Unassociated Document


     

    

      Exhibit
        10.1 

    

    


     

    SERIES
      A
      CONVERTIBLE PREFERRED STOCK PURCHASE

     

    AGREEMENT

     

    Dated
      as of October 23, 2007

     

    among

     

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

     

    and
      

     

    THE
      PURCHASERS LISTED ON EXHIBIT A

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    TABLE
      OF CONTENTS

    
      

        
          	 	 	
                  PAGE 

                
	
                  ARTICLE
                    I Purchase and Sale of Preferred Stock

                	
                  2

                
	 	 
	
                  Section
                    1.1

                	
                  Purchase
                    and Sale of Stock

                	
                  2

                
	
                  Section
                    1.2

                	
                  Warrants

                	
                  2

                
	
                  Section
                    1.3

                	
                  Conversion
                    Shares

                	
                  2

                
	
                  Section
                    1.4

                	
                  Purchase
                    Price and Closings

                	
                  3

                
	 	 	 
	
                  ARTICLE
                    II Representations and Warranties

                	
                  3

                
	 	 
	
                  Section
                    2.1

                	
                  Representations
                    and Warranties of the Company

                	
                  3

                
	
                  Section
                    2.2

                	
                  Representations,
                    Warranties and Covenants of the Purchasers

                	
                  14

                
	 	 
	
                  ARTICLE
                    III Covenants

                	
                  17

                
	 	 
	
                  Section
                    3.1

                	
                  Securities
                    Compliance

                	
                  17

                
	
                  Section
                    3.2

                	
                  Registration
                    and Listing

                	
                  17

                
	
                  Section
                    3.3

                	
                  Inspection
                    Rights

                	
                  18

                
	
                  Section
                    3.4

                	
                  Compliance
                    with Laws

                	
                  18

                
	
                  Section
                    3.5

                	
                  Keeping
                    of Records and Books of Account

                	
                  18

                
	
                  Section
                    3.6

                	
                  Reporting
                    Requirements

                	
                  18

                
	
                  Section
                    3.7

                	
                  Amendments

                	
                  19

                
	
                  Section
                    3.8

                	
                  Other
                    Agreements

                	
                  19

                
	
                  Section
                    3.9

                	
                  Distributions

                	
                  19

                
	
                  Section
                    3.10

                	
                  Status
                    of Dividends

                	
                  19

                
	
                  Section
                    3.11

                	
                  Use
                    of Proceeds

                	
                  20

                
	
                  Section
                    3.12

                	
                  Reservation
                    of Shares

                	
                  20

                
	
                  Section
                    3.13

                	
                  Transfer
                    Agent Instructions

                	
                  20

                
	
                  Section
                    3.14

                	
                  Disposition
                    of Assets

                	
                  21

                
	
                  Section
                    3.15

                	
                  Reporting
                    Status

                	
                  21

                
	
                  Section
                    3.16

                	
                  Disclosure
                    of Transaction

                	
                  21

                
	
                  Section
                    3.17

                	
                  Disclosure
                    of Material Information

                	
                  22

                
	
                  Section
                    3.18

                	
                  Pledge
                    of Securities

                	
                  22

                
	
                  Section
                    3.19

                	
                  Form
                    SB-2 Eligibility

                	
                  22

                
	
                  Section
                    3.20

                	
                  Lock-Up
                    Agreement

                	
                  22

                
	
                  Section
                    3.21

                	
                  DTC

                	
                  22

                
	
                  Section
                    3.22

                	
                  No
                    variable conversion price securities

                	
                  22

                
	
                  Section
                    3.23

                	
                  Sarbanes-Oxley
                    Act

                	
                  24

                
	
                  Section
                    3.24

                	
                  No
                    Commissions in connection with Conversion of Preferred
                    Shares

                	
                  24

                


        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          	
                  ARTICLE
                    IV Conditions

                	
                  25

                
	 	 
	
                  Section
                    4.1

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

                	
                  25

                
	
                  Section
                    4.2

                	
                  Conditions
                    Precedent to the Obligation of the Purchasers to Purchase the
                    Shares

                	
                  27

                
	
                
	
                  ARTICLE
                    V Stock Certificate Legend

                	30
	 	 
	
                  Section
                    5.1

                	
                  Legend

                	
                  30

                
	 	 
	
                  ARTICLE
                    VI Indemnification

                	
                  31

                
	 	 
	
                  Section
                    6.1

                	
                  Indemnification
                    of Purchasers

                	
                  31

                
	
                  Section
                    6.2

                	
                  Indemnification
                    of Company

                	
                  31

                
	
                  Section
                    6.3

                	
                  Indemnification
                    Procedure

                	
                  31

                
	 	 
	
                  ARTICLE
                    VII Miscellaneous

                	
                  32

                
	 	 
	
                  Section
                    7.1

                	
                  Fees
                    and Expenses

                	
                  32

                
	
                  Section
                    7.2

                	
                  Specific
                    Enforcement, Consent to Jurisdiction.

                	
                  33

                
	
                  Section
                    7.3

                	
                  Entire
                    Agreement; Amendment

                	
                  33

                
	
                  Section
                    7.4

                	
                  Notices

                	
                  34

                
	
                  Section
                    7.5

                	
                  Waivers

                	
                  35

                
	
                  Section
                    7.6

                	
                  Headings

                	
                  35

                
	
                  Section
                    7.7

                	
                  Successors
                    and Assigns

                	
                  35

                
	
                  Section
                    7.8

                	
                  No
                    Third Party Beneficiaries

                	
                  35

                
	
                  Section
                    7.9

                	
                  Governing
                    Law

                	
                  35

                
	
                  Section
                    7.10

                	
                  Survival

                	
                  35

                
	
                  Section
                    7.11

                	
                  Counterparts

                	
                  35

                
	
                  Section
                    7.12

                	
                  Publicity

                	
                  35

                
	
                  Section
                    7.13

                	
                  Severability

                	
                  35

                
	
                  Section
                    7.14

                	
                  Further
                    Assurances

                	
                  36

                
	
                  Section
                    7.15

                	
                  Termination

                	
                  36

                


        

      

    

     

    EXHIBITS

    

      
        	
                A.

              	
                Purchasers
                  and Amounts

              
	
                B-1.
                  

              	
                Form
                  of Series A-1 Warrant

              
	
                B-2.
                  

              	
                Form
                  of Series A-2 Warrant

              
	
                C.

              	
                Form
                  of Certificate of Designation

              
	
                D.
                  

              	
                Form
                  of Registration Rights Agreement

              
	
                E.
                  

              	
                Form
                  of Lock-Up Agreement

              
	
                F.

              	
                Form
                  of Irrevocable Transfer Agent Instructions

              
	
                G.

              	
                Form
                  of Share Escrow Agreement

              
	
                H.

              	
                Investor
                  and Public Relations Agreement

              
	
                I.
                  

              	
                Form
                  of Opinion of Counsel

              


      

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT 

     

    This
      SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”)
      is
      dated as of October 23, 2007 by and among International Imaging Systems, Inc.,
      a
      Delaware corporation(the “Company”), and each of the Purchasers of shares of
      Series A Convertible Preferred Stock of the Company whose names are set forth
      on
Exhibit
      A
      hereto
      (individually, a “Purchaser”
and
      collectively, the “Purchasers”).

    


    RECITALS

    


    A.
       The
      common stock of the Company is a currently traded publicly on the
      Over-the-Counter Bulletin Board;

    


    B. The
      Company and the Purchasers are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by the
      provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
      Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
      as amended (the “Securities Act”); and

    


    C. The
      Purchasers wish to purchase from the Company, and the Company wishes to sell
      and
      issue to the Purchasers, upon the terms and conditions stated in this Agreement,
      (i) an aggregate of One Million (1,000,000) shares of Series A Convertible
      Preferred Stock, par value $0.001 at a purchase price of $10.00 per share (the
      “Preferred Shares”), which shall initially convert into Four Million Five
      Hundred Forty Five Thousand Four Hundred Fifty Five (4,545,455)
      shares
      of the Company’s Common Stock, subject to adjustment, (ii) Series A-1 warrants
      to purchase an aggregate of Three Million Four Hundred Nine Thousand Ninety
      One
      (3,409,091) shares of Common Stock at an exercise price of $3.00 per share
      in
      the form attached hereto as Exhibit
      B-1
      (the
“Series A-1 Warrants”), and (iii) Series A-2 warrants to purchase an aggregate
      of Two Million Two Hundred Seventy Two Thousand Seven Hundred Twenty Eight
      (2,272,728) shares of Common Stock at an exercise price of $4.40 per share
      in
      the form attached hereto as Exhibit
      B-1
      (collectively, the “Series A-2 Warrants” and together with the Series A-1
      Warrants, the “Warrants”), for an aggregate purchase price of $10,000,000 (the
“Purchase Price”); and

    


    D. Contemporaneous
      with the sale of the Preferred Shares and the Warrants, the parties hereto
      will
      execute and deliver a Registration Rights Agreement, in the form attached hereto
      as Exhibit
      C
      (the
“Registration Rights Agreement”), pursuant to which the Company will agree to
      provide certain registration rights under the Securities Act, and the rules
      and
      regulations promulgated thereunder, and applicable state securities laws;
      and

    


    E. Contemporaneous
      with the sale of the Preferred Shares and the Warrants, the Company, Baorun
      China Group Limited and the other parties named in the Share Exchange Agreement
      dated on even date herewith between such parties (the “Share Exchange”) shall
      have consummated the transactions contemplated thereby. Accordingly,
      all
      references to the Company and any securities issued pursuant hereto, refer
      to
      the Company after the Share Exchange.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    Now,
      therefore, in consideration of the mutual representations, warranties, covenants
      and agreements contained in this Agreement, the parties 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 preferred shares of the Company’s Series A Convertible Preferred Stock, par
      value $0.001 per share (the “Preferred
      Shares”),
      at a
      purchase price of $10.00 per
      Preferred Share, convertible into shares of the Company’s common stock, par
      value $0.0001 per share (the “Common
      Stock”),
      set
      forth opposite such Purchaser’s name on Exhibit
      A
      hereto.
      The designation, rights, preferences and other terms and provisions of the
      Series A Convertible Preferred Stock are set forth in the Certificate of
      Designation of the Relative Rights and Preferences of the Series A Convertible
      Preferred Stock attached hereto as Exhibit
      C
      (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 Warrants.
      Upon
      the following terms and conditions and for no additional consideration, each
      of
      the Purchasers shall be issued (i) a Series A-1 Warrant, in substantially the
      form attached hereto as Exhibit
      B-1
      (the
“Series
      A-1 Warrants”),
      to
      purchase the number of shares of Common Stock equal to seventy five percent
      (75%) of the number of Conversion Shares (as defined in Section 1.3 hereof)
      initially issuable upon conversion of the Preferred Shares acquired by such
      Purchaser pursuant to the terms of this Agreement, as set forth opposite such
      Purchaser’s name on Exhibit
      A hereto,
      and (ii) a Series A-2 Warrant, in substantially the form attached hereto as
      Exhibit
      B-2
      (the
“Series
      A-2 Warrant”
and,
      together with the Series A-1 Warrant, the “Warrants”)
      to
      purchase the number of shares of Common Stock equal to fifty percent (50%)
      of
      the number of Conversion Shares initially issuable upon conversion of the
      Preferred Shares acquired by such Purchaser pursuant to the terms of this
      Agreement. The Warrants shall expire five (5) years following the Closing Date.
      Each of the Warrants shall have an exercise price per share equal to its
      respective Warrant Price (as defined in the applicable Warrant).  

     

    Section
      1.3 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
ten
      percent (110%) of the number of shares of Common Stock as shall from time to
      time be sufficient to effect the conversion of all of the Preferred Shares
      and
      the exercise of all of the Warrants then outstanding. Any shares of Common
      Stock
      issuable upon conversion of the Preferred Shares and exercise of the Warrants
      (and such shares when issued) are herein referred to as the “Conversion
      Shares”
and
      the
“Warrant
      Shares”,
      respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
      are sometimes collectively referred to as the “Shares”.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Section
      1.4 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 Preferred
      Shares and the Warrants for an aggregate purchase price of $10,000,000 (the
      “Purchase
      Price”).
      The
      closing of the purchase and sale of the Preferred Shares and the Warrants to
      be
      acquired by the Purchasers from the Company under this Agreement shall take
      place at the offices of Leser, Hunter, Taubman & Taubman, 17 State Street,
      Floor 16, New York, New York 10004 (the “Closing”)
      at
      10:00 a.m., New York time (i) on or before October 31, 2007; provided,
      that
      all of the conditions set forth in Article IV hereof and applicable to the
      Closing shall have been fulfilled or waived in accordance herewith, or (ii)
      at
      such other time and place or on such date as the Purchasers and the Company
      may
      agree upon in writing signed by the Company and the Purchasers (the
      "Closing
      Date").
      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 Preferred Shares set forth opposite the name
      of
      such Purchaser on Exhibit
      A
      hereto,
      (y) Warrants to purchase such number of shares of Common Stock as is set forth
      opposite the name of such Purchaser on Exhibit
      A
      attached
      hereto and (z) any other documents required to be delivered pursuant to Article
      IV hereof. As
      of the
      date hereof, the Purchase Price has been deposited into an escrow account with
      Leser, Hunter, Taubman & Taubman, pursuant to the Escrow Agreement, dated
      September 17, 2007, by and among Xi’an Baorun Industrial Development Co., Ltd.,
      Vision Opportunity Master Funds, LP and Leser, Hunter, Taubman & Taubman, as
      escrow agent. On the Closing Date, the parties to the Escrow Agreement shall
      issue instructions to the Escrow Agent Shall to disburse such funds to the
      Company.


     

    ARTICLE
      II

     

    Representations
      and Warranties
      of the Company

     

    Section
      2.1 Representations
      and Warranties of the Company.
      For
      purposes of this Section 2.1 only, the Company hereby represents and warrants
      to
      each Purchaser, as of the date hereof (except as set forth on the Disclosure
      Schedules attached hereto as Schedules
      2.1
      (the
“Company Disclosure Schedules”), which are divided into sections that correspond
      to the sections of this Section II. The Company Disclosure Schedule comprises
      a
      list of all exceptions to the truth and accuracy of, and of all disclosures
      or
      descriptions required by, the representations and warranties set forth in the
      remaining sections of this Section II. For purposes of this Section II, any
      statement, facts, representations, or admissions contained in the public filings
      made by the Company with the United States Securities and Exchange Commissions,
      are deemed to be included in the Company Disclosure Schedules and all such
      information is deemed to be fully disclosed to the Purchaser), 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 Delaware, 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. Except as set forth on
Schedule
      2.1(a),
      the
      Company and each of its subsidiaries is duly qualified as a foreign corporation
      to do business and is in good standing in every jurisdiction in which 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 could not reasonably be expected to have a
      Material Adverse Effect (as defined in Section
      2.1(c)
      hereof)
      .

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (b) Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and
      perform this Agreement, the Registration Rights Agreement, substantially in
      the
      form attached hereto as Exhibit
      D
      (the
“Registration
      Rights Agreement”),
      the
      Lock-Up Agreement (as defined in Section
      3.20
      hereof),
      substantially in the form attached hereto as Exhibit
      E,
      the
      Irrevocable Transfer Agent Instructions (as defined in Section
      3.13),
      substantially in the form of Exhibit
      F,
      the
      Share Escrow Agreement, substantially in the form attached hereto as
Exhibit
      G
      (the
“Share
      Escrow Agreement”),
      the
      Investor and Public Relations Escrow Agreement, substantially in the form
      attached hereto as Exhibit
      H
      (the “PR
      Escrow Agreement”), the Certificate of Designation, and the Warrants
      (collectively, the “Transaction
      Documents”)
      and to
      issue and sell the Shares and the Warrants 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 and each of the
      Transaction Documents, when executed and delivered at the Closing will have
      been
      duly executed and delivered and shall constitute a valid and binding obligation
      of the Company enforceable against the Company in accordance with their
      respective 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, are set forth on Schedule
      2.1(c)
      hereto.
      All of the outstanding shares of the Common Stock have been duly and validly
      authorized. Except as set forth on Schedule
      2.1(c) hereto
      and as contemplated by this Agreement and the Transaction Documents, 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
      relating to, or securities or rights convertible into, any shares of capital
      stock of the Company. Except as set forth on Schedule
      2.1(c)
      hereto
      and as contemplated by the Transaction Documents, 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. Except as set forth on Schedule
      2.1(c)
      hereto
      and as contemplated by this Agreement and the Transaction Documents, 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. The Company
      is
      not a party to, and it has no knowledge of, any agreement restricting the voting
      or transfer of any shares of the capital stock of the Company. To the Company’s
      knowledge, 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 Certificate
      of Incorporation as in effect on the date hereof (the “Certificate”),
      and
      the Company’s Bylaws as in effect on the date hereof (the “Bylaws”).
      For
      the purposes of this Agreement, “Material
      Adverse Effect”
means
      any material adverse effect on (i) the business, operations, properties,
      prospects, or financial condition of the Company and its subsidiaries, taken
      as
      a whole, or (ii) the ability of the Company to perform any of its obligations
      under the Transaction Documents.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (d) Issuance
      of Shares.
      The
      Preferred Shares and the Warrants to be issued at the Closing have been duly
      authorized by all necessary corporate action and the Preferred Shares, when
      paid
      for and 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. The Conversion Shares
      when issued in accordance with the terms of the Certificate of Designation,
      and
      the Warrant Shares, when fully paid and issued in accordance with the Warrants,
      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.
      Neither, the execution, delivery and performance of the Transaction Documents
      by
      the Company, the performance by the Company of its obligations hereunder and
      thereunder 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 Certificate 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) to the Company’s knowledge,
      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. To the Company’s knowledge, 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 execute, deliver or perform any of its obligations under the
      Transaction Documents, or issue and sell the Preferred Shares, the Warrants,
      the
      Conversion Shares and the Warrant Shares in accordance with the terms hereof
      or
      thereof (other than (x) any consent, authorization or order that has been
      obtained as of the date hereof, (y) any filing or registration that has been
      made as of the date hereof or (z) any filings which may be required to be made
      by the Company with the Commission or state securities administrators subsequent
      to the Closing, any registration statement which may be filed pursuant hereto,
      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.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (f) Commission
      Documents, Financial Statements.
      Except
      as indicated on Schedule
      2.1(f),
      the
      Company has timely filed, or filed within the applicable extension period,
      all
      reports, schedules, forms, statements and other documents required to be filed
      by it with the Commission pursuant to the reporting requirements of the
      Securities Exchange Act of 1934, as amended (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”)
      since
      September 19, 2006, and to the best of the Company’s knowledge all Commission
      Documents prior to September 19, 2006 were so filed. True and complete copies
      of
      all of the Commission Documents are available to the Purchasers through the
      Commission’s EDGAR database on www.sec.gov. 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 Company’s Form 10-KSB for the year ended
      December 31, 2006, including the accompanying financial statements (the
“Form
      10-KSB”)
      and
      the Company’s Form 10-QSB for the fiscal quarters ended March 31, 2007 and June
      30, 2007 (the “Form
      10-QSBs”)
      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, neither the Form 10-KSB, nor
      the
      Form 10-QSBs 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), and fairly present in all material respects the financial position
      of the Company 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).

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (g) Subsidiaries.
      Prior
      to the date hereof, the Company did not have any subsidiaries. Set forth on
      Schedule
      2.1(g)
      is a
      list of the Company’s subsidiaries as a result of the Share Exchange. 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. 

     

    (h) No
      Material Adverse Change.
      Except
      as set forth on Schedule
      2.1(h),
      since
      June 30, 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 June 30,
      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 since June 30, 2007.

     

    (k) Indebtedness.
      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, in each case that have not previously been set
      forth
      in the Commission Documents. 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),
      neither
      the Company nor any subsidiary is in default with respect to any
      Indebtedness.

     

    (l) Title
      to Assets.
      Except
      as set forth on Schedule
      2.1(l),
      each of
      the Company and the subsidiaries has good and marketable title to all of its
      real and personal property, free and clear of any mortgages, pledges, charges,
      liens, security interests or other encumbrances, except for those disclosed
      in
      the Financial Statements and the Commission Documents or such that, individually
      or in the aggregate, do not cause a Material Adverse Effect. Solely with respect
      to the Company, all of its real and personal property is reflected in the
      Financial Statements and the Commission Documents. Except as set forth on
Schedule
      2.1(l),
      all
      leases of the Company and each of its subsidiaries are valid and subsisting
      and
      in full force and effect.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

     

    (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. 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.
      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 since June 30, 2007, and the business of 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. Neither the Company,
      nor
      the subsidiaries has received notice of any violation of applicable federal,
      state and local governmental laws, rules, regulations and ordinances for any
      periods prior to June 30, 2007. 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.
      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 have been audited by the Internal Revenue Service, or with
      respect to the subsidiaries, none of their respective tax returns have been
      audited by any governmental entity in the jursidiction in which each such
      subsidiary may be subject to taxation. Neither the Company, nor any subsidiary,
      has any knowledge of any additional assessments, adjustments or contingent
      tax
      liability (whether federal,state or foreign) 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 with respect to the transactions contemplated
      by
      this Agreement.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (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 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, 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. Except as set forth
      on
Schedule
      2.1(s),
      the
      Company and its subsidiaries are
      in
      material compliance with applicable environmental requirements in the operation
      of their respective business, except to the extent that any non compliance,
      individually or in the aggregate, does not cause a Material Adverse
      Effect.
      “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
      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 action
      is taken with respect to any differences.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (u) Material
      Agreements.
      Except
      as set forth on Schedule
      2.1(u)
      or with
      respect to the transactions contemplated herein or in the Share Exchange
      Agreement, 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 other applicable form
      (collectively, “Material
      Agreements”)
      if the
      Company or any subsidiary were registering securities under the Securities
      Act.
      Except as set forth on Schedule
      2.1(u),
      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 on Schedule
      2.1(u),
      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 Company’s Preferred Shares, other preferred stock,
      if any, or its Common Stock.

     

    (v) Transactions
      with Affiliates.
      Except
      as set forth in the Financial Statements, the Commission Documents or
Schedule
      2.1(v),
      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 affiliate or any corporation or other entity controlled
      by such officer, employee, consultant, director or affiliate, or a member of
      the
      immediate family of such officer, employee, consultant, director or
      affiliate.

     

    (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 and the
      Warrants 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, the Warrants 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 and the
      Warrants 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
      and the Warrants.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (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
      D
      and a registration statement or statements pursuant to the Registration Rights
      Agreement, and the filing of the Certificate of Designation with the Secretary
      of State for the State of Delaware, 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 Preferred Shares and the Warrants, 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. Except as set forth on Schedule
      2.1(y),
      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 on Schedule
      2.1(z) or
      in the
      Commission Documents, since June 30, 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;

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (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;

     

    (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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (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
      Preferred Shares will not involve any transaction which is subject to the
      prohibitions of Section 406 of the Employee Retirement Income Security Act
      of
      1974, as amended (“ERISA”),
      or in
      connection with which a tax could be imposed pursuant to Section 4975 of the
      Internal Revenue Code of 1986, as amended (the “Code”),
      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(bb), the term “Plan”
shall
      mean an “employee pension benefit plan” (as defined in Section 3 of 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 Preferred Shares in accordance with this Agreement
      and the Certificate of Designation and its obligations to issue the Warrant
      Shares upon the exercise of the Warrants in accordance with this Agreement
      and
      the Warrants, is, in each case, 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 so
      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 March
      31,
      2007, the Company has not publicly offered or sold any of its equity securities
      or debt securities convertible into shares of Common Stock.

     

    (ee) 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 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. 

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (ff) Transfer
      Agent.
      The
      name, address, telephone number, fax number, contact person and email address
      of
      the Company’s current transfer agent is set forth on Schedule
      2.1(ff)
      hereto.

     

    Section
      2.2 Representations,
      Warranties and Covenants of the Purchasers.
      Each
      Purchaser hereby makes the following representations, warranties and covenants
      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, partnership or limited
      liability company 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 Preferred Shares and Warrants being sold to it
      hereunder. The execution, delivery and performance of this Agreement and the
      Registration Rights 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,
      members, managers or partners, as the case may be, is required. Each of this
      Agreement and the Registration Rights Agreement has been duly authorized,
      executed and delivered by such Purchaser and constitutes, or shall constitute
      when executed and delivered, a valid and binding obligation of the Purchaser
      enforceable against the Purchaser in accordance with the terms thereof, 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.

     

    
      
        
        

      

      
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    (c) No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the Registration
      Rights Agreement by such Purchaser 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’s ability to perform its obligations hereunder). 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 the
      Registration Rights Agreement or to purchase the Preferred Shares or acquire
      the
      Warrants 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 Preferred Shares and the Warrants solely for its
      own
      account for the purpose of investment and not as a nominee or with a view to
      or
      for sale in connection with distribution. Each Purchaser does not have a present
      intention to sell the Preferred Shares or the Warrants, nor a present
      arrangement (whether or not legally binding) or intention to effect any
      distribution of the Preferred Shares or the Warrants 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 or the Warrants for any minimum
      or
      other specific term and reserves the right to dispose of the Shares or the
      Warrants 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 Preferred Shares
      and the Warrants 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.
      Each
      Purchaser is an “accredited investor” as defined in Regulation D promulgated
      under the Securities Act. No Purchaser is required to be registered as a
      broker-dealer under Section 15 of the Exchange Act and no such Purchaser is
      a
      broker-dealer.

     

    
      
        
        

      

      
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    (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 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 Preferred Shares and the Warrants 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 agrees that it shall not, directly or indirectly, in its own capacity
      or through an agent, engage in any short sales (as defined in Rule 200 of
      Regulation SHO under the Exchange Act) with respect to the Conversion Shares
      and
      Warrant Shares, or any hedging transaction or securitization, including
      obtaining shares of Common Stock to borrow, which establishes any short position
      with respect to the Common Stock, whether on a U.S. domestic exchange or any
      foreign exchange. Other
      than consummating the transactions contemplated hereunder, such Purchaser has
      not directly or indirectly, nor has any person acting on behalf of or pursuant
      to any understanding with such Purchaser, executed any purchases or sales,
      including short sales, of the securities of the Company during the period
      commencing from
      the time
      that such Purchaser first received from the Company or any other person (i)
      a
      term sheet (written or oral) or (ii) a draft of any Transaction Document, in
      each case setting forth the material terms of the transactions contemplated
      hereunder, until the date hereof.

     

    
      
        
        

      

      
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    (l) Certain
      Fees.
      Except
      as set forth on Schedule
      2.2(l)
      hereto,
      no brokers, finders or financial advisory fees or commissions will be payable
      by
      the Purchasers with respect to the transactions contemplated by this
      Agreement.


     

    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
      hereunder.

     

    Section
      3.1 Securities
      Compliance.
      The
      Company shall notify the Commission in accordance with its rules and regulations
      of the transactions contemplated by any of the Transaction Documents, including
      filing a Form D with respect to the Preferred Shares, Warrants, Conversion
      Shares and Warrant Shares as required under Regulation D and applicable “blue
      sky” laws, 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 Preferred Shares, the Warrants, the Conversion Shares
      and
      the Warrant Shares to the Purchasers or subsequent holders. 

     

    Section
      3.2 Registration
      and Listing.
      The
      Company shall (a) either (i) cause its Common Stock to continue to be registered
      under Section 12(b) or 12(g) of the Exchange Act, or (ii) continue to
      voluntarily file all reports required to be filed as if the Company were so
      registered, and in any event shall comply in all respects with its reporting
      and
      filing obligations under the Exchange Act, (b) comply with all requirements
      related to any registration statement filed pursuant to this Agreement, and
      (c)
      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 or may be traded in the future. 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. 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. The Company will
      take all action necessary to list its Common Stock on the NASDAQ or higher
      exchange as soon as possible after the date hereof and the Company agrees to
      issue an aggregate of 1,000,000 shares of its Common Stock to the Purchasers,
      to
      be divided pro rata among the Purchasers based upon the number of Preferred
      Shares initially acquired by each Purchaser pursuant to this Agreement, if
      its
      Common Stock is not so listed by June 30, 2009 (the “Listing Shares”), or such
      later date as both the Purchasers and the Company agree to in writing. The
      Listing Shares, if issued, shall have the same demand registration rights as
      the
      Warrant Shares and the same piggy back registration rights as set forth in
      the
      Registration Rights Agreement. 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 Listing 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.

     

    
      
        
        

      

      
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    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 Preferred Shares or shall beneficially own any Preferred Shares,
      or shall own Conversion Shares which, in the aggregate, represent more than
      5%
      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, except for any such information
      that
      shall be considered material non-public information by the Company. 

     

    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.

     

    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 beneficially own
      any
      Shares:

     

    (a) Quarterly
      Reports filed with the Commission on Form 10-QSB 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;

     

    
      
        
        

      

      
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    (b) Annual
      Reports filed with the Commission on Form 10-KSB 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 Certificate 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
      Preferred Shares; provided,
      however,
      that
      any creation and issuance of another series of Junior Stock (as defined in
      the
      Certificate of Designation) 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 of the Company or any subsidiary
      to perform under any Transaction Document.

     

    Section
      3.9 Distributions.
      So long
      as any 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 without prior written consent from a majority of the holders of
      the
      Preferred Shares at such time, or (ii) purchase or otherwise acquire for value,
      directly or indirectly, any Common Stock or other equity security of the
      Company, other than pursuant to a repurchase plan approved by the Company’s
      board of directors.

     

    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 Preferred Shares, 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 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 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 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 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 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 Preferred Shares or Conversion Shares constitute debt,
      the
      Company may file protective claims for refund.

     

    
      
        
        

      

      
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    Section
      3.11 Use
      of
      Proceeds.
      The net
      proceeds from the sale of the Shares hereunder shall be used by the Company
      for
      working capital and general corporate purposes 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 Preferred Shares or Warrants 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 ten
      percent (110%) of the aggregate number of shares of Common Stock needed to
      provide for the issuance of the Conversion Shares and the Warrant
      Shares.

     

    Section
      3.13 Transfer
      Agent Instructions.
      The
      Company shall issue irrevocable instructions to its transfer agent, and any
      subsequent transfer agent, to issue certificates, registered in the name of
      each
      Purchaser or its respective nominee(s), for the Conversion Shares and the
      Warrant Shares in such amounts as specified from time to time by each Purchaser
      to the Company upon conversion of the Preferred Shares or exercise of the
      Warrants in the form of Exhibit
      F
      attached
      hereto (the “Irrevocable
      Transfer Agent Instructions”).
      Prior
      to registration of the Conversion Shares and the Warrant Shares under the
      Securities Act, all such certificates shall bear the restrictive legend
      specified in Section 5.1 of this Agreement. The Company warrants that no
      instruction other than the Irrevocable Transfer Agent Instructions referred
      to
      in this Section 3.13 will be given by the Company to its transfer agent and
      that
      the Shares shall otherwise be freely transferable on the books and records
      of
      the Company as and to the extent provided in this Agreement and the Registration
      Rights Agreement. If a Purchaser provides the Company with an opinion of
      counsel, in a generally acceptable form, to the effect that (i) a public sale,
      assignment or transfer of the Shares may be made without registration under
      the
      Securities Act or (ii) such Shares can be sold pursuant to Rule 144 without
      any
      restriction as to the number of securities acquired as of a particular date
      that
      can then be immediately sold, the Company shall permit the transfer, and, in
      the
      case of the Conversion Shares and the Warrant Shares, promptly instruct its
      transfer agent to issue one or more certificates in such name and in such
      denominations as specified by such Purchaser and without any restrictive legend.
      The Company acknowledges that a breach by it of its obligations under this
      Section 3.13 will cause irreparable harm to the Purchasers by vitiating the
      intent and purpose of the transactions contemplated hereby. Accordingly, the
      Company acknowledges that the remedy at law for a breach of its obligations
      under this Section 3.13 will be inadequate and agrees, in the event of a
      breach or threatened breach by the Company of the provisions of this Section
      3.13, that the Purchasers shall be entitled, in addition to all other available
      remedies, to an order and/or injunction restraining any breach and requiring
      immediate issuance and transfer, without the necessity of showing economic
      loss
      and without any bond or other security being required.

     

    
      
        
        

      

      
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    Section
      3.14 Disposition
      of Assets.
      So long
      as any 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 licenses or sales to customers in the
      ordinary course of business or with the prior written consent of the holders
      of
      a majority of the Preferred Shares then outstanding.

     

    Section
      3.15 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 cease filing reports under the Exchange
      Act even if the Exchange Act or the rules and regulations thereunder would
      permit such termination. 

     

    Section
      3.16 Disclosure
      of Transaction.
      The
      Company shall issue a press release describing the material terms of the
      transactions contemplated hereby (the “Press
      Release”)
      as
      soon as practicable after the Closing but in no event later than 9:00 A.M.
      Eastern Time on the first Trading Day following the Closing. The Company shall
      also 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 Registration Rights Agreement,
      the Certificate of Designation, the Lock-Up Agreement, the form of each series
      of Warrant, the Share Escrow Agreement and the Press Release) as soon as
      practicable following the Closing Date but in no event more than four (4)
      Trading Days following the Closing Date, which Press Release and Form 8-K shall
      be subject to prior review and comment by counsel for the Purchasers.
“Trading
      Day”
means
      any day during which the OTC Bulletin Board (or other quotation venue or
      principal exchange on which the Common Stock is traded) shall be open for
      trading. 

     

    
      
        
        

      

      
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    Section
      3.17 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 (other than with respect to the transactions contemplated by this
      Agreement), 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
      3.18 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.

     

    Section
      3.19 Form
      S-1 Eligibility.
      The
      Company currently meets the “registrant eligibility” and transaction
      requirements set forth in the general instructions to Form S-1 applicable to
      “resale” registrations on Form S-1.

     

    Section
      3.20 Lock-Up
      Agreement.
      The
      persons listed on Schedule
      3.20 attached
      hereto shall be subject to the terms and provisions of a lock-up agreement
      in
      substantially the form as Exhibit
      E
      hereto
      (the “Lock-Up
      Agreement”),
      which
      shall provide the manner in which such persons will sell, transfer or dispose
      of
      their shares of Common Stock. 

     

    Section
      3.21 DTC.
      Not
      later than the effective date of the Registration Statement (as defined in
      the
      Registration Rights Agreement), the Company shall cause its Common Stock to
      be
      eligible for transfer with its transfer agent pursuant to the Depository Trust
      Company Fast Automated Securities Transfer Program.

     

    Section
      3.22  Subsequent
      Financings

     

    (a)
       For
      a
      period of twenty-four (24) months following the Closing Date,
      subject
      to Section 3.22(e), the Company covenants and agrees to promptly notify (in
      no
      event later than five (5) days after making or receiving an applicable offer)
      in
      writing (a "Rights
      Notice")
      the
      Purchasers of all of the terms and conditions of any proposed offer or sale
      to,
      or exchange with (or other type of distribution to) any third party (a
“Subsequent
      Financing”),
      of
      Common Stock or any debt or equity securities convertible, exercisable or
      exchangeable into Common Stock. The
      Purchaser shall have the right, for a period of twenty (20) calendar days
      following receipt of the Rights Notice (the “Option Period”), to accept or
      reject the Subsequent Financing (“First Refusal Right”) by written notice to the
      Company. If the Purchaser elects to exercise its First Refusal Rights, it shall
      deliver a notice of same to the Company within the Option Period and then the
      Company shall be obligated to pursue the Subsequent Financing with the Purchaser
      on the same terms and conditions as set forth in the Rights Notice. If, and
      only
      if, the Company receives written notice from the Purchaser that it will not
      exercise its First Refusal Rights, then and only then, may the Company pursue
      the Subsequent Financing with a third party; provided that, such third party
      Subsequent Financing shall: (i) not commence until after the expiration of
      the
      Option Period; (ii) close within thirty (30) days of the expiration of the
      Option Period (“Third Party Closing Date”); and (iii) be carried out on the same
      terms and conditions as set forth in the Rights Notice. Delivery of any Rights
      Notice constitutes a representation and warranty by the Company that there
      are
      no other material terms and conditions, arrangements, agreements or otherwise
      except for those disclosed in the Rights Notice, to provide additional
      compensation to any party participating in any proposed Subsequent Financing,
      including, but not limited to, additional compensation based on changes in
      the
      Purchase Price or any type of reset or adjustment of a purchase or conversion
      price or to issue additional securities at any time after the closing date
      of a
      Subsequent Financing. If the closing of the third party Subsequent Financing
      does not occur on the Third Party Closing Date, any closing of the third party
      Subsequent Financing or any other Subsequent Financing shall be subject to
      all
      of the provisions of this Section 3.22(a), including, without limitation, the
      delivery of a new Rights Notice. The provisions of this Section 3.22(a) shall
      not apply to issuances of securities in a Permitted Financing. 

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    


    (b) For
      purposes of this Agreement, a Permitted Financing (as defined hereinafter)
      shall
      not be considered a Subsequent Financing. A "Permitted
      Financing"
      shall
      mean (i) securities issued (other than for cash) in connection with a merger,
      acquisition, or consolidation, (ii) securities issued pursuant to the conversion
      or exercise of convertible or exercisable securities issued or outstanding
      on or
      prior to the date of this Agreement or issued pursuant to this Agreement (so
      long as the conversion or exercise price in such securities are not amended
      to
      lower such price and/or adversely affect the Purchasers), (iii) securities
      issued in connection with bona fide strategic license agreements or other
      partnering arrangements so long as such issuances are not for the purpose of
      raising capital, (iv) Common Stock issued or the issuance or grants of options
      to purchase Common Stock pursuant to the Company’s stock option plans and
      employee stock purchase plans outstanding as they exist on the date of this
      Agreement, (v) the payment of dividends on the Preferred Shares in shares of
      Common Stock, and, (vi) any warrants issued to the placement agent and its
      designees for the transactions contemplated by this Agreement. 

    


    (c) Issuance
      of Variable Securities. So
      long
      as any Preferred Stock remains outstanding, the Company agrees that it shall
      not
      issue any “Variable
      Rate Securities” for a period of two (2) years from the Closing
      Date. “Variable
      Rate Securities”
shall
      mean any debt or equity securities that are convertible into, exchangeable
      or
      exercisable for, or include the right to receive additional shares of, Common
      Stock either (A) at a conversion, exercise or exchange rate or other price
      that
      is based upon, or varies with, the trading prices of or quotations for the
      shares of Common Stock at any time after the initial issuance of such debt
      or
      equity securities or (B) with a conversion, exercise or exchange price that
      is
      subject to being reset at some future date after the initial issuance of such
      debt or equity security based solely upon the occurrence of specified or
      contingent events directly or indirectly related to the operations of the
      Company or the market for the Common Stock.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    


    (d) For
      the
      period commencing on the Closing Date and ending on the date that is one hundred
      eighty (180) days following the effective date of the Registration Statement
      (as
      defined in the Registration Rights Agreement), with the exception of the Insider
      Registration Statement and any additional registration statements thereunder,
      the Company shall not file any registration statement under the Securities
      Act
      without the prior written consent of the Purchasers. 

    


    (e) Disclosure
      of Material Information.
      The
      Company covenants and agrees that neither it nor any other person acting on
      its
      behalf will provide the Purchaser or its agents or counsel with any information
      that the Company believes constitutes material non-public information, unless
      prior thereto the Company shall have given three (3) business days notice that
      it intends to disclose such information to the Purchaser (“Inside Information
      Notice”) and such Purchaser shall have agreed in writing that it is willing to
      accept such information, subject to a non-disclosure agreement to be executed
      by
      the Purchaser. If the Purchaser does not agree to accept such information,
      it
      will be deemed to have waived its rights pursuant to Section 3.22 (a) in
      connection with the Subsequent Financing contemplated in the related Inside
      Information Notice, but not for any additional Subsequent Financings for which
      it may be entitled to receive notice hereunder. The Company understands and
      confirms that the Purchaser will rely on the foregoing representations in
      effecting transactions in securities of the Company.

     

    Section
      3.23 Sarbanes-Oxley
      Act.
      The
      Company shall use its best efforts to be in compliance with the applicable
      provisions of the Sarbanes-Oxley Act of 2002, and the rules and regulations
      promulgated thereunder, as required under such Act.

     

    Section
      3.24  No
      Commissions in connection with Conversion of Preferred Shares.
      In
      connection with the conversion of the Preferred Shares into Conversion Shares,
      neither the Company nor any Person acting on its behalf will take any action
      that would result in the Conversion Shares being exchanged by the Company other
      than with the then existing holders of the Preferred Shares exclusively where
      no
      commission or other remuneration is paid or given directly or indirectly for
      soliciting the exchange in compliance with Section 3(a)(9) of the Securities
      Act.


     

    Section
      3.25 Break-Up
      Fee.
      If the
      Company (i) fails to comply with the Closing Conditions as set forth in Section
      4.2 and such failure precludes the Closing; or (ii) willfully fails to adhere
      to
      the Closing Date, the Company agrees to remit $400,000 to the Purchasers on
      the
      date that such failure becomes known to the Purchasers. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    Section
      3.26 Post-Closing
      Covenants. The
      Company shall use its best efforts to comply with the post-closing covenants
      as
      soon as is reasonably practicable, if not performed on the Closing
      Date:
      

    


    (a) No
      later
      than July 1, 2008, the Company shall increase its registered capital to no
      less
      than RMB 30MM, or other such required amount, as required by Measures
      for the Administration of the Refined Oil Market,
      issued
      by the Ministry of Commerce on December 4, 2006 and effective as of January
      1,
      2007.

    


    (b) The
      oil
      storage contract between the Company and 68103
      Army, dated March 1, 2007, must adopt the template and obtain the approvals
      required by the
      Notice
      regarding Further Administration on Lease of Available Military Real
      Estate
      jointly
      issued by the Ministry of Construction, the State Administration of Industry
      and
      Commerce, the State Taxation Administration and the General Logistics Department
      of People’s Liberation Army in 2004. 

    


    (c) The
      Company must provide evidence indicating that it has paid Beijing
      Qingda Digital Technology Co., Ltd. under their Technology Cooperation Agreement
      with the Company dated September 4, 2006.

    


    (d) The
      execution and delivery of employment contracts, salary offer letters and
      confidentiality and non-compete agreements between WFOE and each of Mr.
      Zhao
      Shenglu, Mr. Fu Wenjie and Mr. Guo Shushan. 

    


    (e) No
      later
      than December 31, 2007, the Company must have received the stock certificate(s)
      representing 10,000 shares of Baorun China Group Limited, as originally
      transferred from Redsky Group Limited and Princeton Capital Group (“Baorun
      Certificates”). If the Baorun Certificates are not received by December 31,
      2007, or such later date as pre-approved in writing by the Purchaser, the
      Company shall remit one percent (1%) of the shares held in escrow pursuant
      to
      the Share Escrow Agreement to the Purchaser on such date and for each calendar
      month thereafter that the Baorun Certificate is not so received. 

     

    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 Preferred Shares
      and
      the Warrants to the Purchasers is subject to the satisfaction or waiver, at
      or
      before the 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. 

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (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 as of the date when made and as of the Closing Date
      applicable to such Purchaser 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 as of such
      date.

     

    (b) Performance
      by the Purchasers.
      Each
      Purchaser shall have performed, satisfied and complied in all material 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 the
      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. 

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (d) Delivery
      of Purchase Price.
      The
      Purchase Price for the Preferred Shares and Warrants has been delivered to
      the
      Company.

     

    (e) Delivery
      of Transaction Documents.
      The
      Transaction Documents have been duly executed and delivered by the Purchasers
      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 Preferred
      Shares and the Warrants is subject to the satisfaction or waiver, at or before
      the 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
      Registration Rights Agreement shall be true and correct in all respects as
      of
      the date when made and shall be true and correct in all material respects as
      of
      the Closing Date applicable to such Purchaser 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 as
      of
      such date).

     

    (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 the
      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 applicable
      to
      such Purchaser, 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 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 Closing, the Certificate of Designation in the form of Exhibit
      B
      attached
      hereto shall have been filed with the Secretary of State of Delaware and proof
      of such filing shall be delivered to the Purchasers.

     

    (g) Opinion
      of Counsel, Etc.
      At the
      Closing, the Purchasers shall have received an opinion of counsel to the
      Company, dated the date of the Closing, in substantially the form of
Exhibit
      G
      hereto,
      and such other certificates and documents as the Purchasers or their respective
      counsel shall reasonably require incident to the Closing.

     

    (h) Registration
      Rights Agreement.
      At the
      Closing, the Company shall have executed and delivered the Registration Rights
      Agreement to such Purchaser.

     

    (i) Certificates.
      The
      Company shall have executed the certificates for the Preferred Shares and the
      Warrants being acquired by the Purchaser and shall cause to be delivered to
      the
      Purchaser’s prime broker dealer, at the address listed on Exhibit A, via
      overnight service, the original Preferred Share certificate and Warrants, with
      proof of such mailing, which shall include a copy of the items mailed, to be
      delivered via email or facsimile to the Purchaser simultaneously therewith
      at
      the Closing; provided however that in no event shall the Preferred Share
      certificates and Warrants be delivered after the first (1st)
      business day following the Closing.  


     

    (j) Resolutions.
      The
      Board of Directors of the Company shall have adopted resolutions consistent
      with
      Section 2.1(b) hereof (the “Resolutions”).

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    (k) Reservation
      of Shares.
      As of
      the Closing Date, the Company shall have reserved out of its authorized and
      unissued Common Stock, solely for the purpose of effecting the conversion of
      the
      Preferred Shares and the exercise of the Warrants, a number of shares of Common
      Stock equal to one hundred ten percent (110%) of the aggregate number of
      Conversion Shares issuable upon conversion of the Preferred Shares issued or
      to
      be issued pursuant to this Agreement and the number of Warrant Shares issuable
      upon exercise of the number of Warrants issued or to be issued pursuant to
      this
      Agreement.

     

    (l) Transfer
      Agent Instructions.
      As of
      the Closing Date, the Irrevocable Transfer Agent Instructions shall have been
      delivered to and acknowledged in writing by the Company’s transfer
      agent.

     

    (m) Lock-Up
      Agreement.
      As of
      the Closing Date, the persons listed on Schedule
      3.20
      hereto
      shall have delivered to the Purchasers a fully executed Lock-Up Agreement.
      

     

    (n) Secretary’s
      Certificate.
      The
      Company shall have delivered to such Purchaser a secretary’s certificate, dated
      as of the Closing Date, as to (i) the Resolutions, (ii) the Certificate, (iii)
      the Bylaws, (iv) the Certificate of Designation, each as in effect at the
      Closing, and (v) 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 the Closing Date, confirming the accuracy
      of
      the Company’s representations, warranties and covenants as of the 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) Escrow
      Agreements.
      At the
      Closing, the Company shall have executed and delivered the Share Escrow
      Agreement to such Purchaser.


    (q) Material
      Adverse Effect.
      There
      have been no events or occurrences on or before the Closing Date which,
      individually or in the aggregate, have had or could reasonably be expected
      to
      have a Material Adverse Effect.


     

    (r) Outstanding
      Common Stock.
      The
      Company’s issued and outstanding shares of Common Stock before the Closing (as
      set forth in Schedule 2.1(c)), shall be supported by a statement from the
      Company’s transfer agent demonstrating the number of issued and outstanding
      shares of Common Stock after the Share Exchange and the Company shall provide
      confirmation to the Purchasers that assuming full conversion of the Preferred
      Shares issued to the Purchasers pursuant to this Agreement, without any and
      no
      such adjustment to the number of shares issuable upon such conversion, that
      the
      number of issued and outstanding shares of Common Stock post-Closing will be
      30,000,000.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

     

    (s) Additional
      Escrow.
      The
      Company will maintain an escrow account with Loeb & Loeb LLP, as escrow
      agent, to receive $200,000 of the Purchase Price (the “Additional Escrow Funds”)
      at the Closing, which such Additional Escrow Funds shall only be used for
      investor and public relations purposes, pursuant to the terms of that certain
      Public Relations Escrow Agreement, dated as of even date herewith.



     

    (t) Escrow
      Shares.
      The
      Company shall have deposited into a separately designated escrow account
      established pursuant to the Share Escrow Agreement, that number of shares of
      its
      Common Stock equal to one hundred percent (100%) of the number of shares of
      Common Stock into which the Preferred Shares are initially convertible at the
      time of Closing, which shares of Common Stock would have been issued to Redsky
      Group Limited, a British Virgin Islands company in connection with the Share
      Exchange. 

     

    (u) Share
      Exchange.
      The
      Company shall have submitted a copy of the executed Share Exchange Agreement,
      along with the related Insider Registration Rights Agreement to the Purchasers.
      

     

    (v) Outstanding
      Preferred Stock.
      The
      Company shall have provided written confirmation that all previously issued
      shares of preferred stock, including but not limited to the 225,000 shares
      of
      series a preferred stock issued on October 31, 2006, have been converted and
      the
      holders thereof no longer have any rights or privileges as a preferred
      stockholder, with respect to the preferred stock or other than registration
      rights of the common stock underlying such preferred stock, concerning the
      Company; the same shall be supported by a statement from the Company’s transfer
      agent demonstrating that the Company does not have any shares of any class
      of
      preferred stock issued and outstanding as of the Closing. 

    


    (w)
      Employment Contracts. The Company shall have delivered executed employment
      contracts, salary offer letters and confidentiality agreements between the
      WFOE
      and each of Mr.
      Gao
      Xincheng, Mr. He Nengde, Ms. Li Gaihong, Mr. Chen Jun

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      V

     

    Stock
      Certificate Legend

     

    Section
      5.1 Legend.
      Each
      certificate representing the Preferred Shares and the Warrants, and, if
      appropriate, securities issued upon conversion and exercise 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 THE COMPANY 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
      and the Warrant 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 or the Warrant 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 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. Whenever
      a
      certificate representing the Conversion Shares or Warrant Shares is required
      to
      be issued to a Purchaser without a legend, in lieu of delivering physical
      certificates representing the Conversion Shares or Warrant Shares (provided
      that a registration statement under the Securities Act providing for the resale
      of the Warrant Shares and Conversion Shares is then in effect),
      the
      Company shall cause its transfer agent to electronically transmit the Conversion
      Shares or Warrant Shares to a Purchaser by crediting the account of such
      Purchaser or 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).

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VI

     

    Indemnification

     

    Section
      6.1 Indemnification
      of Purchasers.
      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
      of Company.
      Each
      Purchaser agrees, severally and not jointly, to indemnify and hold harmless
      the
      Company (and its 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 Company as a result of any inaccuracy in or breach of the representations,
      warranties or covenants made by such Purchaser herein; provided,
      however,
      that no
      Purchaser shall have any liability pursuant to this Section
      6.2
      in an
      amount exceeding the aggregate purchase price paid to the Company by such
      Purchaser in connection with this Agreement and the securities issued
      hereunder.

     

    Section
      6.3 Indemnification
      Procedure.
      Any
      party entitled to indemnification under this Article VI (an “indemnified party”)
      will give prompt written notice to the party required to provide indemnification
      under this Article VI (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 prompt 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 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.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    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 reasonable and itemized 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 Closing and shall
      not exceed $40,000, (ii) the filing and declaration of effectiveness by the
      Commission of the Registration Statement and (iii) any amendments, modifications
      or waivers of this Agreement or any of the other Transaction Documents. The
      Company shall also pay to Vision
      Opportunity Master Fund, Ltd.
      at the
      Closing in connection with reasonably documented due diligence expenses incurred
      by Vision Opportunity Master Fund, Ltd. an amount up to $80,000, of which
      $10,000 has already been paid to Vision (to the extent not already paid). The
      Company shall 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 but only if the Purchasers are successful in any litigation
      or
      arbitration relating to such enforcement. 

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    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 or the Registration Rights Agreement 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, 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 collectively contain 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 Purchaser (provided that the Purchaser holds Preferred Shares
      or
      Warrants at such time), 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 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 Preferred Shares, as
      the
      case may be.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    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 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:

            	 	
              International
                Imaging Systems, Inc.

              c/oXi'an
                Baorun Industrial Development Co. Ltd.

              Dongxin
                Century Square,  7th Floor

              Xi'an
                East City High-tech Industrial Development Park

              Shannxi
                Province,  P.R. China

              Attn:
                Mr. Gao Xincheng

              Tel: 
                86 29 82682019

              Fax:
                86 29 82683629

            
	 	 	 
	
              with
                copies to (which
                shall not constitute
                notice):

            	 	
              Loeb
                & Loeb

              345
                Park Avenue

              New
                York, NY10154

              Attn:
                Mitchell S. Nussbaum

              Tel:
                212.407.4159

              Fax:
                212.407-4990

            
	 	 	 
	
              If
                to any Purchaser:

            	 	
              At
                the address of such Purchaser set forth on Exhibit
                A
                to
                this Agreement

            
	 	 	 
	
              with
                copies to (which
                shall not constitute
                notice):

            	 	
              Lesser,
                Hunter, Taubman & Taubman

              17
                State Street, Flr 16

              New
                York, NY 10004

              Attn:
                Louis Taubman

              Tel:
                212.732-7184

              Fax:
                212.202-6380

            


    

     

    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.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    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 (other than the indemnified
      parties under Article VI).

     

    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.

     

    Section
      7.10 Survival.
      The
      representations and warranties of the Company and the Purchasers shall survive
      the execution and delivery hereof and the Closings hereunder for a period of
      two
      years following the Closing Date.

     

    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 as a pdf document via email, 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 pdf 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.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    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 Preferred Shares, the Conversion Shares, the
      Warrants, the Warrant Shares, the Certificate of Designation, the Registration
      Rights Agreement and the other Transaction Documents.

    


    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    


    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.

     

    
      	 	
              INTERNATIONAL
                IMAGING SYSTEMS, INC.

            
	 	 
	 	 
	 	
              By: 
                /s/ GAO XINCHENG
                

              

              Name:
                Mr. Gao Xincheng

              Title:
                CEO

            


    

     

    


    
      	 	
              PURCHASER

            
	 	 
	 	 
	 	 
	 	
              By: 

                

              

              Name:
                

              Title:
                

            


    

    
       

      [Signature
        Page to Series A Stock Purchase Agreement]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

    

    EXHIBIT
      A to the

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    
      	
              Names
                and Addresses

              of
                Purchasers, Purchasers’ Counsel and Purchasers’ Primer
                Broker

            	 	
              Number
                of Preferred Shares Purchased

            	 	
              Dollar
                Amount

              Of
                Investment

            
	
              
              

            	 	
               

            	 	
               

            


    

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

       

    EXHIBIT
      B to the 

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    FORM
      OF CERTIFICATE OF DESIGNATION

     

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
      C-1 to the 

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    FORM
      OF SERIES A-1 WARRANT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
      C-2 to the 

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    FORM
      OF SERIES A-2 WARRANT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      D to the 

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    FORM
      OF REGISTRATION RIGHTS AGREEMENT

     

    
      
        
        

      

      
        D-1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      E to the 

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    FORM
      OF LOCK-UP AGREEMENT

     

    
      
        
        

      

      
        E-1

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
      F to the 

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    FORM
      OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

    


    


    


    as
      of
      ____________, 2007

     

    Computershare
      Trust Co., Inc.

    350
      Indiana Street, Suite 800

    Golden,
      CO 80401

    Telephone:
      (303) 262-0600

    Facsimile:
      (303) 262-0631

    Attn:
      Kim
      Porter

    


     

    Ladies
      and Gentlemen:

     

    Reference
      is made to that certain Series A Convertible Preferred Stock Purchase Agreement
      (the “Purchase Agreement”), dated as of October __, 2007, by and among
      International Imaging Systems, Inc., a Delaware corporation (the “Company”), and
      the purchasers named therein (collectively, the “Purchasers”) pursuant to which
      the Company is issuing to the Purchasers shares of its Series A Convertible
      Preferred Stock, par value $0.001 per share (the “Preferred Shares”), and
      warrants (the “Warrants”) to purchase shares of the Company’s common stock, par
      value $0.0001 per share (the “Common Stock”). This letter shall serve as our
      irrevocable authorization and direction to you (provided that you are the
      transfer agent of the Company at such time) to issue shares of Common Stock
      upon
      conversion of the Preferred Shares (the “Conversion Shares”) and exercise of the
      Warrants (the “Warrant Shares”) to or upon the order of a Purchaser from time to
      time upon (i) surrender to you of a properly completed and duly executed
      Conversion Notice or Exercise Notice, as the case may be, in the form attached
      hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the
      conversion of Preferred Shares, a copy of the certificates (with the original
      certificates delivered to the Company) representing Preferred Shares being
      converted or, in the case of Warrants being exercised, a copy of the Warrants
      (with the original Warrants delivered to the Company) being exercised (or,
      in
      each case, an indemnification undertaking with respect to such share
      certificates or the warrants in the case of their loss, theft or destruction),
      and (iii) delivery of a treasury order or other appropriate order duly executed
      by a duly authorized officer of the Company. So long as you have previously
      received (x) written confirmation from counsel to the Company that a
      registration statement covering resales of the Conversion Shares or Warrant
      Shares, as applicable, has been declared effective by the Securities and
      Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended
      (the “1933 Act”), and no subsequent notice by the Company or its counsel of the
      suspension or termination of its effectiveness and (y) a copy of such
      registration statement, and if the Purchaser represents in writing that the
      Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant
      to the Registration Statement, then certificates representing the Conversion
      Shares and the Warrant Shares, as the case may be, shall not bear any legend
      restricting transfer of the Conversion Shares and the Warrant Shares, as the
      case may be, thereby and should not be subject to any stop-transfer restriction.
      Provided, however, that if you have not previously received those items and
      representations listed above, then the certificates for the Conversion Shares
      and the Warrant Shares shall bear the following legend:

     

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE 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 OR APPLICABLE STATE SECURITIES LAWS, OR
      XI’AN BAORUN INDUSTRIAL DEVELOPMENT CO., LTD. SHALL HAVE RECEIVED AN OPINION OF
      ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
      UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
      REQUIRED.”

     

    
      
        
        

      

      
        F-1

        
          

        

      

      
        
        

      

    

     

    and,
      provided further, that the Company may from time to time notify you to place
      stop-transfer restrictions on the certificates for the Conversion Shares and
      the
      Warrant Shares in the event a registration statement covering the Conversion
      Shares and the Warrant Shares is subject to amendment for events then
      current.

     

    A
      form of
      written confirmation from counsel to the Company that a registration statement
      covering resales of the Conversion Shares and the Warrant Shares has been
      declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
      III.

     

    Please
      be
      advised that the Purchasers are relying upon this letter as an inducement to
      enter into the Purchase Agreement and, accordingly, each Purchaser is a third
      party beneficiary to these instructions.

     

    Please
      execute this letter in the space indicated to acknowledge your agreement to
      act
      in accordance with these instructions. Should you have any questions concerning
      this matter, please contact me at ___________.

    
      	 	 	 
	 	Very truly yours,
	 	 
	
               INTERNATIONAL
                IMAGING SYSTEMS,
                INC.

            
	 	 
	 
 	 
 	 
 
	
            	By:  	
            
	 	 	
              

            
	 	
              Name:

                
Title:
                

              

            


    

     

    ACKNOWLEDGED
      AND AGREED:

     

    COMPUTERSHARE
      TRUST CO., INC.

     

    
      	 	 	 	 
	By:
              	 	 	
            
	
              
                

              

              Name:

              
                

              

            	 	 	
            
	
              Title: 

              
                

              

            	 	 	
            
	
               Date:

              
                
 

            	 	 	 

       

    
      
        
        

      

      
        F-2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      I

     

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    CONVERSION
      NOTICE

     

    Reference
      is made to the Certificate of Designation of the Relative Rights and Preferences
      of the Series A Preferred Stock of INTERNATIONAL
      IMAGING SYSTEMS, INC. .
      (the
“Certificate of Designation”). In accordance with and pursuant to the
      Certificate of Designation, the undersigned hereby elects to convert the number
      of shares of Series A Preferred Stock, par value $0.001
      per share (the “Preferred Shares”), of INTERNATIONAL
      IMAGING SYSTEMS, INC.,.
      a
      Delaware corporation (the “Company”), indicated below into shares of Common
      Stock, par value $0.0001 per share (the “Common Stock”), of the Company, by
      tendering the stock certificate(s) representing the share(s) of Preferred Shares
      specified below as of the date specified below.

     

    
      	
              Date
                of Conversion: 

            	 	 
	 	 	 
	
              Number
                of Preferred Shares to be converted:

            	 	__________
	 	 	 
	
              Stock
                certificate no(s). of Preferred Shares to be converted:
                

            	 	_________
	 	 	 
	
              The
                Common Stock has been sold pursuant to the Registration Statement
                (as
                defined in the Registration Rights Agreement): YES ____ NO____

            
	 	 	 
	
              Please
                confirm the following information:

            	 	 
	 	 	 
	
              Conversion
                Price:

            	 	 
	 	 	 
	
              Number
                of shares of Common Stock to be issued: 

            	 	 
	 	 	 
	 	 	 


    

    
       

    

    Number
      of
      shares of Common Stock beneficially owned or deemed beneficially owned by the
      Holder on the Date of Conversion: _________________________

    


    Please
      issue the Common Stock into which the Preferred Shares are being converted
      and,
      if applicable, any check drawn on an account of the Company in the following
      name and to the following address:

    
       

      
        	
                Issue
                  to: 

              	 	 
	 	 	 
	 	 	 
	
                Facsimile
                  Number:

              	 	
              
	 	 	 
	
                Authorization:


              	 	
              
	 	 	 
	 	 	
                By:
                  
                  

                

              
	 	 	Title: 
	 	 	
                
                  
 

              
	
                Dated:

              	 	 
	 	 	 


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
         

      

    

    EXHIBIT
      II

     

    FORM
      OF EXERCISE NOTICE

     

    EXERCISE
      FORM

     

    INTERNATIONAL
      IMAGING SYSTEMS, INC.

    


    The
      undersigned _______________, pursuant to the provisions of the within Warrant,
      hereby elects to purchase _____ shares of Common Stock of INTERNATIONAL
      IMAGING SYSTEMS, INC.,

    .
      covered
      by the within Warrant.

     

    
      	Dated: _________________	 	
              Signature ___________________________

            
	 	 	 
	 	 	
              Address _____________________

              _____________________

            


    

     

    Number
      of
      shares of Common Stock beneficially owned or deemed beneficially owned by the
      Holder on the date of Exercise: _________________________

    


    ASSIGNMENT

    


    FOR
      VALUE
      RECEIVED, _________________ hereby sells, assigns and transfers unto
      __________________ the within Warrant and all rights evidenced thereby and
      does
      irrevocably constitute and appoint _____________, attorney, to transfer the
      said
      Warrant on the books of the within named corporation.

     

    
       

      
        	Dated: _________________	 	
                Signature ___________________________

              
	 	 	 
	 	 	
                Address _____________________

                _____________________

              


      

       

    

    PARTIAL
      ASSIGNMENT

    


    FOR
      VALUE
      RECEIVED, _________________ hereby sells, assigns and transfers unto
      __________________ the right to purchase _________ shares of Warrant Stock
      evidenced by the within Warrant together with all rights therein, and does
      irrevocably constitute and appoint ___________________, attorney, to transfer
      that part of the said Warrant on the books of the within named
      corporation.

    
       

      
        	Dated: _________________	 	
                Signature ___________________________

              
	 	 	 
	 	 	
                Address _____________________

                _____________________

              


      

      
         

      

    

    FOR
      USE
      BY THE ISSUER ONLY:

    


    This
      Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day of
      ___________, _____, shares of Common Stock issued therefor in the name of
      _______________, Warrant No. W-_____ issued for ____ shares of Common Stock
      in
      the name of _______________.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      III

     

    FORM
      OF NOTICE OF EFFECTIVENESS

    OF
      REGISTRATION STATEMENT

     

    Computershare
      Trust Co., Inc.

    350
      Indiana Street, Suite 800

    Golden,
      CO 80401

    Telephone:
      (303) 262-0600

    Facsimile:
      (303) 262-0631

    Attn:
      Kim
      Porter

    


    Re: INTERNATIONAL
      IMAGING SYSTEMS, INC.


     

    Ladies
      and Gentlemen:

     

    We
      are
      counsel to INTERNATIONAL
      IMAGING SYSTEMS, INC..,
      a
      Delaware corporation (the “Company”), and have represented the Company in
      connection with that certain Series A Convertible Preferred Stock Purchase
      Agreement (the “Purchase Agreement”), dated as of October __, 2007, by and among
      the Company and the purchasers named therein (collectively, the “Purchasers”)
      pursuant to which the Company issued to the Purchasers shares of its Series
      A
      Convertible Preferred Stock, par value $0.001 per share, (the “Preferred
      Shares”) and warrants (the “Warrants”) to purchase shares of the Company’s
      common stock, par value $0.0001 per share (the “Common Stock”). Pursuant to the
      Purchase Agreement, the Company has also entered into a Registration Rights
      Agreement with the Purchasers (the “Registration Rights Agreement”), dated as of
      October __, 2007, pursuant to which the Company agreed, among other things,
      to
      register the Registrable Securities (as defined in the Registration Rights
      Agreement), including the shares of Common Stock issuable upon conversion of
      the
      Preferred Shares, under the Securities Act of 1933, as amended (the “1933 Act”).
      In connection with the Company’s obligations under the Registration Rights
      Agreement, on ________________, 2007, the Company filed a Registration Statement
      on Form SB-2 (File No. 333-________) (the “Registration Statement”) with the
      Securities and Exchange Commission (the “SEC”) relating to the resale of the
      Registrable Securities which names each of the present Purchasers as a selling
      stockholder thereunder.

    


    In
      connection with the foregoing, we advise you that a member of the SEC’s staff
      has advised us by telephone that the SEC has entered an order declaring the
      Registration Statement effective under the 1933 Act at [ENTER
      TIME OF EFFECTIVENESS]
      on
[ENTER
      DATE OF EFFECTIVENESS]
      and we
      have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
      any stop order suspending its effectiveness has been issued or that any
      proceedings for that purpose are pending before, or threatened by, the SEC
      and
      accordingly, the Registrable Securities are available for resale under the
      1933
      Act pursuant to the Registration Statement.

     

    
      	 	 	 
	 	Very truly yours,
	 	 
	 	LOEB & LOEB
              LLP
	 
 	 
 	 
 
	
            	By:  	 
	 	
              

            


    

     

    cc: [LIST
      NAMES OF PURCHASERS]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      G to the 

    SERIES
      A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

    INTERNATIONAL
      IMAGING SYSTEMS, 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 Delaware and has the requisite corporate
      power to own, lease and operate its properties and assets, and to carry on
      its
      business as to our knowledge it is presently conducting such business.
With
      respect to our opinion regarding due incorporation, valid existence and good
      standing in Delaware, we have relied solely upon written representations made
      to
      us in the Company Fact Certificate and upon the Delaware
      Certificate.

     

    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, the Warrants and the Common Stock issuable upon conversion
      of
      the Preferred Stock and exercise of the Warrants. 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 certificates and the Warrants have been
      duly
      executed, issued and delivered by the Company. 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 and exercise of the Warrants
      is
      not subject to any preemptive rights under the Company’s Amended and Restated
      Certificate of Incorporation or the Amended and Restated By-Laws.

     

    3. The
      Preferred Stock and the Warrants have 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 or exercise of the Warrants have been duly
      authorized and reserved for issuance, and, when delivered upon exercise or
      conversion as provided in the Warrants or Certificate of Designation, as
      applicable, will be validly issued, fully paid and nonassessable.

     

    4. The
      Company’s execution, delivery and performance of, and compliance with the terms
      of, the Transaction Documents and the issuance of the Preferred Stock, the
      Warrants and the Common Stock issuable upon conversion of the Preferred Stock
      and exercise of the Warrants do not (i) violate any provision of the Company’s
      Amended and Restated Certificate of Incorporation or Amended and Restated
      By-Laws, or (ii) result in a material violation of any federal or state statute,
      rule or regulation known to us to be customarily applicable to transactions
      of
      the nature contemplated by the Transaction Documents or (iii) conflict with
      or
      violate any order, judgment, injunction or decree known to us to be applicable
      to the Company, except, with respect to clauses (i) and (iii) above, for such
      violations or conflicts as would not, individually or in the aggregate, have
      a
      Material Adverse Effect.

     

    5. To
      our
      knowledge, 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. To our knowledge, there is no action, suit, claim,
      investigation or proceeding pending or 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. To our knowledge,
      there are no outstanding orders, judgments, injunctions, awards or decrees
      of
      any court, arbitrator or governmental or regulatory body against the
      Company.

     

    
      
        
        

      

      
        G-1

        
          

        

      

      
        
        

      

    

     

    6. Based
      upon, and assuming the truth of, the representations and warranties, and full
      performance of the covenants, of the Purchasers in the Agreement, the offer,
      issuance and sale of the Preferred Stock and the Warrants and the offer,
      issuance and sale of the shares of Common Stock issuable upon conversion of
      the
      Preferred Stock and exercise of the Warrants pursuant to the Agreement, the
      Certificate of Designation and the Warrants, as applicable, are exempt from
      the
      registration requirements of Section 5 of the Securities Act.

    


    


    Very
      truly yours,

     

    
      
        
        

      

      
        G-2