Unassociated Document


    
       

      DRAWDOWN EQUITY FINANCING
AGREEMENT

       

      THIS AGREEMENT dated as of the
day of March 18, 2010 (the “Agreement”) between
Auctus Private Equity Fund,
LLC a Massachusetts corporation (the “Investor”), and Smart Kids Group, Inc. a
corporation organized and existing under the laws of the Florida (the “Company”).

       

      WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Company
shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to Ten
Million  Dollars ($10,000,000) of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”);
and

       

      WHEREAS, such investments will
be made in reliance upon the provisions of Regulation D (“Regulation D”) of the
Securities Act of 1933, as amended, and the regulations promulgated thereunder
(the “Securities
Act”), and or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.

       

      WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement substantially in the
form attached hereto (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 parties hereto
agree as follows:

       

      ARTICLE
I.

      Certain
Definitions

       

      Section
1.1.       “Advance” shall mean
the portion of the Commitment Amount requested by the Company in the Drawdown
Notice.

       

      Section
1.2.       “Advance Date” shall
mean the first (1st)
Trading Day after expiration of the applicable Pricing Period for each
Advance.

       

      Section
1.3.       “Drawdown Notice”
shall mean a written notice in the form of Exhibit A attached
hereto to the Investor executed by an officer of the Company and setting forth
the Advance amount that the Company requests from the Investor.

       

      Section
1.4.       “Drawdown Notice Date”
shall mean each date the Company delivers (in accordance with Section 2.2(b) of
this Agreement) to the Investor a Drawdown Notice requiring the Investor to
advance funds to the Company, subject to the terms of this
Agreement.  No Drawdown Notice Date shall be less than five (5)
Trading Days after the prior Drawdown Notice Date.

       

      Section
1.5.       “Bid Price” shall
mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of the
Common Stock on the Principal Market or if the Common Stock is not traded on a
Principal Market, the highest reported bid price for the Common Stock, as
furnished by the National Association of Securities Dealers, Inc.

       

      Section
1.6.       “Closing” shall mean
one of the closings of a purchase and sale of Common Stock pursuant to Section
2.3.

       

      
        
          
          

        

        
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      Section
1.7.       “Commitment Amount”
shall mean the aggregate amount of up to Ten Million Dollars ($10,000,000) which
the Investor has agreed to provide to the Company in order to purchase the
Company’s Common Stock pursuant to the terms and conditions of this
Agreement.

       

      Section
1.8.       “Commitment Period”
shall mean the period commencing on the earlier to occur of (i) the Effective
Date, or (ii) such earlier date as the Company and the Investor may mutually
agree in writing, and expiring on the earliest to occur of (x) the date on which
the Investor shall have made payment of Advances pursuant to this Agreement in
the aggregate amount of the Commitment Amount, (y) the date this Agreement is
terminated pursuant to Section 10.2 or (z) the date occurring twenty-four (24)
months after the Effective Date.

       

      Section
1.9.       “Common Stock” shall
mean the Company’s common stock, par value $0.0001 per share.

       

      Section
1.10.     “Condition Satisfaction
Date” shall have the meaning set forth in Section 7.2.

       

      Section
1.11.     “Damages” shall mean
any loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorney’s fees and disbursements and costs and expenses
of expert witnesses and investigation).

       

      Section
1.12.     “Effective Date” shall
mean the date on which the SEC first declares effective a Registration Statement
registering the resale of the Registrable Securities as set forth in Section
7.2(a).

       

      Section
1.13.     “Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

       

      Section
1.14.     “Floor” shall mean Seventy-Five (75%) of the
average closing bid price of the stock over the preceding ten (10) trading days
prior to the Drawdown Notice Date “Floor Price”. The “Floor” can be waived at
the discretion of the Company.

       

      (a) The
Company, in its sole and absolute discretion, may waive its right with respect
to the Floor and allow the Investor to sell any shares below the Floor Price. In
the event that the Company does not waive its right with respect to the Floor,
the Investor shall immediately cease selling any shares within the Drawdown
Notice if the price falls below the Floor Price.

       

      Section
1.15.     “Material Adverse
Effect” shall mean any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement or the
Registration Rights Agreement in any material respect.

       

      Section
1.16.     “Market Price” shall
mean the lowest closing Bid Price of the Common Stock during the Pricing
Period.

       

      Section
1.17.     “Maximum Advance
Amount” shall not exceed Two Hundred Fifty Thousand
Dollars ($250,000) or two hundred (200%) percent of the average daily
volume based on the trailing twenty (20) days preceding the Drawdown Notice date
whichever is of a larger value.

       

      Section
1.18.     “NASD” shall mean the
National Association of Securities Dealers, Inc.

       

      Section
1.19.     “Person” shall mean an
individual, a corporation, a partnership, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.

       

      
        
          
          

        

        
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      Section
1.20.     “Pricing Period” shall
mean the five (5) consecutive Trading Days after the Drawdown Notice
Date.

       

      Section
1.21.    “Principal Market”
shall mean the Nasdaq National Market, the Nasdaq Capital Market, the American
Stock Exchange, the OTC Bulletin Board, OTC Pink Sheets or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.

       

      Section
1.22.     “Purchase Price” shall
be set at Ninety-Five percent (95%) of the lowest closing bid price of the
common stock during the Pricing Period.

       

      Section
1.23.     “Registrable
Securities” shall mean the shares of Common Stock to be issued
hereunder (i) in
respect of which the Registration Statement has not been declared effective by
the SEC, (ii) which have not been sold under circumstances meeting all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act (“Rule 144”) or (iii)
which have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.

       

      Section
1.24.     “Registration Rights
Agreement” shall mean the Registration Rights Agreement dated the date
hereof, regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the
Investor.

       

      Section
1.25.     “Registration
Statement” shall mean a registration statement on Form S-1  (if
use of such form is then available to the Company pursuant to the rules of the
SEC and, if not, on such other form promulgated by the SEC for which the Company
then qualifies and which counsel for the Company shall deem appropriate, and
which form shall be available for the resale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement and
the Registration Rights Agreement, and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.

       

      Section
1.26.     “Regulation D” shall
have the meaning set forth in the recitals of this Agreement.

       

      Section
1.27.     “SEC” shall mean the
United States Securities and Exchange Commission.

       

      Section
1.28.     “Securities Act” shall
have the meaning set forth in the recitals of this Agreement.

       

      Section
1.29.     “SEC Documents” shall
mean Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and Proxy Statements of the Company as supplemented to the
date hereof, filed by the Company for a period of at least twelve (12) months
immediately preceding the date hereof or the Advance Date, as the case may be,
until such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.

       

      Section
1.30.     “Trading Day” shall
mean any day during which the New York Stock Exchange shall be open for
business.

       

      
        
          
          

        

        
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      ARTICLE
II.

      Advances

       

      Section
2.1.       Advances.

       

      (a)       Subject
to the terms and conditions of this Agreement (including, without limitation,
the provisions of Article VII hereof), the Company, at its sole and exclusive
option, may issue and sell to the Investor, and, except for conditions outside
of the Investor’s control, the Investor shall be obligated to purchase from the
Company, shares of the Company’s Common Stock by the delivery, in the Company’s
sole discretion, of Drawdown Notices.  The number of shares of Common
Stock that the Investor shall purchase pursuant to each Advance shall be
determined by dividing the amount of the Advance by the Purchase
Price.  No fractional shares shall be issued. Fractional shares shall
be rounded to the next higher whole number of shares.  The aggregate
maximum amount of all Advances that the Investor shall be obligated to make
under this Agreement shall not exceed the Commitment Amount.

       

      (b)      The
Investor shall immediately cease selling any shares within the Drawdown Notice
if the price falls below the Floor Price. The Company, in its sole and absolute
discretion, may waive its right with respect to the Floor and allow the Investor
to sell any shares below the Floor Price.  Only when the closing bid
price of the stock is above the Floor Price (the price at the time when the
Investor must immediately cease selling shares) may the Investor reinitiate
selling of any shares without such waiver from the Company required under this
subsection.

       

      Section
2.2.       Mechanics.

       

      (a)       Drawdown
Notice.  At any time during the Commitment Period, the Company
may request the Investor to purchase shares of Common Stock by delivering a
Drawdown Notice to the Investor, subject to the conditions set forth in
Section 7.2; provided, however, the amount for each Advance as designated
by the Company in the applicable Drawdown Notice shall not be more than the
Maximum Advance Amount and the aggregate amount of the Advances pursuant to this
Agreement shall not exceed the Commitment Amount.  The Company
acknowledges that the Investor may sell shares of the Company’s Common Stock
corresponding with a particular Drawdown Notice after the Drawdown Notice is
received by the Investor.  There shall be a minimum of five (5)
Trading Days between each Drawdown Notice Date.

       

      (b)      Date of Delivery of Drawdown
Notice.  A Drawdown Notice shall be deemed delivered on: (i)
the Trading Day it is received by email to louposner@auctusfund.com and
als@auctusfund.com if such notice is received prior to 5:00 pm Eastern Time; or
(ii) the immediately succeeding Trading Day if Drawdown Notice is received by
facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day.  No Drawdown Notice may be
deemed delivered on a day that is not a Trading Day or if positive receipt is
not acknowledged by Auctus.

       

      Section
2.3.       Closings.  On
each Advance Date (i) the Company shall deliver to the Investor such number of
shares of the Common Stock registered in the name of the Investor as shall equal
(x) the amount of the Advance specified in such Drawdown Notice pursuant to
Section 2.1 herein, divided by (y) the Purchase Price and (ii) upon receipt of
such shares, the Investor shall deliver to the Company the amount of the Advance
specified in the Drawdown Notice by wire transfer of immediately available
funds.  In addition, on or prior to the Advance Date, each of the
Company and the Investor shall deliver to the other all documents, instruments
and writings required to be delivered by either of them pursuant to this
Agreement in order to implement and effect the transactions contemplated
herein.  To the extent the Company has not paid the fees, expenses,
and disbursements of the Investor in accordance with Section 12.4, the amount of
such fees, expenses, and disbursements may be deducted by the Investor (and
shall be paid to the relevant party) directly out of the proceeds of the Advance
with no reduction in the amount of shares of the Company’s Common Stock to be
delivered on such Advance Date.

       

      
        
          
          

        

        
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                (a)

              	
                Company’s Obligations
      Upon Closing.

              


      

       

      (i)          The
Company shall use all reasonable efforts to become DTC eligible within a
reasonable time of the date of this Agreement.  Upon approval of DTC
eligibility, the Company shall deliver to the Investor, through the use of a
Deposit/Withdrawal at Custodian from a Deposit Trust Company method or commonly
referred to as “DWAC/DTC” of the Investor’s choosing, the shares of Common Stock
applicable to the Advance in accordance with Section 2.3.  The
certificates evidencing such shares shall be free of restrictive
legends.  Upon receipt, Investor will perform a wire transfer on the
same business day provided that the shares have been received in sufficient time
to perform such transfer.  In the event that the Investor is no longer
able, due to time constraints beyond his control, to perform a wire on the day
of receipt, the wire will be promptly executed the following business
day.

       

      (ii)         the
Company’s Registration Statement with respect to the resale of the shares of
Common Stock delivered in connection with the Advance shall have been declared
effective by the SEC;

       

      (iii)        the
Company shall have obtained all material permits and qualifications required by
any applicable state for the offer and sale of the Registrable Securities, or
shall have the availability of exemptions therefrom.  The sale and
issuance of the Registrable Securities shall be legally permitted by all laws
and regulations to which the Company is subject;

       

      (iv)        the
Company shall file with the SEC in a timely manner all reports, notices and
other documents required of a “reporting company” under the Exchange Act and
applicable Commission regulations;

       

      (v)         the
fees as set forth in Section 12.4 below shall have been paid or can be withheld
as provided in Section 2.3; and

       

      (vi)        The
Company’s transfer agent shall be DWAC eligible.

       

      (b)      
      Investor’s Obligations Upon
Closing.     Upon receipt of the shares
referenced in Section 2.3(a)(i) above and provided the Company is in compliance
with its obligations in Section 2.3, the Investor shall deliver to the Company
the amount of the Advance specified in the Drawdown Notice by wire transfer of
immediately available funds.

       

      Section
2.4.       Hardship.  In
the event the Investor sells shares of the Company’s Common Stock after receipt
of an Drawdown Notice and the Company fails to perform its obligations as
mandated in Section 2.3, and specifically the Company fails to deliver to the
Investor on the Advance Date the shares of Common Stock corresponding to the
applicable Advance pursuant to Section 2.3(a)(i), the Company acknowledges that
the Investor shall suffer financial hardship and therefore shall be liable for
any and all losses, commissions, fees, interest, legal fees or any other
financial hardship caused to the Investor.

       

      The
Company understands that a delay in the delivery of the securities in the form
required pursuant to this registration statement beyond the Closing could result
in economic loss to the Investor.  After the Effective Date, as
compensation to the Investor for late issuance of such shares (delivery of
securities after the applicable closing), the Company agrees to make payments to
the Investor in accordance with the schedule below where the number of days
overdue is defined as the number of business days beyond the close with amount
due being cumulative.

       

      
        
          
          

        

        
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      The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.  Nothing herein shall limit the right of
the Investor to pursue damages for the Company’s failure to comply with the
issuance and delivery of securities to the Investor.

       

      
        
          
            
              
                
                  	
                          Payments
      for Each Number of Days Overdue

                        	 	
                          For
      each $10,000 Worth of Common Stock

                        
	 
      	 	 
      
	
                          1

                        	 	
                          $100

                        
	
                          2

                        	 	
                          $200

                        
	
                          3

                        	 	
                          $300

                        
	
                          4

                        	 	
                          $400

                        
	
                          5

                        	 	
                          $500

                        
	
                          6

                        	 	
                          $600

                        
	
                          7

                        	 	
                          $700

                        
	
                          8

                        	 	
                          $800

                        
	
                          9

                        	 	
                          $900

                        
	
                          10

                        	 	
                          $1000

                        
	
                          Over
      10

                        	 	
                          $1000
      + $200 for each Business Day beyond the tenth
  day

                        


                

              

            

          

        

      

       

      ARTICLE
III.

      Representations
and Warranties of Investor

       

      Investor
hereby represents and warrants to, and agrees with, the Company that the
following are true and correct as of the date hereof and as of each Advance
Date:

       

      Section
3.1.       Organization and
Authorization.  The Investor is duly incorporated or organized
and validly existing in the jurisdiction of its incorporation or organization
and has all requisite power and authority to purchase and hold the securities
issuable hereunder.  The decision to invest and the execution and
delivery of this Agreement by such Investor, the performance by such Investor of
its obligations hereunder and the consummation by such Investor of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Investor.  The undersigned has the
right, power and authority to execute and deliver this Agreement and all other
instruments (including, without limitations, the Registration Rights Agreement),
on behalf of the Investor.  This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.

       

      Section
3.1.1.    Evaluation of
Risks.  The Investor has such knowledge and experience in
financial, tax and business matters as to be capable of evaluating the merits
and risks of, and bearing the economic risks entailed by, an investment in the
Company and of protecting its interests in connection with this
transaction.  It recognizes that its investment in the Company
involves a high degree of risk.

       

      Section
3.2.       No Legal Advice From the
Company.  The Investor acknowledges that it had the opportunity
to review this Agreement and the transactions contemplated by this Agreement
with his or its own legal counsel and investment and tax
advisors.  The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.

       

      
        
          
          

        

        
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      Section
3.3.       Investment Purpose.
The securities are being purchased by the Investor for its own account, and for
investment purposes.  The Investor agrees not to assign or in any way
transfer the Investor’s rights to the securities or any interest therein and
acknowledges that the Company will not recognize any purported assignment or
transfer except in accordance with applicable Federal and state securities
laws.  No other person has or will have a direct or indirect
beneficial interest in the securities.  The Investor agrees not to
sell, hypothecate or otherwise transfer the Investor’s securities unless the
securities are registered under Federal and applicable state securities laws or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.

       

      Section
3.4.       Accredited
Investor.  The Investor is an “Accredited Investor”
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities
Act.

       

      Section
3.5.       Information.  The
Investor and its advisors (and its counsel), if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and information it deemed material to making an informed investment
decision.  The Investor and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and its
management.  Neither such inquiries nor any other due diligence
investigations conducted by such Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor’s right to rely on
the Company’s representations and warranties contained in this
Agreement.  The Investor understands that its investment involves a
high degree of risk.  The Investor is in a position regarding the
Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Investor to obtain information from
the Company in order to evaluate the merits and risks of this
investment.  The Investor has sought such accounting, legal and tax
advice, as it has considered necessary to make an informed investment decision
with respect to this transaction.

       

      Section
3.6.       Receipt of Documents.
The Investor and its counsel have received and read in their
entirety:  (i) this Agreement and the Exhibits annexed hereto; (ii)
all due diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; and (iii)
answers to all questions the Investor submitted to the Company regarding an
investment in the Company; and the Investor has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.

       

      Section
3.7.       Registration Rights
Agreement.  The parties have entered into the Registration
Rights Agreement dated the date hereof.

       

      Section
3.8.       No General
Solicitation.  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 under
the Securities Act) in connection with the offer or sale of the shares of Common
Stock offered hereby.

       

      Section
3.9.       Not an
Affiliate.  The Investor is not an officer, director or a
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with the Company or any “Affiliate” of the
Company (as that term is defined in Rule 405 of the Securities
Act).

       

      
        
          
          

        

        
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      Section
3.10.     Trading
Activities.  The Investor’s
trading activities with respect to the Company’s Common Stock shall be in
compliance with all applicable federal and state securities laws, rules and
regulations and the rules and regulations of the Principal Market on which the
Company’s Common Stock is listed or traded and Investor will comply with any
requests that the SEC makes in connection with the Filing of the Registration
Agreement to ensure such compliance. Neither the Investor nor its
affiliates has an open short position in the Common Stock of the Company, the
Investor agrees that it shall not, and that it will cause its affiliates not to,
engage in any short sales of or hedging transactions with respect to the Common
Stock, provided that the Company acknowledges and agrees that upon receipt of an
Drawdown Notice the Investor has the right to sell the shares to be issued to
the Investor pursuant to the Drawdown Notice
during the applicable Pricing Period.

       

      Section
3.11      No Registration as a
Dealer. The Investor is not and will not be
required to be registered as a "dealer" under the 1934 Act, either as a result
of its execution and performance of its obligations under this Agreement or
otherwise.

       

      Section
3.12      Good Standing. The
Investor is a limited liability company, duly organized, validly existing and in
good standing under the laws of its state of formation and any jurisdiction in
which it is conducting business.

       

      ARTICLE
IV.

      Representations
and Warranties of the Company

       

      Except as
stated below, on the disclosure schedules attached hereto or in the SEC
Documents (as defined herein), the Company hereby represents and warrants to,
and covenants with, the Investor that the following are true and correct as of
the date hereof:

       

      Section
4.1.       Organization and
Qualification.  The Company is duly incorporated or organized
and validly existing in the jurisdiction of its incorporation or organization
and has all requisite corporate power to own its properties and to carry on its
business as now being conducted.  Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect on the Company and its subsidiaries taken as a
whole.

       

      Section
4.2.      Authorization, Enforcement,
Compliance with Other Instruments.  (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Placement Agent Agreement and
any related agreements, in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Registration Rights Agreement,
the Placement Agent Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, 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, (iii) this Agreement, the Registration Rights Agreement, the
Placement Agent Agreement and any related agreements have been duly executed and
delivered by the Company, (iv) this Agreement, the Registration Rights
Agreement, the Placement Agent Agreement and assuming the execution and delivery
thereof and acceptance by the Investor and any related agreements constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and
remedies.

       

      
        
          
          

        

        
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      Section
4.2.1.    Capitalization.  The
authorized capital stock of the Company consists of 400,000,000 shares of Common
Stock, $0.0001 par value; 129.087,000 ans 122,748,500 shares issued and
outstanding, respectively. All of such outstanding shares have been validly
issued and are fully paid and nonassessable.  Except as disclosed in
the SEC Documents, no shares of Common Stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company.  Except as disclosed in the SEC Documents, as of the date
hereof, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities (iii) there are no
outstanding registration statements other than on Form S-1and (iv) 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 Securities
Act (except pursuant to the Registration Rights Agreement).  There are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any related agreement or the consummation
of the transactions described herein or therein.  This section shall
not prevent the Company, after the date hereof, from obtaining other funding or
other means of financing.

       

      The
Company has furnished to the Investor true and correct 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 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 and the
material rights of the holders thereof in respect thereto.

       

      Section
4.3.       No
Conflict.  The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or 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
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect.  Except as disclosed in the SEC Documents,
neither the Company nor its subsidiaries is in violation of any term of or in
default under its Articles of Incorporation or By-laws or their organizational
charter or by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries.  The
business of the Company and its subsidiaries is not being conducted in violation
of any material law, ordinance, regulation of any governmental
entity.  Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement or the Registration Rights Agreement in
accordance with the terms hereof or thereof.  All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.  The Company and its subsidiaries are
unaware of any fact or circumstance which might give rise to any of the
foregoing.

       

      
        
          
          

        

        
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      Section
4.4.       SEC Documents; Financial
Statements.   As of the date hereof, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act.    As of their
respective dates, to the Company’s knowledge, the financial statements of the
Company disclosed in the SEC Documents (the “Financial
Statements”) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto.  Such financial statements have been prepared in
accordance with 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 Investor which is not
included in the SEC Documents 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 circumstances under which they were made, not
misleading.

       

      Section
4.5.       No
Default.  Except as disclosed in Exhibit 4.7, the Company is
not in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it is or its property is bound and neither the execution, nor the delivery
by the Company, nor the performance by the Company of its obligations under this
Agreement or any of the exhibits or attachments hereto will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under its Certificate of
Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company
is a party or by which it is bound, or any statute, or any decree, judgment,
order, rules or regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, in each case which default,
lien or charge is likely to cause a Material Adverse Effect on the Company’s
business or financial condition.

       

      Section
4.6.       Absence of Events of
Default.  Except for matters described in Exhibit 4.8 and/or
this Agreement, no Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or
the passage of time or both, would become an Event of Default (as so defined),
has occurred and is continuing, which would have a Material Adverse Effect on
the Company’s business, properties, prospects, financial condition or results of
operations.

       

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

       

      
        
          
          

        

        
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      Section
4.8.       Employee
Relations.  Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened.  None of the Company’s
or its subsidiaries’ employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are
good.

       

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

       

      Section
4.10.     Title.  Except
as set forth in Exhibit 4.10, the Company has good and marketable title to its
properties and material assets owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.  Any real property
and facilities held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries.

       

      Section
4.11.     Insurance. Except as
set forth in Exhibit 4.11, the Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged.  Neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.

       

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

       

      Section
4.13.     Internal Accounting
Controls.  The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (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. Representation by the company relating
to internal controls will be made at such time the registration filing has been
approved.

       

      
        
          
          

        

        
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      Section
4.14.     No Material Adverse
Breaches, etc.  Except as set forth in Exhibit 4.16, 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 on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries.  Except as set forth in the SEC Documents, neither the
Company nor any of its subsidiaries is in breach of any contract or agreement
which breach, in the judgment of the Company’s officers, has or is expected to
have a Material Adverse Effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries.

       

      Section
4.15.     Absence of
Litigation.  Except as set forth in Exhibit 4.17, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company’s
subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have
a Material Adverse Effect on the transactions contemplated hereby (ii) adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.

       

      Section
4.16.     Subsidiaries.  Except
as disclosed in Exhibit 4.18, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
association or other business entity.

       

      Section
4.17.     Tax
Status.  Except as disclosed in Exhibit 4.19, the Company and
each of its subsidiaries 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 and (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

       

      Section
4.18.     Certain
Transactions.  Except as set forth in Exhibit 4.20 none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

       

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

       

      
        
          
          

        

        
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      Section
4.20.     Use of
Proceeds.  The Company shall use the net proceeds from this
offering for general corporate purposes, including, without limitation, the
payment of loans incurred by the Company.  However, in no event shall
the Company use the net proceeds from this offering for the payment (or loan to
any such person for the payment) of any judgment, or other liability, incurred
by any executive officer, officer, director or employee of the Company, except
for any liability owed to such person for services rendered, or if any judgment
or other liability is incurred by such person originating from services rendered
to the Company, or the Company has indemnified such person from
liability.

       

      Section
4.21.     Further Representation and
Warranties of the Company.  For so long as any securities
issuable hereunder held by the Investor remain outstanding, the Company
acknowledges, represents, warrants and agrees that it will maintain the listing
of its Common Stock on the Principal Market.

       

      Section
4.22.     Opinion of
Counsel.  Investor shall receive an opinion letter from counsel
to the Company on the date hereof.

       

      Section
4.23.     Opinion of
Counsel.  The Company will obtain for the Investor, at the
Company’s expense, any and all opinions of counsel which may be reasonably
required in order to sell the securities issuable hereunder without
restriction.

       

      Section
4.24.     Dilution.  The
Company is aware and acknowledges that issuance of shares of the Company’s
Common Stock could cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of Common
Stock.

       

      ARTICLE
V.

      Indemnification

       

      The
Investor and the Company represent to the other the following with respect to
itself:

       

      Section
5.1.       Indemnification.

       

      (a)       In
consideration of the Investor’s execution and delivery of this Agreement, and in
addition to all of the Company’s other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Investor, and all
of its officers, directors, partners, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Investor
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 Investor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by the Investor Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement 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 this Agreement or the Registration Rights
Agreement 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 Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees.  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.

       

      
        
          
          

        

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

       

      (c)       The obligations of the parties to indemnify or make
contribution under this Section 5.1 shall survive
termination.

       

      ARTICLE
VI.

      Covenants
of the Company

       

      Section
6.1.       Registration
Rights.  The Company shall cause the Registration Rights
Agreement to remain in full force and effect and the Company shall comply in all
material respects with the terms thereof.

       

      Section
6.2.       Listing of Common
Stock.  The Company shall maintain the Common Stock’s
authorization for quotation on the Principal Market.

       

      Section
6.3.       Exchange Act
Registration.  The Company will cause its Common Stock to
continue to be registered under Section 12(g) of the Exchange Act, will file in
a timely manner all reports and other documents required of it as a reporting
company under the Exchange Act and will not take any action or file any document
(whether or not permitted by Exchange Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said Exchange Act.

       

      Section
6.4.       Transfer Agent
Instructions.  Upon effectiveness of the Registration Statement
the Company shall deliver instructions to its transfer agent to issue shares of
Common Stock to the Investor free of restrictive legends on or before each
Advance Date.

       

      Section
6.5.       Corporate
Existence.  The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.

       

      
        
          
          

        

        
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      Section
6.6.       Notice of Certain Events
Affecting Registration; Suspension of Right to Make an
Advance.  The Company will immediately notify the Investor upon
its becoming aware of the occurrence of any of the following events in respect
of a registration statement or related prospectus relating to an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other Federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the registration statement or related prospectus; (ii) the issuance by the SEC
or any other Federal or state governmental authority of  any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus.  The Company shall not deliver to the Investor
any Drawdown Notice during the continuation of any of the foregoing
events.

       

      Section
6.7.       Restriction on Sale of
Capital Stock.  During the Commitment Period, the Company shall
not, without 10 days written notice to the Investor, (i) issue or sell any
Common Stock or Preferred Stock without consideration or for a consideration per
share less than the Bid Price of the Common Stock determined immediately prior
to its issuance, (ii) issue or sell any Preferred Stock warrant, option,
right, contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock without consideration or for a
consideration per share less than the Bid Price of the Common Stock determined
immediately prior to its issuance, or (iii) file any registration statement on
Form S-8.

       

      Section
6.8.       Consolidation;
Merger.  The Company shall not, at any time after the date
hereof, effect any merger or consolidation of the Company with or into, or a
transfer of all or substantially all the assets of the Company to another entity
(a “Consolidation
Event”) unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to the Investor
such shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.

       

      Section
6.9.       Issuance of the Company’s
Common Stock.  The sale of the shares of Common Stock shall be
made in accordance with the provisions and requirements of Regulation D and
any applicable state securities law.

       

      Section
6.10.     Review of Public
Disclosures.  All SEC filings (including, without limitation,
all filings required under the Exchange Act, which include Forms 10-Q and
10-QSB, 10-K and 10K-SB, 8-K, etc) and other public disclosures made by the
Company, including, without limitation, all press releases, investor relations
materials, and scripts of analysts meetings and calls, shall be reviewed and
approved for release by the Company’s attorneys and, if containing financial
information, the Company’s independent certified public
accountants.

       

      Section
6.11.     Market
Activities.  The Company will not, directly or indirectly, (i)
take any action designed to cause or result in, or that constitutes or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Common Stock or (ii) sell, bid for or purchase the Common Stock, or pay anyone
any compensation for soliciting purchases of the Common Stock.

       

      
        
          
          

        

        
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      ARTICLE
VII.

      Conditions
for Advance and Conditions to Closing

       

      Section
7.1.       Conditions Precedent to the
Obligations of the Company.  The obligation hereunder of the
Company to issue and sell the shares of Common Stock to the Investor incident to
each Closing is subject to the satisfaction, or waiver by the Company, at or
before each such Closing, of each of the conditions set forth
below.

       

      (a)       Accuracy of the Investor’s
Representations and Warranties.  The representations and
warranties of the Investor shall be true and correct in all material
respects.

       

      (b)       Performance by the
Investor.  The Investor shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement and the Registration Rights Agreement to be performed,
satisfied or complied with by the Investor at or prior to such
Closing.

       

      Section
7.2.       Conditions Precedent to the
Right of the Company to Deliver an Drawdown Notice.  The right
of the Company to deliver an Drawdown Notice is subject to the fulfillment by
the Company, on such Drawdown Notice (a “Condition Satisfaction
Date”), of each of the following conditions:

       

      (a)       Registration of the Common
Stock with the SEC.  The Company shall have filed with the SEC
a Registration Statement with respect to the resale of the Registrable
Securities in accordance with the terms of the Registration Rights
Agreement.  As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so, and (ii) no other suspension of the use or withdrawal of the effectiveness
of the Registration Statement or related prospectus shall exist.  The
Registration Statement must have been declared effective by the SEC prior to the
first Drawdown Notice Date.

       

      (b)      Authority.  The
Company shall have obtained all permits and qualifications required by any
applicable state in accordance with the Registration Rights Agreement for the
offer and sale of the shares of Common Stock, or shall have the availability of
exemptions therefrom.  The sale and issuance of the shares of Common
Stock shall be legally permitted by all laws and regulations to which the
Company is subject.

       

      (c)       Fundamental Changes.
There shall not exist any fundamental changes to the information set forth in
the Registration Statement, which would require the Company to file a
post-effective amendment to the Registration Statement.

       

      (d)       Performance by the
Company.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights Agreement to be
performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.

       

      (e)       No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.

       

      
        
          
          

        

        
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      (f)           No Suspension of Trading in
or Delisting of Common Stock.  The trading of the Common Stock
is not suspended by the SEC or the Principal Market (if the Common Stock is
traded on a Principal Market).  The issuance of shares of Common Stock
with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market (if the Common Stock
is traded on a Principal Market).  The Company shall not have received
any notice threatening the continued listing of the Common Stock on the
Principal Market (if the Common Stock is traded on a Principal
Market).

       

      (g)          Maximum Advance
Amount.  The amount of an Advance requested by the Company
shall not exceed the Maximum Advance Amount.  In addition, in no event
shall the number of shares issuable to the Investor pursuant to an Advance cause
the aggregate number of shares of Common Stock beneficially owned by the
Investor and its affiliates to exceed four and 99/100 percent (4.99%) of the
then outstanding Common Stock of the Company.  For the purposes of
this section beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act.

       

      (h)          No
Knowledge.  The Company has no knowledge of any event which
would be more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective.

       

      (i)           Executed Drawdown
Notice.  The Investor shall have received the Drawdown Notice
executed by an officer of the Company and the representations contained in such
Drawdown Notice shall be true and correct as of each Condition Satisfaction
Date.

       

      ARTICLE
VIII.

      Due
Diligence Review; Non-Disclosure of Non-Public Information

      


      Section
8.1.         Non-Disclosure of Non-Public
Information.

       

      (a)          The
Company covenants and agrees that it shall refrain from disclosing, and shall
cause its officers, directors, employees and agents to refrain from disclosing,
any material non-public information to the Investor without also disseminating
such information to the public, unless prior to disclosure of such information
the Company identifies such information as being material non-public information
and provides the Investor with the opportunity to accept or refuse to accept
such material non-public information for review.

       

      (b)          Nothing
herein shall require the Company to disclose non-public information to the
Investor or its advisors or representatives, and the Company represents that it
does not disseminate non-public information to any investors who purchase stock
in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not
misleading.  Nothing contained in this Section 8.2 shall be construed
to mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information) may not
obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.

      

        
          
             


          

          
            Page
17

            
              

            

          

          
             


          

        

      

      
      

       

      ARTICLE
IX.

      Choice
of Law/Jurisdiction

       

      Section
9.1.        Governing
Law.  This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without regard to
the principles of conflict of laws.  The parties further agree that
any action between them shall be heard in Boston, MA. for the adjudication of
any civil action asserted pursuant to this paragraph.

       

      ARTICLE
X.

      Assignment;
Termination

       

      Section
10.1.       Assignment.  Neither
this Agreement nor any rights of the Company hereunder may be assigned to any
other Person.

       

      Section
10.2.       Termination.

       

      (a)          The
obligations of the Investor to make Advances under Article II hereof shall
terminate twenty-four (24) months after the Effective Date.

       

      (b)          The
obligation of the Investor to make an Advance to the Company pursuant to this
Agreement shall terminate permanently (including with respect to an Advance Date
that has not yet occurred) in the event that (i) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement for an
aggregate of fifty (50) Trading Days, other than due to the acts of the
Investor, during the Commitment Period, or (ii) the Company shall at any time
fail materially to comply with the requirements of Article VI and such failure
is not cured within thirty (30) days after receipt of written notice from the
Investor, provided, however, that this
termination provision shall not apply to any period commencing upon the filing
of a post-effective amendment to such Registration Statement and ending upon the
date on which such post effective amendment is declared effective by the
SEC.

       

      ARTICLE
XI.

      Notices

       

      a.           Section
11.0.0.1.       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 a copy is mailed by U.S. certified
mail, return receipt requested; (iii) three (3) days after being sent by U.S.
certified mail, return receipt requested, or (iv) one (1) day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same.  The addresses and
facsimile numbers for such communications shall be:


      
        
           


        

        
          Page
18

          
            

          

        

        
           


        

      

       

      
        
          	
                  If
      to the Company, to:

                	
                  Smart
      Kids Group, Inc.

                  515
      Old Santa Fe Trail PMB 435

                
	 
      	
                  Santa
      Fe, NM 87505

                
	 
      	
                  Attention:
      Paul Andrew Ruppanner, CEO

                
	 
      	
                  Telephone:
      505-577-7918

                
	 
      	
                  Facsimile:  702-974-1340

                
	 
      	 
      
	
                  If
      to the Investor, to:

                	
                  Auctus
      Private Equity Fund, LLC

                  One
      Beacon St. 34th
      Floor

                  Boston,
      MA 02108

                  ATTN:
      Lou Posner, Director

                  Telephone:
      617-532-6408

                  Facsimile:
      617-532-6402

                
	 
      	 
      
	
                  With
      a copy to:

                	 
      


        

      

       

      Each
party shall provide five (5) days’ prior written notice to the other party of
any change in address or facsimile number.

       

      ARTICLE
XII.

      Miscellaneous

       

      Section
12.1.      Counterparts.  This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party.  In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause four (4)
additional original executed signature pages to be physically delivered to the
other party within five (5) days of the execution and delivery hereof, though
failure to deliver such copies shall not affect the validity of this
Agreement.

       

      Section
12.2.      Entire Agreement;
Amendments.  This Agreement supersedes all other prior oral or
written agreements between the Investor, 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 the Investor 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.

       

      Section
12.3.      Reporting Entity for the
Common Stock.  The reporting entity relied upon for the
determination of the trading price or trading volume of the Common Stock on any
given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or
any successor thereto.  The written mutual consent of the Investor and
the Company shall be required to employ any other reporting
entity.


      
        
           


        

        
          Page
19

          
            

          

        

        
           


        

      


      Section
12.4.       Fees and
Expenses.  The Company hereby agrees to pay the following
fees:

       

      (a)         Fees.  Each
of the parties shall pay its own fees and expenses (including the fees of
any attorneys, accountants, appraisers or others engaged by such party) in
connection with this Agreement and the transactions contemplated
hereby.

       

      (b)         Origination Fee. The
Company has agreed to pay the Investor Fifteen Thousand Dollars ($15,000) in
cash as a non-refundable origination fee.

       

      Section
12.5.      Confidentiality.  If
for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in such
party’s domain prior to the date hereof, and except as required by court order)
and shall promptly return to the other parties all schedules, documents,
instruments, work papers or other written information without retaining copies
thereof, previously furnished by it as a result of this Agreement or in
connection herein.

       

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]


      
        
           


        

        
          Page
20

          
            

          

        

        
           


        

      

       

      IN WITNESS WHEREOF, the
parties hereto have caused this Drawdown Equity Financing Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

       

      
        
          
            
              	
                      COMPANY:

                    
	
                      Smart
      Kids Group, Inc.

                    
	 
      	 
      
	
                      By:

                    	/s/ Andrew Ruppanner
	
                      Name:
      Paul Andrew Ruppanner

                    
	
                      Title:
      CEO

                    
	 
      	 
      
	
                      INVESTOR:

                    
	
                      Auctus
      Private Equity Fund, LLC

                    
	 
      
	
                      By:  

                    	/s/
      Lou Posner
	
                      Name:  Lou
      Posner

                    
	
                      Title:
      Director

                    


            

          

        

      


      
        
           


        

        
          Page
21

          
            

          

        

        
           


        

      


      EXHIBIT
A

       

      DRAWDOWN
NOTICE

       

      Smart
Kids Group, Inc.

       

      The
undersigned, _______________________ hereby certifies, with respect to the sale
of shares of Common Stock of Smart Kids Group, Inc. (the “Company”) issuable in
connection with this Drawdown Notice, delivered pursuant to the Drawdown Equity
Financing Agreement (the “Agreement”), as
follows:

       

      1.           The
undersigned is the duly elected ______________ of the Company.

       

      2.           There
are no fundamental changes to the information set forth in the Registration
Statement which would require the Company to file a post effective amendment to
the Registration Statement.

       

      3.           The
Company has performed in all material respects all covenants and agreements to
be performed by the Company and has complied in all material respects with all
obligations and conditions contained in the Agreement on or prior to the
Drawdown Notice Date, and shall continue to perform in all material respects all
covenants and agreements to be performed by the Company through the applicable
Advance Date.  All conditions to the delivery of this Drawdown Notice
are satisfied as of the date hereof.

       

      4.           The
undersigned hereby represents, warrants and covenants that it has made all
filings (“SEC
Filings”) required to be made by it pursuant to applicable securities
laws (including, without limitation, all filings required under the Securities
Exchange Act of 1934, which include Forms 10-Q or 10-QSB, 10-K or 10-KSB, 8-K,
etc.).  All SEC Filings and other public disclosures made by the
Company, including, without limitation, all press releases, analysts meetings
and calls, etc. (collectively, the “Public Disclosures”),
have been reviewed and approved for release by the Company’s attorneys and, if
containing financial information, the Company’s independent certified public
accountants.  None of the Company’s Public Disclosures contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.

       

      5.           The
Advance requested is _____________________.

       

      The
undersigned has executed this Certificate this ____ day of
_________________.

       

      
        
          	
                  Smart
      Kids Group, Inc.

                
	 
      
	
                  By:  

                	 
      
	
                  Name:
      Paul Andrew Ruppanner

                
	
                  Title:
      CEO

                


        

      


      
        
           


        

        
          Page
22

          
            

          

        

        
           


        

      


      Exhibit
4.7

       

      None


      
        
           


        

        
          Page
23

          
            

          

        

        
           


        

      


      Exhibit
4.8


      
        
           


        

        
          Page
24

          
            

          

        

        
           


        

      


      Exhibit
4.10

       

      None


      
        
           


        

        
          Page
25

          
            

          

        

        
           


        

      


      Exhibit
4.11


      
        
           


        

        
          Page
26

          
            

          

        

        
           


        

      


      Exhibit
4.16

       

      None


      
        
           


        

        
          Page
27

          
            

          

        

        
           


        

      


      Exhibit
4.17

       

      Litigation

       

      None


      
        
           


        

        
          Page
28

          
            

          

        

        
           


        

      


      Exhibit
4.18

       

      Subsidiaries


      
        
           


        

        
          Page
29

          
            

          

        

        
           


        

      


      Exhibit
4.19


      
        
           


        

        
          Page
30

          
            

          

        

        
           


        

      


      Exhibit
4.20


      
        
           


        

        
          Page
31