with
its address at 1 Linden Place, Suite 207, Great Neck, NY 11021 (the “Buyer”).

 

WHEREAS:

 

A.                THE COMPANY AND THE BUYER IS EXECUTING AND DELIVERING THIS
AGREEMENT IN RELIANCE UPON THE EXEMPTION FROM SECURITIES REGISTRATION AFFORDED
BY THE RULES AND REGULATIONS AS PROMULGATED BY THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE “SEC”) UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “1933 ACT”);

 

B.                 BUYER DESIRES TO PURCHASE AND THE COMPANY DESIRES TO ISSUE
AND SELL, UPON THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT AN 8%
CONVERTIBLE NOTE OF THE COMPANY, IN THE FORM ATTACHED HERETO AS EXHIBIT A, IN
THE AGGREGATE PRINCIPAL AMOUNT OF $32,500.00 (TOGETHER WITH ANY NOTE(S) ISSUED
IN REPLACEMENT THEREOF OR AS A DIVIDEND THEREON OR OTHERWISE WITH RESPECT
THERETO IN ACCORDANCE WITH THE TERMS THEREOF, THE “NOTE”), CONVERTIBLE INTO
SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE, OF THE COMPANY (THE “COMMON
STOCK”), UPON THE TERMS AND SUBJECT TO THE LIMITATIONS AND CONDITIONS SET FORTH
IN SUCH NOTE.

 

C.                 THE BUYER WISHES TO PURCHASE, UPON THE TERMS AND CONDITIONS
STATED IN THIS AGREEMENT, SUCH PRINCIPAL AMOUNT OF NOTE AS IS SET FORTH
IMMEDIATELY BELOW ITS NAME ON THE SIGNATURE PAGES HERETO; AND

 

NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby
agree as follows:

 

1.                  PURCHASE AND SALE OF NOTE.

 

A.                   PURCHASE OF NOTE.  ON THE CLOSING DATE (AS DEFINED BELOW),
THE COMPANY SHALL ISSUE AND SELL TO THE BUYER AND THE BUYER AGREES TO PURCHASE
FROM THE COMPANY SUCH PRINCIPAL AMOUNT OF NOTE AS IS SET FORTH IMMEDIATELY BELOW
THE BUYER’S NAME ON THE SIGNATURE PAGES HERETO.

 

B.                  FORM OF PAYMENT.  ON THE CLOSING DATE (AS DEFINED BELOW),
(I) THE BUYER SHALL PAY THE PURCHASE PRICE FOR THE NOTE TO BE ISSUED AND SOLD TO
IT AT THE CLOSING (AS DEFINED BELOW) (THE “PURCHASE PRICE”) BY WIRE TRANSFER OF
IMMEDIATELY AVAILABLE FUNDS TO THE COMPANY, IN ACCORDANCE WITH THE COMPANY’S
WRITTEN WIRING INSTRUCTIONS, AGAINST DELIVERY OF THE NOTE IN THE PRINCIPAL
AMOUNT EQUAL TO THE PURCHASE PRICE AS IS SET FORTH IMMEDIATELY BELOW THE BUYER’S
NAME ON THE SIGNATURE PAGES HERETO, AND (II) THE COMPANY SHALL DELIVER SUCH DULY
EXECUTED NOTE ON BEHALF OF THE COMPANY, TO THE BUYER, AGAINST DELIVERY OF SUCH
PURCHASE PRICE.

 

 

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C.                   CLOSING DATE.  SUBJECT TO THE SATISFACTION (OR WRITTEN
WAIVER) OF THE CONDITIONS THERETO SET FORTH IN SECTION 6 AND SECTION 7 BELOW,
THE DATE AND TIME OF THE ISSUANCE AND SALE OF THE NOTE PURSUANT TO THIS
AGREEMENT (THE “CLOSING DATE”) SHALL BE 12:00 NOON, EASTERN STANDARD TIME ON
JANUARY 28, 2011, OR SUCH OTHER MUTUALLY AGREED UPON TIME.  THE CLOSING OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (THE “CLOSING”) SHALL OCCUR ON THE
CLOSING DATE AT SUCH LOCATION AS MAY BE AGREED TO BY THE PARTIES.

 

2.                  BUYER’S REPRESENTATIONS AND WARRANTIES.  THE BUYER
REPRESENTS AND WARRANTS TO THE COMPANY THAT:

 

A.                   INVESTMENT PURPOSE.  AS OF THE DATE HEREOF, THE BUYER IS
PURCHASING THE NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
OR OTHERWISE PURSUANT TO THE NOTE (INCLUDING, WITHOUT LIMITATION, SUCH
ADDITIONAL SHARES OF COMMON STOCK, IF ANY, AS ARE ISSUABLE (I) ON ACCOUNT OF
INTEREST ON THE NOTE, (II) AS A RESULT OF THE EVENTS DESCRIBED IN SECTIONS 1.3
AND 1.4(G) OF THE NOTE OR (III) IN PAYMENT OF THE STANDARD LIQUIDATED DAMAGES
AMOUNT (AS DEFINED IN SECTION 2(F) BELOW) PURSUANT TO THIS AGREEMENT, SUCH
SHARES OF COMMON STOCK BEING COLLECTIVELY REFERRED TO HEREIN AS THE “CONVERSION
SHARES” AND, COLLECTIVELY WITH THE NOTE, THE “SECURITIES”) FOR ITS OWN ACCOUNT
AND NOT WITH A PRESENT VIEW TOWARDS THE PUBLIC SALE OR DISTRIBUTION THEREOF,
EXCEPT PURSUANT TO SALES REGISTERED OR EXEMPTED FROM REGISTRATION UNDER THE 1933
ACT; PROVIDED, HOWEVER, THAT BY MAKING THE REPRESENTATIONS HEREIN, THE BUYER
DOES NOT AGREE TO HOLD ANY OF THE SECURITIES FOR ANY MINIMUM OR OTHER SPECIFIC
TERM AND RESERVES THE RIGHT TO DISPOSE OF THE SECURITIES AT ANY TIME IN
ACCORDANCE WITH OR PURSUANT TO A REGISTRATION STATEMENT OR AN EXEMPTION UNDER
THE 1933 ACT.

 

B.                  ACCREDITED INVESTOR STATUS.  THE BUYER IS AN “ACCREDITED
INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A) OF REGULATION D (AN “ACCREDITED
INVESTOR”).

 

C.                   RELIANCE ON EXEMPTIONS.  THE BUYER UNDERSTANDS THAT THE
SECURITIES ARE BEING OFFERED AND SOLD TO IT IN RELIANCE UPON SPECIFIC EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF UNITED STATES FEDERAL AND STATE SECURITIES
LAWS AND THAT THE COMPANY IS RELYING UPON THE TRUTH AND ACCURACY OF, AND THE
BUYER’S COMPLIANCE WITH, THE REPRESENTATIONS, WARRANTIES, AGREEMENTS,
ACKNOWLEDGMENTS AND UNDERSTANDINGS OF THE BUYER SET FORTH HEREIN IN ORDER TO
DETERMINE THE AVAILABILITY OF SUCH EXEMPTIONS AND THE ELIGIBILITY OF THE BUYER
TO ACQUIRE THE SECURITIES.

 

D.                  INFORMATION.  THE BUYER AND ITS ADVISORS, IF ANY, HAVE BEEN,
AND FOR SO LONG AS THE NOTE REMAIN OUTSTANDING WILL CONTINUE TO BE, FURNISHED
WITH ALL MATERIALS RELATING TO THE BUSINESS, FINANCES AND OPERATIONS OF THE
COMPANY AND MATERIALS RELATING TO THE OFFER AND SALE OF THE SECURITIES WHICH
HAVE BEEN REQUESTED BY THE BUYER OR ITS ADVISORS.  THE BUYER AND ITS ADVISORS,
IF ANY, HAVE BEEN, AND FOR SO LONG AS THE NOTE REMAIN OUTSTANDING WILL CONTINUE
TO BE, AFFORDED THE OPPORTUNITY TO ASK QUESTIONS OF THE COMPANY. 
NOTWITHSTANDING THE FOREGOING, THE COMPANY HAS NOT DISCLOSED TO THE BUYER ANY
MATERIAL NONPUBLIC INFORMATION AND WILL NOT DISCLOSE SUCH INFORMATION UNLESS
SUCH INFORMATION IS DISCLOSED TO THE PUBLIC PRIOR TO OR PROMPTLY FOLLOWING SUCH
DISCLOSURE TO THE BUYER.  NEITHER SUCH INQUIRIES NOR ANY OTHER DUE DILIGENCE
INVESTIGATION CONDUCTED BY BUYER OR ANY OF ITS ADVISORS OR REPRESENTATIVES SHALL
MODIFY, AMEND OR AFFECT BUYER’S RIGHT TO RELY ON THE COMPANY’S REPRESENTATIONS
AND WARRANTIES CONTAINED IN

 

 

                                                                                                      
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SECTION 3 BELOW.  THE BUYER UNDERSTANDS THAT ITS INVESTMENT IN THE SECURITIES
INVOLVES A SIGNIFICANT DEGREE OF RISK. THE BUYER IS NOT AWARE OF ANY FACTS THAT
MAY CONSTITUTE A BREACH OF ANY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES
MADE HEREIN.

 

E.                   GOVERNMENTAL REVIEW.  THE BUYER UNDERSTANDS THAT NO UNITED
STATES FEDERAL OR STATE AGENCY OR ANY OTHER GOVERNMENT OR GOVERNMENTAL AGENCY
HAS PASSED UPON OR MADE ANY RECOMMENDATION OR ENDORSEMENT OF THE SECURITIES.

 

F.                   TRANSFER OR RE-SALE.  THE BUYER UNDERSTANDS THAT (I) THE
SALE OR RE-SALE OF THE SECURITIES HAS NOT BEEN AND IS NOT BEING REGISTERED UNDER
THE 1933 ACT OR ANY APPLICABLE STATE SECURITIES LAWS, AND THE SECURITIES MAY NOT
BE TRANSFERRED UNLESS (A) THE SECURITIES ARE SOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, (B) THE BUYER SHALL HAVE DELIVERED TO
THE COMPANY, AT THE COST OF THE BUYER, AN OPINION OF COUNSEL THAT SHALL BE IN
FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS TO THE EFFECT THAT THE SECURITIES TO BE SOLD OR TRANSFERRED MAY BE
SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION, WHICH
OPINION SHALL BE ACCEPTED BY THE COMPANY, (C) THE SECURITIES ARE SOLD OR
TRANSFERRED TO AN “AFFILIATE” (AS DEFINED IN RULE 144 PROMULGATED UNDER THE 1933
ACT (OR A SUCCESSOR RULE) (“RULE 144”)) OF THE BUYER WHO AGREES TO SELL OR
OTHERWISE TRANSFER THE SECURITIES ONLY IN ACCORDANCE WITH THIS SECTION 2(F) AND
WHO IS AN ACCREDITED INVESTOR, (D) THE SECURITIES ARE SOLD PURSUANT TO RULE 144,
OR (E) THE SECURITIES ARE SOLD PURSUANT TO REGULATION S UNDER THE 1933 ACT (OR A
SUCCESSOR RULE) (“REGULATION S”), AND THE BUYER SHALL HAVE DELIVERED TO THE
COMPANY, AT THE COST OF THE BUYER, AN OPINION OF COUNSEL THAT SHALL BE IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN CORPORATE TRANSACTIONS,
WHICH OPINION SHALL BE ACCEPTED BY THE COMPANY; (II) ANY SALE OF SUCH SECURITIES
MADE IN RELIANCE ON RULE 144 MAY BE MADE ONLY IN ACCORDANCE WITH THE TERMS OF
SAID RULE AND FURTHER, IF SAID RULE IS NOT APPLICABLE, ANY RE-SALE 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 (IN EACH CASE).  NOTWITHSTANDING THE
FOREGOING OR ANYTHING ELSE CONTAINED HEREIN TO THE CONTRARY, THE SECURITIES MAY
BE PLEDGED AS COLLATERAL IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LENDING ARRANGEMENT.  IN THE EVENT THAT THE COMPANY DOES NOT ACCEPT THE OPINION
OF COUNSEL PROVIDED BY THE BUYER WITH RESPECT TO THE TRANSFER OF SECURITIES
PURSUANT TO AN EXEMPTION FROM REGISTRATION, SUCH AS RULE 144 OR REGULATION S,
WITHIN THREE (3) BUSINESS DAYS OF DELIVERY OF THE OPINION TO THE COMPANY, THE
COMPANY SHALL PAY TO THE BUYER LIQUIDATED DAMAGES OF FIVE PERCENT (5%) OF THE
OUTSTANDING AMOUNT OF THE NOTE PER DAY PLUS ACCRUED AND UNPAID INTEREST ON THE
NOTE, PRORATED FOR PARTIAL MONTHS, IN CASH OR SHARES AT THE OPTION OF THE BUYER
(“STANDARD LIQUIDATED DAMAGES AMOUNT”).  IF THE BUYER ELECTS TO BE PAY THE
STANDARD LIQUIDATED DAMAGES AMOUNT IN SHARES OF COMMON STOCK, SUCH SHARES SHALL
BE ISSUED AT THE CONVERSION PRICE (AS DEFINED IN THE NOTE) AT THE TIME OF
PAYMENT.

 

G.                  LEGENDS.  THE BUYER UNDERSTANDS THAT THE NOTE AND, UNTIL
SUCH TIME AS THE CONVERSION SHARES HAVE BEEN REGISTERED UNDER THE 1933 ACT MAY
BE SOLD PURSUANT TO RULE 144 OR REGULATION S WITHOUT ANY RESTRICTION AS TO THE
NUMBER OF SECURITIES AS OF A PARTICULAR DATE

 

 

                                                                                                      
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THAT CAN THEN BE IMMEDIATELY SOLD, THE CONVERSION SHARES MAY BEAR A RESTRICTIVE
LEGEND IN SUBSTANTIALLY THE FOLLOWING FORM (AND A STOP-TRANSFER ORDER MAY BE
PLACED AGAINST TRANSFER OF THE CERTIFICATES FOR SUCH SECURITIES):

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S. 
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.

 

H.                  AUTHORIZATION; ENFORCEMENT. THIS AGREEMENT HAS BEEN DULY AND
VALIDLY AUTHORIZED.  THIS AGREEMENT HAS BEEN DULY EXECUTED AND DELIVERED ON
BEHALF OF THE BUYER, AND THIS AGREEMENT CONSTITUTES A VALID AND BINDING
AGREEMENT OF THE BUYER ENFORCEABLE IN ACCORDANCE WITH ITS TERMS.

I.                    RESIDENCY.  THE BUYER IS A RESIDENT OF THE JURISDICTION
SET FORTH IMMEDIATELY BELOW THE BUYER’S NAME ON THE SIGNATURE PAGES HERETO.

 

3.                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  THE COMPANY
REPRESENTS AND WARRANTS TO THE BUYER THAT:

 

 

 

                                                                                                      
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A.                   ORGANIZATION AND QUALIFICATION.  THE COMPANY AND EACH OF
ITS SUBSIDIARIES (AS DEFINED BELOW), IF ANY, IS A CORPORATION DULY ORGANIZED,
VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE JURISDICTION IN
WHICH IT IS INCORPORATED, WITH FULL POWER AND AUTHORITY (CORPORATE AND OTHER) TO
OWN, LEASE, USE AND OPERATE ITS PROPERTIES AND TO CARRY ON ITS BUSINESS AS AND
WHERE NOW OWNED, LEASED, USED, OPERATED AND CONDUCTED.  SCHEDULE 3(A) SETS FORTH
A LIST OF ALL OF THE SUBSIDIARIES OF THE COMPANY AND THE JURISDICTION IN WHICH
EACH IS INCORPORATED.  THE COMPANY AND EACH OF ITS SUBSIDIARIES IS DULY
QUALIFIED AS A FOREIGN CORPORATION TO DO BUSINESS AND IS IN GOOD STANDING IN
EVERY JURISDICTION IN WHICH ITS OWNERSHIP OR USE OF PROPERTY OR THE NATURE OF
THE BUSINESS CONDUCTED BY IT MAKES SUCH QUALIFICATION NECESSARY EXCEPT WHERE THE
FAILURE TO BE SO QUALIFIED OR IN GOOD STANDING WOULD NOT HAVE A MATERIAL ADVERSE
EFFECT.  “MATERIAL ADVERSE EFFECT” MEANS ANY MATERIAL ADVERSE EFFECT ON THE
BUSINESS, OPERATIONS, ASSETS, FINANCIAL CONDITION OR PROSPECTS OF THE COMPANY OR
ITS SUBSIDIARIES, IF ANY, TAKEN AS A WHOLE, OR ON THE TRANSACTIONS CONTEMPLATED
HEREBY OR BY THE AGREEMENTS OR INSTRUMENTS TO BE ENTERED INTO IN CONNECTION
HEREWITH.  “SUBSIDIARIES” MEANS ANY CORPORATION OR OTHER ORGANIZATION, WHETHER
INCORPORATED OR UNINCORPORATED, IN WHICH THE COMPANY OWNS, DIRECTLY OR
INDIRECTLY, ANY EQUITY OR OTHER OWNERSHIP INTEREST.

 

B.                  AUTHORIZATION; ENFORCEMENT.  (I) THE COMPANY HAS ALL
REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO AND PERFORM THIS
AGREEMENT, THE NOTE AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY AND TO ISSUE THE SECURITIES, IN ACCORDANCE WITH THE TERMS HEREOF AND
THEREOF, (II) THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE NOTE BY THE
COMPANY AND THE CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY (INCLUDING WITHOUT LIMITATION, THE ISSUANCE OF THE NOTE AND THE ISSUANCE
AND RESERVATION FOR 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 OF THE COMPANY, ITS BOARD OF
DIRECTORS, OR ITS SHAREHOLDERS IS REQUIRED, (III) THIS AGREEMENT HAS BEEN DULY
EXECUTED AND DELIVERED BY THE COMPANY BY ITS AUTHORIZED REPRESENTATIVE, AND SUCH
AUTHORIZED REPRESENTATIVE IS THE TRUE AND OFFICIAL REPRESENTATIVE WITH AUTHORITY
TO SIGN THIS AGREEMENT AND THE OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH
AND BIND THE COMPANY ACCORDINGLY, AND (IV) THIS AGREEMENT CONSTITUTES, AND UPON
EXECUTION AND DELIVERY BY THE COMPANY OF THE NOTE, EACH OF SUCH INSTRUMENTS WILL
CONSTITUTE, A LEGAL, VALID AND BINDING OBLIGATION OF THE COMPANY ENFORCEABLE
AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS.

C.                   CAPITALIZATION.  AS OF THE DATE HEREOF, THE AUTHORIZED
CAPITAL STOCK OF THE COMPANY CONSISTS OF: (I) 500,000,000 SHARES OF COMMON
STOCK, $0.01 PAR VALUE PER SHARE, OF WHICH 161,754,187 SHARES ARE ISSUED AND
OUTSTANDING; AND (II) 2,600,000 SHARES OF PREFERRED STOCK, $0.01 PAR VALUE PER
SHARE, OF WHICH 2,600,000 SHARES ARE ISSUED AND OUTSTANDING; NO SHARES ARE
RESERVED FOR ISSUANCE PURSUANT TO THE COMPANY’S STOCK OPTION PLANS, NO SHARES
ARE RESERVED FOR ISSUANCE PURSUANT TO SECURITIES (OTHER THAN THE NOTE AND THREE
(3) PRIOR CONVERTIBLE PROMISSORY NOTES IN FAVOR OF THE BUYER (A) CONVERTIBLE
PROMISSORY NOTE IN FAVOR OF THE BUYER  DATED AUGUST 16, 2010 IN THE AMOUNT OF
$50,000.00 FOR WHICH 20,155,872 SHARES OF COMMON STOCK ARE PRESENTLY RESERVED;
 (B) CONVERTIBLE PROMISSORY NOTE IN FAVOR OF THE BUYER DATED OCTOBER 5, 2010 IN
THE AMOUNT OF $37,500.00 FOR WHICH 17,076,502 SHARES OF COMMON STOCK ARE
PRESENTLY RESERVED AND (C) PRIOR CONVERTIBLE PROMISSORY NOTE IN FAVOR OF THE
BUYER DATED NOVEMBER 19, 2010 IN THE AMOUNT OF $35,000.00 FOR WHICH 31,410,793
SHARES OF COMMON STOCK ARE PRESENTLY RESERVED) EXERCISABLE FOR, OR CONVERTIBLE
INTO OR EXCHANGEABLE FOR SHARES OF COMMON STOCK AND

 

 

                                                                                                      
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42,042,123 SHARES ARE RESERVED FOR ISSUANCE UPON CONVERSION OF THE NOTE (SUBJECT
TO ADJUSTMENT PURSUANT TO THE COMPANY’S COVENANT SET FORTH IN SECTION 4(G)
BELOW).  ALL OF SUCH OUTSTANDING SHARES OF CAPITAL STOCK ARE, OR UPON ISSUANCE
WILL BE, DULY AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND NON-ASSESSABLE.  NO
SHARES OF CAPITAL STOCK OF THE COMPANY ARE SUBJECT TO PREEMPTIVE RIGHTS OR ANY
OTHER SIMILAR RIGHTS OF THE SHAREHOLDERS OF THE COMPANY OR ANY LIENS OR
ENCUMBRANCES IMPOSED THROUGH THE ACTIONS OR FAILURE TO ACT OF THE COMPANY. 
EXCEPT AS DISCLOSED IN SCHEDULE 3(C), AS OF THE EFFECTIVE DATE OF THIS
AGREEMENT, (I) THERE ARE NO OUTSTANDING OPTIONS, WARRANTS, SCRIP, RIGHTS TO
SUBSCRIBE FOR, PUTS, CALLS, RIGHTS OF FIRST REFUSAL, AGREEMENTS, UNDERSTANDINGS,
CLAIMS OR OTHER COMMITMENTS OR RIGHTS OF ANY CHARACTER WHATSOEVER RELATING TO,
OR SECURITIES OR RIGHTS CONVERTIBLE INTO OR EXCHANGEABLE FOR ANY SHARES OF
CAPITAL STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, 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,
(II) THERE ARE NO AGREEMENTS OR ARRANGEMENTS UNDER WHICH THE COMPANY OR ANY OF
ITS SUBSIDIARIES IS OBLIGATED TO REGISTER THE SALE OF ANY OF ITS OR THEIR
SECURITIES UNDER THE 1933 ACT AND (III) THERE ARE NO ANTI-DILUTION OR PRICE
ADJUSTMENT PROVISIONS CONTAINED IN ANY SECURITY ISSUED BY THE COMPANY (OR IN ANY
AGREEMENT PROVIDING RIGHTS TO SECURITY HOLDERS) THAT WILL BE TRIGGERED BY THE
ISSUANCE OF THE NOTE OR THE CONVERSION SHARES.  THE COMPANY HAS FURNISHED TO THE
BUYER TRUE AND CORRECT COPIES OF THE COMPANY’S CERTIFICATE OF INCORPORATION AS
IN EFFECT ON THE DATE HEREOF (“CERTIFICATE OF INCORPORATION”), 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 OF THE COMPANY AND
THE MATERIAL RIGHTS OF THE HOLDERS THEREOF IN RESPECT THERETO.  THE COMPANY
SHALL PROVIDE THE BUYER WITH A WRITTEN UPDATE OF THIS REPRESENTATION SIGNED BY
THE COMPANY’S CHIEF EXECUTIVE ON BEHALF OF THE COMPANY AS OF THE CLOSING DATE.

 

D.                  ISSUANCE OF SHARES.  THE CONVERSION SHARES ARE DULY
AUTHORIZED AND RESERVED FOR ISSUANCE AND, UPON CONVERSION OF THE NOTE IN
ACCORDANCE WITH ITS RESPECTIVE TERMS, WILL BE VALIDLY ISSUED, FULLY PAID AND
NON-ASSESSABLE, AND FREE FROM ALL TAXES, LIENS, CLAIMS AND ENCUMBRANCES WITH
RESPECT TO THE ISSUE THEREOF AND SHALL NOT BE SUBJECT TO PREEMPTIVE RIGHTS OR
OTHER SIMILAR RIGHTS OF SHAREHOLDERS OF THE COMPANY AND WILL NOT IMPOSE PERSONAL
LIABILITY UPON THE HOLDER THEREOF.

 

E.                   ACKNOWLEDGMENT OF DILUTION.  THE COMPANY UNDERSTANDS AND
ACKNOWLEDGES THE POTENTIALLY DILUTIVE EFFECT TO THE COMMON STOCK UPON THE
ISSUANCE OF THE CONVERSION SHARES UPON CONVERSION OF THE NOTE.  THE COMPANY
FURTHER ACKNOWLEDGES THAT ITS OBLIGATION TO ISSUE CONVERSION SHARES UPON
CONVERSION OF THE NOTE IN ACCORDANCE WITH THIS AGREEMENT, THE NOTE IS ABSOLUTE
AND UNCONDITIONAL REGARDLESS OF THE DILUTIVE EFFECT THAT SUCH ISSUANCE MAY HAVE
ON THE OWNERSHIP INTERESTS OF OTHER SHAREHOLDERS OF THE COMPANY.

 

F.                   NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE OF
THIS AGREEMENT, THE NOTE BY THE COMPANY AND THE CONSUMMATION BY THE COMPANY OF
THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY (INCLUDING, WITHOUT LIMITATION,
THE ISSUANCE AND RESERVATION FOR ISSUANCE OF THE CONVERSION SHARES) WILL NOT (I)
CONFLICT WITH OR RESULT IN A VIOLATION OF ANY PROVISION OF THE CERTIFICATE OF
INCORPORATION OR BY-LAWS OR (II) VIOLATE OR CONFLICT WITH, OR RESULT IN A BREACH
OF ANY PROVISION OF, OR CONSTITUTE A DEFAULT (OR AN EVENT WHICH WITH NOTICE OR
LAPSE OF TIME OR BOTH COULD BECOME A DEFAULT) UNDER, OR GIVE TO OTHERS ANY
RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR CANCELLATION OF, ANY
AGREEMENT, INDENTURE, PATENT, PATENT LICENSE OR

 

 

                                                                                                      
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INSTRUMENT TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS A PARTY, OR (III) 
RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION, ORDER, JUDGMENT OR DECREE
(INCLUDING FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS AND REGULATIONS OF
ANY SELF-REGULATORY ORGANIZATIONS TO WHICH THE COMPANY OR ITS SECURITIES ARE
SUBJECT) 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
(EXCEPT FOR SUCH CONFLICTS, DEFAULTS, TERMINATIONS, AMENDMENTS, ACCELERATIONS,
CANCELLATIONS AND VIOLATIONS AS WOULD NOT, INDIVIDUALLY OR IN THE AGGREGATE,
HAVE A MATERIAL ADVERSE EFFECT).  NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS IN VIOLATION OF ITS CERTIFICATE OF INCORPORATION, BY-LAWS OR
OTHER ORGANIZATIONAL DOCUMENTS AND NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS IN DEFAULT (AND NO EVENT HAS OCCURRED WHICH WITH NOTICE OR LAPSE
OF TIME OR BOTH COULD PUT THE COMPANY OR ANY OF ITS SUBSIDIARIES IN DEFAULT)
UNDER, AND NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS TAKEN ANY ACTION
OR FAILED TO TAKE ANY ACTION THAT WOULD 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 BY WHICH ANY PROPERTY OR ASSETS OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES IS BOUND OR AFFECTED, EXCEPT FOR POSSIBLE DEFAULTS AS WOULD NOT,
INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL ADVERSE EFFECT. THE BUSINESSES
OF THE COMPANY AND ITS SUBSIDIARIES, IF ANY, ARE NOT BEING CONDUCTED, AND SHALL
NOT BE CONDUCTED SO LONG AS A BUYER OWNS ANY OF THE SECURITIES, IN VIOLATION OF
ANY 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, GOVERNMENTAL AGENCY, REGULATORY AGENCY, SELF REGULATORY ORGANIZATION
OR STOCK MARKET OR ANY THIRD PARTY IN ORDER FOR IT TO EXECUTE, DELIVER OR
PERFORM ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THE NOTE IN ACCORDANCE WITH
THE TERMS HEREOF OR THEREOF OR TO ISSUE AND SELL THE NOTE IN ACCORDANCE WITH THE
TERMS HEREOF AND TO ISSUE THE CONVERSION SHARES UPON CONVERSION OF THE NOTE. 
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.  THE COMPANY IS NOT IN
VIOLATION OF THE LISTING REQUIREMENTS OF THE OVER-THE-COUNTER BULLETIN BOARD
(THE “OTCBB”) AND DOES NOT REASONABLY ANTICIPATE THAT THE COMMON STOCK WILL BE
DELISTED BY THE OTCBB IN THE FORESEEABLE FUTURE.  THE COMPANY AND ITS
SUBSIDIARIES ARE UNAWARE OF ANY FACTS OR CIRCUMSTANCES WHICH MIGHT GIVE RISE TO
ANY OF THE FOREGOING. 

 

G.                  SEC DOCUMENTS; FINANCIAL STATEMENTS.  THE COMPANY HAS TIMELY
FILED ALL REPORTS, SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS REQUIRED TO
BE FILED BY IT WITH THE SEC PURSUANT TO THE REPORTING REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE “1934 ACT”) (ALL OF THE
FOREGOING FILED PRIOR TO THE DATE HEREOF AND ALL EXHIBITS INCLUDED THEREIN AND
FINANCIAL STATEMENTS AND SCHEDULES THERETO AND DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS) INCORPORATED BY REFERENCE THEREIN, BEING HEREINAFTER REFERRED TO
HEREIN AS THE “SEC DOCUMENTS”).  THE COMPANY HAS DELIVERED TO THE BUYER TRUE AND
COMPLETE COPIES OF THE SEC DOCUMENTS, EXCEPT FOR SUCH EXHIBITS AND INCORPORATED
DOCUMENTS.  AS OF THEIR RESPECTIVE DATES, THE SEC DOCUMENTS COMPLIED IN ALL
MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE 1934 ACT AND THE RULES AND
REGULATIONS OF THE SEC PROMULGATED THEREUNDER APPLICABLE TO THE SEC DOCUMENTS,
AND NONE OF THE SEC DOCUMENTS, AT THE TIME THEY WERE FILED WITH THE SEC,
CONTAINED ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL
FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS
THEREIN, IN LIGHT OF THE CIRCUMSTANCES

 

 

                                                                                                      
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UNDER WHICH THEY WERE MADE, NOT MISLEADING.  NONE OF THE STATEMENTS MADE IN ANY
SUCH SEC DOCUMENTS IS, OR HAS BEEN, REQUIRED TO BE AMENDED OR UPDATED UNDER
APPLICABLE LAW (EXCEPT FOR SUCH STATEMENTS AS HAVE BEEN AMENDED OR UPDATED IN
SUBSEQUENT FILINGS PRIOR THE DATE HEREOF).  AS OF THEIR RESPECTIVE DATES, THE
FINANCIAL STATEMENTS OF THE COMPANY INCLUDED IN THE SEC DOCUMENTS 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 UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED, DURING THE PERIODS
INVOLVED  AND FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE CONSOLIDATED FINANCIAL
POSITION OF THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES AS OF THE DATES
THEREOF AND THE CONSOLIDATED RESULTS OF THEIR OPERATIONS AND CASH FLOWS FOR THE
PERIODS THEN ENDED (SUBJECT, IN THE CASE OF UNAUDITED STATEMENTS, TO NORMAL
YEAR-END AUDIT ADJUSTMENTS).  EXCEPT AS SET FORTH IN THE FINANCIAL STATEMENTS OF
THE COMPANY INCLUDED IN THE SEC DOCUMENTS, THE COMPANY HAS NO LIABILITIES,
CONTINGENT OR OTHERWISE, OTHER THAN (I) LIABILITIES INCURRED IN THE ORDINARY
COURSE OF BUSINESS SUBSEQUENT TO JULY 31, 2010, AND (II) OBLIGATIONS UNDER
CONTRACTS AND COMMITMENTS INCURRED IN THE ORDINARY COURSE OF BUSINESS AND NOT
REQUIRED UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO BE REFLECTED IN SUCH
FINANCIAL STATEMENTS, WHICH, INDIVIDUALLY OR IN THE AGGREGATE, ARE NOT MATERIAL
TO THE FINANCIAL CONDITION OR OPERATING RESULTS OF THE COMPANY. THE COMPANY IS
SUBJECT TO THE REPORTING REQUIREMENTS OF THE 1934 ACT.

 

H.                  ABSENCE OF CERTAIN CHANGES.  SINCE JULY 31, 2010, THERE HAS
BEEN NO MATERIAL ADVERSE CHANGE AND NO MATERIAL ADVERSE DEVELOPMENT IN THE
ASSETS, LIABILITIES, BUSINESS, PROPERTIES, OPERATIONS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS, PROSPECTS OR 1934 ACT REPORTING STATUS OF THE COMPANY OR
ANY OF ITS SUBSIDIARIES.

 

I.                    ABSENCE OF LITIGATION.  THERE IS NO ACTION, SUIT, CLAIM,
PROCEEDING, INQUIRY OR INVESTIGATION BEFORE OR BY ANY COURT, PUBLIC BOARD,
GOVERNMENT AGENCY, SELF-REGULATORY ORGANIZATION OR BODY PENDING OR, TO THE
KNOWLEDGE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, THREATENED AGAINST OR
AFFECTING THE COMPANY OR ANY OF ITS SUBSIDIARIES, OR THEIR OFFICERS OR DIRECTORS
IN THEIR CAPACITY AS SUCH, THAT COULD HAVE A MATERIAL ADVERSE EFFECT.  SCHEDULE
3(I) CONTAINS A COMPLETE LIST AND SUMMARY DESCRIPTION OF ANY PENDING OR, TO THE
KNOWLEDGE OF THE COMPANY, THREATENED PROCEEDING AGAINST OR AFFECTING THE COMPANY
OR ANY OF ITS SUBSIDIARIES, WITHOUT REGARD TO WHETHER IT WOULD HAVE A MATERIAL
ADVERSE EFFECT.  THE COMPANY AND ITS SUBSIDIARIES ARE UNAWARE OF ANY FACTS OR
CIRCUMSTANCES WHICH MIGHT GIVE RISE TO ANY OF THE FOREGOING.

 

J.                    PATENTS, COPYRIGHTS, ETC.  THE COMPANY AND EACH OF ITS
SUBSIDIARIES OWNS OR POSSESSES THE REQUISITE LICENSES OR RIGHTS TO USE ALL
PATENTS, PATENT APPLICATIONS, PATENT RIGHTS, INVENTIONS, KNOW-HOW, TRADE
SECRETS, TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, SERVICE NAMES, TRADE
NAMES AND COPYRIGHTS (“INTELLECTUAL PROPERTY”) NECESSARY TO ENABLE IT TO CONDUCT
ITS BUSINESS AS NOW OPERATED (AND, AS PRESENTLY CONTEMPLATED TO BE OPERATED IN
THE FUTURE); THERE IS NO CLAIM OR ACTION BY ANY PERSON PERTAINING TO, OR
PROCEEDING PENDING, OR TO THE COMPANY’S KNOWLEDGE THREATENED, WHICH CHALLENGES
THE RIGHT OF THE COMPANY OR OF A SUBSIDIARY WITH RESPECT TO ANY INTELLECTUAL
PROPERTY NECESSARY TO ENABLE IT TO CONDUCT ITS BUSINESS AS NOW OPERATED (AND, AS
PRESENTLY CONTEMPLATED TO BE OPERATED IN THE FUTURE); TO THE BEST OF THE
COMPANY’S KNOWLEDGE, THE COMPANY’S OR ITS SUBSIDIARIES’ CURRENT AND INTENDED
PRODUCTS, SERVICES AND PROCESSES DO NOT INFRINGE ON ANY INTELLECTUAL PROPERTY OR
OTHER RIGHTS HELD

 

 

                                                                                                      
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BY ANY PERSON; AND THE COMPANY IS UNAWARE OF ANY FACTS OR CIRCUMSTANCES WHICH
MIGHT GIVE RISE TO ANY OF THE FOREGOING.  THE COMPANY AND EACH OF ITS
SUBSIDIARIES HAVE TAKEN REASONABLE SECURITY MEASURES TO PROTECT THE SECRECY,
CONFIDENTIALITY AND VALUE OF THEIR INTELLECTUAL PROPERTY.

 

K.                  NO MATERIALLY ADVERSE CONTRACTS, 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.  NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS A
PARTY TO ANY CONTRACT OR AGREEMENT WHICH IN THE JUDGMENT OF THE COMPANY’S
OFFICERS HAS OR IS EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

 

L.                    TAX STATUS.  THE COMPANY AND EACH OF ITS SUBSIDIARIES HAS
MADE OR FILED ALL FEDERAL, STATE AND FOREIGN INCOME AND ALL OTHER TAX RETURNS,
REPORTS AND DECLARATIONS REQUIRED BY ANY JURISDICTION TO WHICH IT IS SUBJECT
(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) AND 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 PROVISIONS 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.  THE
COMPANY HAS NOT EXECUTED A WAIVER WITH RESPECT TO THE STATUTE OF LIMITATIONS
RELATING TO THE ASSESSMENT OR COLLECTION OF ANY FOREIGN, FEDERAL, STATE OR LOCAL
TAX.  NONE OF THE COMPANY’S TAX RETURNS IS PRESENTLY BEING AUDITED BY ANY TAXING
AUTHORITY.

 

M.                CERTAIN TRANSACTIONS.  EXCEPT FOR ARM’S LENGTH TRANSACTIONS
PURSUANT TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES MAKES PAYMENTS IN THE
ORDINARY COURSE OF BUSINESS UPON TERMS NO LESS FAVORABLE THAN THE COMPANY OR ANY
OF ITS SUBSIDIARIES COULD OBTAIN FROM THIRD PARTIES AND OTHER THAN THE GRANT OF
STOCK OPTIONS DISCLOSED ON SCHEDULE 3(C), NONE OF THE OFFICERS, DIRECTORS, OR
EMPLOYEES OF THE COMPANY IS PRESENTLY A PARTY TO ANY TRANSACTION WITH THE
COMPANY OR ANY OF ITS SUBSIDIARIES (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.

 

N.                  DISCLOSURE.  ALL INFORMATION RELATING TO OR CONCERNING THE
COMPANY OR ANY OF ITS SUBSIDIARIES SET FORTH IN THIS AGREEMENT AND PROVIDED TO
THE BUYER PURSUANT TO SECTION 2(D) HEREOF AND OTHERWISE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY IS TRUE AND CORRECT IN ALL MATERIAL RESPECTS
AND THE COMPANY HAS NOT OMITTED TO STATE ANY MATERIAL FACT NECESSARY IN ORDER TO
MAKE THE STATEMENTS MADE HEREIN OR THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER
WHICH THEY WERE MADE, NOT MISLEADING.  NO EVENT OR CIRCUMSTANCE HAS OCCURRED OR
EXISTS WITH RESPECT TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ITS OR THEIR
BUSINESS,

 

 

                                                                                                      
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PROPERTIES, PROSPECTS, OPERATIONS OR FINANCIAL CONDITIONS, WHICH, UNDER
APPLICABLE LAW, RULE OR REGULATION, REQUIRES PUBLIC DISCLOSURE OR ANNOUNCEMENT
BY THE COMPANY BUT WHICH HAS NOT BEEN SO PUBLICLY ANNOUNCED OR DISCLOSED
(ASSUMING FOR THIS PURPOSE THAT THE COMPANY’S REPORTS FILED UNDER THE 1934 ACT
ARE BEING INCORPORATED INTO AN EFFECTIVE REGISTRATION STATEMENT FILED BY THE
COMPANY UNDER THE 1933 ACT).

 

O.                  ACKNOWLEDGMENT REGARDING BUYER’ PURCHASE OF SECURITIES.  THE
COMPANY ACKNOWLEDGES AND AGREES THAT THE BUYER IS ACTING SOLELY IN THE CAPACITY
OF ARM’S LENGTH PURCHASERS WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY.  THE COMPANY FURTHER ACKNOWLEDGES THAT NO BUYER IS 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
STATEMENT MADE BY ANY BUYER OR ANY OF THEIR RESPECTIVE REPRESENTATIVES OR AGENTS
IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY IS
NOT ADVICE OR A RECOMMENDATION AND IS MERELY INCIDENTAL TO THE BUYER’ PURCHASE
OF THE SECURITIES.  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 OF THE COMPANY AND ITS REPRESENTATIVES.

 

P.                  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 IN ANY SECURITY OR SOLICITED ANY OFFERS TO
BUY ANY SECURITY UNDER CIRCUMSTANCES THAT WOULD REQUIRE REGISTRATION UNDER THE
1933 ACT OF THE ISSUANCE OF THE SECURITIES TO THE BUYER.  THE ISSUANCE OF THE
SECURITIES TO THE BUYER WILL NOT BE INTEGRATED WITH ANY OTHER ISSUANCE OF THE
COMPANY’S SECURITIES (PAST, CURRENT OR FUTURE) FOR PURPOSES OF ANY SHAREHOLDER
APPROVAL PROVISIONS APPLICABLE TO THE COMPANY OR ITS SECURITIES.

 

Q.                  NO BROKERS.  THE COMPANY HAS TAKEN NO ACTION WHICH WOULD
GIVE RISE TO ANY CLAIM BY ANY PERSON FOR BROKERAGE COMMISSIONS, TRANSACTION FEES
OR SIMILAR PAYMENTS RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

 

R.                    PERMITS; COMPLIANCE.  THE COMPANY AND EACH OF ITS
SUBSIDIARIES IS IN POSSESSION OF ALL FRANCHISES, GRANTS, AUTHORIZATIONS,
LICENSES, PERMITS, EASEMENTS, VARIANCES, EXEMPTIONS, CONSENTS, CERTIFICATES,
APPROVALS AND ORDERS NECESSARY TO OWN, LEASE AND OPERATE ITS PROPERTIES AND TO
CARRY ON ITS BUSINESS AS IT IS NOW BEING CONDUCTED (COLLECTIVELY, THE “COMPANY
PERMITS”), AND THERE IS NO ACTION PENDING OR, TO THE KNOWLEDGE OF THE COMPANY,
THREATENED REGARDING SUSPENSION OR CANCELLATION OF ANY OF THE COMPANY PERMITS. 
NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS IN CONFLICT WITH, OR IN
DEFAULT OR VIOLATION OF, ANY OF THE COMPANY PERMITS, EXCEPT FOR ANY SUCH
CONFLICTS, DEFAULTS OR VIOLATIONS WHICH, INDIVIDUALLY OR IN THE AGGREGATE, WOULD
NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.  SINCE JULY 31,
2010, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES HAS RECEIVED ANY
NOTIFICATION WITH RESPECT TO POSSIBLE CONFLICTS, DEFAULTS OR VIOLATIONS OF
APPLICABLE LAWS, EXCEPT FOR NOTICES RELATING TO POSSIBLE CONFLICTS, DEFAULTS OR
VIOLATIONS, WHICH CONFLICTS, DEFAULTS OR VIOLATIONS WOULD NOT HAVE A MATERIAL
ADVERSE EFFECT.

 

 

 

 

 

                                                                                                     
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S.                   ENVIRONMENTAL MATTERS.

 

(I)                       THERE ARE, TO THE COMPANY’S KNOWLEDGE, WITH RESPECT TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ANY PREDECESSOR OF THE COMPANY, NO
PAST OR PRESENT VIOLATIONS OF ENVIRONMENTAL LAWS (AS DEFINED BELOW), RELEASES OF
ANY MATERIAL INTO THE ENVIRONMENT, ACTIONS, ACTIVITIES, CIRCUMSTANCES,
CONDITIONS, EVENTS, INCIDENTS, OR CONTRACTUAL OBLIGATIONS WHICH MAY GIVE RISE TO
ANY COMMON LAW ENVIRONMENTAL LIABILITY OR ANY LIABILITY UNDER THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980 OR SIMILAR
FEDERAL, STATE, LOCAL OR FOREIGN LAWS AND NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES HAS RECEIVED ANY NOTICE WITH RESPECT TO ANY OF THE FOREGOING, NOR
IS ANY ACTION PENDING OR, TO THE COMPANY’S KNOWLEDGE, THREATENED IN CONNECTION
WITH ANY OF THE FOREGOING.  THE TERM “ENVIRONMENTAL LAWS” MEANS ALL FEDERAL,
STATE, LOCAL OR FOREIGN LAWS RELATING TO POLLUTION OR PROTECTION OF HUMAN HEALTH
OR THE ENVIRONMENT (INCLUDING, WITHOUT LIMITATION, AMBIENT AIR, SURFACE WATER,
GROUNDWATER, LAND SURFACE OR SUBSURFACE STRATA), INCLUDING, WITHOUT LIMITATION,
LAWS RELATING TO EMISSIONS, DISCHARGES, RELEASES OR THREATENED RELEASES OF
CHEMICALS, POLLUTANTS CONTAMINANTS, OR TOXIC OR HAZARDOUS SUBSTANCES OR WASTES
(COLLECTIVELY, “HAZARDOUS MATERIALS”) INTO THE ENVIRONMENT, OR OTHERWISE
RELATING TO THE MANUFACTURE, PROCESSING, DISTRIBUTION, USE, TREATMENT, STORAGE,
DISPOSAL, TRANSPORT OR HANDLING OF HAZARDOUS MATERIALS, AS WELL AS ALL
AUTHORIZATIONS, CODES, DECREES, DEMANDS OR DEMAND LETTERS, INJUNCTIONS,
JUDGMENTS, LICENSES, NOTICES OR NOTICE LETTERS, ORDERS, PERMITS, PLANS OR
REGULATIONS ISSUED, ENTERED, PROMULGATED OR APPROVED THEREUNDER.

 

(II)                     OTHER THAN THOSE THAT ARE OR WERE STORED, USED OR
DISPOSED OF IN COMPLIANCE WITH APPLICABLE LAW, NO HAZARDOUS MATERIALS ARE
CONTAINED ON OR ABOUT ANY REAL PROPERTY CURRENTLY OWNED, LEASED OR USED BY THE
COMPANY OR ANY OF ITS SUBSIDIARIES, AND NO HAZARDOUS MATERIALS WERE RELEASED ON
OR ABOUT ANY REAL PROPERTY PREVIOUSLY OWNED, LEASED OR USED BY THE COMPANY OR
ANY OF ITS SUBSIDIARIES DURING THE PERIOD THE PROPERTY WAS OWNED, LEASED OR USED
BY THE COMPANY OR ANY OF ITS SUBSIDIARIES, EXCEPT IN THE NORMAL COURSE OF THE
COMPANY’S OR ANY OF ITS SUBSIDIARIES’ BUSINESS.

 

(III)                   THERE ARE NO UNDERGROUND STORAGE TANKS ON OR UNDER ANY
REAL PROPERTY OWNED, LEASED OR USED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES
THAT ARE NOT IN COMPLIANCE WITH APPLICABLE LAW.

 

T.                    TITLE TO PROPERTY.  THE COMPANY AND ITS SUBSIDIARIES HAVE
GOOD AND MARKETABLE TITLE IN FEE SIMPLE TO ALL REAL PROPERTY AND GOOD AND
MARKETABLE TITLE TO ALL PERSONAL PROPERTY OWNED BY THEM WHICH IS MATERIAL TO THE
BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES, IN EACH CASE FREE AND CLEAR OF ALL
LIENS, ENCUMBRANCES AND DEFECTS EXCEPT SUCH AS ARE DESCRIBED IN SCHEDULE 3(T) OR
SUCH AS WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.  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 WOULD NOT
HAVE A MATERIAL ADVERSE EFFECT.

 

U.                  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 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 HAVE A MATERIAL ADVERSE EFFECT.  THE COMPANY
HAS PROVIDED TO BUYER TRUE AND CORRECT COPIES OF ALL POLICIES RELATING TO
DIRECTORS’ AND OFFICERS’ LIABILITY COVERAGE, ERRORS AND OMISSIONS COVERAGE, AND
COMMERCIAL GENERAL LIABILITY COVERAGE.

 

V.                  INTERNAL ACCOUNTING CONTROLS.  THE COMPANY AND EACH OF ITS
SUBSIDIARIES MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROLS SUFFICIENT, IN
THE JUDGMENT OF THE COMPANY’S BOARD OF DIRECTORS, 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, (III)
ACCESS TO ASSETS IS PERMITTED ONLY IN ACCORDANCE WITH MANAGEMENT’S GENERAL OR
SPECIFIC AUTHORIZATION AND (IV) THE RECORDED ACCOUNTABILITY FOR ASSETS IS
COMPARED WITH THE EXISTING ASSETS AT REASONABLE INTERVALS AND APPROPRIATE ACTION
IS TAKEN WITH RESPECT TO ANY DIFFERENCES.

 

W.                FOREIGN CORRUPT PRACTICES.  NEITHER THE COMPANY, NOR ANY OF
ITS SUBSIDIARIES, NOR ANY DIRECTOR, OFFICER, AGENT, EMPLOYEE OR OTHER PERSON
ACTING ON BEHALF OF THE COMPANY OR ANY SUBSIDIARY HAS, IN THE COURSE OF HIS
ACTIONS FOR, OR ON BEHALF OF, THE COMPANY, USED ANY CORPORATE FUNDS FOR ANY
UNLAWFUL CONTRIBUTION, GIFT, ENTERTAINMENT OR OTHER UNLAWFUL EXPENSES RELATING
TO POLITICAL ACTIVITY; MADE ANY DIRECT OR INDIRECT UNLAWFUL PAYMENT TO ANY
FOREIGN OR DOMESTIC GOVERNMENT OFFICIAL OR EMPLOYEE FROM CORPORATE FUNDS;
VIOLATED OR IS IN VIOLATION OF ANY PROVISION OF THE U.S. FOREIGN CORRUPT
PRACTICES ACT OF 1977, AS AMENDED, OR MADE ANY BRIBE, REBATE, PAYOFF, INFLUENCE
PAYMENT, KICKBACK OR OTHER UNLAWFUL PAYMENT TO ANY FOREIGN OR DOMESTIC
GOVERNMENT OFFICIAL OR EMPLOYEE.

 

X.                  SOLVENCY.  THE COMPANY (AFTER GIVING EFFECT TO THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT) IS SOLVENT (I.E., ITS ASSETS HAVE A
FAIR MARKET VALUE IN EXCESS OF THE AMOUNT REQUIRED TO PAY ITS PROBABLE
LIABILITIES ON ITS EXISTING DEBTS AS THEY BECOME ABSOLUTE AND MATURED) AND
CURRENTLY THE COMPANY HAS NO INFORMATION THAT WOULD LEAD IT TO REASONABLY
CONCLUDE THAT THE COMPANY WOULD NOT, AFTER GIVING EFFECT TO THE TRANSACTION
CONTEMPLATED BY THIS AGREEMENT, HAVE THE ABILITY TO, NOR DOES IT INTEND TO TAKE
ANY ACTION THAT WOULD IMPAIR ITS ABILITY TO, PAY ITS DEBTS FROM TIME TO TIME
INCURRED IN CONNECTION THEREWITH AS SUCH DEBTS MATURE.  THE COMPANY DID NOT
RECEIVE A QUALIFIED OPINION FROM ITS AUDITORS WITH RESPECT TO ITS MOST RECENT
FISCAL YEAR END AND, AFTER GIVING EFFECT TO THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, DOES NOT ANTICIPATE OR KNOW OF ANY BASIS UPON WHICH ITS AUDITORS
MIGHT ISSUE A QUALIFIED OPINION IN RESPECT OF ITS CURRENT FISCAL YEAR.

 

Y.                  NO INVESTMENT COMPANY.  THE COMPANY IS NOT, AND UPON THE
ISSUANCE AND SALE OF THE SECURITIES AS CONTEMPLATED BY THIS AGREEMENT WILL NOT
BE AN “INVESTMENT COMPANY” REQUIRED TO BE REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940 (AN “INVESTMENT COMPANY”).  THE COMPANY IS NOT CONTROLLED BY
AN INVESTMENT COMPANY.

 

 

 

                                                                                                     
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Z.                   BREACH OF REPRESENTATIONS AND WARRANTIES BY THE COMPANY. 
IF THE COMPANY BREACHES ANY OF THE REPRESENTATIONS OR WARRANTIES SET FORTH IN
THIS SECTION 3, AND IN ADDITION TO ANY OTHER REMEDIES AVAILABLE TO THE BUYER
PURSUANT TO THIS AGREEMENT, THE COMPANY SHALL PAY TO THE BUYER THE STANDARD
LIQUIDATED DAMAGES AMOUNT IN CASH OR IN SHARES OF COMMON STOCK AT THE OPTION OF
THE COMPANY, UNTIL SUCH BREACH IS CURED.  IF THE COMPANY ELECTS TO PAY THE
STANDARD LIQUIDATED DAMAGES AMOUNTS IN SHARES OF COMMON STOCK, SUCH SHARES SHALL
BE ISSUED AT THE CONVERSION PRICE AT THE TIME OF PAYMENT.

 

4.                  COVENANTS.

 

A.                   BEST EFFORTS.  THE PARTIES SHALL USE THEIR BEST EFFORTS TO
SATISFY TIMELY EACH OF THE CONDITIONS DESCRIBED IN SECTION 6 AND 7 OF THIS
AGREEMENT. 

 

B.                  FORM D; BLUE SKY LAWS.  THE COMPANY AGREES TO FILE A FORM D
WITH RESPECT TO THE SECURITIES AS REQUIRED UNDER REGULATION D AND TO PROVIDE A
COPY THEREOF TO THE 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 SECURITIES FOR SALE TO THE BUYER AT THE
APPLICABLE CLOSING PURSUANT TO THIS AGREEMENT UNDER APPLICABLE SECURITIES OR
“BLUE SKY” LAWS OF THE STATES OF THE UNITED STATES (OR TO OBTAIN AN EXEMPTION
FROM SUCH QUALIFICATION), AND SHALL PROVIDE EVIDENCE OF ANY SUCH ACTION SO TAKEN
TO THE BUYER ON OR PRIOR TO THE CLOSING DATE.

 

C.                   USE OF PROCEEDS.  THE COMPANY SHALL USE THE PROCEEDS FROM
THE SALE OF THE NOTE IN THE MANNER SET FORTH IN SCHEDULE 4(D) ATTACHED HERETO
AND MADE A PART HEREOF AND SHALL NOT, DIRECTLY OR INDIRECTLY, USE SUCH PROCEEDS
FOR ANY LOAN TO OR INVESTMENT IN ANY OTHER CORPORATION, PARTNERSHIP, ENTERPRISE
OR OTHER PERSON (EXCEPT IN CONNECTION WITH ITS CURRENTLY EXISTING DIRECT OR
INDIRECT SUBSIDIARIES).

 

D.                  RIGHT OF FIRST REFUSAL.  UNLESS IT SHALL HAVE FIRST
DELIVERED TO THE BUYER, AT LEAST SEVENTY TWO (72) HOURS PRIOR TO THE CLOSING OF
SUCH FUTURE OFFERING (AS DEFINED HEREIN), WRITTEN NOTICE DESCRIBING THE PROPOSED
FUTURE OFFERING, INCLUDING THE TERMS AND CONDITIONS THEREOF AND PROPOSED
DEFINITIVE DOCUMENTATION TO BE ENTERED INTO IN CONNECTION THEREWITH, AND
PROVIDING THE BUYER AN OPTION DURING THE SEVENTY TWO (72) HOUR PERIOD FOLLOWING
DELIVERY OF SUCH NOTICE TO PURCHASE THE SECURITIES BEING OFFERED IN THE FUTURE
OFFERING ON THE SAME TERMS AS CONTEMPLATED BY SUCH FUTURE OFFERING (THE
LIMITATIONS REFERRED TO IN THIS SENTENCE AND THE PRECEDING SENTENCE ARE
COLLECTIVELY REFERRED TO AS THE “RIGHT OF FIRST REFUSAL”) (AND SUBJECT TO THE
EXCEPTIONS DESCRIBED BELOW), THE COMPANY WILL NOT CONDUCT ANY EQUITY FINANCING
(INCLUDING DEBT WITH AN EQUITY COMPONENT) (“FUTURE OFFERINGS”) DURING THE PERIOD
BEGINNING ON THE CLOSING DATE AND ENDING TWELVE (12) MONTHS FOLLOWING THE
CLOSING DATE.  IN THE EVENT THE TERMS AND CONDITIONS OF A PROPOSED FUTURE
OFFERING ARE AMENDED IN ANY RESPECT AFTER DELIVERY OF THE NOTICE TO THE BUYER
CONCERNING THE PROPOSED FUTURE OFFERING, THE COMPANY SHALL DELIVER A NEW NOTICE
TO THE BUYER DESCRIBING THE AMENDED TERMS AND CONDITIONS OF THE PROPOSED FUTURE
OFFERING AND THE BUYER THEREAFTER SHALL HAVE AN OPTION DURING THE SEVENTY TWO
(72) HOUR PERIOD FOLLOWING DELIVERY OF SUCH NEW NOTICE TO PURCHASE ITS PRO RATA
SHARE OF THE SECURITIES BEING OFFERED ON THE SAME TERMS AS CONTEMPLATED BY SUCH
PROPOSED FUTURE OFFERING, AS AMENDED.  THE FOREGOING SENTENCE SHALL APPLY TO
SUCCESSIVE AMENDMENTS TO THE TERMS AND CONDITIONS OF ANY

 

 

                                                                                                     
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PROPOSED FUTURE OFFERING.  THE RIGHT OF FIRST REFUSAL SHALL NOT APPLY TO ANY
TRANSACTION INVOLVING (I) ISSUANCES OF SECURITIES IN A FIRM COMMITMENT
UNDERWRITTEN PUBLIC OFFERING (EXCLUDING A CONTINUOUS OFFERING PURSUANT TO RULE
415 UNDER THE 1933 ACT) OR (II) ISSUANCES OF SECURITIES AS CONSIDERATION FOR A
MERGER, CONSOLIDATION OR PURCHASE OF ASSETS, OR IN CONNECTION WITH ANY STRATEGIC
PARTNERSHIP OR JOINT VENTURE (THE PRIMARY PURPOSE OF WHICH IS NOT TO RAISE
EQUITY CAPITAL), OR IN CONNECTION WITH THE DISPOSITION OR ACQUISITION OF A
BUSINESS, PRODUCT OR LICENSE BY THE COMPANY.  THE RIGHT OF FIRST REFUSAL ALSO
SHALL NOT APPLY TO THE ISSUANCE OF SECURITIES UPON EXERCISE OR CONVERSION OF THE
COMPANY’S OPTIONS, WARRANTS OR OTHER CONVERTIBLE SECURITIES OUTSTANDING AS OF
THE DATE HEREOF OR TO THE GRANT OF ADDITIONAL OPTIONS OR WARRANTS, OR THE
ISSUANCE OF ADDITIONAL SECURITIES, UNDER ANY COMPANY STOCK OPTION OR RESTRICTED
STOCK PLAN APPROVED BY THE SHAREHOLDERS OF THE COMPANY. 

 

E.                   EXPENSES.  AT THE CLOSING, THE COMPANY SHALL REIMBURSE
BUYER FOR EXPENSES INCURRED BY THEM IN CONNECTION WITH THE NEGOTIATION,
PREPARATION, EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT AND THE OTHER
AGREEMENTS TO BE EXECUTED IN CONNECTION HEREWITH (“DOCUMENTS”), INCLUDING,
WITHOUT LIMITATION, REASONABLE ATTORNEYS’ AND CONSULTANTS’ FEES AND EXPENSES,
TRANSFER AGENT FEES, FEES FOR STOCK QUOTATION SERVICES, FEES RELATING TO ANY
AMENDMENTS OR MODIFICATIONS OF THE DOCUMENTS OR ANY CONSENTS OR WAIVERS OF
PROVISIONS IN THE DOCUMENTS, FEES FOR THE PREPARATION OF OPINIONS OF COUNSEL,
ESCROW FEES, AND COSTS OF RESTRUCTURING THE TRANSACTIONS CONTEMPLATED BY THE
DOCUMENTS.  WHEN POSSIBLE, THE COMPANY MUST PAY THESE FEES DIRECTLY, OTHERWISE
THE COMPANY MUST MAKE IMMEDIATE PAYMENT FOR REIMBURSEMENT TO THE BUYER FOR ALL
FEES AND EXPENSES IMMEDIATELY UPON WRITTEN NOTICE BY THE BUYER OR THE SUBMISSION
OF AN INVOICE BY THE BUYER NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE
COMPANY’S OBLIGATION TO REIMBURSE BUYER’ EXPENSES SHALL BE $2,500.

 

F.                   FINANCIAL INFORMATION.  THE COMPANY AGREES TO SEND OR MAKE
AVAILABLE THE FOLLOWING REPORTS TO THE BUYER UNTIL THE BUYER TRANSFERS, ASSIGNS,
OR SELLS ALL OF THE SECURITIES: (I) WITHIN TEN (10) DAYS AFTER THE FILING WITH
THE SEC, A COPY OF ITS ANNUAL REPORT ON FORM 10-K ITS QUARTERLY REPORTS ON FORM
10-Q AND ANY CURRENT REPORTS ON FORM 8-K; (II) WITHIN ONE (1) DAY AFTER RELEASE,
COPIES OF ALL PRESS RELEASES ISSUED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES;
AND (III) CONTEMPORANEOUSLY WITH THE MAKING AVAILABLE OR GIVING TO THE
SHAREHOLDERS OF THE COMPANY, COPIES OF ANY NOTICES OR OTHER INFORMATION THE
COMPANY MAKES AVAILABLE OR GIVES TO SUCH SHAREHOLDERS.

 

G.                  AUTHORIZATION AND RESERVATION OF SHARES.  THE COMPANY SHALL
AT ALL TIMES HAVE AUTHORIZED, AND RESERVED FOR THE PURPOSE OF ISSUANCE, A
SUFFICIENT NUMBER OF SHARES OF COMMON STOCK TO PROVIDE FOR THE FULL CONVERSION
OR EXERCISE OF THE OUTSTANDING NOTE AND ISSUANCE OF THE CONVERSION SHARES IN
CONNECTION THEREWITH (BASED ON THE CONVERSION PRICE OF THE NOTE IN EFFECT FROM
TIME TO TIME) AND AS OTHERWISE REQUIRED BY THE NOTE.  THE COMPANY SHALL NOT
REDUCE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON
CONVERSION OF NOTE WITHOUT THE CONSENT OF THE BUYER.  THE COMPANY SHALL AT ALL
TIMES MAINTAIN THE NUMBER OF SHARES OF COMMON STOCK SO RESERVED FOR ISSUANCE AT
AN AMOUNT (“RESERVED AMOUNT”) EQUAL TO FIVE TIMES THE NUMBER THAT IS THEN
ACTUALLY ISSUABLE UPON FULL CONVERSION OF THE NOTE AND ADDITIONAL NOTE (BASED ON
THE CONVERSION PRICE OF THE NOTE IN EFFECT FROM TIME TO TIME).  IF AT ANY TIME
THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED AND RESERVED FOR ISSUANCE
(“AUTHORIZED AND RESERVED SHARES”) IS BELOW THE RESERVED AMOUNT, THE COMPANY
WILL PROMPTLY TAKE ALL CORPORATE

 

 

                                                                                                     
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ACTION NECESSARY TO AUTHORIZE AND RESERVE A SUFFICIENT NUMBER OF SHARES,
INCLUDING, WITHOUT LIMITATION, CALLING A SPECIAL MEETING OF SHAREHOLDERS TO
AUTHORIZE ADDITIONAL SHARES TO MEET THE COMPANY’S OBLIGATIONS UNDER THIS SECTION
4(G), IN THE CASE OF AN INSUFFICIENT NUMBER OF AUTHORIZED SHARES, OBTAIN
SHAREHOLDER APPROVAL OF AN INCREASE IN SUCH AUTHORIZED NUMBER OF SHARES, AND
VOTING THE MANAGEMENT SHARES OF THE COMPANY IN FAVOR OF AN INCREASE IN THE
AUTHORIZED SHARES OF THE COMPANY TO ENSURE THAT THE NUMBER OF AUTHORIZED SHARES
IS SUFFICIENT TO MEET THE RESERVED AMOUNT.  IF THE COMPANY FAILS TO OBTAIN SUCH
SHAREHOLDER APPROVAL WITHIN THIRTY (30) DAYS FOLLOWING THE DATE ON WHICH THE
NUMBER OF RESERVED AMOUNT EXCEEDS THE AUTHORIZED AND RESERVED SHARES, THE
COMPANY SHALL PAY TO THE BUYER THE STANDARD LIQUIDATED DAMAGES AMOUNT, IN CASH
OR IN SHARES OF COMMON STOCK AT THE OPTION OF THE BUYER.  IF THE BUYER ELECTS TO
BE PAID THE STANDARD LIQUIDATED DAMAGES AMOUNT IN SHARES OF COMMON STOCK, SUCH
SHARES SHALL BE ISSUED AT THE CONVERSION PRICE AT THE TIME OF PAYMENT.  IN ORDER
TO ENSURE THAT THE COMPANY HAS AUTHORIZED A SUFFICIENT AMOUNT OF SHARES TO MEET
THE RESERVED AMOUNT AT ALL TIMES, THE COMPANY MUST DELIVER TO THE BUYER AT THE
END OF EVERY MONTH A LIST DETAILING (1) THE CURRENT AMOUNT OF SHARES AUTHORIZED
BY THE COMPANY AND RESERVED FOR THE BUYER; AND (2) AMOUNT OF SHARES ISSUABLE
UPON CONVERSION OF THE NOTE AND AS PAYMENT OF INTEREST ACCRUED ON THE NOTE FOR
ONE YEAR.  IF THE COMPANY FAILS TO PROVIDE SUCH LIST WITHIN FIVE (5) BUSINESS
DAYS OF THE END OF EACH MONTH, THE COMPANY SHALL PAY THE STANDARD LIQUIDATED
DAMAGES AMOUNT, IN CASH OR IN SHARES OF COMMON STOCK AT THE OPTION OF THE BUYER,
UNTIL THE LIST IS DELIVERED.  IF THE BUYER ELECTS TO BE PAID THE STANDARD
LIQUIDATED DAMAGES AMOUNT IN SHARES OF COMMON STOCK, SUCH SHARES SHALL BE ISSUED
AT THE CONVERSION PRICE AT THE TIME OF PAYMENT.

 

H.                  LISTING.  THE COMPANY SHALL PROMPTLY SECURE THE LISTING OF
THE CONVERSION SHARES UPON EACH NATIONAL SECURITIES EXCHANGE OR AUTOMATED
QUOTATION SYSTEM, IF ANY, UPON WHICH SHARES OF COMMON STOCK ARE THEN LISTED
(SUBJECT TO OFFICIAL NOTICE OF ISSUANCE) AND, SO LONG AS ANY BUYER OWNS ANY OF
THE SECURITIES, SHALL MAINTAIN, SO LONG AS ANY OTHER SHARES OF COMMON STOCK
SHALL BE SO LISTED, SUCH LISTING OF ALL CONVERSION SHARES FROM TIME TO TIME
ISSUABLE UPON CONVERSION OF THE NOTE.  THE COMPANY WILL OBTAIN AND, SO LONG AS
ANY BUYER OWNS ANY OF THE SECURITIES, MAINTAIN THE LISTING AND TRADING OF ITS
COMMON STOCK ON THE OTCBB OR ANY EQUIVALENT REPLACEMENT EXCHANGE, THE NASDAQ
NATIONAL MARKET (“NASDAQ”), THE NASDAQ SMALLCAP MARKET (“NASDAQ SMALLCAP”), THE
NEW YORK STOCK EXCHANGE (“NYSE”), OR THE AMERICAN STOCK EXCHANGE (“AMEX”) AND
WILL COMPLY IN ALL RESPECTS WITH THE COMPANY’S REPORTING, FILING AND OTHER
OBLIGATIONS UNDER THE BYLAWS OR RULES OF THE FINANCIAL INDUSTRY REGULATORY
AUTHORITY (“FINRA”) AND SUCH EXCHANGES, AS APPLICABLE.  THE COMPANY SHALL
PROMPTLY PROVIDE TO THE BUYER COPIES OF ANY NOTICES IT RECEIVES FROM THE OTCBB
AND ANY OTHER EXCHANGES OR QUOTATION SYSTEMS ON WHICH THE COMMON STOCK IS THEN
LISTED REGARDING THE CONTINUED ELIGIBILITY OF THE COMMON STOCK FOR LISTING ON
SUCH EXCHANGES AND QUOTATION SYSTEMS.

 

I.                    CORPORATE EXISTENCE.  SO LONG AS A BUYER BENEFICIALLY OWNS
ANY NOTE, THE COMPANY SHALL MAINTAIN ITS CORPORATE EXISTENCE AND SHALL NOT SELL
ALL OR SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS, EXCEPT IN THE EVENT OF A
MERGER OR CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY’S
ASSETS, WHERE THE SURVIVING OR SUCCESSOR ENTITY IN SUCH TRANSACTION (I) ASSUMES
THE COMPANY’S OBLIGATIONS HEREUNDER AND UNDER THE AGREEMENTS AND INSTRUMENTS
ENTERED INTO IN CONNECTION HEREWITH AND (II) IS A PUBLICLY TRADED CORPORATION
WHOSE COMMON STOCK IS LISTED FOR TRADING ON THE OTCBB, NASDAQ, NASDAQ SMALLCAP,
NYSE OR AMEX.

 

 

                                                                                                     
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J.                    NO INTEGRATION.  THE COMPANY SHALL NOT MAKE ANY OFFERS OR
SALES OF ANY SECURITY (OTHER THAN THE SECURITIES) UNDER CIRCUMSTANCES THAT WOULD
REQUIRE REGISTRATION OF THE SECURITIES BEING OFFERED OR SOLD HEREUNDER UNDER THE
1933 ACT OR CAUSE THE OFFERING OF THE SECURITIES TO BE INTEGRATED WITH ANY OTHER
OFFERING OF SECURITIES BY THE COMPANY FOR THE PURPOSE OF ANY STOCKHOLDER
APPROVAL PROVISION APPLICABLE TO THE COMPANY OR ITS SECURITIES.

 

K.                  BREACH OF COVENANTS.  IF THE COMPANY BREACHES ANY OF THE
COVENANTS SET FORTH IN THIS SECTION 4, AND IN ADDITION TO ANY OTHER REMEDIES
AVAILABLE TO THE BUYER PURSUANT TO THIS AGREEMENT, THE COMPANY SHALL PAY TO THE
BUYER THE STANDARD LIQUIDATED DAMAGES AMOUNT, IN CASH OR IN SHARES OF COMMON
STOCK AT THE OPTION OF BUYER, UNTIL SUCH BREACH IS CURED.  IF THE BUYER ELECTS
TO PAY THE STANDARD LIQUIDATED DAMAGES AMOUNT IN SHARES, SUCH SHARES SHALL BE
ISSUED AT THE CONVERSION PRICE AT THE TIME OF PAYMENT.

 

L.                    FAILURE TO COMPLY WITH THE 1934 ACT.  SO LONG AS THE BUYER
BENEFICIALLY OWNS THE NOTE, THE COMPANY SHALL COMPLY WITH THE REPORTING
REQUIREMENTS OF THE 1934 ACT; AND THE COMPANY SHALL CONTINUE TO BE SUBJECT TO
THE REPORTING REQUIREMENTS OF THE 1934 ACT.

 

M.                TRADING ACTIVITIES.  NEITHER THE BUYER NOR THEIR AFFILIATES
HAS AN OPEN SHORT POSITION IN THE COMMON STOCK OF THE COMPANY AND THE BUYER
AGREE THAT THEY SHALL NOT, AND THAT THEY WILL CAUSE THEIR AFFILIATES NOT TO,
ENGAGE IN ANY SHORT SALES OF OR HEDGING TRANSACTIONS WITH RESPECT TO THE COMMON
STOCK OF THE COMPANY. 

 

5.                  TRANSFER AGENT INSTRUCTIONS.  THE COMPANY SHALL ISSUE
IRREVOCABLE INSTRUCTIONS TO ITS TRANSFER AGENT TO ISSUE CERTIFICATES, REGISTERED
IN THE NAME OF THE BUYER OR ITS NOMINEE, FOR THE CONVERSION SHARES IN SUCH
AMOUNTS AS SPECIFIED FROM TIME TO TIME BY THE BUYER TO THE COMPANY UPON
CONVERSION OF THE NOTE IN ACCORDANCE WITH THE TERMS THEREOF (THE “IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS”).  IN THE EVENT THAT THE BORROWER PROPOSES TO
REPLACE ITS TRANSFER AGENT, THE BORROWER SHALL PROVIDE, PRIOR TO THE EFFECTIVE
DATE OF SUCH REPLACEMENT, A FULLY EXECUTED IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS IN A FORM AS INITIALLY DELIVERED PURSUANT TO THE PURCHASE AGREEMENT
(INCLUDING BUT NOT LIMITED TO THE PROVISION TO IRREVOCABLY RESERVE SHARES OF
COMMON STOCK IN THE RESERVED AMOUNT) SIGNED BY THE SUCCESSOR TRANSFER AGENT TO
BORROWER AND THE BORROWER. PRIOR TO REGISTRATION OF THE CONVERSION SHARES UNDER
THE 1933 ACT OR THE DATE ON WHICH THE CONVERSION SHARES MAY BE SOLD PURSUANT TO
RULE 144 WITHOUT ANY RESTRICTION AS TO THE NUMBER OF SECURITIES AS OF A
PARTICULAR DATE THAT CAN THEN BE IMMEDIATELY SOLD, ALL SUCH CERTIFICATES SHALL
BEAR THE RESTRICTIVE LEGEND SPECIFIED IN SECTION 2(G) OF THIS AGREEMENT.  THE
COMPANY WARRANTS THAT: (I) 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(F) HEREOF (IN THE CASE OF THE CONVERSION SHARES,
PRIOR TO REGISTRATION OF THE CONVERSION SHARES UNDER THE 1933 ACT OR THE DATE ON
WHICH THE CONVERSION SHARES MAY BE SOLD PURSUANT TO RULE 144 WITHOUT ANY
RESTRICTION AS TO THE NUMBER OF SECURITIES AS OF A PARTICULAR DATE THAT CAN THEN
BE IMMEDIATELY SOLD), WILL BE GIVEN BY THE COMPANY TO ITS TRANSFER AGENT AND
THAT THE SECURITIES SHALL OTHERWISE BE FREELY TRANSFERABLE ON THE BOOKS AND
RECORDS OF THE COMPANY AS AND TO THE EXTENT PROVIDED IN THIS AGREEMENT AND THE
NOTE; (II) IT WILL NOT DIRECT ITS TRANSFER AGENT NOT TO TRANSFER OR DELAY,
IMPAIR, AND/OR HINDER ITS TRANSFER AGENT IN TRANSFERRING (OR
ISSUING)(ELECTRONICALLY OR IN CERTIFICATED

 

 

                                                                                                     
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FORM) ANY CERTIFICATE FOR CONVERSION SHARES TO BE ISSUED TO THE BUYER UPON
CONVERSION OF OR OTHERWISE PURSUANT TO THE NOTE AS AND WHEN REQUIRED BY THE NOTE
AND THIS AGREEMENT; AND (III) IT WILL NOT FAIL TO REMOVE (OR DIRECTS ITS
TRANSFER AGENT NOT TO REMOVE OR IMPAIRS, DELAYS, AND/OR HINDERS ITS TRANSFER
AGENT FROM REMOVING) ANY RESTRICTIVE LEGEND (OR TO WITHDRAW ANY STOP TRANSFER
INSTRUCTIONS IN RESPECT THEREOF) ON ANY CERTIFICATE FOR ANY CONVERSION SHARES
ISSUED TO THE BUYER UPON CONVERSION OF OR OTHERWISE PURSUANT TO THE NOTE AS AND
WHEN REQUIRED BY THE NOTE AND THIS AGREEMENT.  NOTHING IN THIS SECTION SHALL
AFFECT IN ANY WAY THE BUYER’S OBLIGATIONS AND AGREEMENT SET FORTH IN SECTION
2(G) HEREOF TO COMPLY WITH ALL APPLICABLE PROSPECTUS DELIVERY REQUIREMENTS, IF
ANY, UPON RE-SALE OF THE SECURITIES.  IF A BUYER PROVIDES THE COMPANY, AT THE
COST OF THE BUYER, WITH (I) AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS IN COMPARABLE TRANSACTIONS, TO THE EFFECT THAT A PUBLIC
SALE OR TRANSFER OF SUCH SECURITIES MAY BE MADE WITHOUT REGISTRATION UNDER THE
1933 ACT AND SUCH SALE OR TRANSFER IS EFFECTED OR (II) THE BUYER PROVIDES
REASONABLE ASSURANCES THAT THE SECURITIES CAN BE SOLD PURSUANT TO RULE 144, THE
COMPANY SHALL PERMIT THE TRANSFER, AND, IN THE CASE OF THE CONVERSION SHARES,
PROMPTLY INSTRUCT ITS TRANSFER AGENT TO ISSUE ONE OR MORE CERTIFICATES, FREE
FROM RESTRICTIVE LEGEND, 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 TRANSACTIONS CONTEMPLATED HEREBY.  ACCORDINGLY, THE COMPANY
ACKNOWLEDGES THAT THE REMEDY AT LAW FOR A BREACH OF ITS OBLIGATIONS UNDER THIS
SECTION 5 MAY BE INADEQUATE AND AGREES, IN THE EVENT OF A BREACH OR THREATENED
BREACH BY THE COMPANY OF THE PROVISIONS OF THIS SECTION, THAT THE BUYER SHALL BE
ENTITLED, IN ADDITION TO ALL OTHER AVAILABLE REMEDIES, TO AN INJUNCTION
RESTRAINING ANY BREACH AND REQUIRING IMMEDIATE 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 NOTE TO A BUYER AT THE
CLOSING IS SUBJECT TO THE SATISFACTION, AT OR BEFORE THE CLOSING DATE OF EACH OF
THE FOLLOWING CONDITIONS THERETO, 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.                   THE BUYER SHALL HAVE EXECUTED THIS AGREEMENT AND DELIVERED
THE SAME TO THE COMPANY.

 

B.                  THE BUYER SHALL HAVE DELIVERED THE PURCHASE PRICE IN
ACCORDANCE WITH SECTION 1(B) ABOVE.

 

C.                   THE REPRESENTATIONS AND WARRANTIES OF THE APPLICABLE BUYER
SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND
AS OF THE CLOSING DATE AS THOUGH MADE AT THAT TIME (EXCEPT FOR REPRESENTATIONS
AND WARRANTIES THAT SPEAK AS OF A SPECIFIC DATE), AND THE APPLICABLE BUYER 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 APPLICABLE BUYER AT OR PRIOR TO THE CLOSING
DATE.

 

D.                  NO LITIGATION, STATUTE, RULE, REGULATION, EXECUTIVE ORDER,
DECREE, RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR
ENDORSED BY OR IN ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION
OR ANY SELF-REGULATORY ORGANIZATION HAVING

 

 

                                                                                                     
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AUTHORITY OVER THE MATTERS CONTEMPLATED HEREBY WHICH PROHIBITS THE CONSUMMATION
OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

7.                  CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.  THE
OBLIGATION OF THE BUYER HEREUNDER TO PURCHASE THE NOTE AT THE CLOSING IS SUBJECT
TO THE SATISFACTION, AT OR BEFORE THE CLOSING DATE OF EACH OF THE FOLLOWING
CONDITIONS, PROVIDED THAT THESE CONDITIONS ARE FOR THE BUYER’S SOLE BENEFIT AND
MAY BE WAIVED BY THE BUYER AT ANY TIME IN ITS SOLE DISCRETION:

 

A.                   THE COMPANY SHALL HAVE EXECUTED THIS AGREEMENT AND
DELIVERED THE SAME TO THE BUYER.

 

B.                  THE COMPANY SHALL HAVE DELIVERED TO THE BUYER DULY EXECUTED
NOTE (IN SUCH DENOMINATIONS AS THE BUYER SHALL REQUEST) IN ACCORDANCE WITH
SECTION 1(B) ABOVE.

 

C.                   THE IRREVOCABLE TRANSFER AGENT INSTRUCTIONS, IN FORM AND
SUBSTANCE SATISFACTORY TO A MAJORITY-IN-INTEREST OF THE BUYER, SHALL HAVE BEEN
DELIVERED TO AND ACKNOWLEDGED IN WRITING BY THE COMPANY’S TRANSFER AGENT.

 

D.                  THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHALL BE
TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND AS OF THE
CLOSING DATE AS THOUGH MADE AT SUCH 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 DATE.  THE BUYER
SHALL HAVE RECEIVED A CERTIFICATE OR CERTIFICATES, EXECUTED BY THE CHIEF
EXECUTIVE OFFICER OF THE COMPANY, DATED AS OF THE CLOSING DATE, TO THE FOREGOING
EFFECT AND AS TO SUCH OTHER MATTERS AS MAY BE REASONABLY REQUESTED BY THE BUYER
INCLUDING, BUT NOT LIMITED TO CERTIFICATES WITH RESPECT TO THE COMPANY’S
CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS’ RESOLUTIONS
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY.

 

E.                   NO LITIGATION, STATUTE, RULE, REGULATION, EXECUTIVE ORDER,
DECREE, RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR
ENDORSED BY OR IN ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION
OR ANY SELF-REGULATORY ORGANIZATION HAVING AUTHORITY OVER THE MATTERS
CONTEMPLATED HEREBY WHICH PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.

 

F.                   NO EVENT SHALL HAVE OCCURRED WHICH COULD REASONABLY BE
EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY INCLUDING BUT NOT
LIMITED TO A CHANGE IN THE 1934 ACT REPORTING STATUS OF THE COMPANY OR THE
FAILURE OF THE COMPANY TO BE TIMELY IN ITS 1934 ACT REPORTING OBLIGATIONS.

 

G.                  THE CONVERSION SHARES SHALL HAVE BEEN AUTHORIZED FOR
QUOTATION ON THE OTCBB AND TRADING IN THE COMMON STOCK ON THE OTCBB SHALL NOT
HAVE BEEN SUSPENDED BY THE SEC OR THE OTCBB.

 

 

 

                                                                                                     
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H.                  THE BUYER SHALL HAVE RECEIVED AN OFFICER’S CERTIFICATE
DESCRIBED IN SECTION 3(C) ABOVE, DATED AS OF THE CLOSING DATE.

 

8.                  GOVERNING LAW; MISCELLANEOUS.

 

A.                   GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.  ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE
OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE
BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN
THE STATE AND COUNTY OF NASSAU.  THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVE ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS.  THE COMPANY AND BUYER
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.   EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUIT, ACTION OR PROCEEDING
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT BY MAILING A
COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH
EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT
UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.

 

B.                  COUNTERPARTS; SIGNATURES BY FACSIMILE.  THIS AGREEMENT MAY
BE EXECUTED IN ONE OR MORE COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN
ORIGINAL BUT ALL OF WHICH SHALL CONSTITUTE ONE AND THE SAME AGREEMENT AND SHALL
BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN SIGNED BY EACH PARTY AND DELIVERED
TO THE OTHER PARTY.  THIS AGREEMENT, ONCE EXECUTED BY A PARTY, MAY BE DELIVERED
TO THE OTHER PARTY HERETO BY FACSIMILE TRANSMISSION OF A COPY OF THIS AGREEMENT
BEARING THE SIGNATURE OF THE PARTY SO DELIVERING THIS AGREEMENT.

 

C.                   HEADINGS.  THE HEADINGS OF THIS AGREEMENT ARE FOR
CONVENIENCE OF REFERENCE ONLY AND SHALL NOT FORM PART OF, OR AFFECT THE
INTERPRETATION OF, THIS AGREEMENT.

 

D.                  SEVERABILITY.  IN THE EVENT THAT ANY PROVISION OF THIS
AGREEMENT 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 PROVISION HEREOF WHICH MAY PROVE INVALID OR UNENFORCEABLE
UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER
PROVISION HEREOF.

 

E.                   ENTIRE AGREEMENT; AMENDMENTS.  THIS AGREEMENT AND THE
INSTRUMENTS REFERENCED HEREIN CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES
WITH RESPECT TO THE

 

 

                                                                                                     
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MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT AS SPECIFICALLY SET FORTH HEREIN
OR THEREIN, NEITHER THE COMPANY NOR THE 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 MAJORITY IN INTEREST OF THE BUYER.

 

F.                   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: 

 

If to the Company, to:

 

MICRO IMAGING TECHNOLOGY, INC.

970 Calle Amanecer - Suite F

San Clemente, CA 92673

Attn: MICHAEL W. BRENNAN, Chief Executive Officer

facsimile: [enter fax number]

 

With a copy by fax only to (which copy shall not constitute notice):

 

[enter name of law firm]

Attn: [attorney name]

[enter address line 1]

[enter city, state, zip]

facsimile: [enter fax number]

 

If to the Buyer:

 

                        ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207

Great Neck, NY. 11021

                        Attn: Curt Kramer, President

facsimile: 516-498-9894

 

 

 

 

                                                                                                     
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With a copy by fax only to (which copy shall not constitute notice):

 

            Naidich Wurman Birnbaum & Maday, LLP

            80 Cuttermill Road, Suite 410

            Great Neck, NY 11021

            Attn: Bernard S. Feldman, Esq.

facsimile: 516-466-3555

 

Each party shall provide notice to the other party of any change in address.

 

G.                  SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL BE BINDING
UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR 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. 
NOTWITHSTANDING THE FOREGOING, SUBJECT TO SECTION 2(F), ANY BUYER MAY ASSIGN ITS
RIGHTS HEREUNDER TO ANY PERSON THAT PURCHASES SECURITIES IN A PRIVATE
TRANSACTION FROM A BUYER OR TO ANY OF ITS “AFFILIATES,” AS THAT TERM IS DEFINED
UNDER THE 1934 ACT, WITHOUT THE CONSENT OF THE COMPANY.

 

H.                  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.  THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE AGREEMENTS AND COVENANTS SET FORTH IN THIS AGREEMENT SHALL
SURVIVE THE CLOSING HEREUNDER NOTWITHSTANDING ANY DUE DILIGENCE INVESTIGATION
CONDUCTED BY OR ON BEHALF OF THE BUYER.  THE COMPANY AGREES TO INDEMNIFY AND
HOLD HARMLESS EACH OF THE BUYER AND ALL THEIR OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS FOR LOSS OR DAMAGE ARISING AS A RESULT OF OR RELATED TO ANY BREACH OR
ALLEGED BREACH BY THE COMPANY OF ANY OF ITS REPRESENTATIONS, WARRANTIES AND
COVENANTS SET FORTH IN THIS AGREEMENT OR ANY OF ITS COVENANTS AND OBLIGATIONS
UNDER THIS AGREEMENT, INCLUDING ADVANCEMENT OF EXPENSES AS THEY ARE INCURRED.

 

J.                    PUBLICITY.  THE COMPANY, AND EACH OF THE BUYER SHALL HAVE
THE RIGHT TO REVIEW A REASONABLE PERIOD OF TIME BEFORE ISSUANCE OF ANY PRESS
RELEASES, SEC, OTCBB OR FINRA FILINGS, OR ANY OTHER PUBLIC STATEMENTS WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY; PROVIDED, HOWEVER, THAT THE
COMPANY SHALL BE ENTITLED, WITHOUT THE PRIOR APPROVAL OF EACH OF THE BUYER, TO
MAKE ANY PRESS RELEASE OR SEC, OTCBB (OR OTHER APPLICABLE TRADING MARKET) OR
FINRA FILINGS WITH RESPECT TO SUCH TRANSACTIONS AS IS REQUIRED BY APPLICABLE LAW
AND REGULATIONS (ALTHOUGH EACH OF THE BUYER SHALL BE CONSULTED BY THE COMPANY IN
CONNECTION WITH ANY SUCH PRESS RELEASE PRIOR TO ITS RELEASE AND SHALL BE
PROVIDED WITH A COPY THEREOF AND BE GIVEN AN OPPORTUNITY TO COMMENT THEREON).

 

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 REQUEST IN ORDER TO CARRY OUT THE
INTENT AND ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

 

                                                                                                     
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L.                    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.

 

M.                REMEDIES.  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 AGREEMENT WILL BE INADEQUATE AND AGREES, IN THE EVENT OF A BREACH OR
THREATENED BREACH BY THE COMPANY OF THE PROVISIONS OF THIS AGREEMENT, THAT THE
BUYER SHALL BE ENTITLED, IN ADDITION TO ALL OTHER AVAILABLE REMEDIES AT LAW OR
IN EQUITY, AND IN ADDITION TO THE PENALTIES ASSESSABLE HEREIN, TO AN INJUNCTION
OR INJUNCTIONS RESTRAINING, PREVENTING OR CURING ANY BREACH OF THIS AGREEMENT
AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF, WITHOUT THE
NECESSITY OF SHOWING ECONOMIC LOSS AND WITHOUT ANY BOND OR OTHER SECURITY BEING
REQUIRED.

 

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

 

 

MICRO IMAGING TECHNOLOGY, INC.

 

By:________________________________

            MICHAEL W. BRENNAN

Chief Executive Officer

 

ASHER ENTERPRISES, INC.

 

 

By:_________________________________

Name: Curt Kramer

Title:   President

 

1 Linden Pl., Suite 207

Great Neck, NY. 11021

 

 

AGGREGATE SUBSCRIPTION AMOUNT:

 

Aggregate Principal Amount of
Note:                                                            $32,500.00

 

Aggregate Purchase
Price:                                                                             
$32,500.00

 

 

                                                                                                     
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