Filed by Automated Filing Services Inc. (604) 609-0244 - Carbiz Inc. - Exhibit 10.1






SECURITIES PURCHASE AGREEMENT 

     THIS SECURITIES
PURCHASE AGREEMENT (this “Agreement”), dated as of February 28, 2007,
by and among Carbiz Inc., a corporation organized under the laws of the
province of Ontario, Canada (the “Company”), and the Buyers listed on
Schedule I attached hereto (individually, a “Buyer” or collectively
“Buyers”). 

WITNESSETH: 

     WHEREAS, the Company and
the Buyer(s) are executing and delivering this Agreement in reliance upon an
exemption from securities registration pursuant to Regulation S
(“Regulation S”) and the other rules and regulations promulgated
by the U.S. Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “1933 Act”), and/or upon such
other exemption from the registration requirements of the 1933 Act as may be
available with respect to any or all of the investments in securities made
hereunder; 

     WHEREAS, the parties
desire that, upon the terms and subject to the conditions contained herein, the
Company shall issue and sell to the Buyer(s), as provided herein, and the
Buyer(s) shall purchase up to Two Million Five Hundred Thousand Dollars
(US$2,500,000) of secured convertible debentures (the “Convertible
Debentures”), in the form attached hereto as Exhibit A, which shall
be convertible into common shares of the Company with no par value (the
“Common Shares”) (as converted, the “Conversion Shares”) for an
aggregate purchase price of US$2,500,000, of which One Million Dollars
(US$1,000,000) shall be released from escrow on the First Closing Date (as
defined herein) (the “First Closing”), Seven Hundred Fifty Thousand
Dollars (US$750,000) shall be released from escrow upon the filing of a
registration statement (the “Registration Statement”) on Form SB-2 (or such
other form as may be available to the Company) with the SEC relating to the
Conversion Shares and the Warrant Shares (as defined herein) (the “Second
Closing”) and the balance shall be released from escrow on a date to be
specified by the parties, which in no event shall be later than June 30, 2007
(the “Third Closing”) (each individually referred to as a
“Closing” collectively referred to as the “Closings”), for a total
purchase price of up to Two Million Five Hundred Thousand Dollars
(US$2,500,000), (the “Purchase Price”) in the respective amounts set
forth opposite each Buyer(s) name on Schedule I (the “Subscription
Amount”), and

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

     WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a registration rights agreement substantially in the
form attached hereto as Exhibit C (the “Registration Rights
Agreement”);

     WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a security agreement substantially in the form attached
hereto as Exhibit D (the “Security Agreement”), pursuant to which
the Company has agreed to provide the Buyer a security interest in Pledged
Collateral (as this term is defined in 




the Security Agreement) to secure Company’s obligations under
this Agreement, the Convertible Debentures and the Security Agreement; and 

     WHEREAS, contemporaneously with
the execution and delivery of this Agreement, the parties hereto are executing
and delivering a pledge agreement substantially in the form attached hereto as
Exhibit E (the “Pledge Agreement”); 

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

1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES. 

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

     (b) Closing Date. The
First Closing of the purchase and sale of the Convertible Debentures shall take
place at 10:00 a.m. Eastern Standard Time on the date hereof, subject to
notification of satisfaction of the conditions to the First Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the “First Closing Date”). All other
Closings shall take place subject to notification of satisfaction of the
conditions to the other Closings set forth in Sections 6 and 7 below (or such
later dates as are mutually agreed to by the Company and the Buyer(s)) on the
dates and subject to the conditions set forth in the second recital to this
Agreement (the “Subsequent Closing Dates,” and together with the
First Closing Date, the “Closing Dates”). The Closings shall occur on
their respective Closing Dates at the offices of James G. Dodrill II, P.A., 5800
Hamilton Way, Boca Raton, FL 33496 (or such other place as is mutually agreed to
by the Company and the Buyer(s)).

     (c) Escrow Arrangements; Form
of Payment. Upon execution hereof by Buyer(s) and pending the Closings, the
Subscription Amount for the First Closing shall be deposited in a non-interest
bearing escrow account with James G. Dodrill II, P.A., as escrow agent (the
“Escrow Agent”), pursuant to the terms of the Escrow Agreement. Subject
to the satisfaction of the terms and conditions of this Agreement, on each
Closing Date, (i) the Escrow Agent shall deliver to the Company in accordance
with the terms of the Escrow Agreement such 

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aggregate proceeds for the Convertible Debentures to be issued
and sold to such Buyer(s), minus the fees and expenses as set forth herein which
shall be paid directly from the gross proceeds held in escrow, at each Closing
by wire transfer of immediately available funds, and (ii) the Company shall
deliver to each Buyer, Convertible Debentures which such Buyer(s) is purchasing
on such Closing Date in amounts indicated opposite such Buyer’s name on Schedule
I, duly executed on behalf of the Company. 

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

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

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

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

2. BUYER’S REPRESENTATIONS AND WARRANTIES. 

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

     (a) Investment Purposes.
Each Buyer is acquiring the Convertible Debentures and the Warrants and, upon
conversion of Convertible Debentures and exercise of the Warrants (as defined
herein), the Buyer will acquire the Conversion Shares and Common Shares
underlying the Warrants (the “Warrant Shares”), respectively, then issuable, for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale 

3




or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act, applicable state securities laws and applicable
Canadian securities laws; provided, however, that by making the representations
herein, such Buyer reserves the right to dispose of all or any part of the
Conversion Shares or Warrant Shares at any time in accordance with or pursuant
to an effective registration statement covering such Conversion Shares or
Warrant Shares or an available exemption under the 1933 Act, including, without
limitation, Regulation S promulgated under the 1933 Act (“Regulation S”) after
delivering an opinion of counsel in a form reasonably acceptable to the Company
that such disposition is exempt from registration under applicable United States
federal and state securities laws and applicable Canadian securities laws.
Nothing contained herein shall be deemed a representation or warranty by such
Buyer to hold the Conversion Shares for any period of time. Such Buyer is
acquiring the Convertible Debentures, the Warrant, the Conversion Shares and the
Warrant Shares hereunder in the ordinary course of its business. Such Buyer does
not have any agreement or understanding, directly or indirectly, with any person
to distribute any of the Convertible Debentures, the Conversion Shares, the
Warrant or the Warrant Shares in violation of United States federal or state
securities laws or applicable Canadian or provincial securities laws. 

     (b) Outside the United States
and Not a U.S. Person. Each Buyer is located outside the “United States,” as
such term is defined in Regulation S, and is not a “U.S. person,” as such term
is defined in Regulation S, and is not purchasing the Convertible Debenture or
the Warrants by or on behalf a person inside the United States or a U.S. Person.
The purchase of the Convertible Debenture and the Warrant was conducted in an
“offshore transaction,” as such term is defined in Regulation S. 

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

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

4




considered necessary to make an informed investment decision
with respect to its acquisition of such securities. 

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

     (f) Transfer or Resale.
Each Buyer understands that: (i) the Convertible Debentures, the Warrant, the
Conversion Shares and the Warrant Shares have not been registered under the 1933
Act or any applicable state securities laws, and may not be offered for sale,
sold, pledged, assigned or otherwise transferred unless (A) subsequently
registered thereunder, or (B) such Buyer shall have delivered to the Company an
opinion of counsel in a form reasonably acceptable to the Company to the effect
that such securities to be sold, assigned, pledged or otherwise transferred may
be sold, assigned or transferred pursuant to an exemption from such registration
requirements. The Company reserves the right to place stop transfer instructions
against the shares and certificates for the Convertible Debentures, the
Warrants, the Conversion Shares and the Warrant Shares. 

     (g) Legends. Each Buyer
understands that the certificates or other instruments representing the
Convertible Debentures, the Warrants, the Conversion Shares and the Warrant
Shares and all certificates issued in substitution thereof and in exchange
therefore shall bear restrictive legends in substantially the following forms
(and a stop transfer order may be placed against transfer of such share
certificates), until such time as it is no longer required under applicable
securities laws: 

	 	
      THE SECURITIES REPRESENTED HEREBY [AND THE SECURITIES
      ISSUABLE UPON CONVERSION/EXERCISE HEREOF] HAVE NOT BEEN REGISTERED UNDER
      THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR
      THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THESE SECURITIES
      MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS SUCH
      SECURITIES ARE REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE
      SECURITIES LAWS OR SUCH SECURITIES ARE OFFERED, SOLD, PLEDGED OR OTHERWISE
      TRANSFERRED IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE
      1933 ACT OR ANY APPLICABLE STATE SECURITIES LAW AND THE COMPANY WILL BE
      PROVIDED WITH OPINION OF COUNSEL IN A FORM REASONABLY ACCEPTABLE TO THE
      COMPANY OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM
      THAT SUCH EXEMPTIONS ARE AVAILABLE. 
	 


5





	 	
      WITHOUT COMPLIANCE WITH ALL APPLICABLE CANADIAN
      SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
      NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED IN CANADA OR TO
      OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL [FOUR MONTHS AND ONE DAY
      AFTER ISSUANCE]. 
	 


The legends set forth above shall be removed and the Company
within two (2) business days shall issue a certificate without such legend to
the holder of the Conversion Shares upon which it is stamped, if, unless the
legend is otherwise required by state securities laws, (i) in connection with a
sale transaction, provided the Conversion Shares are registered under the 1933
Act and applicable state securities laws or (ii) in connection with a sale
transaction, after such holder provides the Company with an opinion of counsel,
which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions and reasonably acceptable to the Company, to
the effect that a public sale, assignment or transfer of the Conversion Shares
may be made without registration under the 1933 Act.

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

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

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

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

6




to this investment, the transactions contemplated by this
Agreement or the securities laws of any jurisdiction. 

     (l) Foreign Private Issuer
Status. The Buyer understands and acknowledges that the Company (i) is not
obligated to remain a “foreign issuer” within the meaning of Regulation S, (ii)
may not, at the time the Convertible Debentures, the Warrants, the Conversion
Shares or the Warrant Shares are resold by it or at any other time, be a foreign
issuer, and (iii) may engage in one or more transactions which could cause the
Company not to be a foreign issuer. Notwithstanding the foregoing, the Company
agrees that it will not purposefully engage in any action or transaction which
would cause the Company to cease being a foreign issuer until after the SEC
declares the Registration Statement effective. 

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. 

The Company represents and warrants as of the date hereof to
each of the Buyers that: 

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

(b) Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority
to enter into and perform its obligations under this Agreement, the Security
Agreement, the Pledge Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements, and to issue the Convertible
Debentures and the Conversion Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Security
Agreement, the Pledge Agreement, the Escrow Agreement, the Irrevocable Transfer
Agent Instructions and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debentures the
Conversion Shares and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion or exercise thereof, have been duly
authorized by the Company’s Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
shareholders, (iii) this Agreement, the Security Agreement, the Pledge Agreement
the Escrow Agreement, the Irrevocable Transfer Agent Instructions and any
related agreements have been duly executed and delivered by the Company, (iv)
this Agreement, the Security Agreement, the Pledge Agreement, the Escrow
Agreement, the Irrevocable Transfer Agent Instructions and any related
agreements constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies. The authorized officer of the Company executing this Agreement, the
Security Agreement, the Pledge Agreement, the 

7




Registration Rights Agreement, the Escrow Agreement, the
Irrevocable Transfer Agent Instructions and any related agreements knows of no
reason why the Company cannot file the registration statement as required under
the Registration Rights Agreement or perform any of the Company’s other
obligations under such documents.

(c) Capitalization. The authorized capital stock of the
Company consists of an unlimited number of Common Shares and an unlimited number
of preferred shares of the Company (the “Preferred Shares”). As of the date
hereof, the Company has 64,223,404 Common Shares and no Preferred Shares issued
and outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. No Common Shares are subject to preemptive rights
or any other similar rights or, to the knowledge of the Company, any liens or
encumbrances. As of the date of this Agreement and except as set forth on
Schedule 3(c) to this Agreement, (i) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities (other than the “Senior Debt”) and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from the
SEC or any other regulatory agency. There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Convertible Debentures as described in this Agreement. The
Company has furnished to the Buyer true and correct copies of the Company’s
Articles of Incorporation, as amended and as in effect on the date hereof (the
“Articles of Incorporation”), and the Company’s By-laws, as in effect on
the date hereof (the “By-laws”), and the terms of all securities
convertible into or exercisable for Common Shares and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.

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

     (e) No Conflicts. The
execution, delivery and performance of this Agreement, the Security Agreement,
the Pledge Agreement, the Registration Rights Agreement, the Irrevocable
Transfer Agent Instructions and the Escrow Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a 

8




violation of the Articles of Incorporation or the By-laws or
(ii), to the best knowledge of the Company, conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including United States
federal and state securities laws and regulations and the rules and regulations
of The National Association of Securities Dealers Inc.’s OTC Bulletin Board on
which the Common Shares are quoted) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. To the best knowledge of the Company, neither
the Company nor its subsidiaries is in violation of any term of or in default
under its Articles of Incorporation or By-laws or their organizational charter
or by-laws, respectively, [or, except as set forth on Schedule 3(e)], any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries. The business of the Company and its subsidiaries is
not being conducted, and shall not be conducted in violation of any material
law, ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof, except for any required post-Closing notice filings
under applicable United States federal or state securities laws, if any. 

     (f) SEC Documents: Financial
Statements. Since September 1, 2006 the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC under of the Securities Exchange Act of 1934, as amended (the
“1934 Act”) (all of the foregoing filed prior to the date hereof
or amended after the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to as the “SEC Documents”). The
Company has delivered to the Buyers or their representatives, or made available
through the SEC’s website at http://www.sec.gov, true and complete copies of the
SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the “Financial Statements”)
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such Financial
Statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and, fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in this Agreement, contains any untrue statement of a material fact
or omits to state any material fact 

9




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

     (g) [reserved] 

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

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

     (j) Foreign Private Issuer;
Directed Selling Efforts. The Company is a “foreign private issuer,” as such
term is defined in Rule 405 under the 1933 Act, with no “substantial U.S. market
interest,” as such term is defined in Regulation S, in the Convertible
Debentures, the Warrants, the Conversion Shares or the Warrant Shares. None of
the Company, any of its affiliates, or any person acting on its or their behalf
has engaged in any "directed selling efforts," as such term is defined in Rule
902 of Regulation S. The Company, its affiliates and any person acting on its or
their behalf have complied and will comply with the offering restrictions
requirements of Regulation S. The Company has not entered and will not enter
into any contractual arrangement with respect to the distribution of the
Convertible Debentures, the Warrants, the Conversion Shares or the Warrant
Shares. 

     (k) Employee Relations.
Neither the Company nor any of its subsidiaries is involved in any labor dispute
nor, to the knowledge of the Company or any of its subsidiaries, is any such
dispute threatened. None of the Company’s or its subsidiaries’ employees is a
member of a union relating to his or her employment by the Company or its
subsidiaries as the case may be. 

     (l) Intellectual Property
Rights. The Company and its subsidiaries own or possess adequate rights or
licenses to use all trademarks, trade names, service marks, service 

10




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

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

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

     (o) Insurance. The Company
and each of its subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company and its subsidiaries are engaged. Neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.


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

     (q) Internal Accounting
Controls. The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, 

11




(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with U.S. generally accepted
accounting principles and to maintain asset accountability, and (iii) the
recorded amounts for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. 

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

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

     (t) Certain Transactions.
Except for arm’s length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner. 

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

     (v) Exempt Offering. The
offer and sale of the Convertible Debentures, the Warrants, the Conversion
Shares and the Conversion in the manner contemplated by this Agreement will be
excluded from the registration requirements of the Securities Act. 

12




     (w) Investment Company. The
Company is not, and will not be as a result of the issuance of the Convertible
Debentures, the Warrants, the Conversion Shares or the Warrant Shares, an
“investment company,” as such term is defined in the United States Investment
Company Act of 1940, as amended. 

4. COVENANTS. 

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

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

(c) Use of Proceeds. The Company will use the proceeds
from the sale of the Convertible Debentures for general corporate and working
capital purposes. 

(d) Reservation of Shares. The Company shall take all
action reasonably necessary to at all times have authorized, and reserved for
the purpose of issuance, such number of Common Shares as shall be necessary to
effect the issuance of the Conversion Shares. If at any time the Company does
not have available such Common Shares as shall from time to time be sufficient
to effect the conversion of all of the Conversion Shares of the Company, the
Company shall call and hold a special meeting of the shareholders within thirty
(30) days of such occurrence, for the sole purpose of increasing the number of
shares authorized. The Company’s management shall recommend to the shareholders
to vote in favor of increasing the number of Common Shares authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized Common Shares. 

(e) Fees and Expenses. 

     (i) Each of the Company and the
Buyer(s) shall pay all costs and expenses incurred by such party in connection
with the negotiation, investigation, preparation, execution and delivery of this
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions,
the Pledge Agreement and the Security Agreement. The Company shall pay the Buyer
a commitment fee of nine percent (9%) of the Purchase Price, which shall be paid
directly from the proceeds of and proportionally upon each Closing. 

     (ii) The Company has agreed to
pay a structuring fee to Buyer of Fifteen Thousand Dollars (US$15,000), one-half
of which has been paid prior 

13




to the execution of this Agreement and one-half of which shall
be paid directly from the proceeds of the First Closing. 

     (iii) The Company shall issue to
the Buyer a warrant (the “Warrant”) to purchase one million two hundred fifty
thousand (1,250,000) Common Shares for a period of five (5) years at an exercise
price equal to the Company’s bid price of the Common Shares on the date of the
First Closing (the “Warrant 1”). The Company shall also issue to the
Buyer a warrant to purchase one million two hundred fifty thousand (1,250,000)
Common Shares for a period of five (5) years at an exercise price equal to one
hundred fifty percent (150%) of the volume weighted average price for the last
five trading days as reported by Bloomberg on the date of the First Closing
((the “Warrant 2”); collectively Warrant 1 and Warrant 2 shall be
referred to as the “Warrants,” which shall be in the forms attached
hereto as Exhibit F). The Warrants shall be exercised on a cash basis
provided that the Company is not in default under the Convertible Debentures and
the Warrant Shares are subject to an effective registration statement or are
capable of being transferred within the United States by Buyer pursuant to
Regulation S. 

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

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

14




more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. “Control” or “controls” for purposes hereof means that
a person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity. 

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

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

     (j) Restriction on Issuance of
the Capital Stock. So long as any Convertible Debentures are outstanding, and
other than the transaction proposed with Surge Capital, the Company shall not,
without the prior written consent of the Buyer(s), (i) issue or sell shares of
Common Shares or Preferred Shares without consideration or for a consideration
per share less than the bid price of the Common Shares determined immediately
prior to its issuance, (ii) issue any Preferred Shares, warrant, option, right,
contract, call, or other security instrument granting the holder thereof, the
right to acquire Common Shares without consideration or for a consideration less
than such Common Shares’s bid price value determined immediately prior to it’s
issuance, (iii) enter into any security instrument granting the holder a
security interest in any and all assets of the Company, or (iv) file any
registration statement on Form S-8 related to anything other than shares
underlying an employee benefit plan that has been or will be granted or awarded
to employees and/or directors of the Company and its subsidiaries. 

5. TRANSFER AGENT INSTRUCTIONS. 

The Company shall enter into irrevocable transfer agent
instructions in substantially the form attached hereto as Exhibit F (the
“Irrevocable Transfer Agent Instructions”) and shall pay the law offices of
James G. Dodrill II, P.A. a cash fee of Fifty Dollars ($50) for every occasion
they act pursuant to the Irrevocable Transfer Agent Instructions. 6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL. 

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

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

(b) The Buyer(s) shall have delivered to the Escrow Agent the
Purchase Price for Convertible Debentures in respective amounts as set forth
next to each Buyer as outlined on 

15




Schedule I attached hereto and the Escrow Agent shall have
delivered the net proceeds to the Company by wire transfer of immediately
available U.S. funds pursuant to the wire instructions provided by the Company.


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

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

7. CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.


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

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

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

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

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


16




(e) The Buyer(s) shall have received an opinion of counsel from
Troutman Sanders LLP, counsel to the Company in a form satisfactory to the
Buyer(s) with such counsel opining that the offer and sale of the Convertible
Debentures and Warrants, and the issuance of the Conversion Shares and the
Warrant Shares does not require registration under the 1933 Act. 

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

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


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

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


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

8. INDEMNIFICATION. 

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

17




thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Convertible
Debentures, the Pledge Agreement, the Security Agreement, the Escrow Agreement
or any other certificate, instrument or document contemplated hereby, or (c) any
cause of action, suit or claim brought or made against such Buyer Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Buyer Indemnities (other than a cause of
action, suit or claim brought or made against a Buyer Indemnitee by such Buyer
Indemnitee’s owners, investors or affiliates), (d) any transaction financed or
to be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Convertible Debentures or (e) the status of the Buyer or
holder of the Convertible Debentures the Conversion Shares, as a Buyer of
Convertible Debentures in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law. 

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


     (c) Promptly after receipt by a
Buyer Indemnitee or a Company Indemnitee, as the case may be (the “Indemnified
Party”), of notice of the commencement of any cause of action, suit or claim
brought or made against such Indemnified Party for which such Indemnity Party is
entitled to indemnification under this Section 8, such Indemnified Party shall,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Party. In
any such proceeding, any Indemnified Party may retain its own counsel, but,
except as provided in the following sentence, the fees and expenses of that
counsel will be at the expense of that Indemnified Party, unless (i) the
indemnifying party and the Indemnified Party, as 

18




applicable, shall have mutually agreed to the retention of that
counsel, (ii) the indemnifying party does not assume the defense of such
proceeding in a timely manner or (iii) in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel for the
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for not more than one separate legal counsel for the
Buyer(s). 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. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its prior written
consent; provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the prior written consent of the Indemnified Party, consent to entry of any
judgment or enter into any settlement or other compromise with respect to any
pending or threatened action or claim in respect of which indemnification or
contribution may be or has been sought hereunder (whether or not the Indemnified
Party is an actual or potential party to such action or claim) which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim. Following indemnification as provided for hereunder, the indemnifying
party shall be subrogated to all rights of the Indemnified Party with respect to
all third parties, firms or corporations relating to the matter for which
indemnification has been made. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Party under this Section 8, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. 

9. GOVERNING LAW: MISCELLANEOUS. 

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

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

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

19




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


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

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

	If to the Company, to: 	Carbiz Inc. 	  
	  	7405 North Tamiami Trail 
	  	Sarasota, FL 34243 
	  	Attn: Mr. Carl Ritter, CEO 
	  	Telephone: (800) 547-2277 
	  	Facsimile: (941) 308-2718 
	  	  	  
	With a copy to: 	Troutman Sanders LLP 
	  	222 Central Park Avenue, Suite 2000
    
	  	Virginia Beach, VA 23462 
	  	Attn: Mr. Thomas M. Rose, Esq. 
	  	Telephone: 	 (757) 687-7715 
	  	Facsimile: 	 (757) 687-1529 


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


(g) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. Neither the Company nor any Buyer shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other party hereto, provided that the Company may collaterally
assign its rights hereunder as security for the Senior Debt. 

20




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

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

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

     (k) Further Assurances.
Each party shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.


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

[REMAINDER PAGE INTENTIONALLY LEFT BLANK] 

21




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

	 	COMPANY: 
	 	CARBIZ INC. 
	 	  	  
	 	By: 	 
    
	 	Name: 	  
	 	Title: 	  
	 	  	  
	 	BUYER: 
	 	TRAFALGAR CAPITAL SPECIALIZED
    
	 	INVESTMENT FUND, LUXEMBOURG
  
	 	By: 	Trafalgar Capital Sarl 
	 	Its: 	General Partner 
	 	  	  
	 	By: 	 
    
	 	Name: 	Andrew Garai 
	 	Title: 	Chairman of the Board 


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SCHEDULE I 

SCHEDULE OF BUYERS 

	Name 	Signature 	 	Address/Facsimile 	 Amount of
	  	  	  	 	Number of Buyer 	Subscription 
	  	  	  	 	8-10 Rue Mathias Hardt 	  
	Trafalgar Capital Specialized 	By: 	Trafalgar Capital Sarl 	 	BP 3023 	$ 2,500,000 
	Investment Fund, Luxembourg 	Its: 	General Partner 	 	L-1030 Luxembourg 	  
	  	  	  	 	Facsimile: 	  
	  	  	  	 	011-44-207-405-0161 	  
	  	By: 	 
    	 	and 	  
	  	Name: 	Andrew Garai 	 	001-786-323-1651 	  
	  	Its: 	Chairman of the Board 	 	  	  


Buyer’s Counsel: 

James G. Dodrill II, P.A.
5800 Hamilton Way
Boca Raton,
FL 33496
Telephone: (561) 862-0529
Facsimile: (561) 892-7787 

23




EXHIBIT A 

FORM OF CONVERTIBLE DEBENTURES 




EXHIBIT B 

FORM OF ESCROW AGREEMENT 




EXHIBIT C 

FORM OF REGISTRATION RIGHTS AGREEMENT 




EXHIBIT D 

FORM OF SECURITY AGREEMENT 




EXHIBIT E 

FORM OF PLEDGE AGREEMENT 




EXHIBIT F 

FORM OF WARRANTS 




SCHEDULE I 

SCHEDULE OF BUYERS 

	Name 	Signature 	 	Address/Facsimile 	Amount of 
	  	  	  	 	Number of Buyer 	Subscription 
	  	  	  	 	  	 
	Trafalgar Capital Specialized 	By: 	Trafalgar Capital Sarl 	 	8-10 Rue Mathias Hardt 	US$ 2,500,000 
	Investment Fund, Luxembourg 	  	  	 	  	 
	  	Its: 	General Partner 	 	BP 3023 	 
	  	  	  	 	Luxembourg L-1030 	 
	  	  	  	 	  	 
	  	By: 	 
    	 	  	 
	  	Name: 	  	 	  	 
	  	Its: 	Portfolio Manager 	 	  	 


Buyer’s Counsel: 

James G. Dodrill II, P.A. 
5800 Hamilton Way 
Boca Raton,
FL 33496 
Telephone: (561) 862-0529 
Facsimile: (561) 892-7787