f8k073108ex4ii_ea3pacificap.htm


    
      
        Exhibit
4.2

      

      SECURITIES
PURCHASE AGREEMENT

       

      


       

      SECURITIES
PURCHASE AGREEMENT (this “Agreement”), dated as of July
31, 2008, by and among Pacificap Entertainment Holdings, Inc., a Nevada
corporation, with headquarters located at 2361 Campus Drive, Suite 101, Irvine,
California 92612 (the “Company”), and each of the
purchasers set forth on the signature pages hereto (the “Buyers”).

       

      WHEREAS:

       

      A. The
Company and the Buyers are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act”);

       

      B. Buyers
desire to purchase and the Company desires to issue and sell, upon the terms and
conditions set forth in this Agreement  12% secured convertible notes of
the Company, in the form attached hereto as Exhibit “A”, in the aggregate
principal amount of One Hundred Fifty Thousand Dollars ($150,000) (together with
any note(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the “Notes”), convertible into
shares of common stock, par value $.001 per share, of the Company (the “Common
Stock”),  upon the terms and subject to the limitations and
conditions set forth in such Notes and warrants, in the form attached hereto as
Exhibit “B”, to purchase
2,400,000,000 shares of Common Stock (the “Warrants”).

       

      C. Each
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Notes and number of Warrants as is set forth
immediately below its name on the signature pages hereto; and

       

      D. Contemporaneous
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, in the form attached
hereto as Exhibit “C”
(the “Registration Rights
Agreement”), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

       

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

       

      1. PURCHASE
AND SALE OF NOTES AND WARRANTS .

       

      a. Purchase
of Notes and Warrants.  On the Closing Date (as defined below),
the Company shall issue and sell to each Buyer and each Buyer severally agrees
to purchase from the Company such principal amount of Notes and number of
Warrants as is set forth immediately below such Buyer’s name on the signature
pages hereto.

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

      b. Form of
Payment.  On the Closing Date (as defined below),  each
Buyer shall pay the purchase price for the Notes  and the Warrants to
be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire
transfer of immediately available funds to the Company, in accordance with the
Company’s written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price  and number of Warrants
as is set forth immediately below such Buyer’s name on the signature pages
hereto, and  the Company shall deliver such Notes and Warrants duly
executed on behalf of the Company, to such Buyer, against delivery of such
Purchase Price.

       

      c. Closing
Date.  Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Notes and the Warrants pursuant to this
Agreement (the “Closing
Date”) shall be 12:00 noon, Eastern Standard Time on July 31, 2008, or
such other mutually agreed upon time.  The closing of the transactions
contemplated by this Agreement (the “Closing”) shall occur on the
Closing Date at such location as may be agreed to by the parties.

       

      d.           Subsequent
Closings.  On a
subsequent date to be agreed to by the parties hereto (the “Funding Date”), the Company
shall issue and sell to the Buyers and the Buyers severally agree to purchase
from the Company an aggregate of Forty Thousand Dollars ($40,000) principal
amount of Notes. On the Funding Date, the Buyers will transfer an aggregate of
$40,000 by wire transfer of immediately available funds to the
Company.  In addition, on the Funding Date, the Company shall deliver
to the Buyers a closing certificate in form and substance satisfactory to the
Buyers.  Notwithstanding the foregoing, either the Company or a
majority-in-interest of the Buyers may terminate their obligations under this
Section 1(d) upon thirty (30) days written notice to the other
party.

       

      2. BUYERS’
REPRESENTATIONS AND WARRANTIES.  Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer
that:

       

      a. Investment
Purpose.  As of the date hereof, the Buyer is purchasing the
Notes and the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Notes (including, without limitation, such additional shares of
Common Stock, if any, as are issuable  on account of interest on the Notes,
 as a result of the events described in Sections 1.3 and 1.4(g) of the
Notes and Section 2(c) of the Registration Rights Agreement or  in payment
of the Standard Liquidated Damages Amount (as defined in Section 2(f) below)
pursuant to this Agreement, such shares of Common Stock being collectively
referred to herein as the “Conversion Shares” and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
“Warrant Shares”) and,
collectively with the Notes, Warrants and Conversion Shares, (the “Securities”) for its own
account and not with a present view towards the public sale or distribution
thereof, except pursuant to sales registered or exempted from registration under
the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.

       

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

       

       

      
        
          
          

        

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

       

      d. Information.  The
Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants  remain outstanding will continue to be, furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors.  The Buyer and its advisors,
if any, have been, and for so long as the Notes and Warrants  remain
outstanding will continue to be, afforded the opportunity to ask questions of
the Company.  Notwithstanding the foregoing, the Company has not
disclosed to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer.  Neither such
inquiries nor any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect Buyer’s right to
rely on the Company’s representations and warranties contained in Section 3
below.  The Buyer understands that its investment in the Securities
involves a significant degree of risk.

       

      e. Governmental
Review.  The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.

       

      f. Transfer
or Re-sale.  The Buyer understands that  except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless  the Securities are sold pursuant to an effective registration
statement under the 1933 Act,  the Company shall receive an opinion of
counsel that shall be in form, substance and scope customary for opinions of
counsel in comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be accepted by the Company,  the
Securities are sold or transferred to an “affiliate” (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who
agrees to sell or otherwise transfer the Securities only in accordance with this
Section 2(f) and who is an Accredited Investor,  the Securities are sold
pursuant to Rule 144, or  the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) (“Regulation S”), and the
Company shall receive an opinion of counsel that shall be in form, substance and
scope customary for opinions of counsel in corporate transactions, which opinion
shall be accepted by the Company; (ii) any sale of such Securities made in
reliance on Rule 144 may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any re-sale of such Securities
under circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement).  

       

       

      
        
          
          

        

        
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        Notwithstanding
the foregoing or anything else contained herein to the contrary, the Securities
may be pledged as collateral in connection with a bona fide margin account
or other lending arrangement.  In the event that the Company does not
accept the opinion of counsel with respect to the transfer of Securities
pursuant to an exemption from registration, such as Rule 144 or Regulation S,
within three (3) business days of delivery of the opinion to the Company, the
Company shall pay to the Buyer liquidated damages of three percent (3%) of the
outstanding amount of the Notes per month plus accrued and unpaid interest on
the Notes, prorated for partial months, in cash or shares at the option of the
Company (“Standard Liquidated
Damages Amount”).

      

       

      g. Legends.  The
Buyer understands that the Notes and the Warrants and, until such time as the
Conversion Shares and Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):

       

      “The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended.  The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule 144
or Regulation S under said Act.”

       

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

       

      h. Authorization;
Enforcement. This Agreement and the Registration Rights Agreement have
been duly and validly authorized.  This Agreement has been duly
executed and delivered on behalf of the Buyer, and this Agreement constitutes,
and upon execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding agreements of the
Buyer enforceable in accordance with their terms.

       

       

      
        
          
          

        

        
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      i. Residency.  The
Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
name on the signature pages hereto.

       

      3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.  The Company represents and
warrants to each Buyer that:

       

      a. Organization
and Qualification.  The Company and each of its Subsidiaries
(as defined below), if any, is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted.  Schedule 3(a) sets forth a
list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated.  The Company and each of its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a Material
Adverse Effect.  “Material Adverse Effect” means
any material adverse effect on the business, operations, assets, financial
condition or prospects of the Company or its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith.  “Subsidiaries” means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest.

       

      b. Authorization;
Enforcement.  (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement, the Registration Rights
Agreement, the Notes and the Warrants and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Notes and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Notes and the Warrants and
the issuance and reservation for issuance of the Conversion Shares and Warrant
Shares issuable upon conversion or exercise thereof) have been duly authorized
by the Company’s Board of Directors and no further consent or authorization of
the Company, its Board of Directors, or its stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and the other documents
executed in connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Notes and the Warrants, each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms.

       

      c. Capitalization.  As
of the date hereof, the authorized capital stock of the Company consists of
(i) [              
] shares of Common Stock, of which [] shares are issued and outstanding,
[                  
] shares are reserved for issuance pursuant to the Company’s stock option plans,
[             ]
shares are reserved for issuance pursuant to securities (other than the Notes
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of Common Stock and [] shares are reserved for issuance upon conversion
of the Notes and exercise of the Warrants (subject to adjustment pursuant to the
Company’s covenant set forth in Section 4(h) below); and (ii) no shares of
preferred stock, of which no shares are issued and
outstanding.  

       

       

      
        
          
          

        

        
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        All of
such outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable.  No shares
of capital stock of the Company are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens or encumbrances
imposed through the actions or failure to act of the Company.  Except
as disclosed in Schedule
3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Notes and the Warrants, or the Conversion Shares or Warrant
Shares.  The Company has furnished to the Buyer true and correct
copies of the Company’s Articles of Incorporation as in effect on the date
hereof (“Articles of
Incorporation”), the Company’s By-laws, as in effect on the date hereof
(the “By-laws”), and the
terms of all securities convertible into or exercisable for Common Stock of the
Company and the material rights of the holders thereof in respect
thereto.  The Company shall provide the Buyer with a written update of
this representation signed by the Company’s Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.

      

       

      d. Issuance
of Shares.  The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the Notes and
exercise of the Warrants in accordance with their respective terms, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder
thereof.

       

      e. Acknowledgment
of Dilution.  The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and Warrant Shares upon conversion of the Note and exercise of
the Warrants.  The Company further acknowledges that its obligation to
issue Conversion Shares and Warrant Shares upon conversion of the Notes and
exercise of the Warrants in accordance with this Agreement, the Notes and the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.

       

      f. No
Conflicts.  The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Notes and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of Incorporation
or By-laws or 

       

       

      
        
          
          

        

        
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        (ii)
violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii)  result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and regulations of any self-regulatory organizations to which the
Company or its securities are subject) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse
Effect).  Neither the Company nor any of its Subsidiaries is in
violation of its Articles of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in default (and
no event has occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither the Company
nor any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity.  Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement and the Notes or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the Notes and
Warrants in accordance with the terms hereof and to issue the Conversion Shares
upon conversion of the Notes and Warrant Shares upon the exercise of the
Warrants. Except as disclosed in Schedule 3(f), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.  The Company is not in violation of the
listing requirements of the Over-the-Counter Bulletin Board (the “OTCBB”) and does not
reasonably anticipate that the Common Stock will be delisted by the OTCBB in the
foreseeable future.  The Company and its Subsidiaries are unaware of
any facts or circumstances which might give rise to any of the
foregoing.

      

       

      g. SEC
Documents; Financial Statements.  Except as disclosed in Schedule 3(g), the Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits to
such documents) incorporated by reference therein, being hereinafter referred to
herein as the “SEC
Documents”).  

       

       

       

      
        
          
          

        

        
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        The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents.  As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.  None of
the statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof).  As
of their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto.  Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit
adjustments).  Except as set forth in the financial statements of the
Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to December 31, 2006 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the
Company.

      

       

      h. Absence
of Certain Changes.  Since December 31, 2006, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.

       

      i. Absence
of Litigation.  There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect.  Schedule 3(i) contains a
complete list and summary description of any pending or threatened proceeding
against or affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect.  The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.

       

      j. Patents,
Copyrights, etc.  The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
(“Intellectual
Property”) necessary to enable it to conduct its business as now operated
(and, except as set forth in Schedule 3(j) hereof, to the
best of the Company’s knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to, or proceeding
pending, or to the Company’s knowledge threatened, which challenges the right of
the Company or of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated (and, except as
set forth in Schedule
3(j) hereof, to the best of the Company’s knowledge, as presently


       

       

      
        
          
          

        

        
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        contemplated
to be operated in the future); to the best of the Company’s knowledge, the
Company’s or its Subsidiaries’ current and intended products, services and
processes do not infringe on any Intellectual Property or other rights held by
any person; and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing.  The Company and each of its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.

      

       

      k. No
Materially Adverse Contracts, Etc.  Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company’s officers has or is expected in the future to have a
Material Adverse Effect.  Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company’s officers has or is expected to have a Material Adverse
Effect.

       

      l. Tax
Status.  Except as set forth on Schedule 3(l), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.  The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or collection
of any foreign, federal, state or local tax.  Except as set forth on
Schedule 3(l), none of
the Company’s tax returns is presently being audited by any taxing
authority.

       

      m. Certain
Transactions.  Except as set forth on Schedule 3(m) and except for
arm’s length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

       

       

      
        
          
          

        

        
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      n. Disclosure.  All
information relating to or concerning the Company or any of its Subsidiaries set
forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.  No event or circumstance has occurred or exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company’s reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).

       

      o. Acknowledgment
Regarding Buyers’ Purchase of Securities.  The Company
acknowledges and agrees that the Buyers are acting solely in the capacity of
arm’s length purchasers with respect to this Agreement and the transactions
contemplated hereby.  The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers’ purchase of the Securities.  The Company further
represents to each Buyer that the Company’s decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.

       

      p. No
Integrated Offering.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers.  The
issuance of the Securities to the Buyers will not be integrated with any other
issuance of the Company’s securities (past, current or future) for purposes of
any shareholder approval provisions applicable to the Company or its
securities.

       

      q. No
Brokers.  The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.

       

      r. Permits;
Compliance.  The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the “Company Permits”), and there
is no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits.  Neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.  Since
December 31, 2006, neither the Company nor any of its Subsidiaries has received
any notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.

       

       

      
        
          
          

        

        
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      s. Environmental
Matters.

       

      (i) Except as
set forth in Schedule
3(s), there are, to the Company’s knowledge, with respect to the Company
or any of its Subsidiaries or any predecessor of the Company, no past or present
violations of Environmental Laws (as defined below), releases of any material
into the environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar federal, state,
local or foreign laws and neither the Company nor any of its Subsidiaries has
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company’s knowledge, threatened in connection with any of the
foregoing.  The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.

       

      (ii) Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.

       

      (iii) Except as
set forth in Schedule
3(s), there are no underground storage tanks on or under any real
property owned, leased or used by the Company or any of its Subsidiaries that
are not in compliance with applicable law.

       

      t. Title to
Property.  The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such as would
not have a Material Adverse Effect.  Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.

       

       

      
        
          
          

        

        
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      u. Insurance.  Except
as set forth in Schedule
3(u), the Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are
engaged.  Neither the Company nor any such Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect.  The Company has provided to Buyer
true and correct copies of all policies relating to directors’ and officers’
liability coverage, errors and omissions coverage, and commercial general
liability coverage.

       

      v. Internal
Accounting Controls.  The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company’s board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

       

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

       

      x. Solvency.  The
Company (after giving effect to the transactions contemplated by this Agreement)
is solvent (i.e., its assets have
a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature.  The Company
did not receive a qualified opinion from its auditors with respect to its most
recent fiscal year end and, after giving effect to the transactions contemplated
by this Agreement, does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal
year.

       

      y. No
Investment Company.  The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
“investment company” required to be registered under the Investment Company Act
of 1940 (an “Investment
Company”).  The Company is not controlled by an Investment
Company.

       

       

      
        
          
          

        

        
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      z. Breach of
Representations and Warranties by the Company.  If the Company
breaches any of the representations or warranties set forth in this Section 3,
and in addition to any other remedies available to the Buyers pursuant to this
Agreement, the Company shall pay to the Buyer the Standard Liquidated Damages
Amount in cash or in shares of Common Stock at the option of the Company, until
such breach is cured.  If the Company elects to pay the Standard
Liquidated Damages Amounts in shares of Common Stock, such shares shall be
issued at the Conversion Price at the time of payment.

       

      4. COVENANTS.

       

      a. Best
Efforts.  The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this
Agreement.

       

      b. Form D;
Blue Sky Laws.  The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to 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 to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
“blue sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.

       

      c. Reporting Status;
Eligibility to Use Form S-3 or Form

       

      S-1. The Company’s Common
Stock is registered under Section 12(g) of the 1934 Act. The Company represents
and warrants that it meets the requirements for the use of Form S-3 (or if the
Company is not eligible for the use of Form S-3 as of the Filing Date (as
defined in the Registration Rights Agreement), the Company may
use  the form of registration for which it is eligible at that time)
for registration of the sale by the Buyer of the Registrable Securities (as
defined in the Registration Rights Agreement).  So long as the Buyer
beneficially owns any of the Securities, 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 permit such termination.  The Company further agrees to file all
reports required to be filed by the Company with the SEC in a timely manner so
as to become eligible, and thereafter to maintain its eligibility, for the use
of Form S-3.  The Company shall issue a press release describing the
materials terms of the transaction contemplated hereby as soon as practicable
following the Closing Date but in no event more than two (2) business days of
the Closing Date, which press release shall be subject to prior review by the
Buyers.  The Company agrees that such press release shall not disclose
the name of the Buyers unless expressly consented to in writing by the Buyers or
unless required by applicable law or regulation, and then only to the extent of
such requirement.

       

      d. Use of
Proceeds.  The Company shall use the proceeds from the sale of
the Notes and the Warrants in the manner set forth in Schedule 4(d) attached hereto
and made a part hereof and shall not, directly or indirectly, use such proceeds
for any loan to or investment in any other corporation, partnership, enterprise
or other person (except in connection with its currently existing direct or
indirect Subsidiaries)

       

       

      
        
          
          

        

        
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      e. Future
Offerings.  Subject to the exceptions described below, the
Company will not, without the prior written consent of a majority-in-interest of
the Buyers, not to be unreasonably withheld, negotiate or contract with any
party to obtain additional equity financing (including debt financing with an
equity component) that involves (A) the issuance of Common Stock at a discount
to the market price of the Common Stock on the date of issuance (taking into
account the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the “Lock-up Period”) beginning on
the Closing Date and ending on the later of (i) two hundred seventy (270) days
from the Closing Date and (ii) ninety (90) days from the date the Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective (plus any days in which sales cannot be made
thereunder).  In addition, subject to the exceptions described below,
the Company will not conduct any equity financing (including debt with an equity
component) (“Future
Offerings”) during the period beginning on the Closing Date and ending
two (2) years after the end of the Lock-up Period unless it shall have first
delivered to each Buyer, at least twenty (20) business days prior to the closing
of such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the aggregate principal amount of
Notes purchased by it hereunder bears to the aggregate principal amount of Notes
purchased hereunder) of the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding sentence are collectively referred to as
the “Capital Raising
Limitations”).  In the event the terms
and conditions of a proposed Future Offering are amended in any respect after
delivery of the notice to the Buyers concerning the proposed Future Offering,
the Company shall deliver a new notice to each Buyer describing the amended
terms and conditions of the proposed Future Offering and each Buyer thereafter
shall have an option during the fifteen (15) day period following delivery of
such new notice to purchase its pro rata share of the securities being offered
on the same terms as contemplated by such proposed Future Offering, as
amended.  The foregoing sentence shall apply to successive amendments
to the terms and conditions of any proposed Future Offering.  The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or
(ii) issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company.  The Capital Raising Limitations also shall not apply
to the issuance of securities upon exercise or conversion of the Company’s
options, warrants or other convertible securities outstanding as of the date
hereof or to the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted stock plan
approved by the shareholders of the Company.

       

      f. Expenses.  At
the Closing, the Company shall reimburse Buyers for expenses incurred by them in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”), including, without limitation, attorneys’ and
consultants’ fees and expenses, transfer agent fees, fees for stock quotation
services, fees relating to any amendments or modifications of the Documents or
any consents or waivers of provisions in the Documents, fees for the preparation
of opinions of counsel, escrow fees, and costs of restructuring the transactions
contemplated by the Documents.  

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

         

         

        When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer  If the Company fails to reimburse the Buyer in full within
three (3) business days of the written notice or submission of invoice by the
Buyer, the Company shall pay interest on the total amount of fees to be
reimbursed at a rate of 15% per annum.

      

       

      g. Financial
Information.  The Company agrees to send the following reports
to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities:  within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K;  within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and
 contemporaneously with the making available or giving to the stockholders
of the Company, copies of any notices or other information the Company makes
available or gives to such stockholders.

       

      h. Authorization
and Reservation of Shares.  The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Notes and Warrants and issuance of the Conversion Shares and
Warrants in connection therewith (based on the Conversion Price of the Notes or
Exercise Price of the Warrants in effect from time to time) and as otherwise
required by the Notes.  The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of Notes and
exercise of the Warrants without the consent of each Buyer.  The
Company shall at all times maintain the number of shares of Common Stock so
reserved for issuance at an amount (“Reserved Amount”) equal to no
less than two (2) times the number that is then actually issuable upon full
conversion of the Notes and upon Exercise of the Warrants (based on the
Conversion Price of the Notes or the Exercise Price of the Warrants in effect
from time to time).  If at any time the number of shares of Common
Stock authorized and reserved for issuance (“Authorized and Reserved
Shares”) is below the Reserved Amount, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company’s obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, obtain
stockholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount.  If the Company fails to
obtain such stockholder approval within thirty (30) days following the date on
which the number of Reserved Amount exceeds the Authorized and Reserved Shares,
the Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer.  If the
Buyer elects to be paid the Standard Liquidated Damages Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the time of
payment.  

       

       

      
        
          
          

        

        
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        In order
to ensure that the Company has authorized a sufficient amount of shares to meet
the Reserved Amount at all times, the Company must deliver to the Buyer at the
end of every month a list detailing (1) the current amount of shares authorized
by the Company and reserved for the Buyer; and (2) amount of shares issuable
upon conversion of the Notes and upon exercise of the Warrants and as payment of
interest accrued on the Notes for one year.  If the Company fails to
provide such list within five (5) business days of the end of each month, the
Company shall pay the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer, until the list is
delivered.  If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment.

      

       

      i. Listing.  The
Company shall promptly secure the listing of the Conversion Shares and Warrant
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as any Buyer owns any of the Securities, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time issuable
upon conversion of the Notes or exercise of the Warrants.  The Company
will obtain and, so long as any Buyer owns any of the Securities, maintain the
listing and trading of its Common Stock on the OTCBB or any equivalent
replacement exchange, the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap
Market (“Nasdaq
SmallCap”), the New York Stock Exchange (“NYSE”), or the American Stock
Exchange (“AMEX”) and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Financial Industry Regulatory
Authority (“FINRA”) and
such exchanges, as applicable.  The Company shall promptly provide to
each Buyer copies of any notices it receives from the OTCBB and any other
exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.

       

      j. Corporate
Existence.  So long as a Buyer beneficially owns any Notes or
Warrants, the Company shall maintain its corporate existence and shall not sell
all or substantially all of the Company’s assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company’s
assets, where the surviving or successor entity in such transaction (i) assumes
the Company’s obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap,
NYSE or AMEX.

       

      k. No
Integration.  The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.

       

      l. Key Man
Insurance.  The Company shall
use its best efforts to obtain, on or before five (5) business days from the
date hereof, key man life insurance on all of the Company’s officers and
division heads.

       

       

      
        
          
          

        

        
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      m. Breach of
Covenants.  If the Company
breaches any of the covenants set forth in this Section 4, and in addition to
any other remedies available to the Buyers pursuant to this Agreement, the
Company shall pay to the Buyers the Standard Liquidated Damages Amount, in cash
or in shares of Common Stock at the option of the Company, until such breach is
cured.  If the Company elects to pay the Standard Liquidated Damages
Amount in shares, such shares shall be issued at the Conversion Price at the
time of payment.

       

      5. TRANSFER
AGENT INSTRUCTIONS.  The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the “Irrevocable
Transfer Agent Instructions”).  Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act or the date on which the
Conversion Shares and Warrant Shares may be sold pursuant to Rule 144 without
any restriction as to the number of Securities as of a particular date that can
then be immediately sold, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement.  The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights
Agreement.  Nothing in this Section shall affect in any way the
Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities.  If a Buyer provides the Company with (i) an opinion
of counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer is
effected or (ii) the Buyer provides reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares, promptly instruct its transfer agent to issue
one or more certificates, free from restrictive legend, in such name and in such
denominations as specified by such Buyer.  The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyers, by vitiating the intent and purpose of the transactions contemplated
hereby.  Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 5 may be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section, that the Buyers shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach and
requiring immediate transfer, without the necessity of showing economic loss and
without any bond or other security being required.

       

       

      
        
          
          

        

        
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      6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.  The obligation of the
Company hereunder to issue and sell the Notes and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:

       

      a. The
applicable Buyer shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Company.

       

      b. The
applicable Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.

       

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

       

      d. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

       

      7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.  The obligation of each
Buyer hereunder to purchase the Notes and Warrant 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 such Buyer’s sole benefit and
may be waived by such Buyer at any time in its sole discretion:

       

      a. The
Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.

       

      b. The
Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.

       

      c. The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a
majority-in-interest of the Buyers, shall have been delivered to and
acknowledged in writing by the Company’s Transfer Agent.

       

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

       

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

         

         

        The Buyer
shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company’s
Articles of Incorporation, By-laws and Board of Directors’ resolutions relating
to the transactions contemplated hereby.

      

       

      e. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

       

      f. No event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company.

       

      g. The
Conversion Shares and Warrant Shares shall have been authorized for quotation on
the OTCBB and trading in the Common Stock on the OTCBB shall not have been
suspended by the SEC or the OTCBB.

       

      h. The Buyer
shall have received an opinion of the Company’s counsel, dated as of the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer and in
substantially the same form as Exhibit “D” attached
hereto.

       

      i. The Buyer
shall have received an officer’s certificate described in Section 3(c) above,
dated as of the Closing Date.

       

      8. GOVERNING
LAW; MISCELLANEOUS.

       

      a. Governing
Law.  THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED
IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT,
THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A
PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND
EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
CONNECTION WITH SUCH DISPUTE.

       

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

       

       

      b. Counterparts;
Signatures by Facsimile.  This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party.  This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

       

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

       

      d. Severability.  In
the event that any provision of this Agreement is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law.  Any provision
hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.

       

      e. Entire
Agreement; Amendments.  This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.  No
provision of this Agreement may be waived or amended other than by an instrument
in writing signed by the party to be charged with enforcement.

       

      f. Notices.  Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five (5) days after being placed
in the mail, if mailed by regular United States mail, or upon receipt, if
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party.  The
addresses for such communications shall be:

       

      If to the
Company:

      


      
        	
                 
      

              	
                Pacificap
      Entertainment Holdings, Inc.

              


      

      
        	
                 
      

              	
                2361
      Campus Drive, Suite 101

              


      

      
        	
                 
      

              	
                Irvine,
      California, 92612

              


      

      
        	
                 
      

              	
                Attention:
      Mark Schaftlein, President

              


      

      
        	
                 
      

              	
                Telephone:  949-833-9001

              


      

      
        	
                 
      

              	
                Facsimile:   949-833-8211

              


      

      


       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

       

      With a
copy to:

       

             Sichenzia Ross Friedman Ference
LLP

             1065 Avenue of the
Americas

             New York, New York
10018

             Attention:  Gregory
Sichenzia, Esq.

             Telephone:  212-930-9700

             Facsimile:   212-930-9725

       

      If to a
Buyer:  To the address set forth immediately below such Buyer’s name
on the signature pages hereto.

       

      With copy
to:

      


             Ballard Spahr Andrews &
Ingersoll, LLP

             1735 Market
Street

             51st
Floor

             Philadelphia,
Pennsylvania  19103

             Attention:  Gerald
J. Guarcini, Esq.

             Telephone:  215-864-8625

             Facsimile:   215-864-8999

       

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

       

      g. Successors
and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns.  Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the
other.  Notwithstanding the foregoing, subject to Section 2(f),
any Buyer may assign its rights hereunder to any person that purchases
Securities in a private transaction from a Buyer or to any of its “affiliates,”
as that term is defined under the 1934 Act, without the consent of the Company;
and provided further, that the Buyers shall not assign this Agreement or any
rights or obligations hereunder until the Registration Debentures and
Registration warrants are purchased by the Buyers.

       

      h. Third
Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

       

      i. Survival.  The
representations and warranties of the Company and the agreements and covenants
set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of the
Buyers.  The Company agrees to indemnify and hold harmless each of the
Buyers and all their officers, directors, employees and agents for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set forth in
Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

       

      j. Publicity.  The
Company and each of the Buyers shall have the right to review a reasonable
period of time before issuance of any press releases, SEC, OTCBB or FINRA
filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, OTCBB (or other applicable trading market) or
FINRA filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment
thereon).

       

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

       

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

       

      m. Remedies.  The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Buyers shall
be entitled, in addition to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being
required.

       

      


       

      


       

      


       

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

       

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

       

       

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

       

      


      


      PACIFICAP
ENTERTAINMENT HOLDINGS, INC.

      


      


      ________________________________

      Mark
Schaftlein

      President

      
 

      NEW
MILLENNIUM CAPITAL PARTNERS II, LLC

       

      By:  First
Street Manager II, LLP

       

      ____________________________________

       

      Corey S.
Ribotsky

      Manager

       

      


      


      RESIDENCE:         New
York

      


      ADDRESS:            1044
Northern Boulevard

      Suite 302

      Roslyn, New York 11576

                  
Facsimile:          (516)
739-7115

                  
Telephone:       (516) 739-7110

       

      AGGREGATE
SUBSCRIPTION AMOUNT:

       

      
        
          	
                  Aggregate
      Principal Amount of Notes:

                	 	$	66,000	 
	
                  Number
      of Warrants:

                	 	 	1,440,000,000	 
	
                  Aggregate
      Purchase Price:

                	 	$	66,000	 


        

      

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      AJW
PARTNERS, LLC

      By:  SMS
Group, LLC

      


      


      ______________________________________

      Corey S.
Ribotsky

      Manager

       

      RESIDENCE:  Delaware

      


      ADDRESS:            1044
Northern Boulevard

      Suite 302

      Roslyn, New York 11576

                   Facsimile:   (516)
739-7115

               
 Telephone:  (516) 739-7110

      


      AGGREGATE
SUBSCRIPTION AMOUNT:

       

      
        
          
            	
                    Aggregate
      Principal Amount of Notes:

                  	 	$	22,000	 
	
                    Number
      of Warrants:

                  	 	 	480,000,000	 
	
                    Aggregate
      Purchase Price:

                  	 	$	22,000	 


          

        

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         

      

      AJW
MASTER FUND, LTD.

      By:  First
Street Manager II, LLC

      


      


      ______________________________________

      Corey S.
Ribotsky

      Manager

       

      RESIDENCE:         Cayman
Islands

      


      ADDRESS:            AJW
Master Fund, Ltd.

                                     
P.O. Box 32021 SMB

                                     
Grand
Cayman, Cayman Island, B.W.I.

      


      AGGREGATE
SUBSCRIPTION AMOUNT:

       

      
        
          
            	
                    Aggregate
      Principal Amount of Notes:

                  	 	$	22,000	 
	
                    Number
      of Warrants:

                  	 	 	480,000,000	 
	
                    Aggregate
      Purchase Price:

                  	 	$	22,000