textech_sb2-ex1009.htm


    EXHIBIT
      10.9

     

    SECURITIES
      PURCHASE
      AGREEMENT

     

     

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement”), dated as of
      September 28, 2006, by and among Textechnologies Inc., a Delaware corporation,
      with headquarters located at 13520 Oriental St, Rockville, Md, (“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 (i) 6% secured convertible notes of
      the Company, in the form attached hereto as Exhibit “A”, in the aggregate
      principal amount of One Million Five Hundred Thousand Dollars ($1,500,000)
      (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
      [     ] per share, of the Company (the “Common Stock”), upon the terms
      and subject to the limitations and conditions set forth in such Notes and
      (ii) warrants, in the form attached hereto as Exhibit “B”, to purchase
      10,000,000 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),
      (i) 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 the number of Warrants as
      is
      set forth immediately below such Buyer’s name on the signature pages hereto, and
      (ii) 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 September 28, 2006,
      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.

     

    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 (i) on account of interest
      on the Notes, (ii) 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
      (iii) 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”).

     

    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.

     

    
      
        
        

      

      
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    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.  The Buyers are not aware of
      any facts that may constitute a breach of any of the Company’s representations
      and warranties made herein.

     

    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 (i) 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 (a) the Securities are sold pursuant to an effective registration
      statement under the 1933 Act, (b) the Buyer shall have delivered to the
      Company an opinion of counsel reasonably acceptable to the Company and its
      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, (c) 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, (d) the Securities are sold
      pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation
      S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer
      shall have delivered to the Company an opinion of counsel reasonably acceptable
      to the Company and its 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).  Notwithstanding the foregoing or anything else
      contained herein to the contrary, the Securities may be pledged as collateral
      in
      connection with a bonafide
      margin account
      or other lending arrangement.


    
      
        
        

      

      
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    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) such holder provides
      the Company with an opinion of counsel, in form, substance and scope customary
      for opinions of counsel in comparable transactions, which opinion shall be
      reasonably acceptable to the Company’s counsel, 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.  The Buyer agrees to sell all Securities, including those
      represented by a certificate(s) from which the legend has been removed, in
      compliance with applicable prospectus delivery requirements, if
      any.

     

    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.

     

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

     

    
      
        
        

      

      
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    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 of (i) a material and adverse effect on the
      legality, validity or enforceability of any document executed in connection
      with
      this financing, (ii) a material and adverse effect on the results of operations,
      assets, prospects, business or condition (financial or otherwise) of the Company
      and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the
      Company’s ability to perform under any of the documents executed in connection
      with this financing.  “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 shareholders 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.

     

    
      
        
        

      

      
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    c.  Capitalization.  As
      of the date hereof, the authorized capital stock of the Company consists of
      1
      billion shares of Common Stock, of which 31,077,356 shares are issued and
      outstanding, no 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 aside from one certificate (#P2) for
      10,000 preferred shares, convertible to 60,000 free trading
      shares  and 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).  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
      shareholders 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, the Warrants, 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 shareholders 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 or exercise
      of
      the Warrants.  The Company further acknowledges that its obligation to
      issue Conversion Shares and Warrant Shares upon conversion of the Notes or
      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 shareholders of
      the
      Company.

     

    
      
        
        

      

      
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    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 Certificate of
      Incorporation or By-laws or (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)  to the Company’s
      knowledge, 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 Certificate 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, 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 the Warrant Shares upon 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
      quotation requirements of the pink sheets (the “PINK SHEETS”) and does not
      reasonably anticipate that the Common Stock will be removed by the PINK SHEETS
      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.

     

    
      
        
        

      

      
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    g.  Financial
      Statements.  As of their respective dates, the financial
      statements of the Company 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 the Company has no liabilities, contingent or otherwise, other than
      (i)
      liabilities incurred in the ordinary course of business subsequent to December
      31, 2005 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, 2005, 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,
      to the knowledge of the Company,  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
      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.

     

    
      
        
        

      

      
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    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.

     

    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).

     

    
      
        
        

      

      
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    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.  Except as set forth in Schedule 3(q), 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, 2005, 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 best of 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), to the best of the Company’s knowledge 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.  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 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.

     

    
      
        
        

      

      
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    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.

     

    z.  Certain
      Registration
      Matters. Assuming the accuracy of the Buyers' representations and
      warranties set forth in Section 3, no registration under the Securities Act
      is
      required for the offer and sale of the Conversion Shares and Warrant Shares
      by
      the Company to the Buyers under the transaction documents. Except as specified
      in Schedule 3(z), the
      Company has not granted or agreed to grant to any Person any rights (including
      "piggy-back" registration rights) to have any securities of the Company
      registered with the Commission or any other governmental authority that have
      not
      been satisfied.

     

    aa.  Breach
      of Representations
      and Warranties by the Company.  If the Company
      materially 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; provided, however,
      that the
      Company shall not be required in connection therewith or as a condition thereto
      to (a) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify but for this Section 4(b), (b) subject
      itself to general taxation in any such jurisdiction, (c) file a general
      consent to service of process in any such jurisdiction, (d) provide any
      undertakings that cause the Company undue expense or burden, or (e) make
      any change in its charter or bylaws, which in each case the Board of Directors
      of the Company determines to be contrary to the best interests of the Company
      and its shareholders.

     

    
      
        
        

      

      
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    c.  Reporting
      Status;
      Eligibility to Use Form S-3, SB-2 or Form

     

    S-1. The
      Company represents
      and warrants that it meets the requirements for the use of Form SB-2 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 SB-2.  The Company shall issue a press release describing the
      material 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 net 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 (i) 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); (ii) the satisfaction of any portion of the
      Company’s debt (other than payment of trade payables and accrued expenses in the
      ordinary course of the Company’s business and consistent with prior past
      practices), or (iii) the redemption of any Common Stock.

     

    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, which consent shall not 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 convertible securities that are convertible into an
      indeterminate number of shares of Common Stock or (B) 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) one hundred eighty
      (180) days from the date the Registration Statement (as defined in the
      Registration Rights Agreement) is filed (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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    


    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, an
      equity line of credit or similar financing arrangement) resulting in net
      proceeds to the Company of in excess of $1,500,000, 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.  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.  Notwithstanding anything herein to the contrary, the Company’s
      obligation to reimburse Buyers’ expenses shall not exceed $50,000 in the
      aggregate.

     

    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: (i) within ten (10) days after the filing with the SEC, a copy
      of its Annual Report on Form 10-KSB its Quarterly Reports on Form 10-QSB and
      any
      Current Reports on Form 8-K; (ii) within one (1) day after release, copies
      of all press releases issued by the Company or any of its Subsidiaries; and
      (iii) contemporaneously with the making available or giving to the
      shareholders of the Company, copies of any notices or other information the
      Company makes available or gives to such shareholders.

     

    
      
        
        

      

      
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    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 Warrant
      Shares 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 the number that is then actually issuable upon full conversion of
      the
      Notes and Additional Notes and upon exercise of the Warrants and the Additional
      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 shareholders
      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
      shareholder 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 shareholder 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.  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 Pinksheets, 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 National Association of Securities
      Dealers (“NASD”) 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.

     

    
      
        
        

      

      
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    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, Pinksheets,
      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.  Subsequent
      Investment.  The Company and the Buyers agree that, upon
      the filing by the Company of the Registration Statement to be filed pursuant
      to
      the Registration Rights Agreement (the “Filing Date”), the Buyers
      shall purchase additional Notes (the “Filing Notes”) in the
      aggregate principal amount of  Five Hundred Thousand Dollars
      ($500,000), for an aggregate purchase price of Five Hundred Thousand Dollars
      ($500,000), with the closing of such purchase to occur within two (2) days
      of
      the Filing Date; provided, however,
      that the
      obligation of each Buyer to purchase the Filing Notes is subject to the
      satisfaction, at or before the closing of such purchase and sale, of the
      conditions set forth in Section 7.  The Company and the Buyers further
      agree that, upon the declaration of effectiveness of the Registration Statement
      to be filed pursuant to the Registration Rights Agreement (the “Effective Date”), the Buyers
      shall purchase additional notes  (the “Effectiveness Notes” and,
      collectively with the Filing Notes, the “Additional Notes”) in the
      aggregate principal amount of Five Hundred Thousand Dollars ($500,000) for
      an
      aggregate purchase price of Five Hundred Thousand Dollars ($500,000), with
      the
      closing of such purchase to occur within two (2) days of the Effective Date;
      provided, however,
      that the
      obligation of each Buyer to purchase the Additional Notes is subject to the
      satisfaction, at or before the closing of such purchase and sale, of the
      conditions set forth in Section 7; and, provided, further,
      that there
      shall not have been a Material Adverse Effect as of such effective
      date.  The terms of the Additional Notes shall be identical to the
      terms of the Notes to be issued on the Closing Date.  The Common Stock
      underlying the Additional Notes shall be Registrable Securities (as defined
      in
      the Registration Rights Agreement) and shall be included in the Registration
      Statement to be filed pursuant to the Registration Rights
      Agreement.

     

    m.  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 its CEO, Peter Maddocks.

     

    n.  Restriction
      on Short
      Sales. The Buyers agree that, so long as any of the Notes remain
      outstanding, but in no event less than two (2) years from the date hereof,
      the
      Buyers will not enter into or effect any “short sales” (as such term is defined
      in Rule 3b-3 of the 1934 Act) of the Common Stock or hedging transaction which
      establishes a net short position with respect to the Common Stock.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    o.  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 reasonably acceptable to the Company and its 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 and Warrant 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.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    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 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 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.  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 Certificate of
      Incorporation, By-laws and Board of Directors’ resolutions relating to the
      transactions contemplated hereby.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    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 PINK SHEETS and trading in the Common Stock on the PINK
      SHEETS  shall not have been suspended by the SEC or the PINK
      SHEETS.

     

    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 STATES  AND 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 REGISTERED 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 REASONABLE ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
      IN CONNECTION WITH SUCH DISPUTE. HOWEVER, ALL PARTIES HERETO AGREE THAT PRIOR
      TO
      THE FILING OF ANY SUIT IN THE COURTS OF NEW YORK THAT THEY SHALL FIRST AGREE
      TO
      ARBITRATION BY CHOOSING AN ARTIBRATOR IN NEW YORK WHO SHALL HAVE FULL AUTHORITY
      TO HEAR, ADJUDGE AND ISSUE ANY FINDINGS HE FINDS REASONABLE.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    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 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:

              Textechnologies
                Inc.

              David
                E. Price, G.C.

              13520
                Oriental St

              Rockville,
                Md 20853

              (301)
                4605818 

            


    

                                                  

    
      	 	With
              a copy to:


      	
               

            	
              Peter
                Maddocks, CEO

            


    

    
      	
               

            	
              31-32
                Ely Place

            


    

    
      	
               

            	
              31-32
                Ely Place

            


    

    
      	
               

            	
              London
                EC1N 6TD

            


    

    
      	
               

            	
              (44)
                20 7822 2222

            


    


    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    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.

     

    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.

     

    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, PINK SHEETS or NASD
      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, PINK SHEETS (or other applicable trading market)
      or NASD 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).

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    


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

     

    TEXTECHNOLOGIES
      INC.

     

    By:
/s/
      Peter
      Maddocks                                      
 

    Peter
      Maddocks

    Chief
      Executive Officer

     

    AJW
      PARTNERS, LLC

    By:  SMS
      Group, LLC

     

    /s/
      Corey S.
      Ribotsky                                            


    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:                            $________

    Number
      of
      Warrants:                                                             ________

    Aggregate
      Purchase
      Price:                                                 $________ 



    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    AJW
      OFFSHORE,
      LTD.

    By:  First
      Street Manager II, LLC

    


    /s/
      Corey S.
      Ribotsky                                            


    Corey
      S.
      Ribotsky

    Manager

    


    


    RESIDENCE:        
      Cayman Islands

    


    ADDRESS:          
       AJW Offshore, Ltd.

     P.O.
      Box 32021 SMB

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

    


    AGGREGATE
      SUBSCRIPTION AMOUNT:

    


    Aggregate
      Principal Amount of
      Notes:                   
$_______

    Number
      of
      Warrants:                                                   
 _______

    Aggregate
      Purchase
      Price:                                         $_______


    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    


    AJW
      QUALIFIED PARTNERS,
      LLC

    By:  AJW
      Manager, LLC

     

    /s/
      Corey S.
      Ribotsky                                            


    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:                  
 $________

    Number
      of
      Warrants:                                                    
________

    Aggregate
      Purchase
      Price:                                         $________

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    


    NEW
      MILLENNIUM CAPITAL PARTNERS II,
      LLC

    By:  First
      Street Manager II, LLP

     

    /s/
      Corey S.
      Ribotsky                                            


    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:                
 $______

    Number
      of
      Warrants:                                                  
______

    Aggregate
      Purchase
      Price:                                     
 $______

     

     

    27