Exhibit 10.1


 


SECURITIES PURCHASE AGREEMENT


 


SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of March 20,
2006, by and among Think Partnership Inc., (formerly known as CGI Holding
Corporation), a Nevada corporation, with headquarters located at 5 Revere Drive, Suite 510,  Northbrook, Illinois 60062 (the ”Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).


 


WHEREAS:


 


A.                                   The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “1933
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities
and Exchange Commission (the “SEC”)
under the 1933 Act.


 


B.                                     The
Company has authorized a new series of convertible preferred stock of the
Company designated as Series A Convertible Preferred Stock, the terms of which
are set forth in the certificate of designation for such series of preferred
stock (the “Certificate of Designations”) in
the form attached hereto as Exhibit A (together with any convertible
preferred shares issued in replacement thereof in accordance with the terms
thereof, the “Preferred Shares”), which Preferred
Shares shall be convertible into the Company’s common stock, par value $0.001
per share (the “Common Stock”), in accordance with
the terms of the Certificate of Designations.


 


C.                                     Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of Preferred
Shares set forth opposite such Buyer’s name in column (3) on the Schedule of
Buyers (which aggregate number for all Buyers shall be up to 26,500) (as
converted, collectively, the “Conversion Shares”
and (ii) Warrants in substantially the form attached hereto as Exhibit B
(the “Warrants”), to acquire that number of
shares of Common Stock (as exercised, collectively, the “Warrant
Shares”) set forth opposite such Buyer’s name in column (4) on the
Schedule of Buyers.


 


D.                                    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”), pursuant to which the Company
has agreed to provide certain registration rights with respect to the
Registrable Securities (as defined in the Registration Rights Agreement), under
the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.


 


E.                                      The
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
are collectively referred to herein as the “Securities”.


 


NOW, THEREFORE, the
Company and each Buyer hereby agree as follows:


 

















 


1.                                       PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS.


 


(a)                                  Preferred
Shares and Warrants.  Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally, but
not jointly, agrees to purchase from the Company on the Closing Date (as
defined below), the number of Preferred Shares, as is set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers, along
with Warrants to acquire that number of Warrant Shares as is set forth opposite
such Buyer’s name in column (4) on the Schedule of Buyers.


 


(b)                                 Closing.  The closing (the “Closing”) of the purchase of the Preferred Shares and the
Warrants by the Buyers shall occur at the offices of Schulte Roth & Zabel
LLP, 919 Third Avenue, New York, New York 10022.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York City Time, on
the date hereof, subject to the notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and each Buyer).  As used herein “Business Day” means any day
other than a Saturday, Sunday or other day on which commercial banks in The
City of New York are authorized or required by law to remain closed.


 


(c)                                  Purchase
Price.  The aggregate purchase price
for the Preferred Shares and the Warrants to be purchased by each Buyer (the “Purchase Price”) shall be the amount set forth opposite such
Buyer’s name in column (5) on the Schedule of Buyers.  Each Buyer shall pay $1,000 for each
Preferred Share and related Warrants to be purchased by such Buyer at the
Closing.


 


(d)                                 Form
of Payment.  On the Closing Date, (A)
each Buyer shall pay its portion of the Purchase Price to the Company for the Preferred
Shares and the Warrants to be issued and sold to such Buyer at the Closing, by
wire transfer of immediately available funds in accordance with the Company’s
written wire instructions and (B) the Company shall deliver to each Buyer
the Preferred Shares (in such denominations as is set forth opposite such Buyer’s
name in column (3) on the Schedule of Buyers), along with the Warrants
(exercisable for the number of shares of Common Stock as is set forth opposite
such Buyer’s name in column (4) on the Schedule of Buyers), each duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee.


 


2.                                       BUYER’S REPRESENTATIONS AND WARRANTIES.


 


Each Buyer
represents and warrants with respect to only itself that:


 


(a)                                  Organization;
Authority.  Such Buyer is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents (as defined below) to which it is a party and otherwise to carry out
its obligations hereunder and thereunder.


 


(b)                                 No
Public Sale or Distribution.  Such
Buyer is (i) acquiring the Preferred Shares and the Warrants, (ii) upon
conversion of the Preferred Shares will acquire the Conversion Shares, and
(iii) upon exercise of the Warrants will acquire the Warrant Shares, in


 


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each case, for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein,
such Buyer does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act.  Such Buyer is not a
broker-dealer registered, or required to be registered, with the SEC under the
1934 Act.  Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business.  Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.


 


(c)                                  Accredited
Investor Status.  Such Buyer is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D.


 


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


 


(e)                                  Information.  Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer.  Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company.  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 herein.  Such Buyer understands that its investment in
the Securities involves a high degree of risk. 
Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to
its acquisition of the Securities.


 


(f)                                    No
Governmental Review.  Such 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 Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.


 


(g)                                 Transfer
or Resale.  Such Buyer understands
that except as provided in the Registration Rights Agreement: (i) the
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred
may be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule


 


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144A promulgated under the 1933
Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person (as defined
in Section 3(s)) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of
the SEC thereunder; and (iii) neither the Company nor any other Person is under
any obligation to register the Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.  The Securities may be
pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities 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 (as
defined in Section 3(b)), including, without limitation, this Section 2(f).


 


(h)                                 Legends.  Such Buyer understands that the certificates
or other instruments representing the Preferred Shares and the Warrants and,
until such time as the resale of the Conversion Shares and the Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares and
the Warrant Shares, except as set forth below, shall bear any legend as
required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):


 


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


 


The legend set forth above
shall be removed and the Company shall issue a certificate without such legend
to the holder of the Securities upon which it is stamped, if, unless otherwise
required by state securities laws, (i) such Securities are registered for
resale under the 1933 Act, (ii) in connection with a sale, assignment or other
transfer, such holder provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that such sale, assignment or


 


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transfer of the Securities may
be made without registration under the applicable requirements of the 1933 Act,
or (iii) such holder provides the Company with reasonable assurance that the
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.


(i)                                     Validity;
Enforcement.  This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.


 


(j)                                     No
Conflicts.  The execution, delivery
and performance by such Buyer of this Agreement and the Registration Rights
Agreement and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer 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 to which such Buyer is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment  or decree (including federal
and state securities laws) applicable to such Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its obligations
hereunder.


 


(k)                                  Residency.  Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.


 


(l)                                     Certain
Trading Activities.  No Buyer has
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Buyer, engaged in any transactions in the
securities of the Company (including without limitation, any Short Sales
involving the Company’s securities) since the time that the Buyer was first
contacted by the Company or Roth Capital Partners LLC regarding an investment
in the Company.  Each Buyer covenants
that neither it nor any Person acting on its behalf or pursuant to any
understanding with it will engage in any transaction in the securities of the
Company (including Short Sales) prior to the time that the transactions
contemplated by this Agreement are publicly disclosed pursuant to Section 4(i).  Short Sales include, without limitation, all “short
sales” as defined in Rule 200 promulgated under Regulation SHO under the 1934
Act and all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, swaps and similar arrangements (including on a total
return basis), and sales and other transactions through non-US broker dealers
or foreign regulated brokers.


 


(m)                               General
Solicitation.  No Buyer is purchasing
the Securities as a result of any advertisement, article, notice or other
communication (including a research report issued by the Agent) regarding the
Securities published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar.


 


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3.                                       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.


 


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


 


(a)                                  Organization
and Qualification.  The Company and
its “Subsidiaries” (which for purposes of
this Agreement means any entity in which the Company, directly or indirectly,
owns capital stock or holds an equity or similar interest) are entities duly
organized and validly existing and in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power and
authorization 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 entity to do business and is in
good standing in every jurisdiction in which its ownership of property or 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. 
As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on the business,
properties, assets, operations, results of operations, condition (financial or
otherwise) or current prospects of the Company and its Subsidiaries, both taken
as a whole and individually as to any Subsidiary that is a Significant
Subsidiary (as defined in Regulation S-X), or on the transactions contemplated
hereby or in the other Transaction Documents or by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). 
The Company has no Subsidiaries, except as set forth on Schedule 3(a).


 


(b)                                 Authorization;
Enforcement; Validity.  Except as set
forth in Schedule 3(b), the Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
the Certificate of Designations, the Warrants, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5(b)), and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the “Transaction Documents”) and
to issue the Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation,
the issuance of the Preferred Shares, the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion of the Preferred Shares,
the issuance of the Warrants and the reservation for issuance and issuance of
the Warrant Shares issuable upon exercise of the Warrants, have been duly
authorized by the Company’s Board of Directors and (other than the filing with
the SEC of one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement and any other filings as may
be required by any state securities agencies) no further filing, consent, or
authorization is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction
Documents of even date herewith have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
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 applicable creditors’ rights and remedies and except as rights
to indemnification and to contribution may be limited by federal or state
securities law.  The Certificate of
Designations in the form attached


 


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hereto as Exhibit A
shall be filed with the Secretary of State of the State of Nevada on or prior
to Closing.


 


(c)                                  Issuance
of Securities.  The issuance of the Preferred
Shares and the Warrants are duly authorized and upon issuance in accordance
with the terms of the Transaction Documents shall be free from all taxes, liens
and charges with respect to the issue thereof, and the Preferred Shares shall
be entitled to the rights and preferences set forth in the Certificate of Designations.  As of the Closing, the Company shall have
reserved from its duly authorized capital stock not less than the sum of (i) the
maximum number of shares of Common Stock issuable upon conversion of the Preferred
Shares (without taking into account any limitations on the conversion of the Preferred
Shares set forth in the Certificate of Designations) and (ii) the maximum
number of shares of Common Stock issuable upon exercise of the Warrants (assuming
for purposes hereof that the Exercise Price (as defined in the Warrants) is
equal to $2.00, subject to adjustment for stock dividends and stock splits and without
taking into account any limitations on the exercise of the Warrants set forth
in the Warrants).  Upon issuance or
conversion in accordance with the Certificate of Designations or exercise in
accordance with the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.  Subject to the representations and warranties
of the Buyers in this Agreement, the offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.


 


(d)                                 No
Conflicts.  The execution, delivery
and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Preferred Shares, the
Warrants, and reservation for issuance of the Conversion Shares and the Warrant
Shares) will not (i) result in a violation of the Articles of Incorporation (as
defined in Section 3(r)) of the Company or any of its Subsidiaries, any capital
stock of the Company or Bylaws (as defined in Section 3(r)) or the Certificate
of Designations of the Company or any of its Subsidiaries 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 to which the Company or any of its Subsidiaries is a
party, except to the extent such conflict, default or termination right would
not reasonably be expected to have a Material Adverse Effect, or (iii) result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the American Stock Exchange (the “Principal Market”) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected except, in the case of clause (ii) or (iii)
above, to the extent such violations that would not reasonably be expected to
have a Material Adverse Effect.


 


(e)                                  Consents.  The Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court, governmental agency or any regulatory or self-regulatory agency or
any other Person in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents, in each case in
accordance with the terms hereof or thereof. 
All consents, authorizations, orders, filings


 


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and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the Closing Date, and the Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or filings
pursuant to the preceding sentence.  The
Company is not in violation of the requirements of the Principal Market and has
no knowledge of any facts which would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future.


 


(f)                                    Acknowledgment
Regarding Buyer’s Purchase of Securities. 
The Company acknowledges and agrees that each Buyer is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and that no
Buyer is (i) an officer or director of the Company, (ii) an “affiliate” of the
Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to its
knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934,
as amended (the “1934 Act”)).  The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.  The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.


 


(g)                                 No
General Solicitation; Placement Agent’s Fees.  Neither the Company, nor any of its Subsidiaries
or 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) in connection with the offer or sale of the Securities.  The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions contemplated
hereby.  The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney’s fees and out-of-pocket expenses) arising in connection
with any such claim.  The Company
acknowledges that it has engaged Roth Capital Partners LLC as placement agent
(the “Agent”) in connection with
the sale of the Securities.  Other than the
Agent, neither the Company nor any of its Subsidiaries has engaged any
placement agent or other agent in connection with the sale of the Securities.


 


(h)                                 No
Integrated Offering.  None of the
Company, its Subsidiaries, any of their affiliates, and any Person acting on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of
the Company are listed or designated. 
None of the Company, its Subsidiaries, their affiliates and any Person
acting on their behalf will take any action or steps referred to in the
preceding


 


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sentence that would require
registration of any of the Securities under the 1933 Act or cause the offering
of the Securities to be integrated with other offerings.


 


(i)                                     Dilutive
Effect.  The Company understands and
acknowledges that the Warrant Shares issuable upon exercise of the Warrants,
will increase in certain circumstances. 
The Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with this Agreement
and the Certificate of Designations and its obligation to issue the Warrant
Shares upon 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 interests of other
stockholders of the Company.


 


(j)                                     Application
of Takeover Protections; Rights Agreement. 
The Company and its board of directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Articles of Incorporation or
the laws of the jurisdiction of its incorporation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company’s issuance of the
Securities and any Buyer’s ownership of the Securities.  The Company has not adopted a stockholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.


 


(k)                                  SEC
Documents; Financial Statements. 
During the two (2) years prior to the date hereof, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes 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 respective representatives true, correct and complete copies of each of
the SEC Documents not available on the EDGAR system that have been requested by
each Buyer.  As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  Except as set forth in Schedule 3(k),
as of their respective dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as in effect as of the time of filing.  Such financial statements have been prepared
in accordance with 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 Buyers which is not 


 


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included in the SEC Documents,
including, without limitation, information referred to in Section 2(e) of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein not
misleading, in the light of the circumstance under which they are or were made.


 


(l)                                     Absence
of Certain Changes.  Except as
disclosed in Schedule 3(l), since the date of the Company’s most recent
audited or reviewed financial statements contained in a Form 10-KSB or Form
10-QSB, there has been no material adverse change and no material adverse
development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries.  Except as disclosed in
Schedule 3(l), since the date of the Company’s most recent audited
financial statements contained in a Form 10-KSB or Form 10-QSB, neither the
Company nor any of its Subsidiaries has (i) declared or paid any dividends,
(ii) sold any assets, individually or in the aggregate, in excess of $500,000
outside of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $500,000.  Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact which would reasonably lead a creditor to do so.  The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below).  For purposes of this Section 3(l), “Insolvent” means, with respect to the
Company, on a consolidated basis with its Subsidiaries, (i) the present fair
saleable value of the Company’s and its Subsidiaries’ assets is less than the
amount required to pay the Company’s and its Subsidiaries’ total Indebtedness
(as defined in Section 3(s)), (ii) the Company and its Subsidiaries are unable
to pay their debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured or (iii) the Company and
its Subsidiaries intend to incur or believe that they will incur debts that
would be beyond their ability to pay as such debts mature.  The Company has not engaged in business or in
any transaction, and is not about to engage in business or in any transaction,
for which the Company’s remaining assets constitute unreasonably small capital.


 


(m)                               No
Undisclosed Events, Liabilities, Developments or Circumstances.  No event, liability, development or
circumstance has occurred or exists, or is contemplated to occur with respect
to the Company, its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.


 


(n)                                 Conduct
of Business; Regulatory Permits. 
Neither the Company nor its Subsidiaries is in violation of any term of
or in default under its Articles of Incorporation, the Certificate of
Designations, any other certificate of designation, preferences or rights of
any other outstanding series of preferred stock of the Company or Bylaws or
their organizational charter or Articles of Incorporation or bylaws,
respectively. Neither the Company nor any of its Subsidiaries is in violation
of any judgment, decree or order or any statute, ordinance, rule or


 


10

















 


regulation applicable to the
Company or its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except in all cases for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. 
Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances that would reasonably
lead to delisting or suspension of the Common Stock by the Principal Market in
the foreseeable future.  Except as set
forth in Schedule 3(n), since March 3, 2005, (i) the Common Stock has
been designated for quotation on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC or the Principal Market and
(iii) the Company has received no communication, written or oral, from the SEC
or the Principal Market regarding the suspension or delisting of the Common
Stock from the Principal Market.  The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, 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.


 


(o)                                 Foreign
Corrupt Practices.  Neither the
Company nor any of its Subsidiaries nor any director, officer, agent, employee
or other Person acting on behalf of the Company or any of its Subsidiaries has,
in the course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii)
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.


 


(p)                                 Sarbanes-Oxley
Act.  The Company is in compliance
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.


 


(q)                                 
Transactions With Affiliates.  Except
as set forth in the SEC Documents filed at least ten (10) days prior to the
date hereof and other than the grant of stock options disclosed on Schedule
3(q), none of the officers, directors or employees of the Company or any of
its Subsidiaries is presently a party to any transaction with the Company or
any of its Subsidiaries (other than for ordinary course services as employees,
officers or 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
such officer, director or employee or, to the knowledge of the Company or any
of its Subsidiaries, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.


 


11





















 


(r)                                    Equity
Capitalization.  As of the date
hereof, the authorized capital stock of the Company consists of (i) 200,000,000
shares of Common Stock, of which as of the date hereof, 43,904,261 including
2,500,000 shares held in treasury are issued and outstanding and 11,769,949 shares
are reserved for issuance pursuant to securities (other than the Preferred Shares
and the Warrants) exercisable or exchangeable for, or convertible into, shares
of Common Stock and (ii) 5,000,000 shares of preferred stock, none of which, as
of the date hereof, are issued and outstanding. 
All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable.  Except as disclosed in Schedule 3(r):
(i) none of the Company’s capital stock is subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) 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, or exercisable or exchangeable for, any 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 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, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness (as defined in Section 3(s))
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the
aggregate, filed in connection with the Company or any of its Subsidiaries; (v)
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); (vi) there
are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) the Company does not have
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but
not so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company’s or its Subsidiaries’ respective businesses and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect.  The Company has
furnished to the Buyers true, correct and complete 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 Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
and the material rights of the holders thereof in respect thereto.


 


(s)                                  Indebtedness
and Other Contracts.  Except as
disclosed in Schedule 3(s), neither the Company nor any of its Subsidiaries (i)
has any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of or in default


 


12

















 


under any contract, agreement
or instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect.  Schedule 3(s) provides a detailed
description of the material terms of any such outstanding Indebtedness.  For purposes of this Agreement:  (x) “Indebtedness”
of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (including, without limitation, “capital
leases” in accordance with generally accepted accounting principles) (other
than trade payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with
respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses
(A) through (G) above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; and (z) “Person” means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.


 


(t)                                    Absence
of Litigation.  Except as set forth
in Schedule 3(t), there is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or any
of the Company’s or its Subsidiaries’ officers or directors which is outside of
the ordinary course of business or individually or in the aggregate material to
the Company.


 


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


 


13

















 


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 have
a Material Adverse Effect.


 


(v)                                 Employee
Relations.  (i)  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union.  The Company and its
Subsidiaries believe that their relations with their employees are good.  No executive officer of the Company or any of
its Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the
Company or any such Subsidiary that such officer intends to leave the Company
or any such Subsidiary or otherwise terminate such officer’s employment with
the Company or any such Subsidiary.  No
executive officer of the Company or any of its Subsidiaries is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.


 


(ii)                                  The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.


 


(w)                               Title.  Except as set forth on Schedule 3(w),
the Company and its Subsidiaries have good and marketable title in fee simple
to all real property and good and marketable title to all personal property
owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not interfere with the use made and proposed to be made of such property by
the Company and any of its Subsidiaries.  
Any real property and facilities held under lease by the Company or any
of its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its Subsidiaries.


 


(x)                                   Intellectual
Property Rights.  The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted.  None of the Company’s or its Subsidiaries’
Intellectual Property Rights have expired, terminated or been abandoned, or are
expected to expire, terminate or be abandoned, within three years from the date
of this Agreement.  The Company does not
have any knowledge of any infringement by the Company or any of its
Subsidiaries of Intellectual Property Rights of others.  There is no claim, action or proceeding being
made or brought, or to the knowledge of the


 


14

















 


Company, being threatened,
against the Company or any of its existing Subsidiaries regarding its
Intellectual Property Rights.  The
Company is unaware of any facts or circumstances which might give rise to any
of the foregoing infringements or claims, actions or proceedings.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.


 


(y)                                 Environmental
Laws.  The Company and its Subsidiaries
(i) are in compliance with any and all Environmental Laws (as hereinafter
defined), (ii) have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any
such permit, license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply could be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.  The term “Environmental
Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or
toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.


 


(z)                                   Subsidiary
Rights.  The Company or one of its
Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed
by applicable law) to receive dividends and distributions on, all capital
securities of its Subsidiaries as owned by the Company or such Subsidiary.


 


(aa)                            Investment
Company.  The Company is not, and is
not an affiliate of, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.


 


(bb)                          Tax
Status.  The Company and each of its
Subsidiaries (i) has made or filed all foreign, federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (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
(iii) 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.


 


(cc)                            Internal
Accounting and Disclosure Controls.  Except
as set forth in Schedule 3(cc), the Company and each of its Subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or


 


15

















 


incurrence of liabilities is
permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets and liabilities
is compared with the existing assets and liabilities at reasonable intervals
and appropriate action is taken with respect to any difference.  The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed in to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.  Except as set forth in Schedule
3(cc), during the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries have received any notice or correspondence
from any accountant relating to any potential material weakness in any part of
the system of internal accounting controls of the Company or any of its
Subsidiaries.


 


(dd)                          Off
Balance Sheet Arrangements.  There is
no transaction, arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or
that otherwise would be reasonably likely to have a Material Adverse Effect.


 


(ee)                            Investment
Company Status.  The Company is not,
and upon consummation of the sale of the Securities will not be, an “investment
company,” a company controlled by an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of  1940, as amended.


 


(ff)                                Transfer
Taxes.  On the Closing Date, all
stock transfer or other taxes (other than income or similar taxes) which are
required to be paid in connection with the sale and transfer of the Securities
to be sold to each Buyer hereunder will be, or will have been, fully paid or
provided for by the Company, and all laws imposing such taxes will be or will
have been complied with.


 


(gg)                          Acknowledgement
Regarding Buyers’ Trading Activity. 
It is understood and acknowledged by the Company (i) that following the
public disclosure of the transactions contemplated by the Transaction
Documents, in accordance with the terms thereof, none of the Buyers have been
asked by the Company or its Subsidiaries to agree, nor has any Buyer agreed
with the Company or its Subsidiaries, to desist from purchasing or selling,
long and/or short, securities of the Company, or “derivative” securities based
on securities issued by the Company or to hold the Securities for any specified
term; (ii) that any Buyer, and counter parties in “derivative” transactions to
which any such Buyer is a party, directly or indirectly, presently may have a “short”
position in the Common Stock which were established prior to such Buyer’s
knowledge of the transactions contemplated by the Transaction Documents, and
(iii) that each Buyer shall not be deemed to have any affiliation with or
control over any arm’s length counter party in any “derivative” transaction.  The Company further understands and
acknowledges that following the public disclosure of the transactions
contemplated by the Transaction Documents,


 


16

















 


in accordance with the terms
thereof, one or more Buyers may engage in hedging and/or trading activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Conversion Shares
and the Warrant Shares deliverable with respect to Securities are being
determined and (b) such hedging and/or trading activities, if any, can reduce
the value of the existing stockholders’ equity interest in the Company both at
and after the time the hedging and/or trading activities are being
conducted.  The Company acknowledges that
such aforementioned hedging and/or trading activities do not constitute a
breach of this Agreement, the Notes, the Warrants or any of the documents
executed in connection herewith.


 


(hh)                          Registration
Eligibility.  The Company is eligible
to register the Conversion Shares and the Warrant Shares for resale by the
Buyers using Form S-3 promulgated under the 1933 Act.


 


(ii)                                  Manipulation
of Price.  The Company has not, and
to its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.


 


(jj)                                  U.S.
Real Property Holding Corporation.  The Company is not, nor has ever been, a U.S.
real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify
upon Buyer’s request.


 


(kk)                            Disclosure.  The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Buyers or their
agents or counsel with any information that constitutes or could reasonably be
expected to constitute material, nonpublic information.  The Company understands and confirms that
each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. 
All disclosure provided to the Buyers regarding the Company and its
Subsidiaries, their business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.  Except as set
forth on Schedule 3(kk), each press release issued by the Company or its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading.  No
event or circumstance has occurred or information exists with respect to the
Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly announced or
disclosed.


 


17

















 


4.                                       COVENANTS.


 


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


 


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


 


(c)                                  Reporting
Status.  Until the date on which the Buyers
shall have sold all the Conversion Shares and Warrant Shares, and none of the Preferred Shares or Warrants is outstanding (the “Reporting Period”), the Company shall timely
file all reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would no longer require or otherwise permit such termination.


 


(d)                                 Use
of Proceeds.  The Company will use
the proceeds from the sale of the Securities solely as set forth on Schedule
4(d).


 


(e)                                  Financial
Information.  The Company agrees to
send the following to each Investor (as defined in the Registration Rights
Agreement) during the Reporting Period (i) unless the following are filed with
the SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of
its Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any
interim reports or any consolidated balance sheets, income statements, stockholders’
equity statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, and (iii) copies of any
notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.


 


(f)                                    Listing.  The Company shall promptly secure the listing
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed (subject to official
notice of issuance) and shall maintain such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents on such exchange or automated quotation system or an Eligible Market.  The Company shall maintain the Common Stocks’
authorization for quotation on the Principal Market.  Neither the


 


18

















 


Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on an Eligible Market.  The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 4(f).


 


(g)                                 Fees.  The Company shall reimburse Magnetar
Financial LLC or its designee(s) (in addition to any other expense amounts paid
to any Buyer prior to the date of this Agreement) for all reasonable costs and
expenses, not to exceed $65,000, incurred in connection with the transactions
contemplated by the Transaction Documents and due diligence in connection
therewith), which amount shall be non-accountable and withheld by Magnetar Capital
Master Fund, Ltd. from its Purchase Price at the Closing or paid by the Company
upon termination of this Agreement.  The
Company shall reimburse William Blair Small Cap Fund or its designee(s) (in
addition to any other expense amounts paid to any Buyer prior to the date of
this Agreement) for all reasonable costs and expenses, not to exceed $20,000,
incurred in connection with the transactions contemplated by the Transaction
Documents and due diligence in connection therewith), which amount shall be
non-accountable.  The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions (other than for Persons engaged by any Buyer)
relating to or arising out of the transactions contemplated hereby, including,
without limitation, any fees payable to the Agent.  The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment.


 


(h)                                 Pledge
of Securities.  The Company
acknowledges and agrees that the Securities may be pledged by an Investor (as
defined in the Registration Rights Agreement) in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Securities.  The pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Investor effecting a pledge of Securities 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.  The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such
pledgee by an Investor.


 


(i)                                     Disclosure
of Transactions and Other Material Information.  On or before 8:30 a.m., New York Time, on the second Business Day following the date
of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement), the form of Certificate of Designations, the form
of Warrant and the Registration Rights Agreement) (including all attachments,
the “8-K Filing”).  From and after the filing of the 8-K
Filing with the SEC, the Company shall have disclosed any material nonpublic
information delivered to the Buyers by the Company or any of its Subsidiaries,
or any of their respective officers, directors, employees or agents.  The Company shall not, and shall cause each
of its Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing with the SEC without the express written consent
of such Buyer.  In the event of a breach
of the foregoing


 


19

















 


covenant by the Company, or any
of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents.  No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents, for
any such disclosure.  Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii)
as is required by applicable law and regulations (provided that in the case of
clause (i) each Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release).  Without the prior written consent of any applicable
Buyer, neither the Company nor any of its Subsidiaries shall disclose the name
of any Buyer in any filing, announcement, release or otherwise.


 


(j)                                     Restriction
on Redemption and Cash Dividends; Additional Registration Statements.  So long as any Preferred Shares are
outstanding, the Company shall not, directly or indirectly, redeem, or declare
or pay any cash dividend or distribution on, the Common Stock without the prior
express written consent of the holders of Preferred Shares representing not
less than a majority of the aggregate number of the then outstanding Preferred
Shares.  Except as set forth on Schedule
4(j), until the Effective Date (as defined in the Registration Rights
Agreement), the Company shall not file a registration statement under the 1933
Act relating to securities that are not the Securities.


 


(k)                                  Additional
Preferred Shares; Variable Securities; Dilutive Issuances.  So long as any Buyer beneficially owns any
Securities, the Company will not, without the prior written consent of Buyers
holding a majority of the Preferred Shares, issue any Preferred Shares (other
than to the Buyers as contemplated hereby) and the Company shall not issue any
other securities that would cause a breach or default under the Certificate of
Designations or the Warrants.  For so
long as any Preferred Shares or Warrants remain outstanding, the Company shall
not, in any manner, issue or sell any rights, warrants or options to subscribe
for or purchase Common Stock or directly or indirectly convertible into or
exchangeable or exercisable for Common Stock at a conversion, exchange or
exercise price which varies or may vary after issuance with the market price of
the Common Stock at the time of issuance, including by way of one or more
reset(s) to any fixed price unless the conversion, exchange or exercise price
of any such security cannot be less than the then applicable Conversion Price
(as defined in the Certificate of Designations) with respect to the Common
Stock into which any Preferred Shares are convertible or the then applicable
Exercise Price (as defined in the Warrants) with respect to the Common Stock
into which any Warrant is exercisable. 
For so long as any Preferred Shares or Warrants remain outstanding, the
Company shall not, in any manner, enter into or affect any Dilutive Issuance (as
defined in the Certificate of Designations) if the effect of such Dilutive
Issuance is to cause the Company to be required to issue upon conversion of any
Preferred Shares or exercise of any Warrant any shares of Common Stock in
excess of that number of shares of Common Stock which the Company may issue
upon conversion of the Preferred Shares


 


20

















 


and exercise of the Warrants
without breaching the Company’s obligations under the rules or regulations of
the Principal Market.  The Company shall
not, in any manner, enter into or affect any Dilutive Issuance if the effect of
such Dilutive Issuance would cause the Conversion Price (as defined in the
Certificate of Designations) or the Exercise Price (as defined in the Warrant),
as applicable, to be reduced below $2.00 (as adjusted for stock splits or stock
dividends).


 


(l)                                     Corporate
Existence.  So long as any Buyer
beneficially owns any Preferred Shares or Warrants, the Company shall not be
party to any Fundamental Transaction (as defined in the Certificate of
Designations) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Certificate of
Designations and the Warrants.


 


(m)                               Reservation
of Shares.  The Company shall take
all action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than (i) the maximum number of shares of Common Stock
issuable upon conversion of the Preferred Shares (assuming for purposes hereof,
that the Preferred Shares are convertible at the Conversion Price and without
taking into account any limitations on the conversion of the Preferred Shares
set forth in the Certificate of Designations) and (ii) the maximum number of
shares of Common Stock issuable upon exercise of the Warrants (assuming for
purposes hereof that the Exercise Price (as defined in the Warrants) is equal
to $2.00, subject to adjustment for stock splits and stock dividends and without
taking into account any limitations on the exercise of the Warrants set forth
in the Warrants).


 


(n)                                 Conduct
of Business.  The business of the
Company and its Subsidiaries shall not be conducted in violation of any law,
ordinance or regulation of any governmental entity, except where such violations
would not result, either individually or in the aggregate, in a Material
Adverse Effect.


 


(o)                                 Additional
Issuances of Securities.


 


(i)                                     For
purposes of this Section 4(o), the following definitions shall apply.


 


(1)                                  “Convertible Securities” means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for shares of
Common Stock.


 


(2)                                  “Options” means any rights, warrants or
options to subscribe for or purchase shares of Common Stock or Convertible
Securities.


 


(3)                                  “Common Stock Equivalents” means, collectively, Options and
Convertible Securities.


 


(ii)                                  From
the date hereof until the date that is thirty (30) Trading Days (as defined in
the Certificate of Designations) after the Effective Date (as defined in the
Registration Rights Agreement) (the “Trigger
Date”), the Company will not, directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition of) any of its or
its Subsidiaries’


 


21

















 


(other than Real Estate Online,
Inc. and Cherish, Inc. and its Subsidiaries) equity or equity equivalent
securities, including without limitation any debt, preferred stock or other instrument
or security that is, at any time during its life and under any circumstances,
convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”); provided,
that the term Subsequent Placement shall not include the issuance of any
Excluded Securities (as defined in the Certificate of Designations).


 


(iii)                               From
the Trigger Date until the two year anniversary of the Closing Date, the
Company will not, directly or indirectly, effect any Subsequent Placement
unless the Company shall have first complied with this Section 4(o)(iii).


 


(1)                                  The
Company shall deliver to each Buyer a written notice (the ”Offer Notice”) of any proposed or intended
issuance or sale or exchange (the ”Offer”)
of the securities being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Offered Securities to be issued, sold or exchanged,
(y) identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer
to issue and sell to or exchange with such Buyers at least 50% of the Offered
Securities allocated among such Buyers (a) based on such Buyer’s pro rata
portion of the aggregate number of Preferred Shares purchased hereunder (the “Basic Amount”), and (b) with respect to
each Buyer that elects to purchase its Basic Amount, any additional portion of
the Offered Securities attributable to the Basic Amounts of other Buyers as
such Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Basic Amounts (the “Undersubscription Amount”), which process shall be repeated
until the Buyers shall have an opportunity to subscribe for any remaining
Undersubscription Amount.


 


(2)                                  To
accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the tenth (10th) Business Day
after such Buyer’s receipt of the Offer Notice (the “Offer Period”),
setting forth the portion of such Buyer’s Basic Amount that such Buyer elects
to purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
the Undersubscription Amount, if any, that such Buyer elects to purchase (in
either case, the “Notice of Acceptance”).  If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the
total of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), each
Buyer who has subscribed for any Undersubscription Amount shall be entitled to
purchase only that portion of the Available Undersubscription Amount as the
Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.  Notwithstanding the foregoing, if the Company
desires to modify or amend the terms and conditions of the Offer prior to the
expiration of the Offer Period, the Company may deliver to the Buyers a new
Offer Notice and


 


22

















 


the Offer Period shall expire
on the seventh (7th) Business Day after such Buyer’s receipt of such
new Offer Notice.


 


(3)                                  The
Company shall have ten (10) Business Days from the expiration of the Offer
Period above (i) to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Buyers (the “Refused Securities”)
pursuant to a definitive agreement(s) (the “Subsequent
Placement Agreement”), but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring person or persons or less favorable to the
Company than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement, and (b) either (x)
the consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the SEC on a Current Report on Form 8-K with such
Subsequent Placement Agreement and any documents contemplated therein filed as
exhibits thereto.


 


(4)                                  In
the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4(o)(iii)(3) above), then each Buyer may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that such Buyer elected to
purchase pursuant to Section 4(o)(iii)(2) above multiplied by a fraction, (i)
the numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to Section 4(o)(iii)(3)
above prior to such reduction) and (ii) the denominator of which shall be the
original amount of the Offered Securities. 
In the event that any Buyer so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company may not
issue, sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Buyers in accordance with Section 4(o)(iii)(1) above.


 


(5)                                  Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company
shall issue to the Buyers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above
if the Buyers have so elected, upon the terms and conditions specified in the
Offer.  The purchase by the Buyers of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Buyers of a purchase agreement relating to such
Offered Securities reasonably satisfactory in form and substance to the Buyers
and their respective counsel.


 


(6)                                  Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(o)(iii)(3) above may not be issued, sold or exchanged until they
are again offered to the Buyers under the procedures specified in this
Agreement.


 


(7)                                  The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer, neither the securities purchase agreement (the “Subsequent


 


23

















 


Placement
Agreement”) with respect to such Offer nor any other
transaction documents related thereto (collectively, the “Subsequent
Placement Documents”) shall include any term or provisions whereby
any Buyer shall be required to agree to any restrictions in trading as to any
securities of the Company owned by such Buyer prior to such Subsequent
Placement.


 


(8)                                  Notwithstanding anything to the contrary in
this Section 4(o) and unless otherwise agreed to by the Buyers, the Company
shall either confirm in writing to the Buyers that the transaction with respect
to the Subsequent Placement has been abandoned or shall publicly disclose its
intention to issue the Offered Securities, in either case in such a manner such
that the Buyers will not be in possession of material non-public information,
by the tenth (10th) Business Day following delivery of the Offer
Notice.  If by the tenth (10th)
Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received
by the Buyers, such transaction shall be deemed to have been abandoned and the
Buyers shall not be deemed to be in possession of any material, non-public
information with respect to the Company. 
Should the Company decide to pursue such transaction with respect to the
Offered Securities, the Company shall provide each Buyer with another Offer
Notice and each Buyer will again have the right of participation set forth in
this Section 4(o)(iii).  The Company
shall not be permitted to deliver more than one such Offer Notice to the Buyers
in any 60 day period.


 


(9)                                  The
restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall
not apply in connection with the issuance of any Excluded Securities (as
defined in the Certificate of Designations).


 


5.                                       REGISTER; TRANSFER AGENT INSTRUCTIONS.


 


(a)                                  Register.  The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the Preferred
Shares and the Warrants in which the Company shall record the name and address
of the Person in whose name the Preferred Shares and the Warrants have been issued (including the name and address
of each transferee), the number of Preferred Shares held by such Person, the
number of Conversion Shares issuable upon conversion of the Preferred Shares
and Warrant Shares issuable upon exercise of the Warrants held by such
Person.  The Company shall keep the
register open and available at all times during business hours for inspection
of any Buyer or its legal representatives.


 


(b)                                 Transfer
Agent Instructions.  The Company
shall issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates or credit shares to the applicable
balance accounts at The Depository Trust Company (“DTC”),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of Exhibit
E attached hereto (the “Irrevocable
Transfer Agent Instructions”). 
The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5(b), and stop transfer
instructions to give effect to Section 2(f) hereof, will be given by the
Company to its transfer agent with respect to the Securities, and that the
Securities shall


 


24

















 


otherwise be freely
transferable on the books and records of the Company, as applicable, and to the
extent provided in this Agreement and the other Transaction Documents.  If a Buyer effects a sale, assignment or transfer
of the Securities in accordance with Section 2(f), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment.  In the event
that such sale, assignment or transfer involves Conversion Shares and Warrant
Shares sold, assigned or transferred pursuant to an effective registration statement
or in compliance with Rule 144, the transfer agent shall issue such Securities
to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. 
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer 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.


 


6.                                       CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.


 


(a)                                  The
obligation of the Company hereunder to issue and sell the Preferred Shares and the related Warrants to each Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:


 


(i)                                     Such
Buyer shall have executed each of the Transaction Documents to which it is a
party and delivered the same to the Company.


 


(ii)                                  Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Magnetar Capital Master Fund, Ltd. the amount
withheld pursuant to Section 4(g)) for the Preferred Shares and the related
Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.


 


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


 


(iv)                              The
Company shall have obtained approval of the Principal Market to list the
Conversion Shares and the Warrant Shares.


 


25

















 


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


 


(a)                                  The
obligation of each Buyer hereunder to purchase the Preferred Shares and the related Warrants at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer’s sole benefit
and may be waived by such Buyer at any time in its sole discretion by providing
the Company with prior written notice thereof:


 


(i)                                     The
Company shall have duly executed and delivered to such Buyer (A) each of
the Transaction Documents and (B) the Preferred Shares (in such numbers as is
set forth across from such Buyer’s name in column (3) of the Schedule of Buyers and the related Warrants (in such numbers as is set forth
across from such Buyer’s name in column (4) of the Schedule of Buyers) being
purchased by such Buyer at the Closing pursuant to this Agreement.


 


(ii)                                  Such
Buyer shall have received the opinion of Shefsky & Froelich Ltd., Rosenfeld,
Roberson, Johns & Durant Group the Company’s outside counsel, dated as of
the Closing Date, in substantially the form of Exhibit F attached
hereto.


(iii)                               The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit E attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.


 


(iv)                              The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in each
such entity’s jurisdiction of formation issued by the Secretary of State (or
equivalent) of such jurisdiction of formation as of a date within thirty (30)
days of the Closing Date.


 


(v)                                 The
Company shall have delivered to such Buyer a certificate evidencing the Company’s
qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business and is required to so qualify, as of a date within thirty
(30) days of the Closing Date, provided, that the Buyers and the Company
shall receive verbal affirmation from the Secretary of State of the states of
Nevada and Illinois that the Company is in good standing on the Closing Date.


 


(vi)                              The
Company shall have delivered to such Buyer a certified copy of the Articles of
Incorporation as certified by the Secretary of State of the State of Nevada within
twenty (20) days of the Closing Date.


 


(vii)                           The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s board of
directors in a form reasonably acceptable to such Buyer, (ii) the Articles of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit G.


 


26

















 


(viii)                        The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date)
and the Company shall have performed, satisfied and complied in all respects
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or
prior to the Closing Date.  Such Buyer
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer in the form
attached hereto as Exhibit H.


 


(ix)                                The
Company shall have delivered to such Buyer a letter from the Company’s transfer
agent certifying the number of shares of Common Stock outstanding as of a date
within five days of the Closing Date.


 


(x)                                   The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B)
by falling below the minimum maintenance requirements of the Principal Market.


 


(xi)                                The
Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Securities,
including without limitation, those required by the Principal Market.


 


(xii)                             The
Certificate of Designations in the form attached hereto as Exhibit A
shall have been filed with the Secretary of State of the State of Nevada and
shall be in full force and effect, enforceable against the Company in
accordance with its terms and shall not have been amended.


 


(xiii)                          The
aggregate Purchase Price paid to the Company for the Securities by the Buyers
at the Closing shall not be less than $25 million.


 


(xiv)                         The
Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.


 


8.                                       TERMINATION.


 


In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company’s or such Buyer’s failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party’s
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, if this Agreement is terminated pursuant to
this Section 8, the Company shall remain obligated to reimburse the
non-breaching Buyers for the expenses described in Section 4(g) above.


 


27

















 


9.                                       MISCELLANEOUS.


 


(a)                                  Governing Law;
Jurisdiction; Jury Trial.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the
State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address for
such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.


 


(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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory thereto
with the same force and effect as if the signature were an original, not a
facsimile signature.


 


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


 


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


 


(e)                                  Entire Agreement;
Amendments.  This Agreement and the
other Transaction Documents supersede all other prior oral or written
agreements between the Buyers, the Company, their affiliates and Persons acting
on their behalf with respect to the matters discussed herein, and this
Agreement, the other Transaction Documents and the instruments referenced
herein and therein 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 amended
other than by an


 


28

















 


instrument in writing signed by the Company and the holders of at least
a majority of the Preferred Shares issued and issuable hereunder, and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable.  No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement 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 also is offered
to all of the parties to the Transaction Documents, holders of Preferred Shares
or holders of the Warrants, as the case may be. 
The Company has not, directly or indirectly, made any agreements with
any Buyers relating to the terms or conditions of the transactions contemplated
by the Transaction Documents except as set forth in the Transaction
Documents.  Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.


 


(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 receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one Business Day after deposit with an overnight
courier 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:

  	
   

  
	
   

  	
   

  
	
   

  	
  Think Partnership Inc.

  
	
   

  	
  5 Revere
  Drive, Suite 510

  
	
   

  	
  Northbrook,
  Illinois 60062

  
	
   

  	
  Telephone: 

  	
  (847) 562-0177

  
	
   

  	
  Facsimile: 

  	
  (847) 562-0178

  
	
   

  	
  Attention: 

  	
  Gerard M. Jacobs

  
	
   

  	
   

  	
   

  
	
  With a copy (for informational purposes
  only) to:

  	
   

  
	
   

  	
   

  
	
   

  	
  Shefsky & Froelich Ltd.

  	
   

  
	
   

  	
  111 East Wacker Drive, Suite
  2800

  	
   

  
	
   

  	
  Chicago, Illinois 60601

  	
   

  
	
   

  	
  Telephone: 

  	
  (312)
  527-4000

  
	
   

  	
  Facsimile: 

  	
  (312)
  527-5921

  
	
   

  	
  Attention:

  	
  Michael J. Choate

  	
   

  
	
   

  
	
  If to the Transfer Agent:

  	
   

  
	
   

  	
   

  
	
   

  	
  Colonial Stock Transfer

  
	
   

  	
  66 Exchange Place, Suite 100

  	
   

  
	
   

  	
  Salt Lake City, VT 84111

  	
   

  






 


29

















 




	
   

  	
  Telephone:

  	
  (801)
  355-5740

  	
   

  
	
   

  	
  Facsimile:

  	
  (801)
  355-6505

  	
   

  
	
   

  	
  Attention:

  	
  Donna Webster

  	
   

  






 


If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer’s representatives as set forth on
the Schedule of Buyers,


 


with a copy (for informational
purposes only) to:


 




	
   

  	
  Schulte Roth & Zabel LLP

  
	
   

  	
  919 Third Avenue

  
	
   

  	
  New York, New York 10022

  
	
   

  	
  Telephone:

  	
  (212) 756-2000

  
	
   

  	
  Facsimile:

  	
  (212) 593-5955

  
	
   

  	
  Attention:

  	
  Eleazer N. Klein, Esq.

  






 


or to such other address and/or facsimile number and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change provided, that Schulte Roth & Zabel LLP shall only receive
notices sent to clients of its firm. 
Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.


 


(g)                                 Successors and
Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares or the
Warrants.  The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Certificate of Designations and the Warrants). 
A Buyer may assign some or all of its rights hereunder in connection
with transfer of any of its Preferred Shares or Warrants without the consent of
the Company, in which event such assignee shall be deemed to be a Buyer
hereunder with respect to such assigned rights.


 


(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 8, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth in
Sections 4, 5 and 9 shall survive the Closing. 
Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.


 


30

















 


(j)                                     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 any 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.


 


(k)                                  Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each affiliate of a Buyer that holds Preferred Shares
or Warrants and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “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 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 any Indemnitee 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 the Transaction Documents,
(b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or (c) any cause of action, suit or
claim brought or made against such Indemnitee by a third party (including for
these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (ii) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities, (iii) any disclosure made by such Buyer
pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the
Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents; provided, that no Buyer shall
be entitled to indemnification to the extent any of the foregoing is caused by its
gross negligence or willful misconduct. 
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.  Except
as otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.


 


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


 


(m)                               Remedies.  Each Buyer and each affiliate of a Buyer that
holds Preferred Shares or Warrants shall have all rights and remedies set forth
in the Transaction Documents and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law.  Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any


 


31

















 


breach of any provision of this Agreement and to exercise all other
rights granted by law.  Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers.  The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.


 


(n)                                 Rescission and Withdrawal
Right.  Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Buyer
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights


 


(o)                                 Payment Set Aside.  To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are required
to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.


 


(p)                                 Independent Nature
of Buyers’ Obligations and Rights. 
The obligations of each Buyer under any Transaction Document are several
and not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. 
Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company acknowledges that the Buyers are not acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. 
Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors.  Each Buyer shall
be entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.


 


[Signature Page Follows]


 


32

















 


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


 


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  THINK PARTNERSHIP INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Gerard M. Jacobs

  
	
   

  	
   

  	
  Title: Chief Executive Officer

  



 

















 


 


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


 


 


	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  MAGNETAR CAPITAL MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Magnetar
  Financial LLC 

  
	
   

  	
  Its:

  	
  Investment
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Paul Smith 

  
	
   

  	
  Its:

  	
  General Counsel

  
				



 

















 


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


 


 


	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  [OTHER BUYERS]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 

















 


SCHEDULE OF BUYERS


 


	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  
	
  Buyer

  	
   

  	
  Address and Facsimile

  Number

  	
   

  	
  Aggregate

  Number of

  Preferred

  Shares

  	
   

  	
  Aggregate

  Number of

  Warrants

  	
   

  	
  Purchase Price

  	
   

  	
  Legal Representative’s

  Address and Facsimile Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Magnetar
  Capital Master Fund, Ltd

  	
   

  	
  1603 Orrington
  Avenue Evanston, IL 60201

  Attn: Richard Levy and Matthew Ray

  Facsimile: (847) 905-5603

  Telephone: (847) 905-4707

  	
   

  	
  5,000

  	
   

  	
  1,000,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  	
  Schulte Roth
  & Zabel LLP 919 Third Avenue New York, New York 10022 Attention: Eleazer
  Klein, Esq. Facsimile: (212) 593-5955 Telephone: (212) 756-2000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Heller
  Capital Investments, LLC

  	
   

  	
  700 E. Palisade
  Avenue

  Englewood Cliffs, NJ 07632

  Facsimile: (201)569-5014

  	
   

  	
  1,000

  	
   

  	
  200,000

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Heller
  Family Foundation

  	
   

  	
  74 Fairview Rd.

  Tenafly, NJ 07670

  Facsimile: 201-569-5014

  	
   

  	
  500

  	
   

  	
  100,000

  	
   

  	
  $

  	
  500,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mac
  & Co

  	
   

  	
  Mac & Co CIBC
  Mellon

  PO Box 3196

  Pittsburg, PA 15230-3196

  	
   

  	
  322

  	
   

  	
  64,340

  	
   

  	
  $

  	
  321,700.12

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Calhoun
  & Co FFC City of Dearborn Policemen and Firemen Revised
  Retirement Systems

  	
   

  	
  Calhoun & Co

  Comerica Bank

  PO Box 75000-M/C 3404

  Detroit, MI 48231

  Attn: Sarah Grant, Trust Department

  Facsimile: 313.222.7041

  Telephone: 313.222.4150

  	
   

  	
  84

  	
   

  	
  16,765

  	
   

  	
  $

  	
  83,823.51

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Calhoun
  & Co FFC City of Dearborn General Employees  Retirement Systems

  	
   

  	
  Calhoun & Co.

  Comercia Bank

  PO Box 75000-M/C 3404

  Detroit, MI 48231

  Attn: Sarah Grant

  Facsimile: 313-222-7041

  Telephone: 313-222-4150

  	
   

  	
  53

  	
   

  	
  10,530

  	
   

  	
  $

  	
  52,648.91

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  William
  Blair Small Cap Growth Fund

  	
   

  	
  William Blair
  & Company, LLC

  222 W Adams St

  Chicago, IL 60606

  Attn: Terry Sullivan

  Facsimile: 312.236.1497

  Telephone: 312.364.8319

  	
   

  	
  7,120

  	
   

  	
  1,424,092

  	
   

  	
  $

  	
  7,120,461.28

  	
   

  	
   

  	
   

  



 

















 


	
  Booth
  & Co FFC Hartmarx Retirement Income Trust

  	
   

  	
  Booth & Co
  Northern Trust

  50 S LaSalle Street

  Chicago, IL 60675

  	
   

  	
  108

  	
   

  	
  21,598

  	
   

  	
  $

  	
  107,992.42

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Booth
  & Co FFC Rush University Medical Center  Endowment
  Account

  	
   

  	
  Booth & Co
  Northern Trust

  50 S LaSalle St, 7th floor

  Chicago, IL 60675

  Attn: David Applegate

  Facsimile: 312.557.2673

  Telephone: 312.557.3019

  	
   

  	
  142

  	
   

  	
  28,454

  	
   

  	
  $

  	
  142,267.59

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Booth
  & Co FFC Rush University Medical Center  Pension
  and Retirement

  	
   

  	
  Booth & Co
  Northern Trust

  50 S LaSalle St, 7th floor

  Chicago, IL 60675

  Attn: David Applegate

  Facsimile: 312.557.2673

  Telephone: 312.557.3019

  	
   

  	
  171

  	
   

  	
  34,221

  	
   

  	
  $

  	
  171,106.17

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bear
  Stearns Sec. Corp. Cust. J. Steven Emerson Inv. Act.

  	
   

  	
  Bear Stearns Sec.
  Corp. Cust. J. Steven Emerson Inv. Act.

  1522 Ensley Avenue

  Los Angeles, CA 90024

  Phone: 310-553-4151

  Fax: 310-553-4187

  Att:: Steven Emerson

  Custodian: Bear Stearns Sec. Corp.

  1990 Avenue of the Stars #2530

  Los Angeles, CA 90067

  Phone: 310-201-3976

  Fax: 310-407-1721

  Att: Rita Swann

  	
   

  	
  600

  	
   

  	
  120,000

  	
   

  	
  $

  	
  600,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bear
  Stearns Sec. Corp. FBO J. Steven Emerson Roth IRA

  	
   

  	
  Bear Stearns Sec.
  Corp. FBO J. Steven Emerson Roth IRA 1522 Ensley Avenue Los Angeles, CA 90024
  Phone: 310-553-4151 Fax: 310-553-4187 Att:: Steven Emerson Custodian: Bear
  Stearns Sec. Corp. 1990 Avenue of the Stars #2530 Los Angeles, CA 90067
  Phone: 310-201-3976 Fax: 310-407-1721 Att: Rita Swann

  	
   

  	
  2,000

  	
   

  	
  400,000

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bear
  Stearns Sec. Corp. FBO J. Steven Emerson IRA Rollover II

  	
   

  	
  Bear Stearns Sec.
  Corp.

  FBO J. Steven Emerson IRA Rollover II

  1522 Ensley Avenue

  Los Angeles, CA 90024

  Phone: 310-553-4151

  Fax: 310-553-4187

  Att:: Steven Emerson

  Custodian: Bear Stearns Sec. Corp.

  1990 Avenue of the Stars #2530

  Los Angeles, CA 90067

  Phone: 310-201-3976

  Fax: 310-407-1721

  Att: Rita Swann

  	
   

  	
  3,400

  	
   

  	
  680,000

  	
   

  	
  $

  	
  3,400,000

  	
   

  	
   

  	
   

  



 

















 


	
  Umbtru
  & Co. FBO Oberweis Emerging Growth Fund

  	
   

  	
   

  	
   

  	
  2,700

  	
   

  	
  540,000

  	
   

  	
  $

  	
  2,700,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Umbtru
  & Co. FBO Oberweis Micro-Cap Fund

  	
   

  	
   

  	
   

  	
  1,300

  	
   

  	
  260,000

  	
   

  	
  $

  	
  1,300,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort
  Mason Master Fund, LP

  	
   

  	
  Fort Mason Master
  Fund, LP

  456 Montgomery Street, 22nd Fl.

  San Francisco, CA 94104

  Telephone 415-249-3380

  Fax 415-249-3389

  Attn: KC Lynch and Marshall Jensen

  	
   

  	
  1,878

  	
   

  	
  375,000

  	
   

  	
  $

  	
  1,878,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort
  Mason Partners, LP

  	
   

  	
  Fort Mason
  Partners, LP

  456 Montgomery Street, 22nd Fl.

  San Francisco, CA 94104

  Telephone 415-249-3380

  Fax 415-249-3389

  Attn: KC Lynch and Marshall Jensen

  	
   

  	
  122

  	
   

  	
  24,400

  	
   

  	
  $

  	
  122,000

  	
   

  	
   

  	
   

  



 

















 


	
  EXHIBITS

  
	
   

  
	
  Exhibit A

  	
  Form of Certificate of Designations

  	
   

  	
   

  
	
  Exhibit B

  	
  Form of Warrants

  	
   

  	
   

  
	
  Exhibit C

  	
  Form of Registration Rights Agreement

  	
   

  	
   

  
	
  Exhibit D

  	
  [Intentionally Omitted]

  	
   

  	
   

  
	
  Exhibit E

  	
  Form of Irrevocable Transfer Agent
  Instructions

  	
   

  	
   

  
	
  Exhibit F

  	
  Form of Outside Company Counsel Opinion

  	
   

  	
   

  
	
  Exhibit G

  	
  Form of Secretary’s Certificate

  	
   

  	
   

  
	
  Exhibit H

  	
  Form of Officer’s Certificate

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule 3(a)

  	
   

  	
  Subsidiaries

  	
   

  	
   

  
	
  Schedule 3(b)

  	
   

  	
  Authorization; Enforcement; Validity

  	
   

  	
   

  
	
  Schedule 3(k)

  	
   

  	
  SEC Documents; Financial Statements

  	
   

  	
   

  
	
  Schedule 3(l)

  	
   

  	
  Absence of Certain Changes

  	
   

  	
   

  
	
  Schedule 3(n)

  	
   

  	
  Conduct of Business

  	
   

  	
   

  
	
  Schedule 3(q)

  	
   

  	
  Transactions with Affiliates

  	
   

  	
   

  
	
  Schedule 3(r)

  	
   

  	
  Capitalization

  	
   

  	
   

  
	
  Schedule 3(s)

  	
   

  	
  Indebtedness and Other Contracts

  	
   

  	
   

  
	
  Schedule 3(t)

  	
   

  	
  Litigation

  	
   

  	
   

  
	
  Schedule 3(w)

  	
   

  	
  Title

  	
   

  	
   

  
	
  Schedule 3(cc)

  	
   

  	
  Internal Accounting and Disclosure Controls

  	
   

  	
   

  
	
  Schedule 3(kk)

  	
   

  	
  Disclosure

  	
   

  	
   

  
	
  Schedule 4(d)

  	
   

  	
  Use of Proceeds

  	
   

  	
   

  
	
  Schedule 4(j)

  	
   

  	
  Restriction on Redemption and Cash
  Dividends; Additional Registration Statements

  	
   

  



 

















 


SCHEDULE 3(a)


Subsidiaries


 


	
  MarketSmart Interactive, Inc. f/k/a
  WebSourced, Inc.

  
	
  Cherish, Inc.

  
	
  CheckUp Marketing, Inc.

  
	
  MarketSmart Advertising, Inc.

  
	
  RightStuff, Inc.

  
	
  Ozona Online Network, Inc.

  
	
  Personals Plus, Inc.

  
	
  KowaBunga Marketing, Inc.

  
	
  PrimaryAds, Inc.

  
	
  Real Estate School Online, Inc.

  
	
  Vintacom Florida, Inc.

  
	
  Vintacom Media Group, ULC

  
	
  Vintacom Internet Services, Inc.

  
	
  Vintacom Software Services, Inc.

  
	
  Relationship Exchange Holdings Ltd.

  
	
  Relationship Exchange Limited

  
	
  Intipro Dating Inc.

  
	
  Morex Marketing Group, LLC

  
	
  Smart Interactive Limited

  



 

















 


SCHEDULE 3(b)


Authorization;
Enforcement; Validity


 


The Company needs to obtain AMEX approval for
the listing of the Conversion Shares and Warrant Shares and the Certificate of
Designations will not be filed until AMEX approval has been obtained.


 

















 


SCHEDULE 3(k)


SEC
Documents; Financial Statements


 


The financial statements contained in the
Company’s original filings of its Form 10-KSB for the year ended December 31,
2004, and its Forms 10-QSB for the quarters ended March 31, 2005 and 2004,
June 30, 2005 and 2004 and September 30, 2004 were restated on December 30,
2005 for the reasons described below (collectively, the “Restatements”).


 


On October 27, 2005, the Company
concluded that it would need to amend and restate our previously issued
unaudited consolidated financial statements and other financial information for
the above mentioned periods. The restatements resulted from a change to the
manner in which the Company then believed it must recognize revenue generated
by its search engine enhancement (SEE) business segment.  The Company originally recognized revenues
from the SEE business segment in the period that they are deemed to be earned
and collectible under the accrual method of accounting using the proportional
performance model. In the proportional performance model, revenue is recognized
using the pattern in which value is provided to the customer over the term of
the contract. Subsequently based on comments the Company received from the
Staff of the Securities and Exchange Commission, the Company determined that
the manner in which it applied the proportional performance revenue recognition
model: (1) did not adequately rely on objective evidence of the value of
services performed, and (2) did not provide sufficient evidence to prove
the collectibility of the accelerated revenue stream. As a result, the Company restated
portions of the above-referenced financial statements by recognizing revenue
for each deliverable under its SEE business segment on a straight-line basis
over the term of the contract. The Company believes it is appropriate to use
straight-line if there is not adequate objective evidence of the value of
services performed. Additionally, using straight-line allows the Company to more
closely match cash receipts with revenue recognition. As a result, collection
of amounts recognized as revenue is reasonably assured.


 


The restatements for the Form 10-QSB for
the quarter ended June 30, 2005 also results from a change to the manner
in which the Company presents revenues from its PrimaryAds, Inc.
subsidiary. The Company originally recognized revenues from PrimaryAds on a
gross basis by recording as revenue the gross amount received from advertisers
and recording as cost of sales the amount paid to the publishers placing the
advertisements. The Company believed the gross presentation was appropriate
because, in accordance with EITF 99-19, the Company believed the following were
the predominant factors:  (1) PrimaryAds
had credit risk to the extent that it is responsible for payments to
affiliates, despite standard contractual language stating that if PrimaryAds
does not get paid for an advertisement, it is not obligated to pay the
affiliate. In practice, PrimaryAds chooses to pay affiliates in the event of
non-payment by advertisers in order to maintain its marketplace relationships,
and (2) PrimaryAds sets pricing with respect to the amount paid to the
affiliate. Subsequently, based on additional analyses performed by the Company in
response to comments raised by the Staff of the Securities and Exchange
Commission, the Company subsequently believed that the predominant factors
underlying EITF 99-19 support the net treatment. Specifically, the factors the
Company previously believed to be predominant are now believed to have a lesser
significance in the gross versus net analysis, with PrimaryAds not being the
primary obligor in the arrangement rising to predominant status. The


 

















 


Company restated its quarterly report on Form 10-QSB for the quarter
ended June 30, 2005 by presenting revenue from PrimaryAds on a net, rather
than gross, basis.


 


Additionally, in the third quarter of 2005, the
Company changed the useful life of the Customer Relations intangible asset for
our PrimaryAds, Inc. subsidiary from ten years to five years. The Company retroactively
applied this change to all periods that it owned this intangible asset,
including the quarter ended June 30, 2005.


 

















 


SCHEDULE 3(l)


Absence of
Certain Changes


 


On Friday, March 17, the Company announced
that its letter of intent to acquire Crystal Reference Systems Limited had been
terminated, after the Company and Crystal Reference failed to agree upon
mutually acceptable definitive agreements.


 

















 


SCHEDULE 3(n)


Conduct of
Business; Regulatory Permits


 


The Company’s press release dated October 28,
2005, pursuant to which it announced that investors should no longer rely on
the Company’s financial statements, did not contain sufficient information
regarding the Company’s estimate of the potential effect on earnings the
restated financial statements would have. As a result, AMEX imposed a trading
halt in the Company’s shares of common stock. On November 2, 2005 the
Company issued a revised press release and trading resumed.


 

















 


SCHEDULE 3(q)


Transactions
With Affiliates


 


The Company issued a note to Scott P.
Mitchell, its President in connection with the Company’s acquisition of
WebCapades, Inc. (of which Scott was a shareholder). The outstanding
balance of the note is $267,000 and calls for six remaining payments of $44,500.
The note does not bear any stated interest.


 


The Company issued a note to Katherine Dennison,
an employee of Cherish, Inc. in connection with the Company’s acquisition
of WebCapades, Inc. (of which Katherine was a shareholder). The
outstanding balance of the note is $3,000 and calls for six remaining payments
of $500. The note does not bear any stated interest.


 


In connection with the Company’s acquisition
of Ozona Online, Inc., the Company assumed two promissory notes Ozona
issued in favor of Scott P. Mitchell, the Company’s President. The first note
has a remaining balance $50,085, bears interest at 5.5% interest, and has 31
payments of $1,756.12 remaining.    The
second note has a remaining balance of $52,471, bears interest at 8.0%
interest, and has 34 payments of $1,756.12, 34 remaining.


 

















 


SCHEDULE 3(r)


Equity
Capitalization


 


(i)                                     No
disclosure necessary.


(ii)                                  See
attached excel spreadsheet for list of options/warrants and shares that may be
required to be issued in the future with respect to earnouts from acquisitions.


(iii)                               The
Company entered into loan agreement with Wachovia Bank, N.A. and the Company
executed two promissory notes in the amounts of $15 million and $2.5 million,
respectively in connection with the loan agreement. Additionally, see the notes
to Scott Mitchell and Katherine Dennison described in Schedule 3(q).


(iv)                              In
connection with the Wachovia loan agreement (described in (iii) above),
Wachovia filed financing statements perfecting a lien on all of the assets of
the Company. In addition, each “Guarantor Subsidiary” guaranteed the
obligations of the Company under the loan agreement. The guarantees are secured
by a lien on all of the assets of each Subsidiary which was perfected by a
filing of appropriate financing statements. As used herein, the term “Guarantor
Subsidiary” means the following Subsidiaries: 
MarketSmart Interactive, Inc., Cherish, Inc., CheckUp
Marketing, Inc., RightStuff, Inc., MarketSmart Advertising, Inc.,
Ozona Online Network, Inc., Personals Plus, Inc., KowaBunga!
Marketing, Inc., PrimaryAds, Inc., Real Estate School Online, Inc.
and Vintacom Florida, Inc.


(v)                                 See
attached excel spreadsheet for the Company’s current obligations to register
shares of its common stock issued in previous acquisitions and shares that may be
issued as part of earnouts related to such acquisitions. In addition, the
Company will be obligated to register 3,170,732 shares of common stock issued
at the closing of the Litmus acquisition and up to $10.5 million of shares of
common stock that may be issued as a result of earnouts related to the
Litmus acquisition.


(vi)                              No
disclosure necessary.


(vii)                           No
disclosure necessary.


(viii)                        The
Company’s 2005 Long Term Incentive Plan authorizes the board to grant “Other
Stock Based Awards” in addition to options to purchase common stock and shares
of restricted common stock. “Other Stock Based Awards” includes awards that are
valued in whole or in part by reference to, or are otherwise based on,
shares of the Company’s common stock or the fair market value thereof.


(ix)                                No
disclosure necessary.


 

















 


SCHEDULE 3(s)


Indebtedness
and Other Contracts


 


(i)                                     A.                                   The
Company entered into loan agreement with Wachovia Bank, N.A. and the Company
executed two promissory notes in the amounts of $15 million and $2.5 million,
respectively in connection with the loan agreement.


B.                                     The Company issued
a note to Scott P. Mitchell, its President in connection with the Company’s
acquisition of WebCapades, Inc. (of which Scott was a shareholder). The
outstanding balance of the note is $267,000 and calls for six remaining
payments of $44,500. The note does not bear any stated interest.


C.                                     The Company issued
a note to Katherine Dennison, an employee of Cherish, Inc. in connection
with the Company’s acquisition of WebCapades, Inc. (of which Katherine was
a shareholder). The outstanding balance of the note is $3,000 and calls for six
remaining payments of $500. The note does not bear any stated interest.


D.                                    In connection with
the Company’s acquisition of Ozona Online, Inc., the Company assumed two
promissory notes Ozona issued in favor of Scott P. Mitchell, the Company’s
President. The first note has a remaining balance $50,085, bears interest at
5.5% interest, and has 31 payments of $1,756.12 remaining.    The second note has a remaining balance of
$52,471, bears interest at 8.0% interest, and has 34 payments of $1,756.12, 34
remaining.


 


(ii)                                  No
disclosure necessary


 


(iii)                               No
disclosure necessary.


 


(iv)                              No
disclosure necessary.


 


Description of Wachovia Indebtedness


 


On January 19, 2006, the Company entered into a loan agreement
with Wachovia Bank, National Association (the “Loan Agreement”). Pursuant to
the loan agreement, on January 20, 2006, the Company borrowed $15 million
from Wachovia, evidenced by a revolving credit promissory note (the “Revolving
Credit Note”), and $2.5 million, evidenced by a term promissory note (the “Term
Note” and together with the Revolving Credit Note, the “Notes”). The Company
used $7.5 million of the proceeds to repay amounts due Wachovia under the
Company’s previous line of credit (which was cancelled as a result of entering
into the Loan Agreement) with substantially all of the remaining proceeds used
to fund the cash portion of the purchase price for the acquisition of Morex
Marketing Group, LLC.


 


Repayment Terms; Interest Rate


 


The Company’s obligations under the Loan
Agreement and the Notes are secured by a first priority lien, in favor of
Wachovia, on all of the assets of the Company, including the stock of each of
the Company’s operating subsidiaries. Further, each of the Company’s operating
subsidiaries has guaranteed the performance of the Company’s obligations under
the Loan Agreement and the Notes (each, a “Guarantor”) and the guaranty is
secured by a first priority lien on each Guarantor’s assets. The aggregate
principal advances available to the Company


 

















 


under the Revolving Credit Note may not exceed 1.75 times the
Company’s trailing twelve months EBITDA, as calculated quarterly on a
consolidated pro forma basis, where the term pro forma is meant to include all EBITDA generated by an
entity acquired by the Company during the trailing twelve month period, as
opposed to just that portion of EBITDA generated by the entity after the
acquisition. Interest on the unpaid principal balance of the Revolving Credit
Note accrues at the LIBOR Market Index Rate plus 2.10% as such rate may change
from day to day. Amounts due under the Revolving Credit Note are payable in
consecutive monthly payments of accrued interest only until maturity at which
time all principal and any accrued but unpaid interest is due and payable. The
Revolving Credit Note matures on January 19, 2009. Interest on the unpaid
principal balance of the Term Note accrues at the LIBOR Market Index Rate plus
2.15% as such rate may change from day to day. Amounts due under the Term
Note are payable in 12 consecutive monthly payments of equal principal in the
amount of $208,333.33 plus accrued interest with the final payment due on January 19,
2007, the Term Note’s maturity. In the event that the Company is in default of
any of the covenants below, in addition to the remedies set forth below, the
interest rate on each of the Notes shall automatically increase 3%.


 


Covenants


 


So long as there remain any amounts
outstanding under the Loan Agreement and either of the Notes, the Company: (A) is
required to maintain a “Total Debt to EBITDA Ratio” of not less than 2.00 to
1.00, calculated quarterly on a rolling four quarters basis, where “Total Debt
to EBITDA Ratio” means the sum of all the indebtedness of the Company  and its subsidiaries for borrowed money
divided by the Company’s EBITDA calculated on a consolidated pro forma basis; (B) is required to maintain a net
worth of not less than an amount equal to $36.9 million plus 50% of the Company’s
net income for each fiscal quarter (the “Minimum Net Worth Amount”), provided
that the Minimum Net Worth Amount for any fiscal quarter must exceed the
Minimum Net Worth amount for the immediately preceding fiscal quarter by at
least $1.00; (C) is required to maintain, a consolidated “Fixed Charge
Coverage Ratio” of not less than 2.50 to 1.00, calculated quarterly on a
rolling four quarters basis, where “Fixed Charge Coverage Ratio” means, the sum
of the pro forma net income from operations,
depreciation and amortization minus all dividends, withdrawals and non-cash
income divided by the sum of all current maturities of long-term debt, capital
lease obligations and capital expenditures which were not financed; (D) may not,
during any fiscal year, expend on gross fixed assets (excluding the pro forma impact of “Permitted Acquisitions” (as hereinafter
defined) during any fiscal year, but including capital leases and leasehold
improvements for the Permitted Acquisitions) an amount exceeding $2 million; (E) may not
incur any additional indebtedness which causes the aggregate amount of the
Company’s debt, excluding obligations to Wachovia to exceed $5 million; and (F) may not,
during any fiscal year, declare or pay dividends in an amount in excess of 50% of
its net income.


 


Further, so long as there remain any amounts
outstanding under the Loan Agreement and either of the Notes, neither the
Company nor any Guarantor is permitted to: (A) change its fiscal year; (B) suffer a change in its board of
directors, such that the members of the board of directors as of the date of
this Agreement fail to constitute a majority of the members of the board; provided
that any individual becoming a member of the applicable board of directors who
is nominated by the applicable board of directors will be treated as if he or
she were a member of the board as of the date of this Agreement; (C) create,
assume, or permit to exist any


 

















 


encumbrance on any of its assets, other than (i) security
interests required by the Loan Agreement, (ii) liens for taxes contested
in good faith, (iii) liens accruing by law for employee benefits, or (iv) acquired
indebtedness to the extent permitted as set forth in (E) in the previous
paragraph; (D) guarantee or otherwise become responsible for obligations
of any other person or entity; (E) acquire any capital
stock, interests in any partnership or joint venture except for investments by
the Company or any Guarantor in the form of acquisitions of all or
substantially all of the business or a line of business (whether by the
acquisition of capital stock, assets or any combination thereof) of any other
person in an electronic commerce line of business which has positive EBITDA for
the most recent twelve (12) month period then ended, both prior to the
acquisition and after giving effect thereto (a “Permitted Acquisition”); (F) retire any long-term debt entered into prior to
the date of the Loan Agreement at a date in advance of its legal obligation to
do so.


 


Default


 


The Company is permitted a five day grace
period to cure any payment default and a thirty day grace period to cure any
non-payment default, provided the Company will be permitted to cure a default
once during any twelve month period. If there occurs a default that is not
cured during the applicable grace period, Wachovia may accelerate the
maturity of all amounts due under the Loan Agreement and the Notes and
foreclose upon its security interest in the Company’s assets and the assets of
the Guarantors.


 

















 


SCHEDULE 3(t)


Absence of
Litigation


 


MarketSmart Interactive


 


On May 27, 2005, the Company and its MarketSmart
Interactive, Inc. subsidiary filed a lawsuit against Jason Dowdell, a
former employee of MarketSmart Interactive, and his wife, Shannon Dowdell in
the Circuit Court of the Eighteenth Judicial Circuit of the State of Florida,
in and for Brevard County, which is captioned MarketSmart Interactive, Inc.
and CGI Holding Corporation v. Jason Dowdell and Shannon Dowdell. In the
lawsuit, the Company alleged that Mr. Dowdell failed to perform his
employment duties and other obligations under an Asset Purchase Agreement
pursuant to which MarketSmart Interactive purchased certain business assets
from the Dowdells. The Company also alleged that Mr. Dowdell breached a
Confidentiality, Inventions and Non-Competition Agreement between him and
MarketSmart Interactive. In the lawsuit, the Company asserted claims for
replevin of certain computer equipment and files Jason Dowdell failed to return
to MarketSmart Interactive following the termination of his employment. The
Company also sought a declaratory judgment regarding its right to cancel shares
of common stock issued to Mr. Dowdell as well as shares of common stock
and warrants to purchase shares of common stock Mr. Dowdell alleged he is
entitled to under the Asset Purchase Agreement. The Company also sought
injunctive relief and damages with respect to the Dowdells’ breach of the Asset
Purchase Agreement and Mr. Dowdell’s breach of the Confidentiality,
Inventions and Non-Competition Agreement. This lawsuit was settled on the
following terms:


 


•                                          MarketSmart
Interactive agreed to allow Mr. Dowdell to keep the shares of stock that
were promised to him in the Asset Purchase Agreement.


 


•                                          Mr. Dowdell
agreed to the entry of a Permanent Injunction limiting his competitive
activities until July 5, 2006.


 


•                                          The
parties agreed to a mutual release of all claims.


 


Primary Ads


 


On May 16, 2005, the Company’s PrimaryAds
subsidiary filed a lawsuit against Direct Response Technologies, Inc. in
the Court of Common Pleas of Allegheny County, Pennsylvania, captioned as
PrimaryAds Inc. v. Direct Response Technologies, Inc., GD 05-11414. Direct
Response Technologies, Inc. (“DRT”) provided software services to
PrimaryAds and threatened to terminate those services in breach of PrimaryAds’
agreement with DRT. Additionally, DRT possessed and controlled certain business
information regarding PrimaryAds’ business. PrimaryAds sought injunctive relief
to maintain the status quo (i.e., continued access to the services), as well as
the return of its business information and data. This lawsuit was settled at
the end of June, 2005 upon the following settlement terms in the form of a
consent decree:


 


•                                          DRT
agreed to provide PrimaryAds with a duplicate of its business information and
data.


 

















 


•                                          DRT
agreed to continue to provide services to PrimaryAds for nine months after DRT provided
PrimaryAds with a duplicate of its business information and data.


 


•                                          Both
parties agreed to release the other from all liability relating to the lawsuit.


 


•                                          PrimaryAds
agreed to dismiss the lawsuit within one month after it received its business
information and data from DRT.


 


After DRT failed to properly return
PrimaryAds’ business information and data, PrimaryAds filed a motion asking the
Court to require DRT to comply with the terms of the consent decree. In
response to the motion, the parties agreed to an amended consent decree which
included a non-disparagement clause, a release from all liability relating to
the lawsuit, an agreement that PrimaryAds would provide a presentation to DRT
relating to its use of DRT’s Affiliate IDs, Codes, and Tracking Codes, an
agreement that DRT would continue to provide services to PrimaryAds until October of
2006, and an agreement that PrimaryAds would dismiss the lawsuit. The
presentation successfully took place on March 8, 2006 and thus the
litigation has concluded.


 

















 


SCHEDULE 3(w)


Title


 


In connection with the Wachovia loan
agreement, Wachovia filed financing statements perfecting a lien on all of the
assets of the Company. In addition, each Guarantor Subsidiary guaranteed the
obligations of the Company under the loan agreement. The guarantees are secured
by a lien on all of the assets of each Subsidiary which was perfected by a
filing of appropriate financing statements. Additionally, the Company has
pledged all of the stock of the Wachovia Subsidiaries to Wachovia in connection
with the Company’s obligations under the loan agreement.


 

















 


SCHEDULE 3(cc)


Internal
Accounting and Disclosure Controls


 


In each of the Restatements, the Company made
the following disclosure (the attached disclosure is from the Company’s
Restatement for the quarter ended June 30, 2005, but the other disclosures
read substantially similar):


 


As required by Rule 13a-15(b) under
the Exchange Act, we conducted an evaluation, under the supervision and with
the participation of our management, including our chief executive officer and
the chief financial officer, of the effectiveness and the design and operation
of our disclosure controls and procedures as of June 30, 2005, the end of
the period covered by this report. This evaluation was subsequently modified
due to the identification of items described below. Based on and as of the date
of the foregoing evaluation as modified, we determined that our internal
controls over revenue recognition for certain of our contracts at our search
engine enhancement segment and presentation of revenue at our affiliate
marketing segment were deficient, and constituted a material weakness, and
therefore our disclosure controls and procedures were not effective as of June 30,
2005.


 


The deficiencies in our internal controls
resulted in improper recognition of revenue at our WebSourced subsidiary and
improper presentation of revenue at our PrimaryAds subsidiary. The first
deficiency at WebSourced was the lack of adequate objective criteria of the
value of services provided to customers to support use of the proportional
performance model using the pattern in which value is provided to the customer
over the term of the contract to recognize revenue generated by WebSourced. The
second deficiency at WebSourced related to the lack of sufficient evidence to
support the collectibility of amounts recognized under certain contracts on an
accelerated basis. At PrimaryAds, the deficiency resulted from a misapplication
of the principles governing whether the revenues of PrimaryAds should be
presented on a gross or net basis.


 


During the fourth quarter of 2005, we began a
process to improve upon our internal controls in an effort to remediate these
deficiencies, in part by establishing additional policies and procedures
related to revenue recognition. Management is implementing compensating
controls and procedures, principally manual checks and additional levels of
review as it relates to revenue recognition. In addition, our WebSourced
subsidiary now performs a credit check at the time it enters into a contract
with a client to determine the appropriate payment terms for the client, which
provides an objective basis for our belief that the collectibility of amounts
recognized as revenue associated with the client is reasonably assured. Additionally,
management has directed our internal audit staff, which reports directly to our
audit committee and is not involved in the preparation of our financial
statements, to focus on evaluating and documenting our disclosure controls and
procedures over financial reporting including revenue recognition. Further, on
a going forward basis, our audit committee will review a list of all


 

















 


critical accounting policies and estimates
with supporting schedules for each pending acquisition prior to closing. Management
has approved and intends to hire additional internal audit staff. To date, we
have incurred expenses of approximately $25,000 to remediate these deficiencies
in our internal controls. These expenses include the costs of the credit checks
and a pro rata portion of the time incurred by our internal audit staff to
improve our disclosure controls and procedures over financial reporting. In
2006, we expect these expenses to be approximately $35,000. We anticipate that
the material weakness in our disclosure controls and procedures caused by the
deficiencies set forth above will be fully remediated during the first quarter
of 2006 and prior to the filing of our annual report for the year ended December 31,
2005.


 


There was no change in our internal control
over financial reporting that occurred during the fiscal quarter ended June 30,
2005 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.


 

















 


SCHEDULE 3(kk)


Disclosure


 


The Company’s press release dated October 28,
2005, pursuant to which it announced that investors should no longer rely on
the Company’s financial statements, did not contain sufficient information
regarding the Company’s estimate of the potential effect on earnings the
restated financial statements would have. As a result, AMEX imposed a trading
halt in the Company’s shares of common stock. On November 2, 2005 the Company
issued a revised press release and trading resumed.


 

















 


SCHEDULE 4(d)


Use of
Proceeds


 


The Company will use the proceeds from the
sale of the Securities to fund the cash portion of the purchase price of Litmus
Media, Inc. and for general working capital purposes.


 

















 


SCHEDULE 4(j)


Restriction
on Redemption and Cash Dividends; Additional Registration Statements


 


The Company shall be allowed to file
additional such pre-effective and post-effective amendments as it deems
reasonably necessary to that certain Registration Statement on Form SB-2
which was originally filed with the Commission on December 30, 2004.


 


The Company shall be allowed to file a
registration statement on Form S-8 in connection with its 2005 Long Term
Incentive Plan so long as such registration statement shall not include for
registration thereon more than 1 million shares of the Company’s common stock.