EDWT Exhibit 10.1 5-29-08






SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE

AGREEMENT




Dated as of May 29,
2008




among



EDGEWATER FOODS INTERNATIONAL,
INC.




and





THE PURCHASERS LISTED ON
EXHIBIT A









































­













TABLE
OF CONTENTS




PAGE

ARTICLE I Purchase and Sale of Preferred Stock

1

Section
1.1

Purchase
and Sale of Stock

1

Section
1.2

Conversion
Shares

1

Section
1.3

Purchase
Price and Closings

2

ARTICLE II Representations and Warranties

2

Section
2.1

Representations
and Warranties of the Company

2

Section
2.2

Representations
and Warranties of the Purchasers

13

ARTICLE III Covenants

16

Section
3.1

Securities
Compliance

16

Section
3.2

Registration
and Listing

16

Section
3.3

Inspection
Rights

16

Section
3.4

Compliance
with Laws

16

Section
3.5

Keeping
of Records and Books of Account

17

Section
3.6

Reporting
Requirements

17

Section
3.7

Amendments

17

Section
3.8

Other
Agreements.

17

Section
3.9

Distributions.

17

Section
3.10

Status
of Dividends

17

Section
3.11

Use
of Proceeds

18

Section
3.12

Reservation
of Shares

18

Section
3.13

Disposition
of Assets

 18


Section
3.14

Reporting
Status

 18


Section
3.15

Disclosure
of Transaction 

 18


Section
3.16

Disclosure
of Material Information

 19


Section
3.17

Pledge
of Securities

19

Section
3.18

Lock-Up
Agreements

19

Section
3.19

Monitoring
Fee

19

Section
3.20

Hiring
of COO

19

Section
3.21

Board
of Directors

20

Section
3.22

Additional
Affirmative Covenants

20

Section
3.23

Additional
Negative Covenants

21

ARTICLE IV Conditions

Section
4.1

Conditions
Precedent to the Obligation of the Company to Sell the Shares

23

Section
4.2

Conditions
Precedent to the Obligation of the Purchasers to 




















­










Purchase
the Shares

24

ARTICLE V Stock Certificate Legend

26

Section
5.1

Legend

27

ARTICLE VI Indemnification

28

Section
6.1

Company
Indemnity

28

Section
6.2

Indemnification
Procedure

27

ARTICLE VII Miscellaneous

29

Section
7.1

Fees
and Expenses

29

Section
7.2

Specific
Enforcement, Consent to Jurisdiction.

29

Section
7.3

Entire
Agreement; Amendment

30

Section
7.4

Notices

30

Section
7.5

Waivers

31

Section
7.6

Headings

31

Section
7.7

Successors
and Assigns

31

Section
7.8

No
Third Party Beneficiaries

31

Section
7.9

Governing
Law

31

Section
7.10

Survival

32

Section
7.11

Counterparts

32

Section
7.12

Publicity

32

Section
7.13

Severability

32

Section
7.14

Further
Assurances

32








ii







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SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT


This SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
“Agreement”) is dated as of May 29, 2008 by and among Edgewater Foods
International, Inc., a Nevada corporation (the “Company”), and each of
the Purchasers of shares of Series D Convertible Preferred Stock of the Company
whose names are set forth on Exhibit A hereto (individually, a
“Purchaser” and collectively, the “Purchasers”).




The
parties hereto agree as follows:

ARTICLE I

Purchase and Sale of Preferred Stock

Section 1.1

Purchase and Sale of Stock.  Upon the following terms
and conditions, the Company shall issue and sell to the Purchasers and each of
the Purchasers shall purchase from the Company, the number of shares of the
Company’s Series D Convertible Preferred Stock, par value $0.001 per share and
stated value of $40.00 per share (the “Series D Preferred Shares”),
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”), in the amounts set forth opposite such
Purchaser’s name on Exhibit A hereto.  An aggregate of up to 100,000
of the Series D Preferred Shares shall be issued and sold to all Purchasers
pursuant to this Agreement.  The designation, rights, preferences and other
terms and provisions of the Series D Convertible Preferred Stock are set forth
in the Certificate of Designation of the Relative Rights and Preferences of the
Series D Convertible Preferred Stock attached hereto as Exhibit B (the
“Certificate of Designation”).  The Company and the Purchasers are
executing and delivering this Agreement in accordance with and in reliance upon
the exemption from securities registration afforded by Rule 506 of Regulation D
(“Regulation D”) as promulgated by the United States Securities and
Exchange Commission (the “Commission”) under the Securities Act of 1933,
as amended (the “Securities Act”) or Section 4(2) of the Securities Act.
 

Section 1.2

Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of shares of Common
Stock equal to one hundred twenty percent (120%) of the number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Series D Preferred Shares then outstanding.  Any shares of
Common Stock issuable upon conversion of the Series D Preferred Shares (and such
shares when issued) are herein referred to as the “Conversion Shares”.
 The Series D Preferred Shares and the Conversion Shares are sometimes
collectively referred to as the “Shares”.

Section 1.3

Purchase Price and Closings.  Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Purchasers and,
in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the Series D Preferred Shares for
an aggregate purchase price of Four Million Dollars ($4,000,000) (the
“Purchase Price”).  The Series D Preferred Shares and Warrants shall
be sold and funded in separate 














­






















closings (each, a “Closing”).  The initial Closing
under this Agreement (the “Initial Closing”) shall take place on or about
May 29, 2008 (the “Initial Closing Date”), at which the Purchasers shall
purchase and the Company shall sell an aggregate of not less than 37,500 Series
D Preferred Shares for the amount of not less than One Million Five Hundred
Thousand Dollars ($1,500,000).  Each subsequent Closing under this
Agreement (each, a “Subsequent Closing”) shall take place on a date
(each, a “Subsequent Closing Date”) upon the mutual agreement of the
Company and any subsequent Purchaser, but in no event later than June 30, 2008
(the “Outside Closing Date”).  Each subsequent Purchaser shall
execute this Agreement and the other applicable Transaction Documents (as
hereafter defined) in the capacity of a Purchaser and Exhibit A shall be
supplemented to reflect the sale of such additional Series D Preferred Shares.
 At each Subsequent Closing, such subsequent Purchasers shall purchase and
the Company shall sell an aggregate of up to 50,000 Series D Preferred Shares
for $2,000,000, and by the Outside Closing Date, all of the Purchasers shall
have purchased and the Company shall have sold (inclusive of the Series D
Preferred Shares sold and Purchase Price paid at the Initial Closing) an
aggregate of up to 87,500 Series D Preferred Shares for an aggregate Purchase
Price of Three Million Five Hundred Thousand Dollars ($3,500,000).
 Notwithstanding the foregoing to the contrary, there shall be one final
closing (the “Final Closing”) which shall take place within ninety (90)
days following the Initial Closing Date (the “Final Closing Date”), at
which Vision Opportunity Master Fund, Ltd. shall purchase and the Company shall
sell an aggregate of 12,500 Series D Preferred Shares for the amount of Five
Hundred Thousand Dollars ($500,000), provided that the
Company has hired a chief operating officer acceptable to Vision Capital
Advisors, LLC.  The Initial Closing, each Subsequent Closing and the Final
Closing are sometimes referred to in this Agreement as the “Closing” and
the Initial Closing Date, each Subsequent Closing Date and the Final Closing
Date are sometimes referred to in this Agreement as the “Closing Date”.
 Each Closing under this Agreement shall take place at the offices of
Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York,
New York 10036 at 10:00 a.m., New York time.  Subject to the terms and conditions of this
Agreement, at the Closing the Company shall deliver or cause to be delivered to
each Purchaser (x) a certificate for the number of Series D  Preferred
Shares set forth opposite the name of such Purchaser on Exhibit A hereto,
and (y) any other documents required to be delivered pursuant to Article IV
hereof.  At the Closing, each Purchaser shall deliver its Purchase Price by
wire transfer to an escrow account designated by the escrow agent. 

ARTICLE II

Representations and Warranties

Section 2.1

Representations and Warranties of the Company.  The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and each Closing Date (except as set forth on the Schedule of Exceptions
attached hereto with each numbered Schedule corresponding to the section number
herein), as follows:

(a)

Organization, Good Standing and Power.  The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted.  The Company does not have any subsidiaries 





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except as set forth in the Company’s Form 10-KSB for the year
ended August 31, 2007, including the accompanying financial statements (the
“Form 10-KSB”), or in the Company’s Form 10-QSB for the fiscal quarters
ended February 29, 2008 and November 30, 2007 (the “Form 10-QSB” and,
together with the Form 10-KSB and any and all Form 8-K Interim Reports filed by
the Company since the date of the Form 10-KSB, collectively the “Recent 34
Act Filings”), or on Schedule 2.1(g) hereto.  The Company and
each such subsidiary 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 or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
Section 2.1(c) hereof) on the Company’s financial condition.

(b)

Authorization; Enforcement.  The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Management Lock-Up Agreement (as defined in Section 3.18 hereof)
in the form attached hereto as Exhibit C-1, the Investor Lock-Up
Agreement (as defined in Section 3.18 hereof) in the form attached hereto as
Exhibit C-2, the Escrow Agreement by and among the Company, the
Purchasers and the escrow agent, substantially in the form of Exhibit D
attached hereto (the “Escrow Agreement”), which shall provide for the
disbursement of funds at each Closing, and the Certificate of Designation
(collectively, the “Transaction Documents”), and to issue and sell the
Shares in accordance with the terms hereof.  The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required.  This Agreement has been duly executed and delivered by the
Company.  The other Transaction Documents will have been duly executed and
delivered by the Company at each Closing.  Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application. 

(c)

Capitalization.  The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of the date
hereof are set forth on Schedule 2.1(c) hereto.  All of the
outstanding shares of the Common Stock and the Series D Preferred Shares have
been duly and validly authorized.  Except as set forth in the Recent 34 Act
Filings or on Schedule 2.1(c) hereto: (i) no shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company; (ii) there are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company; (iii) the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities; and (iv) the Company is not a party to, and it has no
knowledge of, any agreement 





3










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restricting the voting or transfer of any shares of the capital
stock of the Company.  The offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Closing complied with all applicable Federal and state securities laws, and no
stockholder has a right of rescission or claim for damages with respect thereto
which would have a Material Adverse Effect (as defined below).  The Company
has furnished or made available to the Purchasers true and correct copies of the
Company’s Articles of Incorporation as in effect on the date hereof (the
“Articles”), and the Company’s Bylaws as in effect on the date hereof
(the “Bylaws”).  For the purposes of this Agreement, “Material
Adverse Effect” means (i) any event or condition which would have a material
adverse effect on the business, operations, properties, prospects, or financial
condition of the Company and its subsidiaries, when taken as a consolidated
whole, and/or (ii) any condition, circumstance, or situation that would prohibit
or otherwise materially interfere with the ability of the Company to perform any
of its obligations under this Agreement in any material respect.

(d)

Issuance of Shares.  The Series D Preferred Shares to
be issued at the Closing will have been duly authorized by all necessary
corporate action and the Series D Preferred Shares, when paid for or issued in
accordance with the terms hereof, shall be validly issued and outstanding, fully
paid and nonassessable and entitled to the rights and preferences set forth in
the Certificate of Designation.  When the Conversion Shares are issued in
accordance with the terms of the Certificate of Designation, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.

(e)

No Conflicts.  The execution, delivery and performance
of the Transaction Documents by the Company, the performance by the Company of
its obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Company’s Articles or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect.  The business of the Company and
its subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect.  The Company is not required under Federal, state or local law,
rule or regulation 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






4










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execute, deliver or perform any of its obligations under the
Transaction Documents, or issue and sell the Series D Preferred Shares and the
Conversion Shares in accordance with the terms hereof or thereof (other than any
filings which may be required to be made by the Company with the Commission or
state securities administrators subsequent to the Closing and the Certificate of
Designation); provided that, for purposes of the representation made in
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchasers herein.

(f)

Commission Documents, Financial Statements.  The
Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
“Commission Documents”).  The Company has delivered or made
available to each of the Purchasers true and complete copies of the Commission
Documents.  The Company has not provided to the Purchasers any material
non-public information or other information which, according to applicable law,
rule or regulation, was required to have been disclosed publicly by the Company
but which has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement.  At the times of their respective filings,
the Form 10-KSB and the Form 10-QSB complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and, as of their respective dates,
none of the Form 10-KSB and the Form 10-QSB 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 under which they were made, not misleading.  The financial
statements of the Company included in the Commission Documents comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto.  Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles (“GAAP”) applied on a consistent basis 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 not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

(g)

Subsidiaries.  The Commission Documents or Schedule
2.1(g) hereto sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the percentage of
each person’s ownership.  For the purposes of this Agreement,
“subsidiary” shall mean any corporation or other entity of which at least
a majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries.  All of the






5










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outstanding shares of capital stock of each subsidiary have been
duly authorized and validly issued, and are fully paid and nonassessable.
 There are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any subsidiary for
the purchase or acquisition of any shares of capital stock of any subsidiary or
any other securities convertible into, exchangeable for or evidencing the rights
to subscribe for any shares of such capital stock.  Neither the Company nor
any subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of the capital stock of any
subsidiary or any convertible securities, rights, warrants or options of the
type described in the preceding sentence.  Neither the Company nor any
subsidiary is party to, nor has any knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of any subsidiary.

(h)

No Material Adverse Change.  Since August 31, 2007,
the Company has not experienced or suffered any Material Adverse Effect.

(i)

No Undisclosed Liabilities.  Neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of the
Company’s or its subsidiaries respective businesses since August 31, 2007 and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or its subsidiaries.

(j)

No Undisclosed Events or Circumstances.  No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, 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.

(k)

Indebtedness.  The Recent 34 Act Filings or
Schedule 2.1(k) hereto sets forth as of a recent date all outstanding
secured and unsecured Indebtedness of the Company or any subsidiary, or for
which the Company or any subsidiary has commitments.  For the purposes of
this Agreement, “Indebtedness” shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP.  Except as set forth on Schedule 2.1(k) hereto, neither the
Company nor any subsidiary is in default with respect to any Indebtedness.

(l)

Title to Assets.  Each of the Company and the
subsidiaries has good and marketable title to all of its real and personal
property reflected in the Form 10-KSB, free and clear of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those
disclosed in the Form 10-KSB or such that, individually or in the aggregate, do
not cause a Material Adverse Effect.  All leases that are material to the
business of the Company and 





6










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its subsidiaries are valid and subsisting and in full force and
effect.

(m)

Actions Pending.  There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or any other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto.
 Except as set forth in the Recent 34 Act Filings or on Schedule
2.1(m) hereto: (i) there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets, and
(ii) there are no outstanding orders, judgments, injunctions, awards or decrees
of any court, arbitrator or governmental or regulatory body against the Company
or any subsidiary or any officers or directors of the Company or subsidiary in
their capacities as such.

(n)

Compliance with Law.  The business of the Company and
the subsidiaries has been and is presently being conducted in accordance with
all applicable federal, state and local governmental laws, rules, regulations
and ordinances, except for such noncompliance that, individually or in the
aggregate, would not cause a Material Adverse Effect.  The Company and each
of its subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

(o)

Taxes.  Except as set forth in the Recent 34 Act
Filings or on Schedule 2.1(o) hereto, the Company and each of the
subsidiaries has accurately prepared and filed all federal, state and other tax
returns required by law to be filed by it, has paid or made provisions for the
payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements of
the Company and the subsidiaries for all current taxes and other charges to
which the Company or any subsidiary is subject and which are not currently due
and payable.  None of the federal income tax returns of the Company or any
subsidiary have been audited by the Internal Revenue Service.  The Company
has no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.

(p)

Certain Fees.  Except as set forth on Schedule
2.1(p) hereto, no brokers, finders or financial advisory fees or commissions
will be payable by the Company or any subsidiary or any Purchaser with respect
to the transactions contemplated by this Agreement.

(q)

Disclosure.  Neither this Agreement or the Schedules
hereto nor any other documents, certificates or instruments furnished to the
Purchasers by or on behalf of the Company or any subsidiary in connection with
the transactions contemplated by this Agreement contain any untrue statement of
a material fact or omit to state a material fact necessary in order 





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to make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not misleading.

(r)

Operation of Business.  The Company and each of the
subsidiaries owns or possesses all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations as set forth
in the Recent 34 Act Filings, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without any
conflict with the rights of others.

(s)

Environmental Compliance.  The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
 Environmental Laws.  The Recent 34 Act Filings describe all material
permits, licenses and other authorizations issued under any Environmental Laws
to the Company or its subsidiaries.  “Environmental Laws” shall mean
all applicable laws relating to the protection of the environment including,
without limitation, all requirements pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature.  The Company has all necessary
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its subsidiaries.  The Company and
each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws.  Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its subsidiaries that violate or may violate any Environmental Law after the
Closing Date or that may give rise to any environmental liability, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance.  

(t)

Books and Record Internal Accounting Controls.  The
books and records of the Company and its subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.  The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company, 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 





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statements in conformity with GAAP 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 actions is taken with respect to any differences.

(u)

Material Agreements.  Except as set forth in the
Recent 34 Act Filings or on Schedule 2.1(u) hereto (which Schedule may
cross-reference other Commission Documents), neither the Company nor any
subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-1 or applicable form (collectively, “Material Agreements”) if the
Company or any subsidiary were registering securities under the Securities Act.
 The Company and each of its subsidiaries has in all material respects
performed all the obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and are not in default
under any Material Agreement now in effect, the result of which could cause a
Material Adverse Effect.  Except as set forth in the Recent 34 Act Filings
or on Schedule 2.1(u) annexed hereto, no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of dividends on
the Series D Preferred Shares, other preferred stock, if any, or its Common
Stock.

(v)

Transactions with Affiliates.  Except as set forth in
the Commission Documents, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (a) the Company or any subsidiary on the one hand, and (b)
on the other hand, any officer, employee, consultant or director of the Company,
or any of its subsidiaries, or any person owning any capital stock of the
Company or any subsidiary or any member of the immediate family of such officer,
employee, consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.

(w)

Securities Act of 1933.  Based in material part upon
the representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares hereunder.  Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of the Shares
under the registration provisions of the Securities Act and applicable state
securities laws, and neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the
Shares.

(x)

Governmental Approvals.  Except for the filing of any
notice prior or subsequent to the Closing Date that may be required under
applicable state and/or Federal securities laws (which if required, shall be
filed on a timely basis), including the filing of a Form 





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D and the filing of the Certificate of Designation with the
Secretary of State for the State of Nevada, no authorization, consent, approval,
license, exemption of, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the execution or
delivery of the Series D Preferred Shares, or for the performance by the Company
of its obligations under the Transaction Documents.

(y)

Employees.  Neither the Company nor any subsidiary has
any collective bargaining arrangements or agreements covering any of its
employees.  Neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary.  No officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.

(z)

Absence of Certain Developments.  Except as set forth
in the Recent 34 Act Filings or on Schedule 2.1(c) hereto, since August
31, 2007, neither the Company nor any subsidiary has:

(i)

issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;

(ii)

borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company’s or such subsidiary’s business;

(iii)

discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;

(iv)

declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital
stock;

(v)

sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;

(vi)

sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchasers or their representatives;





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(vii)

suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;

(viii)

made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;

(ix)

made capital expenditures or commitments therefor that aggregate
in excess of $100,000;

(x)

entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;

(xi)

made charitable contributions or pledges in excess of $25,000;

(xii)

suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;

(xiii)

experienced any material problems with labor or management in
connection with the terms and conditions of their employment;

(xiv)

effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its subsidiaries; or

(xv)

entered into an agreement, written or otherwise, to take any of
the foregoing actions.

(aa)

Public Utility Holding Company Act and Investment Company Act
Status.  The Company is not a “holding company” or a “public utility
company” as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.  The Company is not, and as a result of and immediately
upon the Closing will not be, an “investment company” or a company “controlled”
by an “investment company,” within the meaning of the Investment Company Act of
1940, as amended.

(bb)

ERISA.  No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined below) by the
Company or any of its subsidiaries which is or would be materially adverse to
the Company and its subsidiaries.  The execution and delivery of this
Agreement and the issuance and sale of the Series D Preferred Shares will not
involve any transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended, provided that, if any of
the Purchasers, or any person or entity that owns a beneficial interest in any
of the Purchasers, is an “employee pension benefit plan” (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a “party in
interest” (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.  As used in
this Section 2.1(ac), the term “Plan” shall mean an “employee pension
benefit plan” (as defined in Section 3 of 





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ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or any subsidiary or by any
trade or business, whether or not incorporated, which, together with the Company
or any subsidiary, is under common control, as described in Section 414(b) or
(c) of the Code.

(cc)

Dilutive Effect.  The Company understands and
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Series D Preferred Shares in accordance with this Agreement and the
Certificate of Designation is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other stockholders of the Company.

(dd)

No Integrated Offering.  Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings.  The Company
does not have any registration statement pending before the Commission or
currently under the Commission’s review and since December 1, 2007, the
Company has not offered or sold any of its equity securities or debt securities
convertible into shares of Common Stock.

(ee)

Sarbanes-Oxley Act.  The Company is in compliance with
the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”), and the rules and regulations promulgated
thereunder, that are effective, and intends to comply with other applicable
provisions of the Sarbanes-Oxley Act, and the rules and regulations promulgated
thereunder, upon the effectiveness of such provisions.

(ff)

Independent Nature of Purchasers.  The Company
acknowledges that the obligations of each Purchaser under the Transaction
Documents are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents.  The
Company acknowledges that the decision of each Purchaser to purchase securities
pursuant to this Agreement has been made by such Purchaser independently of any
other purchase and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of its Subsidiaries which may have made or given by
any other Purchaser or by any agent or employee of any other Purchaser, and no
Purchaser or any of its agents or employees shall have any liability to any
Purchaser (or any other person) relating to or arising from any such
information, materials, statements or opinions.  The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to 





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such obligations or the transactions contemplated by the
Transaction Documents.  The Company acknowledges that each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.  The
Company acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby.  The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.  The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Purchasers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby. 

(gg)

DTC Status.  The Company’s current transfer agent is a
participant in and the Common Stock is eligible for transfer pursuant to the
Depository Trust Company Automated Securities Transfer Program.  The name,
address, telephone number, fax number, contact person and email address of the
Company’s transfer agent is set forth on Schedule 2.1(gg) hereto.

(hh)

Insurance.  The Company and its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage of at least $5.0 million.  To
the best of Company’s knowledge, such insurance contracts and policies are
accurate and complete.  Neither the Company nor any 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 without a
significant increase in cost.

Section 2.2

Representations and Warranties of the Purchasers.
 Each of the Purchasers hereby makes the following representations and
warranties to the Company with respect solely to itself and not with respect to
any other Purchaser:

(a)

Organization and Standing of the Purchasers.  If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

(b)

Authorization and Power.  Each Purchaser has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Series D Preferred Shares being sold to it hereunder.  The
execution, delivery and performance of this Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required.  This Agreement
has been duly authorized, executed and delivered by such Purchaser and
constitutes, or shall constitute when executed and delivered, a valid and
binding 





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obligation of the Purchaser enforceable against the Purchaser in
accordance with the terms hereof.

(c)

No Conflicts.  The execution, delivery and performance
of this Agreement and the consummation by such Purchaser of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Purchaser’s charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Purchaser is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Purchaser).  Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Series D Preferred Shares in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.

(d)

Acquisition for Investment.  Each Purchaser is
acquiring the Series D Preferred Shares solely for its own account for the
purpose of investment and not with a view to or for sale in connection with
distribution.  Each Purchaser does not have a present intention to sell the
Series D Preferred Shares, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of the Series D Preferred
Shares to or through any person or entity; provided, however, that
by making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares for any minimum or other specific
term and reserves the right to dispose of the Shares at any time in accordance
with Federal and state securities laws applicable to such disposition.
 Each Purchaser acknowledges that it is able to bear the financial risks
associated with an investment in the Series D Preferred Shares and that it has
been given full access to such records of the Company and the subsidiaries and
to the officers of the Company and the subsidiaries and received such
information as it has deemed necessary or appropriate to conduct its due
diligence investigation and has sufficient knowledge and experience in investing
in companies similar to the Company in terms of the Company’s stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company.

(e)

Status of Purchasers.  Such Purchaser is an
“accredited investor” as defined in Regulation D promulgated under the
Securities Act.  Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act and such Purchaser is not a
broker-dealer.

(f)

Opportunities for Additional Information.  Each
Purchaser acknowledges that such Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information from,
the executive officers of the Company concerning the financial and other affairs
of the Company, and to the extent deemed necessary in light of such 





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Purchaser’s personal knowledge of the Company’s affairs, such
Purchaser has asked such questions and received answers to the full satisfaction
of such Purchaser, and such Purchaser desires to invest in the Company.

(g)

No General Solicitation.  Each Purchaser acknowledges
that the Series D Preferred Shares were not offered to such Purchaser by means
of any form of general or public solicitation or general advertising, or
publicly disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio, or
(ii) any seminar or meeting to which such Purchaser was invited by any of the
foregoing means of communications.

(h)

Rule 144.  Such Purchaser understands that the Shares
must be held indefinitely unless such Shares are registered under the Securities
Act or an exemption from registration is available.  Such Purchaser
acknowledges that such Purchaser is familiar with Rule 144 of the rules and
regulations of the Commission, as amended, promulgated pursuant to the
Securities Act (“Rule 144”), and that such person has been advised that
Rule 144 permits resales only under certain circumstances.  Such Purchaser
understands that to the extent that Rule 144 is not available, such Purchaser
will be unable to sell any Shares without either registration under the
Securities Act or the existence of another exemption from such registration
requirement.

(i)

General.  Such Purchaser understands that the Shares
are being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.

(j)

Independent Investment.  Except as may be disclosed in
any filings with the Commission by the Purchasers under Section 13 and/or
Section 16 of the Exchange Act, no Purchaser has agreed to act with any other
Purchaser for the purpose of acquiring, holding, voting or disposing of the
Shares purchased hereunder for purposes of Section 13(d) under the Exchange Act,
and each Purchaser is acting independently with respect to its investment in the
Shares.

(k)

 Trading Activities
 .  Each Purchaser’s
trading activities with respect to the Shares shall be in compliance with all
applicable federal and state securities laws.  
No Purchaser nor any of
its affiliates has an open short position in the Common Stock, each Purchaser
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 for a period of one (1) year
following the applicable Closing Date .



(l)

 Investor Lock
-Up Agreement.  Each of the
Purchasers shall be subject to the terms and provisions of the Investor Lock-Up
Agreement (as defined in Section 3.18 hereof), which shall provide the manner in
which the Purchasers will sell, transfer or dispose of their Conversion
Shares.





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ARTICLE III

Covenants

The Company covenants with each of the Purchasers as follows,
which covenants are for the benefit of the Purchasers and their permitted
assignees (as defined herein).

Section 3.1

Securities Compliance.  The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents, including filing a Form D with
respect to the Series D Preferred Shares and Conversion Shares as required under
Regulation D, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Series D Preferred Shares and the Conversion Shares to
the Purchasers or subsequent holders. 

Section 3.2

Registration and Listing.  The Company shall cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, to comply in all respects with its reporting and filing
obligations under the Exchange Act and to not take any action or file any
document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein.  The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or other exchange or market on which the Common Stock is
trading.  Subject to the terms of the Transaction Documents, the Company
further covenants that it will take such further action as the Purchasers may
reasonably request, all to the extent required from time to time to enable the
Purchasers to sell the Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act.  Upon the request of the Purchasers, the Company shall
deliver to the Purchasers a written certification of a duly authorized officer
as to whether it has complied with such requirements.

Section 3.3

Inspection Rights.  The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, each
Purchaser or any employees, agents or representatives thereof, so long as such
Purchaser shall be obligated hereunder to purchase the Series D Preferred Shares
or shall beneficially own any Series D Preferred Shares, or shall own Conversion
Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding, for purposes reasonably
related to such Purchaser’s interests as a stockholder to examine and make
reasonable copies of and extracts from the records and books of account of, and
visit and inspect the properties, assets, operations and business of the Company
and any subsidiary, and to discuss the affairs, finances and accounts of the
Company and any subsidiary with any of its officers, consultants, directors, and
key employees.  

Section 3.4

Compliance with Laws.  The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.





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Section 3.5

Keeping of Records and Books of Account.  The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

Section 3.6

Reporting Requirements.  If the Commission ceases
making periodic reports filed under the Exchange Act available via the Internet,
then at a Purchaser’s request the Company shall furnish the following to such
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Series D Preferred Shares or shall beneficially own any Shares:

(a)

Quarterly Reports filed with the Commission on Form 10-Q as soon
as practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission;

(b)

Annual Reports filed with the Commission on Form 10-K as soon as
practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and

(c)

Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.

Section 3.7

Amendments.  The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect the liquidation preferences, dividends rights, conversion
rights, voting rights or redemption rights of the Series D Preferred Shares;
provided, however, that any creation and issuance of another
series of Junior Stock (as defined in the Certificate of Designation) or any
other class or series of equity securities which by its terms shall rank on
parity with the Series D Preferred Shares shall not be deemed to materially and
adversely affect such rights, preferences or privileges.

Section 3.8

Other Agreements.  The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.

Section 3.9

Distributions.  So long as any Series D Preferred
Shares remain outstanding, the Company agrees that it shall not (i) declare or pay any dividends or make any distributions to
any holder(s) of Common Stock or (ii) purchase or otherwise acquire for value,
directly or indirectly, any Common Stock or other equity security of the
Company.

Section 3.10

Status of Dividends.  The Company covenants and agrees
that (i) no Federal income tax return or claim for refund of Federal income tax
or other submission to the Internal Revenue Service (the “Service”) will
adversely affect the Series D Preferred Shares, 





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any other series of its Preferred Stock, or the Common Stock, and
no deduction shall operate to jeopardize the availability to Purchasers of the
dividends received deduction provided by Section 243(a)(1) of the Code or any
successor provision, (ii) in no report to shareholders or to any governmental
body having jurisdiction over the Company or otherwise will it treat the Series
D Preferred Shares other than as equity capital or the dividends paid thereon
other than as dividends paid on equity capital unless required to do so by a
governmental body having jurisdiction over the accounts of the Company or by a
change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) it will
take no action which would result in the dividends paid by the Company on the
Series D Preferred Shares out of the Company’s current or accumulated earnings
and profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code.  The preceding sentence shall not be deemed
to prevent the Company from designating the Preferred Stock as “Convertible
Preferred Stock” in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company.  In the event that the Purchasers have reasonable cause to believe
that dividends paid by the Company on the Series D Preferred Shares out of the
Company’s current or accumulated earnings and profits will not be treated as
eligible for the dividends received deduction provided by Section 243(a)(1) of
the Code, or any successor provision, the Company will, at the reasonable
request of the Purchasers of 51% of the outstanding Series D Preferred Shares,
join with the Purchasers in the submission to the Service of a request for a
ruling that dividends paid on the Shares will be so eligible for Federal income
tax purposes, at the Purchasers expense.  In addition, the Company will
reasonably cooperate with the Purchasers (at Purchasers’ expense) in any
litigation, appeal or other proceeding challenging or contesting any ruling,
technical advice, finding or determination that earnings and profits are not
eligible for the dividends received deduction provided by Section 243(a)(1) of the Code, or any successor provision to the
extent that the position to be taken in any such litigation, appeal, or other
proceeding is not contrary to any provision of the Code.  Notwithstanding
the foregoing, nothing herein contained shall be deemed to preclude the Company
from claiming a deduction with respect to such dividends if (i) the Code shall
hereafter be amended, or final Treasury regulations thereunder are issued or
modified, to provide that dividends on the Series D Preferred Shares or
Conversion Shares should not be treated as dividends for Federal income tax
purposes or that a deduction with respect to all or a portion of the dividends
on the Shares is allowable for Federal income tax purposes, or (ii) in the
absence of such an amendment, issuance or modification and after a submission of
a request for ruling or technical advice, the Service shall issue a published
ruling or advise that dividends on the Shares should not be treated as dividends
for Federal income tax purposes.  If the Service specifically determines
that the Series D Preferred Shares or Conversion Shares constitute debt, the
Company may file protective claims for refund.

Section 3.11

Use of Proceeds.  The net proceeds from the sale of the Shares hereunder
shall be used by the Company in accordance with Schedule 3.11 and not to
redeem any Common Stock or securities convertible, exercisable or exchangeable
into Common Stock or to settle any outstanding litigation.  

Section 3.12

Reservation of Shares.  So long as any of the Series D
Preferred Shares remain outstanding, the Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than one hundred twenty percent 





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(120%) the aggregate number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares.

Section 3.13

Disposition of Assets.  So long as the Series D
Preferred Shares remain outstanding, neither the Company nor any Subsidiary
shall sell, transfer or otherwise dispose of any of its properties, assets and
rights including, without limitation, its software and intellectual property, to
any person except for sales to customers in the ordinary course of business or
with the prior written consent of the holders of a majority of the Series D
Preferred Shares then outstanding.

Section 3.14

Reporting Status.  So long as a Purchaser
beneficially owns any of the Shares, the Company shall timely file all reports
required to be filed with the Commission pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.  

Section 3.15

Disclosure of Transaction.  The Company shall file
with the Commission a Current Report on Form 8-K (the “Form 8-K”)
describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the Certificate of Designation and
the Lock-Up Agreements (as defined in Section 3.18 below) within one Trading Day
following the Initial Closing Date, which Form 8-K shall be subject to prior
review and comment by the Purchasers.  "Trading Day" means any day
during which the OTC Bulletin Board (or other principal exchange on which the
Common Stock is traded) shall be open for trading.  

Section 3.16

Disclosure of Material Information.  The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information.  The
Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.

Section 3.17

Pledge of Securities.  The Company acknowledges and
agrees that the Shares may be pledged by a Purchaser in connection with a
bona fide margin agreement or other loan or financing arrangement
that is secured by the Common Stock.  The pledge of Common Stock shall not
be deemed to be a transfer, sale or assignment of the Common Stock hereunder,
and no Purchaser effecting a pledge of Common Stock shall be required to provide
the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document; provided
that a Purchaser and its pledgee shall be required to comply with the provisions
of Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At the Purchasers' expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.








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Section 3.18

Lock-Up Agreements.  The persons listed on Schedule
3.18 attached hereto shall be subject to the terms and provisions of a
management lock-up agreement in substantially the form as Exhibit C-1
hereto (the “Management Lock-Up Agreement”), which shall provide the
manner in which such persons will sell, transfer or dispose of their shares of
Common Stock.  Each of the Purchasers shall be subject to the terms and
provisions of an investor lock-up agreement in substantially the form as
Exhibit C-2 hereto (the “Investor Lock-Up Agreement” and, together
with the Management Lock-Up Agreement, the “Lock-Up Agreements”), which
shall provide the manner in which the Purchasers will sell, transfer or dispose
of their Conversion Shares.  In addition, the Company covenants and agrees
that any securities issued or to be issued to any placement agent, finder or
other person or entity in connection with the transactions contemplated by this
Agreement shall be subject to the same lock-up terms and provisions of the
Investor Lock-Up Agreement.




Section 3.19

Monitoring Fee.  Commencing on the Initial Closing
Date and each monthly anniversary thereafter for a period of twelve (12) months
following the Initial Closing Date, the Company shall pay to Vision Capital
Advisors, LLC a monitoring fee of $7,500 per month.  In connection with the
foregoing, representatives of Vision Capital Advisors, LLC shall dedicate a
minimum of five (5) days per month to providing financial advice to the
Company.




Section 3.20

Hiring of COO.  The Company shall use its best efforts
to hire a chief operating officer within ninety (90) days following the Initial
Closing Date.  In connection therewith, the Company shall engage a
recruitment firm to identify suitable candidates within thirty (30) days of the
Initial Closing Date.  Notwithstanding the foregoing to the contrary, the
Company shall consult with and receive the prior written approval of Vision
Capital Advisors, LLC prior to hiring any such chief operating officer.




Section 3.21

Board of Directors.  The Company shall cause its Board
of Directors to consist of seven (7) members, of which a majority shall be
independent directors reasonably acceptable to Vision Capital Advisors, LLC.
 The Purchasers shall have the right to designate (by approval of a
majority of the Series D Preferred Shares outstanding at such time) one (1) of
the seven (7) directors so long as at least twenty percent (20%) of the Series D
Preferred Shares remain outstanding.  Notwithstanding the foregoing to the
contrary, if the Company fails to meet certain performance targets as set forth
on Schedule 3.21 hereto, the Company shall use it best efforts to cause
as promptly as practicable a decrease to the size of its Board of Directors to
five (5) members and the Purchasers shall have the right to appoint (by approval
of a majority of the Series D Preferred Shares outstanding at such time) a
majority of the directors so long as at least twenty percent (20%) of the Series
D Preferred Shares remain outstanding.  In addition, a designee of the
Purchasers, appointed by the Purchasers in writing (by approval of a majority of
the Series D Preferred Shares outstanding at such time) and identified by
written notice to the Company, shall have the right to attend and observe, but
not to vote at, all annual and special meetings of the Company’s Board of
Directors.




Section 3.22

Additional Affirmative Covenants.  The Company hereby
covenants and agrees, so long as any Series D Preferred Shares remain
outstanding, as follows:





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(a)

Maintenance of Corporate Existence.  The Company shall
and shall cause its subsidiaries to, maintain in full force and effect its
corporate existence, rights and franchises and all material terms of licenses
and other rights to use licenses, trademarks, trade names, service marks,
copyrights, patents or processes owned or possessed by it and necessary to the
conduct of its business.

(b)

Maintenance of Properties.  The Company shall and
shall cause its subsidiaries to, keep each of its properties necessary to the
conduct of its business in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and the
Company shall and shall its subsidiaries to at all times comply with each
material provision of all leases to which it is a party or under which it
occupies property.

(c)

Payment of Taxes.  The Company shall and shall cause
its subsidiaries to, promptly pay and discharge, or cause to be paid and
discharged when due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, assets, property or business
of the Company and its subsidiaries; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall be
contested timely and in good faith by appropriate proceedings, if the Company or
its subsidiaries shall have set aside on its books adequate reserves with
respect thereto, and the failure to pay shall not be prejudicial in any material
respect to the holders of the Shares, and provided, further, that the Company or
its subsidiaries will pay or cause to be paid any such tax, assessment, charge
or levy forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.  

(d)

Maintenance of Insurance.  The Company shall and shall
cause its subsidiaries to, keep its assets which are of an insurable character
insured by financially sound and reputable insurers against loss or damage by
theft, fire, explosion and other risks customarily insured against by companies
in the line of business of the Company or its subsidiaries, in amounts
sufficient to prevent the Company and its subsidiaries from becoming a
co-insurer of the property insured; and the Company shall and shall cause its
subsidiaries to maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated or as may be required by law, including, without limitation,
general liability, fire and business interruption insurance, and product
liability insurance as may be required pursuant to any license agreement to
which the Company or its subsidiaries is a party or by which it is bound.
 In addition, the Company and its subsidiaries shall maintain directors and
officers insurance coverage of at least $5.0 million by insurers of recognized
financial responsibility.

(e)

Further Assurances.  From time to time the Company
shall execute and deliver to the Purchasers and the Purchasers shall execute and
deliver to the Company such other instruments, certificates, agreements and
documents and take such other action and do all other things as may be
reasonably requested by the other party in order to implement or effectuate the
terms and provisions of this Agreement and any of the Securities.





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Section 3.23

Additional Negative Covenants.   The Company
hereby covenants and agrees, so long as any Series D Preferred Shares remain
outstanding, it will not (and not allow any of its subsidiaries to), directly or
indirectly, without the prior written consent of the holders of a majority of
the Series D Preferred Shares outstanding at such time, as follows:

(a)

Reclassification.  Effect any reclassification of the
Common Stock.

(b)

Indebtedness.  Create, incur, assume, suffer, permit
to exist, or guarantee, directly or indirectly, any indebtedness for borrowed
money, other than Permitted Indebtedness.  As used herein, the term
“Permitted Indebtedness” shall mean indebtedness incurred by the Company
or its consolidated subsidiaries that: (a) represents purchase money
indebtedness or capitalized lease obligations incurred in connection with the
acquisition of capital assets or in the ordinary course of business of the
Company and its subsidiaries, and (b) is incurred in connection with one or more
Permitted Acquisitions so long as the amount of Permitted Indebtedness incurred
with such Permitted Acquisitions does not exceed $500,000 in the aggregate.

(c)

Executive Compensation.  Increase the executive
compensation of any of the Company’s executive officers.

(d)

Employee Stock Option Plans.  Permit the number of
shares of Common Stock issuable pursuant to all of the Company’s stock option
plans and employee stock purchase plans to exceed an aggregate of ten percent
(10%) of the outstanding shares of Common Stock as of the Initial Closing
Date.

(e)

Investor Relations Firm.  Enter into any new
agreements or extend any existing agreements with any investor relations firm;
provided, however, in the event an aggregate of $3,000,000 has
been funded pursuant to this Agreement (of which $1,500,000 shall have been
funded by Purchasers other than Vision Opportunity Master Fund, Ltd.), the
Company may extend the term (but not expand the scope of services to be
provided) of such existing agreements.

(f)

Liquidation or Sale.  Sell, transfer, lease or
otherwise dispose of 50% or more of its consolidated assets (as shown on the
most recent financial statements of the Company or a subsidiary, as the case may
be) in any single transaction or series of related transactions (other than the
sale of inventory in the ordinary course of business), or liquidate, dissolve,
recapitalize or reorganize in any form of transaction.

(g)

Acquisitions.

Acquire all or substantially all of the capital stock or assets of
another business or entity, except for “Permitted Acquisitions.”  As used
herein, the term “Permitted Acquisitions” shall mean any one or more
acquisition by the Company or any existing or future subsidiary (whether by
merger, stock purchase, asset purchase or related transaction) of the assets,
business or securities of any unaffiliated third person, firm or corporation;
provided, that (i) after giving pro-forma effect to such Permitted Acquisition,
the fully-diluted net income per share of the Company and its consolidated
subsidiaries shall be equal to or greater than the fully-diluted net income per
share of the Company and its consolidated subsidiaries immediately prior to such
acquisition; and (ii) after giving pro-forma 





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effect to such Permitted Acquisition and any Permitted
Indebtedness incurred in connection therewith, the consolidated stockholders’
equity of the Company and its consolidated subsidiaries shall be equal to or
greater than the consolidated stockholders’ equity of the Company and its
consolidated subsidiaries immediately prior to such acquisition.

(h)

Change of Control Transaction.  Enter into a Change in
Control Transaction.  For purposes of this Agreement, "Change in Control
Transaction" means, except with respect to acquisitions by the Company in
the normal course of business, the occurrence of (i) an acquisition by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of fifty percent (50%) of the voting securities of the
Company (except that the acquisition of voting securities by the Purchasers
shall not constitute a Change of Control Transaction for purposes hereof),
(ii) the merger or consolidation of the Company or any subsidiary of the
Company in one or a series of related transactions with or into another entity
(except in connection with a merger involving the Company either (A) solely for
the purpose, and with the sole effect, of reorganizing the Company under the
laws of another jurisdiction, with respect to which merger the Company is the
survivor, or (B) where the holders of capital stock of the Company immediately
prior to such merger own more than a majority of the fully-diluted shares of
capital stock of the surviving corporation after the merger ), or (iii) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth above in (i) or
(ii).

(i)

Loans and Advances.  Except for loans and advances
outstanding as of the Closing Date, directly or indirectly, make any advance or
loan to, or guarantee any obligation of, any person or entity, except for
intercompany loans or advances and those provided for in this Agreement.

(j)

Transactions with Affiliates.

(i)

Make any intercompany transfers of monies or other assets in any
single transaction or series of transactions, except as otherwise permitted in
this Agreement.

(ii)

Engage in any transaction with any of the officers, directors,
employees or affiliates of the Company or of its subsidiaries, except on terms
no less favorable to the Company or the subsidiary as could be obtained in an
arm's length transaction.

(iii)

Divert (or permit anyone to divert) any business or opportunity of
the Company or subsidiary to any other corporate or business entity.

ARTICLE IV




CONDITIONS




Section 4.1

Conditions Precedent to the Obligation of the Company to Sell
the Shares.  The obligation hereunder of the Company to issue and sell
the Series D Preferred Shares 





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to the
Purchasers is subject to the satisfaction or waiver, at or before each Closing,
of each of the conditions set forth below.  These conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion.

(a)

Accuracy of Each Purchaser’s Representations and
Warranties.  The representations and warranties of each Purchaser shall
be true and correct in all material respects (except for those representations
and warranties that are qualified by materiality or Material Adverse Effect,
which shall be true and correct in all respects) as of the date when made and as
of such Closing Date, as though made at that time, except for representations
and warranties that are expressly made as of a particular date, which shall be
true and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of such date.

(b)

Performance by the Purchasers.  Each Purchaser shall
have performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to each Closing.

(c)

No Injunction.  No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement. 

(d)

Delivery of Purchase Price.  The Purchase Price for
the Series D Preferred Shares has been delivered to the Company at such Closing
Date.

(e)

Delivery of Transaction Documents.  The Transaction
Documents shall have been duly executed and delivered by the Purchasers and,
with respect to the Escrow Agreement, the escrow agent, to the Company. 

Section 4.2

Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares.  The obligation hereunder of each Purchaser to
acquire and pay for the Series D Preferred Shares is subject to the satisfaction
or waiver, at or before each Closing, of each of the conditions set forth below.
 These conditions are for each Purchaser’s sole benefit and may be waived
by such Purchaser at any time in its sole discretion.

(a)

Accuracy of the Company’s Representations and Warranties.
 Each of the representations and warranties of the Company in this
Agreement and the other Transaction Documents shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of such Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of such date.





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(b)

Performance by the Company.  The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Closing.

(c)

No Suspension, Etc.  Trading in the Company’s Common
Stock shall not have been suspended by the Commission or the OTC Bulletin Board
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the applicable Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets (“Bloomberg”) shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity or crisis of such magnitude in its effect on, or any material adverse
change in any financial market which, in each case, in the judgment of such
Purchaser, makes it impracticable or inadvisable to purchase the Series D
Preferred Shares.

(d)

No Injunction.  No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

(e)

No Proceedings or Litigation.  No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.

(f)

Certificate of Designation of Rights and Preferences.
 Prior to the Initial Closing, the Certificate of Designation in the form
of Exhibit B attached hereto shall have been filed with the Secretary of
State of Nevada.

(g)

Opinion of Counsel, Etc. At each Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of such
Closing, in the form of Exhibit E hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident to
such Closing.

(h)

Certificates.  The Company shall have executed and
delivered to the Purchasers the certificates for the Series D Preferred Shares
being acquired by such Purchaser at such Closing (in such denominations as such
Purchaser shall request).





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(i)

Resolutions.  The Board of Directors of the Company
shall have adopted resolutions consistent with Section 2.1(b) hereof in a form
reasonably acceptable to such Purchaser (the "Resolutions").

(j)

Reservation of Shares.  As of each 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 Series D Preferred
Shares, a number of shares of Common Stock equal to one hundred twenty percent
(120%) of the aggregate number of Conversion Shares issuable upon conversion of
the Series D Preferred Shares outstanding on such Closing Date.

(k)

Management Lock-Up Agreement.  As of the Initial
Closing Date, the persons listed on Schedule 3.18 hereto shall have
delivered to the Purchasers a fully executed Management Lock-Up Agreement in the
form of Exhibit C-1 attached hereto. 

(l)

Investor Lock-Up Agreement.  As of each Closing Date,
each of the Purchasers shall have executed and delivered to the Company and the
other Purchasers a fully executed Investor Lock-Up Agreement in the form of
Exhibit C-2 attached hereto. 

(m)

Escrow Agreement.  At each Closing, the Company and
the escrow agent shall have executed and delivered the Escrow Agreement, in the
form attached hereto as Exhibit D, to each Purchaser.

(n)

Secretary’s Certificate.  The Company shall have
delivered to such Purchaser a secretary’s certificate, dated as of each Closing
Date, as to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the
Certificate of Designation, each as in effect at such Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.

(o)

Officer’s Certificate.  The Company shall have
delivered to the Purchasers a certificate of an executive officer of the
Company, dated as of such Closing Date, confirming the accuracy of the Company’s
representations, warranties and covenants as of such Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of the Closing Date.

(p)

Hiring of COO.  Prior to the Final Closing Date, the
Company shall have hired a chief operating officer acceptable to Vision Capital
Advisors, LLC.

 

(q)      Exchange Agreement.  At or prior
to the Initial Closing, the transactions contemplated by that certain Exchange
Agreement dated as of the date hereof by and among the Company and the holders
named therein shall have been consummated. 




(r)
        Material Adverse Effect.  No
Material Adverse Effect shall have occurred at or before each Closing Date.








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ARTICLE V

Stock Certificate Legend










Section 5.1

Legend.  Each certificate representing the Series D
Preferred Shares, and, if appropriate, securities issued upon conversion
thereof, shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required by applicable state
securities or “blue sky” laws):

THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
“SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR EDGEWATER FOODS INTERNATIONAL,
INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.

The Company agrees to reissue certificates representing any of the
Conversion Shares without the legend set forth above if at such time, prior to
making any transfer of any such securities, such holder thereof shall give
written notice to the Company describing the manner and terms of such transfer
and removal as the Company may reasonably request.  Such proposed transfer
and removal will not be effected until: (a) either (i) the Company has received
an opinion of counsel reasonably satisfactory to the Company, to the effect that
the registration of the Conversion Shares under the Securities Act is not
required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act, (iii) the Company has received other evidence reasonably
satisfactory to the Company that such registration and qualification under the
Securities Act and state securities laws are not required, or (iv) the holder
provides the Company with reasonable assurances that such security can be sold
pursuant to Rule 144 under the Securities Act; and (b) either (i) the Company
has received an opinion of counsel reasonably satisfactory to the Company, to
the effect that registration or qualification under the securities or "blue sky"
laws of any state is not required in connection with such proposed disposition,
or (ii) compliance with applicable state securities or "blue sky" laws has been
effected or a valid exemption exists with respect thereto.  The Company
will respond to any such notice from a holder within five (5) business days.
 In the case of any proposed transfer under this Section 5.1, the Company
will use reasonable efforts to comply with any such applicable state securities
or "blue sky" laws, but shall in no event be required, (x) to qualify to do
business in any state where it is not then qualified, (y) to take any action
that would subject it to tax or to the general service of process in any state
where it is not then subject, or (z) to comply with state securities or “blue
sky” laws of any state for which registration by coordination is unavailable to
the Company.  The restrictions on transfer contained in this Section 5.1
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this
Agreement.  



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Whenever a certificate representing the Conversion Shares is required to
be issued to a Purchaser without a legend, in lieu of delivering physical
certificates representing the Conversion Shares (provided that a registration
statement under the Securities Act providing for the resale of the Conversion
Shares is then in effect or such security can be sold pursuant to Rule 144 under
the Securities Act), the Company shall cause its transfer agent to
electronically transmit the Conversion Shares to a Purchaser by crediting the
account of such Purchaser's Prime Broker with the Depository Trust Company
(“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”)
system (to the extent not inconsistent with any provisions of this Agreement)
provided that the Company and the Company’s transfer agent are participating in
DTC through the DWAC system.

 

ARTICLE VI

Indemnification

Section 6.1

Company Indemnity.  The Company agrees to indemnify and hold harmless the
Purchasers (and their respective directors, officers, managers, partners,
members, shareholders, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein.   

Section 6.2

Indemnification Procedure.  Any party entitled to
indemnification under this Article VI (an “indemnified party”) will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice.  In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party.  In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim.  In any event, unless and until the indemnifying
party elects in writing to assume and does so assume the defense of any such
claim, proceeding or action, the indemnified party’s costs and expenses arising
out of the defense, settlement or compromise of any such action, claim or
proceeding shall be losses subject to indemnification hereunder.  The
indemnified party shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the indemnified party which relates to such action or
claim.  The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto.  If the indemnifying party elects to
defend any such action or claim, then the indemnified
party shall be entitled to participate in such defense with 





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counsel of its choice at its sole cost and expense.  The
indemnifying party shall not be liable for any settlement of any action, claim
or proceeding effected without its prior written consent.  Notwithstanding
anything in this Article VI to the contrary, the indemnifying party shall not,
without the indemnified party’s prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof which imposes any
future obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim.
 The indemnification required by this Article VI shall be made by periodic
payments of the amount thereof during the course of investigation or defense, as
and when bills are received or expense, loss, damage or liability is incurred,
so long as the indemnified party irrevocably agrees to refund such moneys if it
is ultimately determined by a court of competent jurisdiction that such party
was not entitled to indemnification.  The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
indemnified party against the indemnifying party or others, and (b) any
liabilities the indemnifying party may be subject to pursuant to the law.

ARTICLE VII

Miscellaneous

Section 7.1

Fees and Expenses.  Except as otherwise set forth in
this Agreement and the other Transaction Documents, each party shall pay the
fees and expenses of its advisors, counsel, accountants and other experts, if
any, and all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement,
provided that the Company shall pay all actual attorneys' fees and
expenses (including disbursements and out-of-pocket expenses) incurred by the
Purchasers in connection with (i) the preparation, negotiation, execution and
delivery of this Agreement and the other Transaction Documents and the
transactions contemplated thereunder, which payment shall be made at the Initial
Closing and shall not exceed $35,000 and (ii) any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents.  The
Company shall also pay all reasonable fees and expenses incurred by the
Purchasers in connection with the enforcement of this Agreement or any of the
other Transaction Documents, including, without limitation, all reasonable
attorneys' fees and expenses.  

Section 7.2

Specific Enforcement, Consent to Jurisdiction.
 

(a)

The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached.  It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement and the Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

(b)

Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, 





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action or proceeding arising out of or relating to this Agreement
or any of the other Transaction Documents or the transactions contemplated
hereby or thereby and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper.  Each of the Company and the Purchasers consents to process being
served in any such suit, action or proceeding by mailing a copy thereof 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 in this Section 7.2 shall affect or limit any
right to serve process in any other manner permitted by law.

Section 7.3

Entire Agreement; Amendment.  This Agreement and the
Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking with
respect to such matters and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
 No provision of this Agreement may be waived or amended other than by a
written instrument signed by the Company and the holders of at least a majority
of the Series D Preferred Shares then outstanding, and no provision hereof may
be waived other than by an a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.  No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the Series D Preferred Shares then outstanding.  No consideration shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Series D Preferred Shares, as the case may be.

Section 7.4

Notices.  Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy, e-mail or facsimile 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:
	
Edgewater Foods
International, Inc. 

400
Professional Drive, Suite 310 

Gaithersburg,
Maryland 20879

Attention:
Michael Boswell

Tel. No.: (240)
864-0449

Fax No.:  (240) 864-0450

	
 
	
 







30










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with copies
to:
	
Hodgson Russ
LLP 
1540 Broadway, 24th Floor 
New York, New York
10036-4039

Attention:
 Stephen A. Weiss, Esq. 

Tel. No.:
 (646) 218-7606

Fax No.:
 (212) 751-0928

	
 
	
 

	
If to any
Purchaser:
	
At the address
of such Purchaser set forth on Exhibit A to this Agreement, with
copies to Purchaser’s counsel as set forth on Exhibit A or as
specified in writing by such Purchaser with copies to:

	
 
	
 

	
 
	
Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Attention: Christopher S. Auguste, Esq.

Tel No.: (212) 715-9100

Fax No.: (212)
715-8000



Any party hereto may from time to time change its address for
notices by giving at least ten (10) days written notice of such changed address
to the other party hereto.

Section 7.5

Waivers.  No waiver by either party of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.

Section 7.6

Headings.  The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.

Section 7.7

Successors and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.  

Section 7.8

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.

Section 7.9

Governing Law.  This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to any of the conflicts of law principles which would
result in the application of the substantive law of another jurisdiction.
 This Agreement shall not be interpreted or construed with any presumption
against the party causing this Agreement to be drafted.





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Section 7.10

Survival.  The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
each Closing until the second anniversary of the final Closing Date, except the
agreements and covenants set forth in Articles I, III, V, VI and VII of this
Agreement shall survive the execution and delivery hereof and the Closings
hereunder.

Section 7.11

Counterparts.  This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

Section 7.12

Publicity.  The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers without the consent of the Purchasers unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.

Section 7.13

Severability.  The provisions of this Agreement and
the Transaction Documents are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement or the Transaction Documents
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement or the Transaction
Documents and such provision shall be reformed and construed as if such invalid
or illegal or unenforceable provision, or part of such provision, had never been
contained herein, so that such provisions would be valid, legal and enforceable
to the maximum extent possible.

Section 7.14

Further Assurances.  From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Series D Preferred Shares, the Conversion Shares
and the Certificate of Designation.




[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]








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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officer as of the date first
above written.

		
	
 
	
EDGEWATER FOODS
INTERNATIONAL, INC. 

	
 
	
 

	
 
	
 

	
 
	
By:

	
 
	
      Name: Michael
Boswell

      Title:
  Acting Chief Financial Officer 









		
	
 
	
PURCHASER

	
 
	
 

	
 
	
 

	
 
	
 

	
 
	
By:


Name:


Title:
  

	


	
 

	
 
	
 

	
 
	
 

	
 
	
 

	
 
	
 

	
 
	
 

	


	
 

	
 
	
 

	
 
	
 

	
 
	
 

	
 
	
 
















­
















EXHIBIT A to the

SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR


EDGEWATER FOODS INTERNATIONAL, INC.




  

Names and Addresses

Number of Series D Preferred

Dollar Amount of

of Purchasers

Shares Purchased

Investment




INITIAL
CLOSING:




Vision
Opportunity Master Fund, Ltd

Series
D Preferred Shares: 37,500

$1,500,000

 

Attn:

         

E-mail: 











­
















EXHIBIT B to the 

SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR


EDGEWATER FOODS INTERNATIONAL, INC.




FORM
OF CERTIFICATE OF DESIGNATION








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EXHIBIT C-1 to the 

SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR


EDGEWATER FOODS INTERNATIONAL, INC.




FORM
OF MANAGEMENT LOCK-UP AGREEMENT





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EXHIBIT C-2 to the 

SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR


EDGEWATER FOODS INTERNATIONAL, INC.




FORM
OF INVESTOR LOCK-UP AGREEMENT





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EXHIBIT D to the 

SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR


EDGEWATER FOODS INTERNATIONAL, INC.




FORM
OF ESCROW AGREEMENT





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EXHIBIT E to the 

SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR


EDGEWATER FOODS INTERNATIONAL, INC.




FORM
OF OPINION OF COUNSEL




1.

The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the state of Nevada and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted.  The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary.




2.

The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Transaction Documents and to
issue the Preferred Stock and the Common Stock issuable upon conversion of the
Preferred Stock.  The execution, delivery and performance of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required.  Each of the
Transaction Documents have been duly executed and delivered, and the Preferred
Stock has been duly executed, issued and delivered by the Company and each of
the Transaction Documents constitutes a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its respective
terms.  The Common Stock issuable upon conversion of the Preferred Stock is
not subject to any preemptive rights under the Articles of Incorporation or the
Bylaws.




3.

The Preferred Stock has been duly authorized and, when delivered
against payment in full as provided in the Purchase Agreement, will be validly
issued, fully paid and nonassessable.  The shares of Common Stock issuable
upon conversion of the Preferred Stock, have been duly authorized and reserved
for issuance, and, when delivered upon conversion or against payment in full as
provided in the Certificate of Designation, will be validly issued, fully paid
and nonassessable.




4.

The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Preferred Stock and
the Common Stock issuable upon conversion of the Preferred Stock do not (i)
violate any provision of the Articles of Incorporation or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment, injunction or decree (including Federal and state securities
laws and regulations) applicable to the Company or by which any property or
asset of the Company is bound or affected, except, in all cases other than
violations pursuant to clauses (i) and (iv) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.




5.

No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required under Federal, state or local law, rule or regulation in connection
with the valid execution and delivery of the Transaction Documents, or the
offer, sale or issuance of the Preferred Stock or the Common Stock issuable upon
conversion of the Preferred Stock other than the Certificate of Designation.





­



















6.

There is no action, suit, claim, investigation or proceeding
pending or threatened against the Company which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or to be
taken pursuant hereto or thereto.  There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect.
 There are no outstanding orders, judgments, injunctions, awards or decrees
of any court, arbitrator or governmental or regulatory body against the Company
or any officers or directors of the Company in their capacities as such.




7.

The offer, issuance and sale of the Preferred Stock and the offer,
issuance and sale of the shares of Common Stock issuable upon conversion of the
Preferred Stock pursuant to the Purchase Agreement and the Certificate of
Designation are exempt from the registration requirements of the Securities
Act.




8.

The Company is not, and as a result of and immediately upon
Closing will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.







  Very truly yours,





­