**EXHIBIT
10.7**
  **SECURITIES
PURCHASE AGREEMENT**
  **SECURITIES
PURCHASE AGREEMENT** (the
" **Agreement** "), dated
as of March 29, 2005, by and among SmartVideo Technologies, Inc., a Delaware
corporation, with headquarters located at 1650
Oakbrook Drive, Suite 405, Norcross, Georgia 30093 (the
" **Company** "), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
" **Buyer** " and
collectively, the " **Buyers** ").
  **WHEREAS** :
  A. The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the " **1933
Act** "), and
Rule 506 of Regulation D (" **Regulation
D** ") as
promulgated by the United States Securities and Exchange Commission (the
" **SEC** ") under
the 1933 Act.
  B. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of shares of the
Common Stock, par value $0.001 per share, of the Company (the " **Common
Stock** "), set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall collectively be referred to herein as the
" **Common
Shares** ") and
(ii) a warrant to acquire up to that number of additional shares of Common Stock
set forth opposite such Buyer's name in column (4) on the Schedule of Buyers
(the " **Warrants** "), in
substantially the form attached hereto as Exhibit
A (as
exercised, collectively, the " **Warrant
Shares** ").
  C. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit
B (the
" **Registration
Rights Agreement** ")
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Common Shares, and the Warrant Shares under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.
  D. The
Common Shares, the Warrants and the Warrant Shares collectively are referred to
herein as the " **Securities** ".
  **NOW,
THEREFORE** , the
Company and each Buyer hereby agree as follows:
  1. PURCHASE
AND SALE OF COMMON SHARES AND WARRANTS .
  (a) Purchase
of Common Shares and Warrants .
  Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, agrees to purchase from the Company on the Closing Date (as
defined below), the number of Common Shares as is set forth opposite such
Buyer's name in column (3) on the Schedule of Buyers, **** along
with the Warrants to acquire up to that number of Warrant Shares as is set forth
opposite such Buyer's name in column (4) on the Schedule of Buyers (the
" **Closing** "). The
Closing shall occur on the Closing Date at the offices of the
Company.
  
 (b) Purchase
Price . The
purchase price for the Common Shares and related Warrants to be purchased by
each Buyer at the Closing shall be the amount set forth opposite such Buyer’s
name in column (5) of the Schedule of Buyers (the " **Purchase
Price** ").
  (c) Closing
Date . The
date and time of the Closing (the " **Closing
Date** ") shall
be 10:00 a.m., New York City Time, on the date hereof (or such other date and
time as is mutually agreed to by the Company and each Buyer).
  (d) Form
of Payment . On the
Closing Date, (i) each Buyer shall pay its Purchase Price to the Company for the
Common Shares and Warrants to be issued and sold to such Buyer at the Closing,
by wire transfer of immediately available funds in accordance with the Company's
written wire instructions, and (ii) the Company shall deliver to each Buyer
(A) one or
more stock certificates evidencing the number of Common Shares such Buyer is
purchasing as is set forth opposite such Buyer’s name in column (3) of the
Schedule of Buyers and (B) a Warrant pursuant to which such Buyer shall have the
right to acquire such number of Warrant Shares as is set forth opposite such
Buyer’s name in column (4) of the Schedule of Buyers, in all cases duly executed
on behalf of the Company and registered in the name of such Buyer.
  2. BUYER'S
REPRESENTATIONS AND WARRANTIES .
  Each
Buyer represents and warrants with respect to only itself that:
  (a) No
Public Sale or Distribution . Such
Buyer is (i) acquiring the Common Shares and the Warrants and (ii) upon exercise
of the Warrants will acquire the Warrant Shares issuable upon exercise thereof,
in the ordinary course of business for its own account and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act and
such Buyer does not have a present arrangement to effect any distribution of the
Securities to or through any person or entity; provided , however , that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such Buyer is
acquiring the Securities hereunder in the ordinary course of its business. Such
Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
  (b) Accredited
Investor Status . Such
Buyer is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D.
  (c) Reliance
on Exemptions . Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
  -2-
 (d) Information . Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of risk
and is able to afford a complete loss of such investment. Such Buyer has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the
Securities.
  (e) No
Governmental Review . Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
  (f) Transfer
or Resale . Such
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933 Act
or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended,
(or a successor rule thereto) (collectively, " **Rule
144** "); (ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(r)) through whom the sale is made) may
be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. Notwithstanding the foregoing, t he
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the Securities and such pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities hereunder, and no Buyer
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
this Section 2(f); provided , that in
order to make any sale, transfer or assignment of Securities, such Buyer and its
pledgee makes such disposition in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
  (g) Legends . Such
Buyer understands that the certificates or other instruments representing the
Common Shares and the Warrants and the stock certificates representing the
Warrant Shares, except as set forth below, shall bear any legend as required by
the "blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
  -3-
 [ NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN ][ THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN ] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
  (h) Validity;
Enforcement . This
Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and shall constitute
the legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
  (i) No
Conflicts . The
execution, delivery and performance by such Buyer of this Agreement and the
Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the organizational documents of such Buyer or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.
  (j) Residency . Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.
  (k) Broker-Dealer
Status . Such
Buyer is a not a registered broker-dealer or, if such Buyer is an affiliate of a
broker-dealer, such Buyer is acquiring the Securities hereunder in the ordinary
course of its business and such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
  -4-
 3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY .
  The
Company represents and warrants to each of the Buyers that:
  (a) Organization
and Qualification . Each of
the Company and its " **Subsidiaries** " (which
for purposes of this Agreement means any entity in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar interest) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, " **Material
Adverse Effect** " means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries except
as set forth on Schedule
3(a) .
  (b) Authorization;
Enforcement; Validity . The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Registration Rights Agreement,
the Irrevocable Transfer Agent Instructions (as defined in Section 5), the
Warrants and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the " **Transaction
Documents** ") and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Common Shares and the
Warrants and the reservation for issuance and the issuance of the Warrant Shares
issuable upon exercise of the Warrant have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders. This Agreement and
the other Transaction Documents have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
  (c) Issuance
of Securities . The
Common Shares and the Warrants are duly authorized and, upon issuance in
accordance with the terms hereof, shall be validly issued and free from all
taxes, liens and charges with respect to the issue thereof and the Common Shares
shall be fully paid and nonassessable with the holders being entitled to all
rights accorded to a holder of Common Stock. As of the Closing Date, the Company
shall have duly authorized and reserved for issuance a number of shares of
Common Stock which equals the number of Warrant Shares. The Company shall, so
long as any of the Warrants are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Capital Stock,
solely for the purpose of effecting the exercise of the Warrants, 100% of the
number of shares of Common Stock issuable upon exercise of the Warrants. Upon
exercise in accordance with the Warrants, the Warrant Shares will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
  -5-
 (d) No
Conflicts . The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Common Shares and
Warrants and reservation for issuance and issuance of the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation (as defined
below) or Bylaws (as defined below) of the Company or any of its Subsidiaries or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the over-the-counter
market (the " **Principal
Market** ")) or
other principal market applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected.
  (e) Consents . The
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by the
Transaction Documents, in each case in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the Closing Date. The Company and its
Subsidiaries are unaware of any facts or circumstances that might prevent the
Company from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence. The Company is not in violation of
the listing requirements of the Principal Market and has no knowledge of any
facts that would reasonably lead to delisting or suspension of the Common Stock
in the foreseeable future.
  (f) Acknowledgment
Regarding Buyer's Purchase of Securities . The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than 10% of the Common Stock (as defined for purposes of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the " **1934
Act** ")). The
Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
  -6-
 (g) No
General Solicitation; Placement Agent's Fees . Neither
the Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. The Company acknowledges that it has engaged Forte Capital
Partners LLC as placement agent (the " **Agent** ") in
connection with the sale of the Securities. Other than the Agent or as set forth
on Schedule
3(g) , the
Company has not engaged any placement agent or other agent in connection with
the sale of the Securities.
  (h) No
Integrated Offering . None of
the Company, its Subsidiaries, any of their affiliates, and any Person acting on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated. None of the Company, its Subsidiaries, their
affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of any of
the Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
  (i) Application
of Takeover Protections; Rights Agreement . The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the State of Delaware which is or could become applicable to any
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities.
  (j) SEC
Documents; Financial Statements . Except
as set forth in Schedule
3(j) , during
the two years prior to the date hereof, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof or prior to the date of the
Closing, and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the " **SEC
Documents** "). The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of the SEC Documents not available on the EDGAR
system. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC filing (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
  -7-
 (k) Absence
of Certain Changes . Since
December 31, 2003, there has been no material adverse change and no material
adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Since December 31, 2003, the Company has not (i) declared or
paid any dividends, (ii) sold any assets, individually or in the aggregate, in
excess of $500,000 outside of the ordinary course of business or (iii) had
capital expenditures, individually or in the aggregate, in excess of $750,000.
The Company has not taken any steps to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
The Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing, will not be Insolvent
(as defined below). For purposes of this Section 3(k), " **Insolvent** " means
(i) the present fair saleable value of the Company's assets is less than the
amount required to pay the Company's total Indebtedness (as defined in Section
3(r)), (ii) the Company is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Company intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such debts mature or
(iv) the Company has unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted.
  (l) No
Undisclosed Events, Liabilities, Developments or Circumstances . No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 or SB-2 filed with the
SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
  -8-
 (m) Conduct
of Business; Regulatory Permits . Neither
the Company nor its Subsidiaries is in violation of any term of or in default
under the Certificate of Incorporation or Bylaws or their organizational charter
or bylaws, respectively. Neither the Company nor any Subsidiary is in violation
of any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or its Subsidiaries, and neither the Company nor any
of its Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. Without limiting the generality
of the foregoing, the Company is not in violation of any of the rules,
regulations or requirements of the Principal Market and has no knowledge of any
facts or circumstances that would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future. Since
December 31, 2003, (i) the Common Stock has been designated for quotation or
listed on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal Market and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
  (n) Foreign
Corrupt Practices . Neither
the Company, nor any of its Subsidiaries, nor any director, officer, agent,
employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.
  (o) Sarbanes-Oxley
Act . The
Company is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof, except where such noncompliance would not have,
individually or in the aggregate, a Material Adverse Effect.
  (p) Transactions
With Affiliates . Except
as set forth in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2003 and as set forth in Schedule
3(p) , 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 ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
  -9-
 (q) Equity
Capitalization . As of
the date hereof, the authorized capital stock of the Company consists of (x)
50,000,000 shares of Common Stock, of which as of the date hereof, 24,266,497
shares are issued and outstanding and 10,525,345 shares are reserved for
issuance pursuant to the Company's employee incentive plan and other warrants,
exercisable or exchangeable for, or convertible into, shares of Common Stock,
and (y) 50,000,000 shares of convertible preferred stock, of which as of the
date hereof, none are issued and outstanding. All of such outstanding shares
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as set forth on Schedule
3(q) : (i) no
shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness (as
defined in Section 3(r)) of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (iv) there are no
financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with the Company; (v) there are no
agreements or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents (as defined herein) but not so
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company's or any Subsidiary's respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished or made available to the Buyer true, correct
and complete copies of the Company's
certificate of incorporation, as amended and as in effect on the date hereof
(the " **Certificate
of Incorporation** "), and
the Company's bylaws, as amended and as in effect on the date hereof (the
" **Bylaws** "), and
the terms of all securities convertible into, or exercisable or exchangeable
for, Common Stock and the material rights of the holders thereof in respect
thereto.
  -10-
 (r) Indebtedness
and Other Contracts . Except
as disclosed in Schedule
3(r) , neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as
defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument would result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under any contract, agreement
or instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company's officers, has or is expected to have a Material Adverse Effect. No
outstanding Indebtedness is secured. For purposes of this Agreement: (x)
" **Indebtedness** " of any
Person means, without duplication (A) all indebtedness for borrowed money, (B)
all obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) **"Contingent
Obligation"** means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) **"Person"** means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
  (s) Absence
of Litigation . Except
as set forth on Schedule
3(s) , there
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of its Subsidiaries or
any of the Company's or the Company's Subsidiary's officers or directors,
whether of a civil or criminal nature or otherwise. The matters set forth on Schedule
3(s) would
not have a Material Adverse Effect.
  -11-
 (t) 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 Subsidiary
has been refused any insurance coverage sought or applied for and neither the
Company nor any 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.
  (u) Employee
Relations . (i)
Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their employees are good. No
executive officer of the Company (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer of
the Company, to the knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing
matters.
  (ii) The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
  (v) Title . The
Company and its Subsidiaries have good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by
them which is material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects except such as
do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
  (w) Intellectual
Property Rights . The
Company and its Subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights (" **Intellectual
Property Rights** ")
necessary to conduct their respective businesses as now conducted. None of the
Company's Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company or any of its Subsidiaries
regarding its Intellectual Property Rights. The Company is unaware of any facts
or circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.
  -12-
 (x) Environmental
Laws . The
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term " **Environmental
Laws** " means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, " **Hazardous
Materials** ") **** into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
  (y) Tax
Status . The
Company and each of its Subsidiaries (i) has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
  (z) Internal
Accounting and Disclosure Controls . The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference, except where the failure to satisfy any of clauses (i) through (iv)
above, would not, individually or in the aggregate, be reasonably expected to
result in a Material Adverse Effect. The Company maintains disclosure controls
and procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that
are effective in ensuring that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed in to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.
  -13-
 (aa) Off
Balance Sheet Arrangements . There
is no transaction, arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse
Effect.
  (bb) Manipulation
of Price . The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
  (cc) Transfer
Taxes . On the
Closing Date, all stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the sale and transfer of
the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will
be or will have been complied with.
  (dd) Disclosure . The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their respective agents or counsel with any
information that constitutes or might constitute material, nonpublic
information. The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Buyers regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to
this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
press release issued by the Company during the twelve (12) months preceding the
date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or any Subsidiary or either of its or their respective 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).
The Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.
  -14-
 4. COVENANTS .
  (a) Best
Efforts . Each
party shall use its best efforts timely to satisfy each of the covenants and the
conditions to be satisfied by it as provided in Sections 5, 6 and 7 of this
Agreement.
  (b) Form D
and Blue Sky . The
Company agrees to file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company, on or before the Closing Date, shall take such action as
the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Buyers on or prior
to the Closing Date. The Company shall make all filings and reports relating to
the offer and sale of the Securities required under applicable securities or
"Blue Sky" laws of the states of the United States following the Closing
Date.
  (c) Reporting
Status . Until
the date on which the Investors (as defined in the Registration Rights
Agreement) shall have sold all the Common Shares and Warrant Shares **** and none
of the Warrants is outstanding (the " **Reporting
Period** "), the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
  (d) Use of
Proceeds . The
Company will use the proceeds from the sale of the Securities for general
corporate purposes, prospectively and retrospectively, including general and
administrative expenses and not for (i) the repayment of any outstanding
Indebtedness of the Company or any of its Subsidiaries in excess of $750,000 or
(ii) redemption or repurchase of any of its equity securities.
  (e) Financial
Information . The
Company agrees to send to each Buyer during the Reporting Period, unless the
following are filed with the SEC through EDGAR and are available to the public
through the EDGAR system, within one (1) Business Day after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly Reports
on Form 10-QSB, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, and (ii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. As used herein, " **Business
Day** " means
any day other than Saturday, Sunday or other day on which commercial banks in
The City of New York are authorized or required by law to remain
closed.
  (f) Listing . The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents. The Company shall maintain the Common Stock's
authorization for listing on the Principal Market. Neither the Company nor any
of its Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
  -15-
 (g) Fees . The
Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or broker's commissions (other than for Persons engaged
by any Buyer) relating to or arising out of the transactions contemplated
hereby, including, without limitation, any fees or commissions payable to the
Agent. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorney's
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment. Except as otherwise set forth in this Agreement or in the
Transaction Documents, each party to this Agreement shall bear its own expenses
in connection with the sale of the Securities to the Buyers.
  (h) Pledge
of Securities . The
Company acknowledges and agrees that the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(f) of this Agreement; provided that an Investor and its pledgee shall
be required to comply with the provisions of Section 2(f) of this Agreement in
order to effect a sale, transfer or assignment of Securities to such pledgee.
The Company hereby agrees to execute and deliver such documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by an Investor.
  (i) Additional
Registration Statements . Until
the date that the Registration Statement (as defined in the Registration Rights
Agreement) is first declared effective by the SEC (the " **Effective
Date** "), the
Company will not file a registration statement under the 1933 Act relating to
securities that are not the Securities, provided that the Company may include in
the Registration Statement the securities listed on Schedule 4(i).
  (j) Corporate
Existence . So long
as any Buyer beneficially owns any 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, except in
compliance with the Warrant, 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 quoted on or listed for trading on the Principal Market,
the New York Stock Exchange or the American Stock Exchange.
  (k) Reservation
of Shares . The
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, from and after the Closing Date,
the number
of shares of Common Stock issuable upon exercise of the Warrants being issued at
the Closing in conformity with Section 3(c).
  -16-
 5. TRANSFER
RESTRICTIONS; TRANSFER AGENT INSTRUCTIONS .
  (a) Transfer
Restrictions . The
legend set forth in Section 2(g) shall be removed and the Company shall issue a
certificate without such legend or any other legend to the holder of the
applicable Securities upon which it is stamped, if (i) in connection with any
sale of such Securities made pursuant to the Registration Statement and in
accordance with the prospectus delivery requirements under the 1933 Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that such sale, assignment or transfer of such Securities may be made
without registration under the applicable requirements of the 1933 Act and the
legend may be removed from such certificate in connection with such sale,
assignment or other transfer, or (iii) such holder provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144. The
Company shall cause Company Counsel (as defined below) to issue the legal
opinion included in the Irrevocable Transfer Agent Instructions to the Company’s
transfer agent on the Effective Date. Following the Effective Date or at such
earlier time as a legend is no longer required for certain Securities, the
Company will no later than three Business Days following the delivery by a Buyer
to the Company or the Company’s transfer agent of a legended certificate
representing such Securities, deliver or cause to be delivered to such Buyer a
certificate representing such Securities that is free from all restrictive and
other legends. Following the Effective Date and upon the delivery to any Buyer
of any certificate representing Securities that is free from all restrictive and
other legends, such Buyer agrees that any sale of such Securities shall be made
pursuant to the Registration Statement and in accordance with the plan of
distribution described therein or pursuant to an available exemption from the
registration requirements of the 1933 Act. The Company may not make any notation
on its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in Section 2(g). The Company will
not effect or publicly announce its intention to effect any exchange,
recapitalization or other transaction that effectively requires or rewards
physical delivery of certificates evidencing the Common Stock.
  (b) Transfer
Agent Instructions . The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of each
Buyer or its respective nominee(s), for the Warrant Shares **** in such
amounts as specified from time to time by each Buyer to the Company upon
exercise of the Warrants in the form of Exhibit
C attached
hereto (the " **Irrevocable
Transfer Agent Instructions** "). The
Company represents and 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, will be given by the Company
to its transfer agent with respect to the Securities, 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 other Transaction
Documents.
  (c) Breach . The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that a Buyer shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
  -17-
 (d) Additional
Relief . If the
Company shall fail for any reason or for no reason to issue to such holder
unlegended certificates within five (5) Business Days of receipt of documents
necessary for the removal of legend set forth above (the " **Deadline
Date** "), then,
in addition to all other remedies available to the holder, if on or after the
Business Day immediately following such five Business Day period, the holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the holder of shares of Common Stock that
the holder anticipated receiving from the Company (a **"Buy-In"** ), then
the Company shall, within five Business Days after the holder's request and in
the holder's discretion, either (i) pay cash to the holder in an amount equal to
the holder's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the **"Buy-In
Price"** ), at
which point the Company's obligation to deliver such certificate (and to issue
such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the holder a certificate or certificates representing
such shares of Common Stock and pay cash to the holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price (as defined in the
Warrants) on the Deadline Date.
  6. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL .
  The
obligation of the Company hereunder to issue and sell the Common Shares and the
related Warrants to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
  (a) Such
Buyer shall have executed each of the Transaction Documents to which it is a
party and delivered the same to the Company.
  (b) Such
Buyer shall have delivered to the Company the Purchase Price for the Common
Shares and the related Warrants being purchased by such Buyer and each other
Buyer at the Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
  (c) The
representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and such Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such Buyer at or
prior to the Closing Date.
  (d) At any
time that the Buyer or any other Person shall have a beneficial ownership
interest (within the meaning of Rule 13d-3 under the 1934 Act), or a direct or
indirect pecuniary interest (within the meaning of Rule 16-a-1(a)(2) under the
1934 Act) in the Securities, the Buyer and each such Person shall not, directly
or indirectly, make any short sale or maintain any short position, establish or
maintain a “put equivalent position” (within the meaning of Rule 16-a-1(h) under
the 1934 Act), enter into any swap, derivative transaction or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock (whether any such transaction is to be settled
by delivery of Common Stock, other securities, cash or other consideration) or
any securities convertible into, exercisable for or exchangeable for Common
Stock of the Company.
  -18-
 7. CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE .
  The
obligation of each Buyer hereunder to purchase the Common Shares and the related
Warrants at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion by providing the Company with prior written notice
thereof:
  (a) The
Company shall have executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Common Shares (in such amounts as such Buyer
shall request) **** and the
related Warrants (in such amounts as such Buyer shall request) being purchased
by such Buyer at the Closing pursuant to this Agreement.
  (b) The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit
C attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
  (c) The
Common Stock (i) shall be listed on the Principal Market and (ii) shall not have
been suspended, as of the Closing Date, by the SEC or the Principal Market from
trading on the Principal Market nor shall suspension by the SEC or the Principal
Market have been threatened, as of the Closing Date, either (A) in writing by
the SEC or the Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market.
  (d) The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date.
  (e) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Common Shares and the
Warrants.
  (f) The
Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
  8. TERMINATION . In the
event that the Closing shall not have occurred with respect to a Buyer on or
before ten (10) days from the date hereof due to the Company's or such Buyer's
failure to satisfy the conditions set forth in Sections 6 and 7 above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party.
  -19-
 9. MISCELLANEOUS .
  (a) Governing
Law; Jurisdiction; Jury Trial . All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of
Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Delaware. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the
Fulton County, Georgia, or any federal court sitting in the Northern District of
Georgia, Atlanta  Division for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. **EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.**
  (b) Counterparts . This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.
  (c) Headings . The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
  (d) Severability . If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
  (e) Entire
Agreement; Amendments . This
Agreement supersedes all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the holders of Common Shares representing at least a majority of
the amount of the Common Shares, or, if prior to the Closing Date, the Buyers
listed on the Schedule of Buyers as being obligated to purchase at least a
majority of the amount of the Common Shares. No provision hereof may be waived
other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Common Shares then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Common Shares or holders of the Warrants,
as the case may be. The Company has not, directly or indirectly, made any
agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
  -20-
 (f) Notices . Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
  If to the
Company:
  SmartVideo
Technologies, Inc.
 1650
Oakbrook Drive, Suite 405
 Norcross,
Georgia 30093
 Telephone:  (770)
729-8777
 Facsimile:  (678)
969-2791
 Attention:  Richard
E. Bennett, Jr.
  with a
copy to:
  Jenkens
& Gilchrist, LLP
 12100
Wilshire Boulevard, 15 th Floor
 Los
Angeles, California 90025-7120
 Telephone:  (310)
820-8800
 Facsimile:  (310)
820-8859
 Attention:  Jeffrey
Berg, Esq., Esq.
  If to the
Transfer Agent:
  Continental
Stock Transfer and Trust Company
 17
Battery Place South
 8 th Floor
 New York,
New York 10004
 Telephone:  (212)
845-3217
 Facsimile:  (212)
616-7616
 
 -21-
 If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule of
Buyers, or to such other address and/or facsimile number and/or to the attention
of such other Person as the recipient party has specified by written notice
given to each other party five (5) days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
  (g) Successors
and Assigns . This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Common
Shares or the Warrants. The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the holders
of Common Shares representing at least a majority of the number of the Common
Shares, including by merger or consolidation. A Buyer may assign some or all of
its rights hereunder without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned
rights.
  (h) No
Third Party Beneficiaries . This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
  (i) Survival . Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3, the agreements and
covenants set forth in Sections 4, 5 and 9 shall survive the Closing and the
delivery and exercise of Securities, as applicable. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
  (j) Further
Assurances . Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
  (k) Indemnification . In
consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the " **Indemnitees** ") from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the " **Indemnified
Liabilities** "),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (iii) the
status of such Buyer or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
  -22-
 (l) No
Strict Construction . The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.
  (m) Remedies . Each
Buyer and each holder of the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.
  (n) Rescission and
Withdrawal Right .
Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any Buyer exercises a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Buyer may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights.
  (o) Payment
Set Aside . To the
extent that the Company makes a payment or payments to the Buyers hereunder or
pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not
occurred.
  -23-
 (p) Independent
Nature of Buyers' Obligations and Rights . The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents and the Company acknowledges that the Buyers are not acting in concert
or as a group with respect to such obligations or the transactions contemplated
by the Transaction Documents. Each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.
  
  **[Signature
Page Follows]**
   -24-
   **IN
WITNESS WHEREOF,** each
Buyer and the Company have caused its respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
 
 **COMPANY:******SMARTVIDEO
      TECHNOLOGIES****,
      INC.****By:
    /s/Name: Richard E. Bennett, Jr.Title: Chief
      Executive Officer
 ****
  
   
 **IN
WITNESS WHEREOF,** each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
 
  
  Buyers: ________________________________________
    By:
____________________________________________
 Name:
 Title:
 
  
   **SCHEDULE
OF BUYERS**
  **Buyer**
    **Number
      ofCommon Shares**
    **Number
      ofWarrant Shares**
    **Purchase
      Price****Nite**
      **Capital,
      LP**
    266,667
    133,334
    
    $600,000**Enable**
      **Capital
      Management, LLC**
    266,667
    133,334
    
    $600,000**Forte
      Capital Partners, LLC**
    506,667
    253,334
    
    $1,140,000**JR
      Squared, LLC**
    122,222
    61,111
    
    $275,000**Meadowbrook
      Opportunity Fund, LLC**
    177,778
    88,889
    
    $400,000**Dale
      Newberg**
    24,889
    12,445
    
    $56,000**Lewis
      Opportunity Fund LP**
    25,000
    12,500
    
    $56,250**Joseph
      Patrick Womack**
    11,112
    5,556
    
    $25,000**Kirby
      Pearson**
    12,000
    6,000
    
    $27,000**Robert
      J. Donnan**
    13,334
    6,667
    
    $30,000**Todd
      Rowan**
    2,224
    1,112
    
    $5,000**J.
      Mark Leho**
    20,000
    10,000
    
    $45,000**Jeffrey
      M. Charatz**
    4,446
    2,223
    
    $10,000**William
      F. Johnson**
    10,000
    5,000
    
    $22,500**William
      B. Bandy**
    150,000
    75,000
    
    $337,500**John
      P. Sorin**
    22,223
    11,112
    
    $50,000**Stuart
      & Lesley Mainse**
    53,334
    26,667
    
    $120,000
  
  **Buyer**
    **Number
      ofCommon Shares**
    **Number
      ofWarrant Shares**
    **Purchase
      Price**
 **Justin
      A. Stanley, Jr.**
    11,112
    5,556
    
    $25,000**Scott
      N. Stoliar**
    11,112
    5,556
    
    $25,000**Harlan
      F. Stanley**
    20,000
    10,000
    
    $45,000**Ladasa
      Investments Inc.**
    22,222
    11,111
    
    $50,000**John
      G. Musgjerd**
    11,112
    5,556
    
    $25,000**Peter
      A. Wolf Irrevocable Trust**
    6,667
    3,334
    
    $15,000**Caroline
      E. Wolf Irrevocable Trust**
    6,667
    3,334
    
    $15,000**Alfred
      Guindi**
    20,000
    10,000
    
    $45,000**Frederick
      Schuler**
    11,112
    5,556
    
    $25,000**Thomas
      Bivens**
    226,000
    113,000
    
    $508,500**William
      J. Beaton, Jr.**
    22,222
    11,111
    
    $50,000**William
      J. Beaton, III Irrevocable Trust**
    22,222
    11,111
    
    $50,000**Randy
      D. Abeles**
    11,112
    5,556
    
    $25,000**TOTAL**
    2,067,900
    1,033,953
    
    $4,652,750.00