Unassociated Document


    Exhibit
      4.1

    
      


      SUBSCRIPTION
        AGREEMENT

      


      THIS
        SUBSCRIPTION AGREEMENT
        (this
“Agreement”),
        dated
        as of February ___, 2005, by and among Innovative Food Holdings, Inc., a
        Florida
        corporation (the “Company”),
        and
        the subscribers identified on the signature page hereto (each a “Subscriber”
        and
        collectively “Subscribers”).

      


      WHEREAS,
        the
        Company and the Subscribers are executing and delivering this Agreement in
        reliance upon an exemption from securities registration afforded by the
        provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
        D”)
        as
        promulgated by the United States Securities and Exchange Commission (the
        “Commission”)
        under
        the Securities Act of 1933, as amended (the “1933
        Act”).

      


      WHEREAS,
        the
        parties desire that, upon the terms and subject to the conditions contained
        herein, the Company shall issue and sell to the Subscribers, as provided
        herein,
        and the Subscribers, in the aggregate, shall purchase up to $550,000 (the
        "Purchase
        Price")
        of
        principal amount of promissory notes of the Company (“Note”
        or
“Notes”)
        convertible into shares of the Company's common stock, $.00001 par value
        (the
        "Common
        Stock"),
        and
        share purchase warrants (the “Warrants”),
        in
        the form attached hereto as Exhibits
        A1, A2 and A3,
        to
        purchase shares of Common Stock (the “Warrant
        Shares”)
        (the
“Offering”).
        Four
        Hundred Thousand Dollars ($400,000) of the Purchase Price shall be payable
        on
        the Initial Closing Date (“Initial
        Closing Purchase Price”).
        Up to
        One Hundred and Fifty Thousand Dollars ($150,000) of the Purchase Price will
        be
        payable within five (5) business days after the actual effectiveness
        (“Actual
        Effective Date”)
        of the
        Registration Statement as defined in Section 11.1(iv) of this Agreement,
        provided the Company is already listed on the OTC Bulletin Board (“Bulletin
        Board”)
        (“Second
        Closing Purchase Price”).
        The
        Notes, shares of Common Stock issuable upon conversion of the Notes (the
        “Shares”),
        the
        Warrants and the Warrant Shares are collectively referred to herein as the
        "Securities";
        and

      


      WHEREAS,
        the
        aggregate proceeds of the sale of the Notes and the Warrants contemplated
        hereby
        shall be held in escrow pursuant to the terms of a Funds Escrow Agreement
        to be
        executed by the parties substantially in the form attached hereto as
Exhibit
        B
        (the
        "Escrow
        Agreement").

      


      NOW,
        THEREFORE,
        in
        consideration of the mutual covenants and other agreements contained in this
        Agreement the Company and the Subscribers hereby agree as follows:

      


      1. Initial
        Closing.
        Subject
        to the satisfaction or waiver of the terms and conditions of this Agreement,
        on
        the Initial Closing Date, each Subscriber shall purchase and the Company
        shall
        sell to each Subscriber a Note in the principal amount designated on the
        signature page hereto (“Initial
        Closing Notes”).
        The
        aggregate amount of the Notes to be purchased by the Subscribers on the Initial
        Closing Date shall, in the aggregate, be equal to the Initial Closing Purchase
        Price. The “Initial
        Closing Date”
        shall
        be the date that subscriber funds representing the net amount due the Company
        from the Initial Closing Purchase Price of the Offering is transmitted by
        wire
        transfer or otherwise to or for the benefit of the Company. 

      


      2. Second
        Closing.

      


      (a) Second
        Closing.
        The
        closing date in relation to the Second Closing Purchase Price shall be on
        or
        before the fifth (5th)
        business day after the Actual Effective Date (the “Second
        Closing Date”).
        Subject to the satisfaction or waiver of the terms and conditions of this
        Agreement on the Second Closing Date, each Subscriber shall purchase and
        the
        Company shall sell to each Subscriber a Note in the principal amount designated
        on the signature page hereto (“Second
        Closing Notes”).
        The
        aggregate Purchase Price of the Second Closing Notes for all Subscribers
        shall
        be equal to the Second Closing Purchase Price. The Second Closing Note shall
        be
        identical to the Note issuable on the Initial Closing Date except that the
        maturity date of such Notes shall be two (2) years after the Second Closing
        Date. The Fixed Conversion Price (defined in Section 2.1 (a) of the Note)
        shall
        be equitably adjusted to offset the effect of stock splits, stock dividends,
        pro
        rata distributions of property or equity interests to the Company’s shareholders
        after the Initial Closing Date.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (b) Conditions
        to Second Closing.
        The
        occurrence of the Second Closing is expressly contingent on (i) the truth
        and
        accuracy, on the Effective Date, Actual Effective Date and the Second Closing
        Date of the representations and warranties of the Company and Subscriber
        contained in this Agreement, (ii) continued compliance with the covenants
        of the
        Company set forth in this Agreement, (iii) the non-occurrence of any Event
        of
        Default (as defined in the Note) or other default by the Company of its
        obligations and undertakings contained in this Agreement, (iv) the delivery
        on
        the Second Closing Date of Second Closing Notes for which the Company Shares
        issuable upon conversion have been included in the Registration Statement,
        which
        must be effective as of the Second Closing Date, and (v) the delivery of
        the
        Second Closing Warrants for which the Warrant Shares issuable upon exercise
        have
        been included in the Registration Statement which must be effective as of
        the
        Second Closing Date. The exercise prices of the Warrants issuable on the
        Second
        Closing Date shall be adjusted to offset the effect of stock splits, stock
        dividends, pro rata distributions of property or equity interests to the
        Company’s shareholders after the Initial Closing Date. 

      


      (c) Second
        Closing Deliveries.
        On the
        Second Closing Date, the Company will deliver the Second Closing Notes and
        Second Closing Warrants to the Escrow Agent and each Subscriber will deliver
        his
        portion of the respective Purchase Price to the Escrow Agent. On the Second
        Closing Date, the Company will deliver a certificate (“Second
        Closing Certificate”)
        signed
        by its chief executive officer or chief financial officer (i) representing
        the
        truth and accuracy of all the representations and warranties made by the
        Company
        contained in this Agreement, as of the Initial Closing Date, the Actual
        Effective Date, and the Second Closing Date, as if such representations and
        warranties were made and given on all such dates, (ii) adopting the covenants
        and conditions set forth in Sections 9, 10, 11, and 12 of this Agreement
        in
        relation to the Second Closing Notes and Second Closing Warrants, (iii)
        representing the timely compliance by the Company with the Company’s
        registration requirements set forth in Section 11 of this Agreement, (iv)
        representing its timely compliance by the Company of the Company’s listing
        requirements set forth in Sections 9(d) and 9(q) of this Agreement, and (v)
        certifying that an Event of Default has not occurred. A legal opinion nearly
        identical to the legal opinion referred to in Section 6 of this Agreement
        shall
        be delivered to each Subscriber at the Second Closing in relation to the
        Company, Second Closing Notes, and Second Closing Warrants (“Second
        Closing Legal Opinion”).
        The
        Second Closing Legal Opinion must also state that all of the Registrable
        Securities have been included for registration in an effective registration
        statement effective as of the Actual Effective Date and Second Closing
        Date.

      


      3. Warrants.
        

      


      (a) Class
        A Warrants.
        On the
        Closing Date, the Company will issue and deliver Class A Warrants to the
        Subscribers. One Class A Warrant will be issued for each Share which would
        be
        issued on the Closing Date assuming the complete conversion of the Notes
        issued
        on the Closing Date at the Conversion Price in effect on the Closing Date.
        The
        per Warrant Share exercise price to acquire a Warrant Share upon exercise
        of a
        Class A Warrant shall be equal to 115% of the closing bid price of the Common
        Stock as reported by Bloomberg LP for the Principal Market (as hereinafter
        defined) for the last trading day preceding the Closing Date. The Class A
        Warrants shall be exercisable until five (5) years after the Closing
        Date.

      


      (b) Class
        B Warrants.
        On the
        Closing Date, the Company will issue and deliver Class B Warrants to the
        Subscribers. One Class B Warrant will be issued for each four Shares which
        would
        be issued on the Closing Date assuming the complete conversion of the Notes
        issued on the Closing Date at the Conversion Price in effect on the Closing
        Date. The per Warrant Share exercise price to acquire a Warrant Share upon
        exercise of a Class B Warrant shall be equal to 110% of the closing bid price
        of
        the Common Stock as reported by Bloomberg LP for the Principal Market (as
        hereinafter defined) for the last trading day preceding the Closing Date.
        The
        Class B Warrants shall be exercisable from the Closing Date until the
        Registration Statement (as defined in Section 11.1(iv) of this Agreement)
        has
        been effective for the public unrestricted resale of the Registrable Securities
        (as defined in Section 11.1(i) of this Agreement) for one hundred and eighty
        (180) days. 

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      (c) Class
        C Warrants.
        On the
        Closing Date, the Company will issue and deliver Class C Warrants to the
        Subscribers. Four Class C Warrants will be issued for each ten Shares which
        would be issued on the Closing Date assuming the complete conversion of the
        Notes issued on the Closing Date at the Conversion Price in effect on the
        Closing Date. The per Warrant Share exercise price to acquire a Warrant Share
        upon exercise of a Class C Warrant shall be $0.005. The Class C Warrants
        shall
        be exercisable from the Closing Date until the Registration Statement has
        been
        effective for the public unrestricted resale of the Registrable Securities
        for
        five months.

      


      (d) Collectively,
        the Class A, Class B and Class C Warrants are referred to herein as
        Warrants.

      


      4. Subscriber's
        Representations and Warranties.
        Each
        Subscriber hereby represents and warrants to and agrees with the Company
        only as
        to such Subscriber that:

      


      (a) Information
        on Company.
        The
        Subscriber has been furnished with or has had access to the Company's unaudited
        financial statements for the years ended December 31, 2003 and December 31,
        2004
        (hereinafter referred to collectively as the "Reports").
        In
        addition, the Subscriber has received in writing from the Company such other
        information concerning its operations, financial condition and other matters
        as
        the Subscriber has requested in writing (such other information is collectively,
        the "Other
        Written Information"),
        and
        considered all factors the Subscriber deems material in deciding on the
        advisability of investing in the Securities. 

      


      (b) Information
        on Subscriber.
        The
        Subscriber is, and will be at the time of the conversion of the Notes and
        exercise of any of the Warrants, an "accredited
        investor",
        as
        such term is defined in Regulation D promulgated by the Commission under
        the
        1933 Act, is experienced in investments and business matters, has made
        investments of a speculative nature and has purchased securities of United
        States publicly-owned companies in private placements in the past and, with
        its
        representatives, has such knowledge and experience in financial, tax and
        other
        business matters as to enable the Subscriber to utilize the information made
        available by the Company to evaluate the merits and risks of and to make
        an
        informed investment decision with respect to the proposed purchase, which
        represents a speculative investment. The Subscriber has the authority and
        is
        duly and legally qualified to purchase and own the Securities. The Subscriber
        is
        able to bear the risk of such investment for an indefinite period and to
        afford
        a complete loss thereof. The information set forth on the signature page
        hereto
        regarding the Subscriber is accurate.

      


      (c) Purchase
        of Notes and Warrants.
        On each
        Closing Date, the Subscriber will purchase the Notes and Warrants as principal
        for its own account for investment only and not with a view toward, or for
        resale in connection with, the public sale or any distribution
        thereof.

      


      (d) Compliance
        with Securities Act.
        The
        Subscriber understands and agrees that the Securities have not been registered
        under the 1933 Act or any applicable state securities laws, by reason of
        their
        issuance in a transaction that does not require registration under the 1933
        Act
        (based in part on the accuracy of the representations and warranties of
        Subscriber contained herein), and that such Securities must be held indefinitely
        unless a subsequent disposition is registered under the 1933 Act or any
        applicable state securities laws or is exempt from such registration. In
        any
        event, and subject to compliance with applicable securities laws, the Subscriber
        may enter into only lawful hedging transactions with third parties, which
        may in
        turn engage in lawful short sales of the Securities in the course of hedging
        the
        position they assume and the Subscriber may also enter into only lawful short
        positions or other derivative transactions relating to the Securities, or
        interests in the Securities, and deliver the Securities, or interests in
        the
        Securities, to close out their short or other positions or otherwise settle
        short sales or other transactions, or loan or pledge the Securities, or
        interests in the Securities, to third parties that in turn may dispose of
        these
        Securities.

      


      (e) Shares
        Legend.
        The
        Shares and the Warrant Shares shall bear the following or similar
        legend:

      


      "THE
        SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED
        FOR
        SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
        STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
        OR AN
        OPINION OF COUNSEL REASONABLY SATISFACTORY TO INNOVATIVE FOOD HOLDINGS, INC.
        THAT SUCH REGISTRATION IS NOT REQUIRED."

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      
 

      (f) Warrants
        Legend.
        The
        Warrants shall bear the following 

      


      or
        similar legend:

      


      "THIS
        WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
        NOT
        BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
        AND
        THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
        OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
        REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
        STATE
        SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INNOVATIVE
        FOOD HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

      


      (g) Note
        Legend.
        The
        Note shall bear the following legend:

      


      "THIS
        NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
        BEEN
        REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
        COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
        FOR
        SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
        STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
        SATISFACTORY TO INNOVATIVE FOOD HOLDINGS, INC. THAT SUCH REGISTRATION IS
        NOT
        REQUIRED."

      


      (h) Communication
        of Offer.
        The
        offer to sell the Securities was directly communicated to the Subscriber
        by the
        Company. At no time was the Subscriber presented with or solicited by any
        leaflet, newspaper or magazine article, radio or television advertisement,
        or
        any other form of general advertising or solicited or invited to attend a
        promotional meeting otherwise than in connection and concurrently with such
        communicated offer.

      


      (i) Authority;
        Enforceability.
        This
        Agreement and other agreements delivered together with this Agreement or
        in
        connection herewith have been duly authorized, executed and delivered by
        the
        Subscriber and are valid and binding agreements enforceable in accordance
        with
        their terms, subject to bankruptcy, insolvency, fraudulent transfer,
        reorganization, moratorium and similar laws of general applicability relating
        to
        or affecting creditors’ rights generally and to general principles of equity;
        and Subscriber has full corporate power and authority necessary to enter
        into
        this Agreement and such other agreements and to perform its obligations
        hereunder and under all other agreements entered into by the Subscriber relating
        hereto.

      


      (j) Restricted
        Securities.
        Subscriber understands that the Securities have not been registered under
        the
        1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
        hypothecate or otherwise transfer any of the Securities unless pursuant to
        an
        effective registration statement under the 1933 Act or an exemption from
        registration for such transfer is available. Notwithstanding anything to
        the
        contrary contained in this Agreement, such Subscriber may transfer (without
        restriction and without the need for an opinion of counsel) the Securities
        to
        its Affiliates (as defined below) provided that each such Affiliate is an
        “accredited
        investor”
        under
        Regulation D and such Affiliate agrees to be bound by the terms and conditions
        of this Agreement. For the purposes of this Agreement, an “Affiliate”
        of any
        person or entity means any other person or entity directly or indirectly
        controlling, controlled by or under direct or indirect common control with
        such
        person or entity. For purposes of this definition, “control” means the power to
        direct the management and policies of such person or firm, directly or
        indirectly, whether through the ownership of voting securities, by contract
        or
        otherwise.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      (k) No
        Governmental Review.
        Each
        Subscriber understands that no United States federal or state agency or any
        other governmental or state agency has passed on or made recommendations
        or
        endorsement of the Securities or the suitability of the investment in the
        Securities nor have such authorities passed upon or endorsed the merits of
        the
        offering of the Securities.

      


      (l) Correctness
        of Representations.
        Each
        Subscriber represents as to such Subscriber that the foregoing representations
        and warranties are true and correct as of the date hereof and, unless a
        Subscriber otherwise notifies the Company prior to each Closing Date shall
        be
        true and correct as of each Closing Date.

      


      (m) Survival.
        The
        foregoing representations and warranties shall survive the Second Closing
        Date
        for a period of two years.

      


      5. Company
        Representations and Warranties.
        The
        Company represents and warrants to and agrees with each Subscriber
        that:

      


      (a) Due
        Incorporation.
        Except
        as set forth in the attached Schedule 5(a), the Company and each of its
        Subsidiaries is a corporation duly organized, validly existing and in good
        standing under the laws of the respective jurisdictions of their incorporation
        and have the requisite corporate power to own their properties and to carry
        on
        their business as now being conducted. Except as set forth in the attached
        Schedule 5(a), the Company and each of its Subsidiaries is duly qualified
        as a
        foreign corporation to do business and is in good standing in each jurisdiction
        where the nature of the business conducted or property owned by it makes
        such
        qualification necessary, other than those jurisdictions in which the failure
        to
        so qualify would not have a Material Adverse Effect. For purpose of this
        Agreement, a “material
        adverse effect”
        shall
        mean a material adverse effect on the financial condition, results of
        operations, properties or business of the Company taken as a whole. For purposes
        of this Agreement, “Subsidiary”
        means,
        with respect to any entity at any date, any corporation, limited or general
        partnership, limited liability company, trust, estate, association, joint
        venture or other business entity) of which more than 50% of (i) the
        outstanding capital stock having (in the absence of contingencies) ordinary
        voting power to elect a majority of the board of directors or other managing
        body of such entity, (ii) in the case of a partnership or limited
        liability
        company, the interest in the capital or profits of such partnership or limited
        liability company or (iii) in the case of a trust, estate, association,
        joint venture or other entity, the beneficial interest in such trust, estate,
        association or other entity business is, at the time of determination, owned
        or
        controlled directly or indirectly through one or more intermediaries, by
        such
        entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
        5(a)
        hereto.
        All representations made by or relating to the Company of a historical or
        prospective nature and all undertakings described in Sections 9(g) through
        9(l)
        shall relate and refer to the Company and the Subsidiaries.

      


      (b) Outstanding
        Stock.
        All
        issued and outstanding shares of capital stock of the Company and each of
        its
        Subsidiaries have been duly authorized and validly issued and are fully paid
        and
        nonassessable.

      


      (c) Authority;
        Enforceability.
        This
        Agreement, the Note, the Warrants, Security Agreement (described in Section
        13
        of this Agreement), Collateral Agent Agreement (described in Section 13 of
        this
        Agreement), the Escrow Agreement and any other agreements delivered together
        with this Agreement or in connection herewith (collectively “Transaction
        Documents”)
        have
        been duly authorized, executed and delivered by the Company and are valid
        and
        binding agreements enforceable in accordance with their terms, subject to
        bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
        similar laws of general applicability relating to or affecting creditors'
        rights
        generally and to general principles of equity. The Company has full corporate
        power and authority necessary to enter into and deliver the Transaction
        Documents and to perform its obligations thereunder.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      (d) Additional
        Issuances.
        There
        are no outstanding agreements or preemptive or similar rights affecting the
        Company's common stock or equity and no outstanding rights, warrants or options
        to acquire, or instruments convertible into or exchangeable for, or agreements
        or understandings with respect to the sale, issuance or registration of any
        shares of common stock or equity of the Company or other equity interest
        in any
        of the Subsidiaries of the Company except as described on Schedule
        5(d).

      


      (e) Consents.
        No
        consent, approval, authorization or order of any court, governmental agency
        or
        body or arbitrator having jurisdiction over the Company, or any of its
        Affiliates, the Pink Sheets Electronic Quotation Service (“Pink
        Sheets”)
        nor
        the Company's shareholders is required for the execution by the Company of
        the
        Transaction Documents and compliance and performance by the Company of its
        obligations under the Transaction Documents, including, without limitation,
        the
        issuance and sale of the Securities.

      


      (f) No
        Violation or Conflict.
        Assuming the representations and warranties of the Subscribers in Section
        4 are
        true and correct, neither the issuance and sale of the Securities nor the
        performance of the Company’s obligations under this Agreement and all other
        agreements entered into by the Company relating thereto by the Company
        will:

      


      (i) violate,
        conflict with, result in a breach of, or constitute a default (or an event
        which
        with the giving of notice or the lapse of time or both would be reasonably
        likely to constitute a default) under (A) the articles or certificate of
        incorporation, charter or bylaws of the Company or Subsidiaries, (B) to the
        Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
        or determination applicable to the Company or any Subsidiary of any court,
        governmental agency or body, or arbitrator having jurisdiction over the Company
        or any Subsidiary or over the properties or assets of the Company or any
        Subsidiary, (C) the terms of any bond, debenture, note or any other evidence
        of
        indebtedness, or any agreement, stock option or other similar plan, indenture,
        lease, mortgage, deed of trust or other instrument to which the Company or
        any
        Subsidiary is a party, by which the Company or any Subsidiary is bound, or
        to
        which any of the properties of the Company or any Subsidiary is subject,
        or (D)
        the terms of any "lock-up"
        or
        similar provision of any underwriting or similar agreement to which the Company,
        or any Subsidiary is a party except the violation, conflict, breach, or default
        of which would not have a Material Adverse Effect on the Company;
        or

      


      (ii) result
        in
        the creation or imposition of any lien, charge or encumbrance upon the
        Securities or any of the assets of the Company, Subsidiaries or any of its
        Affiliates; or

      


      (iii) result
        in
        the activation of any anti-dilution rights or a reset or repricing of any
        debt
        or security instrument of any other creditor or equity holder of the Company,
        or
        Subsidiary nor result in the acceleration of the due date of any obligation
        of
        the Company or Subsidiary; or

      


      (iv) result
        in
        the activation of any piggy-back registration rights of any person or entity
        holding securities of the Company or having the right to receive securities
        of
        the Company.

      


      (g) The
        Securities.
        The
        Securities upon issuance:

      


      (i) are,
        or
        will be, free and clear of any security interests, liens, claims or other
        encumbrances, subject to restrictions upon transfer under the 1933 Act and
        any
        applicable state securities laws;

      


      (ii) have
        been, or will be, duly and validly authorized and on the date of conversion
        of
        the Notes and upon exercise of the Warrants, the Shares and Warrant Shares
        will
        be duly and validly issued, fully paid and nonassessable (and if registered
        pursuant to the 1933 Act, and resold pursuant to an effective registration
        statement will be free trading and unrestricted, provided that each Subscriber
        complies with the prospectus delivery requirements of the 1933
        Act);

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      (iii) will
        not
        have been issued or sold in violation of any preemptive or other similar
        rights
        of the holders of any securities of the Company;

      


      (iv) will
        not
        subject the holders thereof to personal liability by reason of being such
        holders; and

      


      (v) will
        not
        result in a Section 5 violation under the 1933 Act.

      


      (h) Litigation.
        There
        is no pending or, to the best knowledge of the Company, threatened action,
        suit,
        proceeding or investigation before any court, governmental agency or body,
        or
        arbitrator having jurisdiction over the Company, or any of its Affiliates
        or
        Subsidiaries that would affect the execution by the Company or the performance
        by the Company of its obligations under the Transaction Documents. Except
        as
        disclosed in the Reports, there is no pending or, to the best knowledge of
        the
        Company, basis for or threatened action, suit, proceeding or investigation
        before any court, governmental agency or body, or arbitrator having jurisdiction
        over the Company, or any of its Affiliates or Subsidiaries which litigation
        if
        adversely determined would have a Material Adverse Effect on the
        Company.

      


      (i) No
        Market Manipulation.
        The
        Company and its Affiliates have not taken, and will not take, directly or
        indirectly, any action designed to, or that might reasonably be expected
        to,
        cause or result in stabilization or manipulation of the price of the Common
        Stock of the Company to facilitate the sale or resale of the Securities or
        affect the price at which the Securities may be issued or resold.

      


      (j) Information
        Concerning Company.
        The
        Reports contain all information relating to the Company and its operations
        and
        financial condition as of their respective dates which information is required
        to be disclosed therein. Since the date of the financial statements included
        in
        the Reports, and except as modified in the Other Written Information or in
        the
        Schedules hereto, there has been no material adverse change in the Company's
        business, financial condition or affairs not disclosed in the Reports. The
        Reports do not contain any untrue statement of a material fact or omit to
        state
        a material fact required to be stated therein or necessary to make the
        statements therein not misleading in light of the circumstances when
        made.

      


      (k) Stop
        Transfer.
        The
        Company will not issue any stop transfer order or other order impeding the
        sale,
        resale or delivery of any of the Securities, except as may be required by
        any
        applicable federal or state securities laws and unless contemporaneous notice
        of
        such instruction is given to the Subscriber.

      


      (l) Defaults.
        The
        Company and each Subsidiary is not in violation of its articles of
        incorporation, bylaws or formation documents. The Company and each Subsidiary
        is
        (i) not in default under or in violation of any other material agreement
        or
        instrument to which it is a party or by which it or any of its properties
        are
        bound or affected, which default or violation would have a Material Adverse
        Effect on the Company, (ii) not in default with respect to any order of any
        court, arbitrator or governmental body or subject to or party to any order
        of
        any court or governmental authority arising out of any action, suit or
        proceeding under any statute or other law respecting antitrust, monopoly,
        restraint of trade, unfair competition or similar matters, or (iii) to its
        knowledge not in violation of any statute, rule or regulation of any
        governmental authority which violation would have a Material Adverse Effect
        on
        the Company.

      


      (m) No
        Integrated Offering.
        Neither
        the Company, nor any of its Affiliates, nor any person acting on its or their
        behalf, has directly or indirectly made any offers or sales of any security
        or
        solicited any offers to buy any security under circumstances that would cause
        the offer of the Securities pursuant to this Agreement 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 the Pink Sheets. Nor will the Company or any of its
        Affiliates or Subsidiaries take any action or steps that would cause the
        offer
        of the Securities to be integrated with other offerings. The Company will
        not
        conduct any offering other than the transactions contemplated hereby that
        will
        be integrated with the offer or issuance of the Securities.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      (n) No
        General Solicitation.
        Neither
        the Company, nor any of its Affiliates, nor to its knowledge, 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 1933 Act)
        in
        connection with the offer or sale of the Securities.

      


      (o) Listing.
        The
        Company's common stock is quoted on the Pink Sheets. The Company has not
        received any oral or written notice that its common stock is not eligible
        nor
        will become ineligible for quotation on the Pink Sheets nor that its common
        stock does not meet all requirements for the continuation of such quotation
        and
        the Company satisfies all the requirements for the continued quotation of
        its
        common stock on the Pink Sheets.

      


      (p) No
        Undisclosed Liabilities.
        The
        Company and each Subsidiary has no liabilities or obligations which are
        material, individually or in the aggregate, which are not disclosed in the
        Reports and Other Written Information, other than those incurred in the ordinary
        course of their businesses since December 31, 2004 and which, individually
        or in
        the aggregate, would reasonably be expected to have a Material Adverse Effect
        other than as set forth in Schedule
        5(p).

      


      (q) No
        Undisclosed Events or Circumstances.
        Since
        December 31, 2004, no event or circumstance has occurred or exists with respect
        to the Company and each Subsidiary or their businesses, properties, operations
        or financial condition, that, under applicable law, rule or regulation, requires
        public disclosure or announcement prior to the date hereof by the Company
        but
        which has not been so publicly announced or disclosed in the
        Reports.

      


      (r) Capitalization.
        The
        authorized and outstanding capital stock of the Company as of the date of
        this
        Agreement and the Closing Date are set forth on Schedule
        5(d).
        Except
        as set forth in the Reports and Other Written Information and Schedule
        5(d),
        there
        are no options, warrants, or rights to subscribe to, securities, rights or
        obligations convertible into or exchangeable for or giving any right to
        subscribe for any shares of capital stock of the Company or Subsidiaries.
        All of
        the outstanding shares of Common Stock of the Company and Subsidiaries have
        been
        duly and validly authorized and issued and are fully paid and
        nonassessable.

      


      (s) Dilution.
        The
        Company's executive officers and directors understand the nature of the
        Securities being sold hereby and recognize that the issuance of the Securities
        will have a potential dilutive effect on the equity holdings of other holders
        of
        the Company’s equity or rights to receive equity of the Company. The board of
        directors of the Company has concluded, in its good faith business judgment,
        that the issuance of the Securities is in the best interests of the Company.
        The
        Company specifically acknowledges that its obligation to issue the Shares
        upon
        conversion of the Notes, and the Warrant Shares upon exercise of the Warrants
        is
        binding upon the Company and enforceable regardless of the dilution such
        issuance may have on the ownership interests of other shareholders of the
        Company or parties entitled to receive equity of the Company.

      


      (t) No
        Disagreements with Accountants and Lawyers.
        There
        are no disagreements of any kind presently existing, or reasonably anticipated
        by the Company to arise, between the Company and the accountants and lawyers
        formerly or presently employed by the Company, including but not limited
        to
        disputes or conflicts over payment owed to such accountants and
        lawyers.

      


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

      


      (v) Correctness
        of Representations.
        The
        Company represents that the foregoing representations and warranties are
        true
        and correct as of the date hereof in all material respects, and, unless the
        Company otherwise notifies the Subscribers prior to each Closing Date, shall
        be
        true and correct in all material respects as of each Closing Date.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      (w) Survival.
        The
        foregoing representations and warranties shall survive the Second Closing
        Date
        for a period of two years.

      


      6. Regulation
        D Offering.
        The
        offer and issuance of the Securities to the Subscribers is being made pursuant
        to the exemption from the registration provisions of the 1933 Act afforded
        by
        Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
        D
        promulgated thereunder. On the Closing Date, the Company will provide an
        opinion
        reasonably acceptable to Subscriber from the Company's legal counsel opining
        on
        the availability of an exemption from registration under the 1933 Act as
        it
        relates to the offer and issuance of the Securities and other matters reasonably
        requested by Subscribers. A form of the legal opinion is annexed hereto as
        Exhibit
        C.
        The
        Company will provide, at the Company's expense, such other legal opinions
        in the
        future as are reasonably necessary for the issuance and resale of the Common
        Stock issuable upon conversion of the Notes and exercise of the
        Warrants.

      


      7.1. Conversion
        of Note.

      


      (a) Upon
        the
        conversion of a Note or part thereof, the Company shall, at its own cost
        and
        expense, take all necessary action, including obtaining and delivering, an
        opinion of counsel to assure that the Company's transfer agent shall issue
        stock
        certificates in the name of Subscriber (or its nominee) or such other persons
        as
        designated by Subscriber and in such denominations to be specified at conversion
        representing the number of shares of common stock issuable upon such conversion.
        The Company warrants that no instructions other than these instructions have
        been or will be given to the transfer agent of the Company's Common Stock
        and
        that, unless waived by the Subscriber, the Shares will be free-trading, and
        freely transferable, and will not contain a legend restricting the resale
        or
        transferability of the Shares provided the Shares are being sold pursuant
        to an
        effective registration statement covering the Shares or are otherwise exempt
        from registration. 

      


      (b) Subscriber
        will give notice of its decision to exercise its right to convert the Note,
        interest, any sum due to the Subscriber arising under the Transaction Documents
        including Liquidated Damages, or part thereof by delivering via telecopier
        an
        executed and completed Notice of Conversion (a form of which is annexed as
        Exhibit
        A
        to the
        Note) to the Company via confirmed telecopier transmission or otherwise pursuant
        to Section 13(a) of this Agreement. The Subscriber will not be required to
        surrender the Note until the Note has been fully converted or satisfied.
        Each
        date on which a Notice of Conversion is telecopied to the Company in accordance
        with the provisions hereof shall be deemed a Conversion
        Date.
        The
        Company will itself or cause the Company’s transfer agent to transmit the
        Company's Common Stock certificates representing the Shares issuable upon
        conversion of the Note to the Subscriber via express courier for receipt
        by such
        Subscriber within three (3) business days after receipt by the Company of
        the
        Notice of Conversion (such third day being the "Delivery
        Date").
        In
        the event the Shares are electronically transferable, then delivery of the
        Shares must
        be made
        by electronic transfer provided request for such electronic transfer has
        been
        made by the Subscriber. A Note representing the balance of the Note not so
        converted will be provided by the Company to the Subscriber if requested
        by
        Subscriber, provided the Subscriber delivers an original Note to the Company.
        To
        the extent that a Subscriber elects not to surrender a Note for reissuance
        upon
        partial payment or conversion, the Subscriber hereby indemnifies the Company
        against any and all loss or damage attributable to a third-party claim in
        an
        amount in excess of the actual amount then due under the Note.

      


      (c) The
        Company understands that a delay in the delivery of the Shares in the form
        required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
        described in Section 7.2 hereof, later than two business days after the Delivery
        Date or later than the Mandatory Redemption Payment Date (as hereinafter
        defined) could result in economic loss to the Subscriber. As compensation
        to the
        Subscriber for such loss, the Company agrees to pay (as liquidated damages
        and
        not as a penalty) to the Subscriber for late issuance of Shares in the form
        required pursuant to Section 7.1 hereof upon Conversion of the Note in the
        amount of $100 per business day after the Delivery Date for each $10,000
        of Note
        principal amount being converted, of the corresponding Shares which are not
        timely delivered. The Company shall pay any payments incurred under this
        Section
        in immediately available funds upon demand. Furthermore, in addition to any
        other remedies which may be available to the Subscriber, in the event that
        the
        Company fails for any reason to effect delivery of the Shares by the Delivery
        Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
        will be entitled to revoke all or part of the relevant Notice of Conversion
        or
        rescind all or part of the notice of Mandatory Redemption by delivery of
        a
        notice to such effect to the Company whereupon the Company and the Subscriber
        shall each be restored to their respective positions immediately prior to
        the
        delivery of such notice, except that the liquidated damages described above
        shall be payable through the date notice of revocation or rescission is given
        to
        the Company.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

      (d) Nothing
        contained herein or in any document referred to herein or delivered in
        connection herewith shall be deemed to establish or require the payment of
        a
        rate of interest or other charges in excess of the maximum permitted by
        applicable law. In the event that the rate of interest or dividends required
        to
        be paid or other charges hereunder exceed the maximum permitted by such law,
        any
        payments in excess of such maximum shall be credited against amounts owed
        by the
        Company to the Subscriber and thus refunded to the Company.

      


      7.2. Mandatory
        Redemption at Subscriber’s Election.
        In the
        event the Company is prohibited from issuing Shares, or fails to timely deliver
        Shares on a Delivery Date, or upon the occurrence of any other Event of Default
        (as defined in the Note or in this Agreement), then at the Subscriber's
        election, the Company must pay to the Subscriber ten (10) business days after
        request by the Subscriber, at the Subscriber’s election, a sum of money
        determined by (i) multiplying up to the outstanding principal amount of the
        Note
        designated by the Subscriber by 120%, or (ii) multiplying the number of Shares
        otherwise deliverable upon conversion of an amount of Note principal and/or
        interest designated by the Subscriber (with the date of giving of such
        designation being a “Deemed
        Conversion Date”)
        at the
        then Conversion Price that would be in effect on the Deemed Conversion Date
        by
        the highest closing price of the Common Stock on the principal market for
        the
        period commencing on the Deemed Conversion Date until the day prior to the
        receipt of the Mandatory Redemption Payment, whichever is greater, together
        with
        accrued but unpaid interest thereon and any other sums arising and outstanding
        under the Transaction Documents ("Mandatory
        Redemption Payment").
        The
        Mandatory Redemption Payment must be received by the Subscriber on the same
        date
        as the Company Shares otherwise deliverable or within ten (10) business days
        after request, whichever is sooner ("Mandatory
        Redemption Payment Date").
        Upon
        receipt of the Mandatory Redemption Payment, the corresponding Note principal
        and interest will be deemed paid and no longer outstanding. Liquidated damages
        calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
        for
        the twenty day period prior to the actual receipt of the Mandatory Redemption
        Payment by the Subscriber shall be credited against the Mandatory Redemption
        Payment calculated pursuant to subsections (i) and (ii) above of this Section
        7.2. In the event of a “Change
        in Control”
        (as
        defined below), the Subscriber may demand, and the Company shall pay, a
        Mandatory Redemption Payment equal to 105% of the outstanding principal amount
        of the Note designated by the Subscriber together with accrued but unpaid
        interest thereon and any other sums arising and outstanding under the
        Transaction Documents. For purposes of this Section 7.2, “Change
        in Control”
        shall
        mean (i) the Company no longer having a class of shares publicly tradable
        and
        listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
        entity, (iii) a majority of the board of directors of the Company as of the
        Closing Date no longer serving as directors of the Company, or (iv) if the
        holders of the Company’s Common Stock as of the Closing Date beneficially own at
        any time after the Closing Date less than fifty percent of the Common stock
        owned by them on the Closing Date.

      


      7.3. Maximum
        Conversion.
        The
        Subscriber shall not be entitled to convert on a Conversion Date that amount
        of
        the Note in connection with that number of shares of Common Stock which would
        be
        in excess of the sum of (i) the number of shares of common stock beneficially
        owned by the Subscriber and its Affiliates on a Conversion Date, and (ii)
        the
        number of shares of Common Stock issuable upon the conversion of the Note
        with
        respect to which the determination of this provision is being made on a
        Conversion Date, which would result in beneficial ownership by the Subscriber
        and its Affiliates of more than 4.99% of the outstanding shares of common
        stock
        of the Company on such Conversion Date. For the purposes of the provision
        to the
        immediately preceding sentence, beneficial ownership shall be determined
        in
        accordance with Section 13(d) of the Securities Exchange Act of 1934, as
        amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
        Subscriber shall not be limited to aggregate conversions of only 4.99% and
        aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber
        may
        waive the conversion limitation described in this Section 7.3, in whole or
        in
        part, upon and effective after 61 days prior written notice to the Company.
        The
        Subscriber may allocate which of the equity of the Company deemed beneficially
        owned by the Subscriber shall be included in the 4.99% amount described above
        and which shall be allocated to the excess above 4.99%.

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      7.4. Injunction
        - Posting of Bond.
        In the
        event a Subscriber shall elect to convert a Note or part thereof or exercise
        the
        Warrant in whole or in part, the Company may not refuse conversion or exercise
        based on any claim that such Subscriber or any one associated or affiliated
        with
        such Subscriber has been engaged in any violation of law, or for any other
        reason, unless, an injunction from a court, on prior notice to Subscriber,
        restraining and or enjoining conversion of all or part of said Note or exercise
        of all or part of said Warrant shall have been sought and obtained by the
        Company and the Company has posted a surety bond for the benefit of such
        Subscriber in the amount of 130% of the amount of the Note, or aggregate
        purchase price of the Warrant Shares which are subject to the injunction,
        which
        bond shall remain in effect until the completion of arbitration/litigation
        of
        the dispute and the proceeds of which shall be payable to such Subscriber
        to the
        extent Subscriber obtains judgment.

       

      7.5. Buy-In.
        In
        addition to any other rights available to the Subscriber, if the Company
        fails
        to deliver to the Subscriber such shares issuable upon conversion of a Note
        by
        the Delivery Date and if seven (7) business days after the Delivery Date
        the
        Subscriber purchases (in an open market transaction or otherwise) shares
        of
        Common Stock to deliver in satisfaction of a sale by such Subscriber of the
        Common Stock which the Subscriber was entitled to receive upon such conversion
        (a "Buy-In"),
        then
        the Company shall pay in cash to the Subscriber (in addition to any remedies
        available to or elected by the Subscriber) the amount by which (A) the
        Subscriber's total purchase price (including brokerage commissions, if any)
        for
        the shares of Common Stock so purchased exceeds (B) the aggregate principal
        and/or interest amount of the Note for which such conversion was not timely
        honored, together with interest thereon at a rate of 15% per annum, accruing
        until such amount and any accrued interest thereon is paid in full (which
        amount
        shall be paid as liquidated damages and not as a penalty). For example, if
        the
        Subscriber purchases shares of Common Stock having a total purchase price
        of
        $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000
        of
        note principal and/or interest, the Company shall be required to pay the
        Subscriber $1,000, plus interest. The Subscriber shall provide the Company
        written notice indicating the amounts payable to the Subscriber in respect
        of
        the Buy-In.

      


      7.6 Adjustments.
        The
        Conversion Price, Warrant exercise price and amount of Shares issuable upon
        conversion of the Notes and exercise of the Warrants shall be equitably adjusted
        to offset the effect of stock splits, stock dividends, pro rata distributions
        of
        property or equity interests to the Company’s shareholders.

      


      7.7. Optional
        Redemption.
        Provided an Event of Default (as defined in this Agreement and the Note)
        has not
        occurred, whether or not such Event of Default has been cured, the Company
        will
        have the option of prepaying the outstanding principal amount of the Note
        ("Optional
        Redemption"),
        in
        whole or in part, together with the interest accrued thereon, by paying to
        the
        Subscriber a sum of money equal to one hundred twenty percent (120%) of the
        Principal Amount to be redeemed, together with accrued but unpaid interest
        thereon and interest that will accrue until the actual repayment date and
        any
        and all other sums due, accrued or payable to the Subscriber arising under
        the
        Note, the Subscription Agreement or any Transaction Document (the "Redemption
        Amount")
        on the
        day written notice of redemption (the "Notice
        of Redemption")
        is
        given to the Subscriber. The Notice of Redemption shall specify the date
        for
        such Optional Redemption (the "Redemption
        Payment Date"),
        which
        date shall be not less than ten (10) business days after the date of the
        Notice
        of Redemption (the "Redemption
        Period").
        A
        Notice of Redemption shall not be effective with respect to any portion of
        the
        Note for which the Subscriber has a pending election to convert, or for
        Conversion notices given by the Subscriber prior to the Redemption Payment
        Date.
        On the Redemption Payment Date, the Redemption Amount shall be paid in good
        funds to the Subscriber. In the event the Company fails to pay the Redemption
        Amount on the Redemption Payment Date as set forth herein, then (i) such
        Notice
        of Redemption will be null and void, (ii) Company will have no further right
        to
        deliver another Notice of Redemption, and (iii) Company’s failure may be deemed
        by Subscriber to be a non-curable Event of Default.

      


      8. Legal
        Fees.
        The
        Company shall pay to Grushko & Mittman, P.C., a fee of $12,500
        (“Legal
        Fees”)
        (of
        which $5,000 has already been paid) as reimbursement for services rendered
        to
        the Subscribers in connection with this Agreement and the purchase and sale
        of
        the Notes and Warrants and acting as Escrow Agent for the Offering, plus
        an
        additional fee of $7,500 as payment of an outstanding balance due and owing.
        The
        balance of the Legal Fees will be payable out of funds held pursuant to the
        Escrow Agreement.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      9. Covenants
        of the Company.
        The
        Company covenants and agrees with the Subscribers as follows:

      


      (a) Stop
        Orders.
        The
        Company will advise the Subscribers, promptly after it receives notice of
        issuance by the Commission, any state securities commission or any other
        regulatory authority of any stop order or of any order preventing or suspending
        any offering of any securities of the Company, or of the suspension of the
        qualification of the Common Stock of the Company for offering or sale in
        any
        jurisdiction, or the initiation of any proceeding for any such
        purpose.

      


      (b) Listing.
        The
        Company shall promptly secure the listing of the shares of Common Stock and
        the
        Warrant Shares upon each national securities exchange, or electronic or
        automated quotation system upon which they are or become eligible for listing
        (subject to official notice of issuance) and shall maintain such listing
        so long
        as any Warrants are outstanding. The Company will maintain the listing of
        its
        Common Stock on the Pink Sheets, American Stock Exchange, Nasdaq SmallCap
        Market, Nasdaq National Market System, Bulletin Board, or New York Stock
        Exchange (whichever of the foregoing is at the time the principal trading
        exchange or market for the Common Stock (the “Principal
        Market”),
        and
        will comply in all respects with the Company's reporting, filing and other
        obligations under the bylaws or rules of the Principal Market, as applicable.
        The Company will provide the Subscribers copies of all notices it receives
        notifying the Company of the threatened and actual delisting of the Common
        Stock
        from any Principal Market. As of the date of this Agreement and the Closing
        Date, the Pink Sheets is and will be the Principal Market.

      


      (c) Market
        Regulations.
        The
        Company shall notify the Commission, the Principal Market and applicable
        state
        authorities, in accordance with their requirements, of the transactions
        contemplated by this Agreement, and shall take all other necessary action
        and
        proceedings as may be required and permitted by applicable law, rule and
        regulation, for the legal and valid issuance of the Securities to the
        Subscribers and promptly provide copies thereof to Subscriber.

      


      (d) Reporting
        Requirements.
        From
        the date of this Agreement and until the sooner of (i) two (2) years after
        the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitation, the
        Company will use its best efforts to (v) cause its Common Stock to be registered
        under Section 12(b) or 12(g) of the 1934 Act, (x) comply in all respects
        with
        its reporting and filing obligations under the 1934 Act, (y) comply with
        all
        reporting requirements that are applicable to an issuer with a class of shares
        registered pursuant to Section 12(b) or 12(g) of the 1934 Act, as applicable,
        and (z) comply with all requirements related to any registration statement
        filed
        pursuant to this Agreement. The Company will use its best efforts not to
        take
        any action or file any document (whether or not permitted by the 1933 Act
        or the
        1934 Act or the rules thereunder) to terminate or suspend such registration
        or
        to terminate or suspend its reporting and filing obligations under said acts
        until two (2) years after the Second Closing Date. Until the earlier of the
        resale of the Common Stock and the Warrant Shares by each Subscriber or two
        (2)
        years after the Warrants have been exercised, the Company will use its best
        efforts to continue the listing or quotation of the Common Stock on the
        Principal Market or other market with the reasonable consent of Subscribers
        holding a majority of the Shares and Warrant Shares, and will comply in all
        respects with the Company's reporting, filing and other obligations under
        the
        bylaws or rules of the Principal Market. The Company agrees to timely file
        a
        Form D with respect to the Securities if required under Regulation D and
        to
        provide a copy thereof to each Subscriber promptly after such
        filing.

      


      (e) Use
        of
        Proceeds.
        The
        proceeds of the Offering will be employed by the Company for the purposes
        set
        forth on Schedule
        9.1(e)
        hereto.
        A deviation of more than 5% of any single stated use of proceeds or a deviation
        in the aggregate of more than 10% will be an Event of Default under the Note.
        Except as set forth on Schedule
        9.1(e),
        the
        Purchase Price may not and will not be used for accrued and unpaid officer
        and
        director salaries, payment of financing related debt, redemption of outstanding
        notes or equity instruments of the Company nor non-trade obligations outstanding
        on a Closing Date. The proceeds will be retained in escrow pursuant to the
        Escrow Agreement and disbursed over time in compliance with the purposes
        set
        forth on Schedule
        9.1(e).

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

      (f) Reservation.
        Prior
        to the Closing Date, the Company undertakes to reserve, pro rata,
        on
        behalf of each holder of a Note or Warrant, from its authorized but unissued
        common stock, a number of common shares equal to 150% of the amount of Common
        Stock necessary to allow each holder of a Note to be able to convert all
        such
        outstanding Notes and interest and reserve the amount of Warrant Shares issuable
        upon exercise of the Warrants. Failure to have sufficient shares reserved
        pursuant to this Section 9(f) for three (3) consecutive business days or
        ten
        (10) days in the aggregate shall be a material default of the Company’s
        obligations under this Agreement and an Event of Default under the
        Note.

      


      (g) Taxes.
        From
        the date of this Agreement and until the sooner of (i) two (2) years after
        the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitations,
        the
        Company will promptly pay and discharge, or cause to be paid and discharged,
        when due and payable, all lawful taxes, assessments and governmental charges
        or
        levies imposed upon the income, profits, property or business of the Company;
        provided, however, that any such tax, assessment, charge or levy need not
        be
        paid if the validity thereof shall currently be contested in good faith by
        appropriate proceedings and if the Company shall have set aside on its books
        adequate reserves with respect thereto, and provided, further, that the Company
        will pay all such taxes, assessments, charges or levies forthwith upon the
        commencement of proceedings to foreclose any lien which may have attached
        as
        security therefore.

      


      (h) Insurance.
        From
        the date of this Agreement and until the sooner of (i) two (2) years after
        the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitations,
        the
        Company will keep its assets which are of an insurable character insured
        by
        financially sound and reputable insurers against loss or damage by fire,
        explosion and other risks customarily insured against by companies in the
        Company’s line of business, in amounts sufficient to prevent the Company from
        becoming a co-insurer and not in any event less than one hundred percent
        (100%)
        of the insurable value of the property insured; and the Company will maintain,
        with financially sound and reputable insurers, insurance against other hazards
        and risks and liability to persons and property to the extent and in the
        manner
        customary for companies in similar businesses similarly situated and to the
        extent available on commercially reasonable terms.

      


      (i) Books
        and Records.
        From the
        date of this Agreement and until the sooner of (i) two (2) years after the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitations,
        the
        Company will keep true records and books of account in which full, true and
        correct entries will be made of all dealings or transactions in relation
        to its
        business and affairs in accordance with generally accepted accounting principles
        applied on a consistent basis.

      


      (j) Governmental
        Authorities.
        From the
        date of this Agreement and until the sooner of (i) two (2) years after the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitations,
        the
        Company shall duly observe and conform in all material respects to all valid
        requirements of governmental authorities relating to the conduct of its business
        or to its properties or assets.

      


      (k) Intellectual
        Property.
        From
        the date of this Agreement and until the sooner of (i) two (2) years after
        the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitations,
        the
        Company shall maintain in full force and effect its corporate existence,
        rights
        and franchises and all licenses and other rights to use intellectual property
        owned or possessed by it and reasonably deemed to be necessary to the conduct
        of
        its business.

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

       

      (l) Properties.
        From the
        date of this Agreement and until the sooner of (i) two (2) years after the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitation, the
        Company will keep its properties in good repair, working order and condition,
        reasonable wear and tear excepted, and from time to time make all necessary
        and
        proper repairs, renewals, replacements, additions and improvements thereto;
        and
        the Company will at all times comply with each provision of all leases to
        which
        it is a party or under which it occupies property if the breach of such
        provision could reasonably be expected to have a Material Adverse
        Effect.

      


      (m) Confidentiality/Public
        Announcement.
        From the
        date of this Agreement and until the sooner of (i) two (2) years after the
        Second Closing Date, or (ii) until all the Shares and Warrant Shares have
        been
        resold or transferred by all the Subscribers pursuant to the Registration
        Statement or pursuant to Rule 144, without regard to volume limitations,
        the
        Company agrees that except in connection with a Form 8-K or the Registration
        Statement, it will not disclose publicly or privately the identity of the
        Subscribers unless expressly agreed to in writing by a Subscriber or only
        to the
        extent required by law and then only upon five days prior notice to Subscriber.
        In any event and subject to the foregoing, the Company undertakes to file
        a Form
        8-K or make a public announcement describing the Offering on the Closing
        Date.
        In the Form 8-K or public announcement, the Company will specifically disclose
        the amount of common stock outstanding immediately after each Closing. A
        form of
        the proposed Form 8-K or public announcement to be employed in connection
        with
        each Closing Date is annexed hereto as Exhibit
        D.

      


      (n) Further
        Registration Statements.
        Except
        for a registration statement filed on behalf of the Subscribers pursuant
        to
        Section 11 of this Agreement or in connection with the securities identified
        on
Schedule
        11.1
        hereto,
        the Company will not file any registration statements or amend any already
        filed
        registration statement with the Commission or with state regulatory authorities
        without the consent of the Subscriber until the sooner of (i) the Registration
        Statement shall have been current and available for use in connection with
        the
        unrestricted public resale of the Shares and Warrant Shares for 270 days,
        (ii)
        until all the Shares have been resold or transferred by the Subscribers pursuant
        to the Registration Statement or Rule 144, without regard to volume limitations,
        or (iii) the date the Note has been fully paid (“Exclusion
        Period”).
        

      


      (o) Non-Public
        Information.
        The
        Company covenants and agrees that neither it nor any other Person acting
        on its
        behalf will provide any Subscriber or its agents or counsel with any information
        that the Company believes constitutes material non-public information, unless
        prior thereto such Subscriber shall have agreed in writing to receive such
        information. The Company understands and confirms that each Subscriber shall
        be
        relying on the foregoing representations in effecting transactions in securities
        of the Company.

      


      (p) Limited
        Standstill.
        The
        Company will deliver to the Subscribers on or before the Closing Date and
        enforce the provisions of irrevocable lockup agreements (“Limited
        Standstill Agreements”)
        in the
        forms annexed hereto as Exhibit
        H,
        with
        the parties identified on Schedule
        9.1(p)
        hereto.

      


      (q) Reporting
        Company.
        The
        Company is a publicly-held company and will use its best efforts to become
        subject to the reporting obligations pursuant to Section 13 of the Securities
        Exchange Act of 1934, as amended (the "1934
        Act")
        and
        will have a class of common shares registered pursuant to Section 12(g) of
        the
        1934 Act. Pursuant to the provisions of the 1934 Act, the Company will timely
        filed all reports and other materials required to be filed thereunder with
        the
        Commission.

      


      (r) The
        Company undertakes to use its best efforts to be listed on the OTC Bulletin
        Board within ninety-five (95) days of the Closing Date.

      


      10. Covenants
        of the Company and Subscriber Regarding Indemnification.

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

       

      (a) The
        Company agrees to indemnify, hold harmless, reimburse and defend the
        Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
        persons, and principal shareholders, against any claim, cost, expense,
        liability, obligation, loss or damage (including reasonable legal fees) of
        any
        nature, incurred by or imposed upon the Subscriber or any such person which
        results, arises out of or is based upon (i) any material misrepresentation
        by
        Company or breach of any warranty by Company in this Agreement or in any
        Exhibits or Schedules attached hereto, or other agreement delivered pursuant
        hereto; or (ii) after any applicable notice and/or cure periods, any breach
        or
        default in performance by the Company of any covenant or undertaking to be
        performed by the Company hereunder, or any other agreement entered into by
        the
        Company and Subscriber relating hereto.

      


      (b) Each
        Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
        and each of the Company’s officers, directors, agents, Affiliates, control
        persons against any claim, cost, expense, liability, obligation, loss or
        damage
        (including reasonable legal fees) of any nature, incurred by or imposed upon
        the
        Company or any such person which results, arises out of or is based upon
        (i) any
        material misrepresentation by such Subscriber in this Agreement or in any
        Exhibits or Schedules attached hereto, or other agreement delivered pursuant
        hereto; or (ii) after any applicable notice and/or cure periods, any breach
        or
        default in performance by such Subscriber of any covenant or undertaking
        to be
        performed by such Subscriber hereunder, or any other agreement entered into
        by
        the Company and Subscribers, relating hereto.

      


      (c) In
        no
        event shall the liability of any Subscriber or permitted successor hereunder
        or
        under any other agreement delivered in connection herewith be greater in
        amount
        than the dollar amount of the net proceeds actually received by such Subscriber
        upon the sale of Registrable Securities (as defined herein).

      


      (d) The
        procedures set forth in Section 11.6 shall apply to the indemnification set
        forth in Sections 10(a) and 10(b) above.

      


      11.1. Registration
        Rights.
        The
        Company hereby grants the following registration rights to holders of the
        Securities.

      


      (i) On
        one
        occasion, for a period commencing one hundred and ninety-one (191) days after
        the Closing Date, but not later than two (2) years after the Closing Date
        (“Request
        Date”),
        upon
        a written request therefor from any record holder or holders of more than
        50% of
        the Shares issued and issuable upon conversion of the Notes and Warrant Shares
        actually issued upon exercise of the Warrants, the Company shall prepare
        and
        file with the Commission a registration statement under the 1933 Act registering
        the Shares, and Warrant Shares (which shall include the Warrant Shares issuable
        to the Subscribers and Placement Agent) (collectively “Registrable
        Securities”)
        which
        are the subject of such request for unrestricted public resale by the holder
        thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities
        shall not include Securities which are (A) registered for resale in an effective
        registration statement, (B) included for registration in a pending registration
        statement, or (C) which have been issued without further transfer restrictions
        after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon receipt
        of such request, the Company shall promptly give written notice to all other
        record holders of the Registrable Securities that such registration statement
        is
        to be filed and shall include in such registration statement Registrable
        Securities for which it has received written requests within ten (10) days
        after
        the Company gives such written notice. Such other requesting record holders
        shall be deemed to have exercised their demand registration right under this
        Section 11.1(i).

      


      (ii) If
        the
        Company at any time proposes to register any of its securities under the
        1933
        Act for sale to the public, whether for its own account or for the account
        of
        other security holders or both, except with respect to registration statements
        on Forms S-4, S-8 or another form not available for registering the Registrable
        Securities for sale to the public, provided the Registrable Securities are
        not
        otherwise registered for resale by the Subscribers or Holder pursuant to
        an
        effective registration statement, each such time it will give at least fifteen
        (15) days' prior written notice to the record holder of the Registrable
        Securities of its intention so to do. Upon the written request of the holder,
        received by the Company within ten (10) days after the giving of any such
        notice
        by the Company, to register any of the Registrable Securities not previously
        registered, the Company will cause such Registrable Securities as to which
        registration shall have been so requested to be included with the securities
        to
        be covered by the registration statement proposed to be filed by the Company,
        all to the extent required to permit the sale or other disposition of the
        Registrable Securities so registered by the holder of such Registrable
        Securities (the “Seller”
        or
“Sellers”).
        In
        the event that any registration pursuant to this Section 11.1(ii) shall be,
        in
        whole or in part, an underwritten public offering of common stock of the
        Company, the number of shares of Registrable Securities to be included in
        such
        an underwriting may be reduced by the managing underwriter if and to the
        extent
        that the Company and the underwriter shall reasonably be of the opinion that
        such inclusion would adversely affect the marketing of the securities to
        be sold
        by the Company therein; provided, however, that the Company shall notify
        the
        Seller in writing of any such reduction. Notwithstanding the foregoing
        provisions, or Section 11.4 hereof, the Company may withdraw or delay or
        suffer
        a delay of any registration statement referred to in this Section 11.1(ii)
        without thereby incurring any liability to the Seller.

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

       

      (iii) If,
        at
        the time any written request for registration is received by the Company
        pursuant to Section 11.1(i), the Company has determined to proceed with the
        actual preparation and filing of a registration statement under the 1933
        Act in
        connection with the proposed offer and sale for cash of any of its securities
        for the Company's own account and the Company actually does file such other
        registration statement, such written request shall be deemed to have been
        given
        pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights
        of the
        holders of Registrable Securities covered by such written request shall be
        governed by Section 11.1(ii).

      


      (iv) The
        Company shall file with the Commission not later than the sooner of eighty
        (80)
        calendar days after the Initial Closing Date (the “Filing
        Date”),
        and
        cause to be declared effective within one hundred and ninety-five (195) days
        after the Initial Closing Date (the “Effective
        Date”),
        a
        Form SB-2 registration statement (the “Registration
        Statement”)
        (or
        such other form that it is eligible to use) in order to register the Registrable
        Securities for resale and distribution under the 1933 Act. The Company will
        register not less than a number of shares of common stock in the aforedescribed
        registration statement that is equal to 150% of the Shares issuable upon
        conversion of the Notes and all of the Warrant Shares issuable pursuant to
        this
        Agreement. The Registrable Securities shall be reserved and set aside
        exclusively for the benefit of each Subscriber and Warrant holder, pro rata,
        and not
        issued, employed or reserved for anyone other than each such Subscriber and
        Warrant holder. The Registration Statement will immediately be amended or
        additional registration statements will be immediately filed by the Company
        as
        necessary to register additional shares of Common Stock to allow the public
        resale of all Common Stock included in and issuable by virtue of the Registrable
        Securities. Without the written consent of the Subscriber, no securities
        of the
        Company other than the Registrable Securities will be included in the
        Registration Statement except as disclosed on Schedule
        11.1.

      


      11.2. Registration
        Procedures.
        If and
        whenever the Company is required by the provisions of Section 11.1(i), 11.1(ii),
        or (iv) to effect the registration of any Registrable Securities under the
        1933
        Act, the Company will, as expeditiously as possible: 

      


      (a) subject
        to the timelines provided in this Agreement, prepare and file with the
        Commission a registration statement required by Section 11, with respect
        to such
        securities and use its best efforts to cause such registration statement
        to
        become and remain effective for the period of the distribution contemplated
        thereby (determined as herein provided), and promptly provide to the holders
        of
        the Registrable Securities copies of all filings and Commission letters of
        comment and notify Subscribers and Grushko & Mittman, P.C. (by telecopier
        and by email to Counslers@aol.com)
        within
        one (1) business day after (i) notice that the Commission has no comments
        or no
        further comments on the Registration Statement, and (ii) the declaration
        of
        effectiveness of the registration statement, (failure to timely provide notice
        as required by this Section 11.2(a) shall be a material breach of the Company’s
        obligation and an Event of Default as defined in the Notes);

      


      (b) prepare
        and file with the Commission such amendments and supplements to such
        registration statement and the prospectus used in connection therewith as
        may be
        necessary to keep such registration statement effective until such registration
        statement has been effective for a period of two (2) years, and comply with
        the
        provisions of the 1933 Act with respect to the disposition of all of the
        Registrable Securities covered by such registration statement in accordance
        with
        the Sellers’ intended method of disposition set forth in such registration
        statement for such period; 

       

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

       

      (c) furnish
        to the Sellers, at the Company’s expense, such number of copies of the
        registration statement and the prospectus included therein (including each
        preliminary prospectus) as such persons reasonably may request in order to
        facilitate the public sale or their disposition of the securities covered
        by
        such registration statement; 

      


      (d) use
        its
        best efforts to register or qualify the Sellers’ Registrable Securities covered
        by such registration statement under the securities or “blue sky” laws of New
        York, and such other jurisdictions as the Sellers shall request in writing,
        provided, however, that the Company shall not for any such purpose be required
        to qualify generally to transact business as a foreign corporation in any
        jurisdiction where it is not so qualified or to consent to general service
        of
        process in any such jurisdiction; 

      


      (e) if
        applicable, list the Registrable Securities covered by such registration
        statement with any securities exchange on which the Common Stock of the Company
        is then listed; 

      


      (f) immediately
        notify the Sellers when a prospectus relating thereto is required to be
        delivered under the 1933 Act, of the happening of any event of which the
        Company
        has knowledge as a result of which the prospectus contained in such registration
        statement, as then in effect, includes an untrue statement of a material
        fact or
        omits to state a material fact required to be stated therein or necessary
        to
        make the statements therein not misleading in light of the circumstances
        then
        existing; and

      


      (g) provided
        same would not be in violation of the provision of Regulation FD under the
        1934
        Act, make available for inspection by the Sellers, and any attorney, accountant
        or other agent retained by the Seller or underwriter, all publicly available,
        non-confidential financial and other records, pertinent corporate documents
        and
        properties of the Company, and cause the Company's officers, directors and
        employees to supply all publicly available, non-confidential information
        reasonably requested by the seller, attorney, accountant or agent in connection
        with such registration statement. 

      


      11.3. Provision
        of Documents.
        In
        connection with each registration described in this Section 11, each Seller
        will
        furnish to the Company in writing such information and representation letters
        with respect to itself and the proposed distribution by it as reasonably
        shall
        be necessary in order to assure compliance with federal and applicable state
        securities laws. 

      


      11.4. Non-Registration
        Events.
        The
        Company and the Subscribers agree that the Sellers will suffer damages if
        the
        Registration Statement is not filed by the Filing Date and not declared
        effective by the Commission by the Effective Date, and any registration
        statement required under Section 11.1(i) or 11.1(ii) is not filed within
        60 days
        after written request and declared effective by the Commission within 120
        days
        after such request, and maintained in the manner and within the time periods
        contemplated by Section 11 hereof, and it would not be feasible to ascertain
        the
        extent of such damages with precision. Accordingly, if (A) the Registration
        Statement is not filed on or before the Filing Date, (B) is not declared
        effective on or before the Effective Date, (C) if the Registration Statement
        is
        not declared effective within five (5) business days after receipt by the
        Company of a written or oral communication from the Commission that the
        Registration Statement will not be reviewed or that the Commission has no
        further comments, (D) if the registration statement described in Sections
        11.1(i) or 11.1(ii) is not filed within 60 days after such written request,
        or
        is not declared effective within 120 days after such written request, or
        (E) any
        registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
        is
        filed and declared effective but shall thereafter cease to be effective (without
        being succeeded within fifteen (15) business days by an effective replacement
        or
        amended registration statement) for a period of time which shall exceed 30
        days
        in the aggregate per year (defined as a period of 365 days commencing on
        the
        date the Registration Statement is declared effective) or more than 20
        consecutive days (each such event referred to in clauses (A) through (E)
        of this
        Section 11.4 is referred to herein as a "Non-Registration
        Event"),
        then
        the Company shall deliver to the holder of Registrable Securities, as Liquidated
        Damages, an amount equal to two percent (2%) for each thirty (30) days or
        part
        thereof, of the Purchase Price of the Notes remaining unconverted and purchase
        price of Shares issued upon conversion of the Notes owned of record by such
        holder which are subject to such Non-Registration Event. The
        Company must pay the Liquidated Damages in cash or an amount equal to two
        hundred percent of such cash Liquidated Damages if paid in additional shares
        of
        registered unlegended free-trading shares of Common Stock. Such Common Stock
        shall be valued at the Conversion Price in effect on each 30th
        day or
        shorter period for which Liquidated Damages are payable. The Liquidated Damages
        must be paid within ten (10) days after the end of each thirty (30) day period
        or shorter part thereof for which Liquidated Damages are payable.
        The
        Company must pay the Liquidated Damages in cash within ten (10) days after
        the
        end of each thirty (30) day period or shorter part for which Liquidated Damages
        are payable. In the event a Registration Statement is filed by the Filing
        Date
        but is withdrawn prior to being declared effective by the Commission, then
        such
        Registration Statement will be deemed to have not been filed. It shall be
        deemed
        a Non-Registration Event if at any time after the Actual Effective Date the
        Company has registered for unrestricted resale on behalf of the Subscriber
        fewer
        than 125% of the amount of Common Shares issuable upon full conversion of
        all
        sums due under the Notes and 100% of the Warrant Shares issuable upon exercise
        of the Warrants. All oral or written comments received from the Commission
        relating to the Registration Statement must be satisfactorily responded to
        within ten (10) business days after receipt of the comments from the Commission.
        Failure to timely respond is a Non-Registration Event for which Liquidated
        Damages shall accrue and be payable by the Company to the holders of Registrable
        Securities at the same rate set forth above. Notwithstanding the foregoing,
        the
        Company shall not be liable to the Subscriber under this Section 11.4 for
        any
        events or delays occurring as a consequence of the acts or omissions of the
        Subscribers contrary to the obligations undertaken by Subscribers in this
        Agreement. Liquidated Damages will not accrue or be payable pursuant to this
        Section 11.4 nor will a Non-Registration Event be deemed to have occurred
        for
        times during which Registrable Securities are transferable by the holder
        of
        Registrable Securities pursuant to Rule 144(k) under the 1933 Act.

       

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

       

      11.5. Expenses.
        All
        expenses incurred by the Company in complying with Section 11, including,
        without limitation, all registration and filing fees, printing expenses,
        fees
        and disbursements of counsel and independent public accountants for the Company,
        fees and expenses (including reasonable counsel fees) incurred in connection
        with complying with state securities or “blue sky” laws, fees of the National
        Association of Securities Dealers, Inc., transfer taxes, fees of transfer
        agents
        and registrars, costs of insurance and fee of one counsel for all Sellers
        are
        called “Registration Expenses.” All underwriting discounts and selling
        commissions applicable to the sale of Registrable Securities, including any
        fees
        and disbursements of any additional counsel to the Seller, are called
        "Selling
        Expenses."
        The
        Company will pay all Registration Expenses in connection with the registration
        statement under Section 11. Selling Expenses in connection with each
        registration statement under Section 11 shall be borne by the Seller and
        may be
        apportioned among the Sellers in proportion to the number of shares sold
        by the
        Seller relative to the number of shares sold under such registration statement
        or as all Sellers thereunder may agree.

      


      11.6. Indemnification
        and Contribution.

      


      (a) In
        the
        event of a registration of any Registrable Securities under the 1933 Act
        pursuant to Section 11, the Company will, to the extent permitted by law,
        indemnify and hold harmless the Seller, each officer of the Seller, each
        director of the Seller, each underwriter of such Registrable Securities
        thereunder and each other person, if any, who controls such Seller or
        underwriter within the meaning of the 1933 Act, against any losses, claims,
        damages or liabilities, joint or several, to which the Seller, or such
        underwriter or controlling person may become subject under the 1933 Act or
        otherwise, insofar as such losses, claims, damages or liabilities (or actions
        in
        respect thereof) arise out of or are based upon any untrue statement or alleged
        untrue statement of any material fact contained in any registration statement
        under which such Registrable Securities was registered under the 1933 Act
        pursuant to Section 11, any preliminary prospectus or final prospectus contained
        therein, or any amendment or supplement thereof, or arise out of or are based
        upon the omission or alleged omission to state therein a material fact required
        to be stated therein or necessary to make the statements therein not misleading
        in light of the circumstances when made, and will subject to the provisions
        of
        Section 11.6(c) reimburse the Seller, each such underwriter and each such
        controlling person for any legal or other expenses reasonably incurred by
        them
        in connection with investigating or defending any such loss, claim, damage,
        liability or action; provided, however, that the Company shall not be liable
        to
        the Seller to the extent that any such damages arise out of or are based
        upon an
        untrue statement or omission made in any preliminary prospectus if (i) the
        Seller failed to send or deliver a copy of the final prospectus delivered
        by the
        Company to the Seller with or prior to the delivery of written confirmation
        of
        the sale by the Seller to the person asserting the claim from which such
        damages
        arise, (ii) the final prospectus would have corrected such untrue statement
        or
        alleged untrue statement or such omission or alleged omission, or (iii) to
        the
        extent that any such loss, claim, damage or liability arises out of or is
        based
        upon an untrue statement or alleged untrue statement or omission or alleged
        omission so made in conformity with information furnished by any such Seller,
        or
        any such controlling person in writing specifically for use in such registration
        statement or prospectus. 

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

       

      (b) In
        the
        event of a registration of any of the Registrable Securities under the 1933
        Act
        pursuant to Section 11, each Seller severally but not jointly will, to the
        extent permitted by law, indemnify and hold harmless the Company, and each
        person, if any, who controls the Company within the meaning of the 1933 Act,
        each officer of the Company who signs the registration statement, each director
        of the Company, each underwriter and each person who controls any underwriter
        within the meaning of the 1933 Act, against all losses, claims, damages or
        liabilities, joint or several, to which the Company or such officer, director,
        underwriter or controlling person may become subject under the 1933 Act or
        otherwise, insofar as such losses, claims, damages or liabilities (or actions
        in
        respect thereof) arise out of or are based upon any untrue statement or alleged
        untrue statement of any material fact contained in the registration statement
        under which such Registrable Securities were registered under the 1933 Act
        pursuant to Section 11, any preliminary prospectus or final prospectus contained
        therein, or any amendment or supplement thereof, or arise out of or are based
        upon the omission or alleged omission to state therein a material fact required
        to be stated therein or necessary to make the statements therein not misleading,
        and will reimburse the Company and each such officer, director, underwriter
        and
        controlling person for any legal or other expenses reasonably incurred by
        them
        in connection with investigating or defending any such loss, claim, damage,
        liability or action, provided, however, that the Seller will be liable hereunder
        in any such case if and only to the extent that any such loss, claim, damage
        or
        liability arises out of or is based upon an untrue statement or alleged untrue
        statement or omission or alleged omission made in reliance upon and in
        conformity with information pertaining to such Seller, as such, furnished
        in
        writing to the Company by such Seller specifically for use in such registration
        statement or prospectus, and provided, further, however, that the liability
        of
        the Seller hereunder shall be limited to the net proceeds actually received
        by
        the Seller from the sale of Registrable Securities covered by such registration
        statement.

      


      (c) Promptly
        after receipt by an indemnified party hereunder of notice of the commencement
        of
        any action, such indemnified party shall, if a claim in respect thereof is
        to be
        made against the indemnifying party hereunder, notify the indemnifying party
        in
        writing thereof, but the omission so to notify the indemnifying party shall
        not
        relieve it from any liability which it may have to such indemnified party
        other
        than under this Section 11.6(c) and shall only relieve it from any liability
        which it may have to such indemnified party under this Section 11.6(c), except
        and only if and to the extent the indemnifying party is prejudiced by such
        omission. In case any such action shall be brought against any indemnified
        party
        and it shall notify the indemnifying party of the commencement thereof, the
        indemnifying party shall be entitled to participate in and, to the extent
        it
        shall wish, to assume and undertake the defense thereof with counsel
        satisfactory to such indemnified party, and, after notice from the indemnifying
        party to such indemnified party of its election so to assume and undertake
        the
        defense thereof, the indemnifying party shall not be liable to such indemnified
        party under this Section 11.6(c) for any legal expenses subsequently incurred
        by
        such indemnified party in connection with the defense thereof other than
        reasonable costs of investigation and of liaison with counsel so selected,
        provided, however, that, if the defendants in any such action include both
        the
        indemnified party and the indemnifying party and the indemnified party shall
        have reasonably concluded that there may be reasonable defenses available
        to it
        which are different from or additional to those available to the indemnifying
        party or if the interests of the indemnified party reasonably may be deemed
        to
        conflict with the interests of the indemnifying party, the indemnified parties,
        as a group, shall have the right to select one separate counsel and to assume
        such legal defenses and otherwise to participate in the defense of such action,
        with the reasonable expenses and fees of such separate counsel and other
        expenses related to such participation to be reimbursed by the indemnifying
        party as incurred.

      


      (d) In
        order
        to provide for just and equitable contribution in the event of joint liability
        under the 1933 Act in any case in which either (i) a Seller, or any controlling
        person of a Seller, makes a claim for indemnification pursuant to this Section
        11.6 but it is judicially determined (by the entry of a final judgment or
        decree
        by a court of competent jurisdiction and the expiration of time to appeal
        or the
        denial of the last right of appeal) that such indemnification may not be
        enforced in such case notwithstanding the fact that this Section 11.6 provides
        for indemnification in such case, or (ii) contribution under the 1933 Act
        may be
        required on the part of the Seller or controlling person of the Seller in
        circumstances for which indemnification is not provided under this Section
        11.6;
        then, and in each such case, the Company and the Seller will contribute to
        the
        aggregate losses, claims, damages or liabilities to which they may be subject
        (after contribution from others) in such proportion so that the Seller is
        responsible only for the portion represented by the percentage that the public
        offering price of its securities offered by the registration statement bears
        to
        the public offering price of all securities offered by such registration
        statement, provided, however, that, in any such case, (y) the Seller will
        not be
        required to contribute any amount in excess of the public offering price
        of all
        such securities sold by it pursuant to such registration statement; and (z)
        no
        person or entity guilty of fraudulent misrepresentation (within the meaning
        of
        Section 11(f) of the 1933 Act) will be entitled to contribution from any
        person
        or entity who was not guilty of such fraudulent misrepresentation.

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

       

      11.7. Delivery
        of Unlegended Shares.

      


      (a) Within
        three (3) business days (such third (3rd)
        business day being the “Unlegended
        Shares Delivery Date”)
        after
        the business day on which the Company has received (i) a notice that Registrable
        Securities have been sold either pursuant to the Registration Statement or
        Rule
        144 under the 1933 Act, (ii) a representation that the prospectus delivery
        requirements, or the requirements of Rule 144, as applicable, have been
        satisfied, and (iii) the original share certificates representing the shares
        of
        Common Stock that have been sold, and (iv) in the case of sales under Rule
        144,
        customary representation letters of the Subscriber and/or Subscriber’s broker
        regarding compliance with the requirements of Rule 144, the Company at its
        expense, (y) shall deliver, and shall cause legal counsel selected by the
        Company to deliver, to its transfer agent (with copies to Subscriber) an
        appropriate instruction and opinion of such counsel, directing the delivery
        of
        shares of Common Stock without any legends including the legend set forth
        in
        Section 4(e) above, issuable pursuant to any effective and current Registration
        Statement described in Section 11 of this Agreement or pursuant to Rule 144
        under the 1933 Act (the “Unlegended
        Shares”);
        and
        (z) cause the transmission of the certificates representing the Unlegended
        Shares together with a legended certificate representing the balance of the
        unsold shares of Common Stock, if any, to the Subscriber at the address
        specified in the notice of sale, via express courier, by electronic transfer
        or
        otherwise on or before the Unlegended Shares Delivery Date. Transfer fees
        shall
        be the responsibility of the Seller.

      


      (b) In
        lieu
        of delivering physical certificates representing the Unlegended Shares, if
        the
        Company’s transfer agent is participating in the Depository Trust Company
        (“DTC”)
        Fast
        Automated Securities Transfer program, upon request of a Subscriber, so long
        as
        the certificates therefor do not bear a legend and the Subscriber is not
        obligated to return such certificate for the placement of a legend thereon,
        the
        Company shall cause its transfer agent to electronically transmit the Unlegended
        Shares by crediting the account of Subscriber’s prime Broker with DTC through
        its Deposit Withdrawal Agent Commission system. Such delivery must be made
        on or
        before the Unlegended Shares Delivery Date.

      


      (c) The
        Company understands that a delay in the delivery of the Unlegended Shares
        pursuant to Section 11 hereof later than two business days after the Unlegended
        Shares Delivery Date could result in economic loss to a Subscriber. As
        compensation to a Subscriber for such loss, the Company agrees to pay late
        payment fees (as liquidated damages and not as a penalty) to the Subscriber
        for
        late delivery of Unlegended Shares in the amount of $100 per business day
        after
        the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
        subject to the delivery default. If during any 360 day period, the Company
        fails
        to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
        of thirty (30) days, then each Subscriber or assignee holding Securities
        subject
        to such default may, at its option, require the Company to redeem all or
        any
        portion of the Shares and Warrant Shares subject to such default at a price
        per
        share equal to 120% of the Purchase Price of such Common Stock and Warrant
        Shares. The Company shall pay any payments incurred under this Section in
        immediately available funds upon demand.

       

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

       

      (d) In
        addition to any other rights available to a Subscriber, if the Company fails
        to
        deliver to a Subscriber Unlegended Shares as required pursuant to this
        Agreement, within seven (7) business days after the Unlegended Shares Delivery
        Date and the Subscriber purchases (in an open market transaction or otherwise)
        shares of common stock to deliver in satisfaction of a sale by such Subscriber
        of the shares of Common Stock which the Subscriber was entitled to receive
        from
        the Company (a "Buy-In"), then the Company shall pay in cash to the Subscriber
        (in addition to any remedies available to or elected by the Subscriber) the
        amount by which (A) the Subscriber's total purchase price (including brokerage
        commissions, if any) for the shares of common stock so purchased exceeds
        (B) the
        aggregate purchase price of the shares of Common Stock delivered to the Company
        for reissuance as Unlegended Shares, together with interest thereon at a
        rate of
        15% per annum, accruing until such amount and any accrued interest thereon
        is
        paid in full (which amount shall be paid as liquidated damages and not as
        a
        penalty). For example, if a Subscriber purchases shares of Common Stock having
        a
        total purchase price of $11,000 to cover a Buy-In with respect to $10,000
        of
        purchase price of shares of Common Stock delivered to the Company for reissuance
        as Unlegended Shares, the Company shall be required to pay the Subscriber
        $1,000, plus interest. The Subscriber shall provide the Company written notice
        indicating the amounts payable to the Subscriber in respect of the
        Buy-In.

      (e) In
        the
        event a Subscriber shall request delivery of Unlegended Shares as described
        in
        Section 11.7 and the Company is required to deliver such Unlegended Shares
        pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
        Shares based on any claim that such Subscriber or any one associated or
        affiliated with such Subscriber has been engaged in any violation of law,
        or for
        any other reason, unless, an injunction or temporary restraining order from
        a
        court, on notice, restraining and or enjoining delivery of such Unlegended
        Shares or exercise of all or part of said Warrant shall have been sought
        and
        obtained and the Company has posted a surety bond for the benefit of such
        Subscriber in the amount of 130% of the amount of the aggregate purchase
        price
        of the Common Stock and Warrant Shares which are subject to the injunction
        or
        temporary restraining order, which bond shall remain in effect until the
        completion of arbitration/litigation of the dispute and the proceeds of which
        shall be payable to such Subscriber to the extent Subscriber obtains judgment
        in
        Subscriber’s favor.

      


      12. (a) Right
        of First Refusal.
        Until
        the Registration Statement has been effective for the unrestricted public
        resale
        of the Shares and Warrant Shares for 365 days (which period shall be tolled
        during the pendency of an Event of Default), the Subscribers shall be given
        not
        less than seven (7) business days prior written notice of any proposed sale
        by
        the Company of its common stock or other securities or debt obligations,
        except
        in connection with (i) as full or partial consideration in connection with
        merger, consolidation or purchase of substantially all of the securities
        or
        assets of any corporation or other entity, and (ii) as has been described
        in the
        Reports or Other Written Information filed with the Commission delivered
        to the
        Subscribers prior to the Closing Date (collectively “Excepted
        Issuances”).
        The
        Subscribers who exercise their rights pursuant to this Section 12(a) shall
        have
        the right during the seven (7) business days following receipt of the notice
        to
        purchase such offered common stock, debt or other securities in accordance
        with
        the terms and conditions set forth in the notice of sale in the same proportion
        to each other as their purchase of Notes in the Offering in an amount equal
        to
        up to 40% of the principal dollar amount to be sold by the Company. In the
        event
        such terms and conditions are modified during the notice period, the Subscribers
        shall be given prompt notice of such modification and shall have the right
        during the original notice period or for a period of seven (7) business days
        following the notice of modification, whichever is longer, to exercise such
        right. 

      


      (b) Offering
        Restrictions.
        From
        the date of this Agreement and until the Effective Date of the Registration
        Statement or during the pendency of an Event of Default or when any liquidated
        damages described in this Agreement are accruing or outstanding, except in
        connection with the Excepted Issuances, the Company will not enter into any
        agreement to, nor issue any equity, convertible debt or other securities
        convertible into Common Stock without the prior written consent of the
        Subscribers, which consent may be withheld for any reason.

       

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

       

      (c) Favored
        Nations Provision.
        Other
        than the Excepted Issuances, if at any time Notes or Warrants are outstanding
        the Company shall offer, issue or agree to issue any common stock or securities
        convertible into or exercisable for shares of common stock (or modify any
        of the
        foregoing which may be outstanding) to any person or entity at a price per
        share
        or conversion or exercise price per share which shall be less than the
        Conversion Price described in Section 2.1(b)(i) or Section 2.1(b)(ii) of
        the
        Note in respect of the Shares, or if less than the Warrant exercise price
        in
        respect of the Warrant Shares, without the consent of each Subscriber holding
        Notes, Shares and/or Warrants, or Warrant Shares, then the Company shall
        issue,
        for each such occasion, additional shares of Common Stock to each Subscriber
        so
        that the average per share purchase price of the shares of Common Stock issued
        to the Subscriber (of only the Common Stock or Warrant Shares still owned
        by the
        Subscriber) is equal to such other lower price per share and the Conversion
        Price and Warrant Exercise Price shall automatically be reduced to such other
        lower price per share. The average Purchase Price of the Shares and average
        exercise price in relation to the Warrant Shares shall be calculated separately
        for the Shares and Warrant Shares. The foregoing calculation and issuance
        shall
        be made separately for Shares received upon conversion of Notes and separately
        for Warrant Shares. The delivery to the Subscriber of the additional shares
        of
        Common Stock shall be not later than the closing date of the transaction
        giving
        rise to the requirement to issue additional shares of Common Stock. The
        Subscriber is granted the registration rights described in Section 11 hereof
        in
        relation to such additional shares of Common Stock except that the Filing
        Date
        and Effective Date vis-à-vis such additional common shares shall be,
        respectively, the sixtieth (60th)
        and one
        hundred and twentieth (120th)
        date
        after the closing date giving rise to the requirement to issue the additional
        shares of Common Stock. For purposes of the issuance and adjustment described
        in
        this paragraph, the issuance of any security of the Company carrying the
        right
        to convert such security into shares of Common Stock or of any warrant, right
        or
        option to purchase Common Stock shall result in the issuance of the additional
        shares of Common Stock upon the sooner of the agreement to or actual issuance
        of
        such convertible security, warrant, right or option and again at any time
        upon
        any subsequent issuances of shares of Common Stock upon exercise of such
        conversion or purchase rights if such issuance is at a price lower than the
        Conversion Price or Warrant exercise price in effect upon such issuance.
        The
        rights of the Subscriber set forth in this Section 12 are in addition to
        any
        other rights the Subscriber has pursuant to this Agreement, the Note, any
        Transaction Document, and any other agreement referred to or entered into
        in
        connection herewith. 

       

      (d) Maximum
        Exercise of Rights.
        In the
        event the exercise of the rights described in Sections 12(a) and 12(c) would
        result in the issuance of an amount of common stock of the Company that would
        exceed the maximum amount that may be issued to a Subscriber calculated in
        the
        manner described in Section 7.3 of this Agreement, then the issuance of such
        additional shares of common stock of the Company to such Subscriber will
        be
        deferred in whole or in part until such time as such Subscriber is able to
        beneficially own such common stock without exceeding the maximum amount set
        forth calculated in the manner described in Section 7.3 of this Agreement.
        The
        determination of when such common stock may be issued shall be made by each
        Subscriber as to only such Subscriber.

      


      13. Security
        Interest.
        The
        Subscribers will be granted a security interest in all the assets of the
        Company
        including ownership of the Subsidiaries (as defined in Section 5(a) of this
        Agreement) to be memorialized in a “Security
        and Pledge Agreement”,
        a form
        of which is annexed hereto as Exhibit
        E.
        The
        Subscribers will also be granted a security interest in all the assets of
        Food
        Innovations Inc., a Florida corporation and wholly-owned subsidiary of the
        Company (“Guarantor”)
        to be
        memorialized in a security and pledge agreement substantially similar to
        the
        Security and Pledge Agreement. Guarantor will also provide to the Subscribers
        a
“Guaranty
        Agreement”
        substantially in the form annexed hereto as Exhibit
        F.
        The
        Company will execute such other agreements, documents and financing statements
        to be filed at the Company’s expense with such jurisdictions, states and
        counties designated by the Subscribers. The
        Company will also execute all such documents reasonably necessary in the
        opinion
        of Subscriber to memorialize and further protect the security interest described
        herein. The Subscribers will appoint a Collateral Agent to represent them
        collectively in connection with the security interest to be granted in the
        assets of the Company. The appointment will be pursuant to a “Collateral
        Agent Agreement”,
        a form
        of which is annexed hereto as Exhibit
        G.

      


      14. Prior
        Offering.
        On
        October 29, 2004, Alpha Capital Aktiengesellschaft (“Alpha”), a Subscriber
        herein, purchased Convertible Notes, and Warrants for $100,000 (the “Prior
        Offering”). Alpha is acquiring Notes and Warrants in the Offering in the
        principal amounts of $375,000. A like portion of the Purchase Price payable
        by
        Alpha will be deemed paid by Alpha upon Closing by the automatic cancellation
        of
        the Notes and Warrants received in the Prior Offering by Alpha. Alpha and
        the
        Company waive all rights, obligations and claims against each other arising
        under the Prior Offering except that accrued interest and any payments
        outstanding under the Notes from the Prior Offering due on the Notes issued
        in
        the Prior Offering shall be payable and deemed accrued on the Notes issued
        to
        Alpha.

       

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

       

      15. Miscellaneous.

      


      (a) Notices.
        All
        notices, demands, requests, consents, approvals, and other communications
        required or permitted hereunder shall be in writing and, unless otherwise
        specified herein, shall be (i) personally served, (ii) deposited in the mail,
        registered or certified, return receipt requested, postage prepaid, (iii)
        delivered by reputable air courier service with charges prepaid, or (iv)
        transmitted by hand delivery, telegram, or facsimile, addressed as set forth
        below or to such other address as such party shall have specified most recently
        by written notice. Any notice or other communication required or permitted
        to be
        given hereunder shall be deemed effective (a) upon hand delivery or delivery
        by
        facsimile, with accurate confirmation generated by the transmitting facsimile
        machine, at the address or number designated below (if delivered on a business
        day during normal business hours where such notice is to be received), or
        the
        first business day following such delivery (if delivered other than on a
        business day during normal business hours where such notice is to be received)
        or (b) on the second business day following the date of mailing by express
        courier service, fully prepaid, addressed to such address, or upon actual
        receipt of such mailing, whichever shall first occur. The addresses for such
        communications shall be: (i) if to the Company, to: Innovative Food Holdings,
        Inc., 1923 Trade Center Way, Suite #1, Naples, FL 34109, Attn: Joe Dimaggio,
        CEO
& President, telecopier number: (239) 596-0204, with an additional copy by
        telecopier only to: Thomas F. Pierson, Esq., 2501 E. Commercial Boulevard,
        Suite
        212, Ft. Lauderdale, FL 33308, telecopier number: (954) 958-9439, and (ii)
        if to
        the Subscribers, to: the one or more addresses and telecopier numbers indicated
        on the signature pages hereto, with an additional copy by telecopier only
        to:
        Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York
        10176, telecopier number: (212) 697-3575.

      


      (b) Closing.
        The
        consummation of the transactions contemplated herein shall take place at
        the
        offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York,
        New York 10176, upon the satisfaction of all conditions to Closing set forth
        in
        this Agreement. Each of the Initial Closing Date and Second Closing Date
        is
        referred to as a “Closing
        Date”.
        

      


      (c) Entire
        Agreement; Assignment.
        This
        Agreement and other documents delivered in connection herewith represent
        the
        entire agreement between the parties hereto with respect to the subject matter
        hereof and may be amended only by a writing executed by both parties. Neither
        the Company nor the Subscribers have relied on any representations not contained
        or referred to in this Agreement and the documents delivered herewith. No
        right
        or obligation of either party shall be assigned by that party without prior
        notice to and the written consent of the other party. 

      


      (d) 
        Counterparts/Execution.
        This
        Agreement may be executed in any number of counterparts and by the different
        signatories hereto on separate counterparts, each of which, when so executed,
        shall be deemed an original, but all such counterparts shall constitute but
        one
        and the same instrument. This Agreement may be executed by facsimile signature
        and delivered by facsimile transmission.

      


      (e) Law
        Governing this Agreement.
        This
        Agreement shall be governed by and construed in accordance with the laws
        of the
        State of New York without regard to principles of conflicts of laws. Any
        action
        brought by either party against the other concerning the transactions
        contemplated by this Agreement shall be brought only in the state courts
        of New
        York or in the federal courts located in the state of New York. The
        parties and the individuals executing this Agreement and other agreements
        referred to herein or delivered in connection herewith on behalf of the Company
        agree to submit to the jurisdiction of such courts and waive trial by
        jury.
        The
        prevailing party shall be entitled to recover from the other party its
        reasonable attorney's fees and costs. In the event that any provision of
        this
        Agreement or any other agreement delivered in connection herewith is invalid
        or
        unenforceable under any applicable statute or rule of law, then such provision
        shall be deemed inoperative to the extent that it may conflict therewith
        and
        shall be deemed modified to conform with such statute or rule of law. Any
        such
        provision which may prove invalid or unenforceable under any law shall not
        affect the validity or enforceability of any other provision of any
        agreement.

       

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

       

      (f) Specific
        Enforcement, Consent to Jurisdiction.
        The
        Company and Subscriber acknowledge and agree that irreparable damage would
        occur
        in the event that any of the provisions of this Agreement were not performed
        in
        accordance with their specific terms or were otherwise breached. It is
        accordingly agreed that the parties shall be entitled to an injunction or
        injunctions to prevent or cure breaches of the provisions of this Agreement
        and
        to enforce specifically the terms and provisions hereof, this being in addition
        to any other remedy to which any of them may be entitled by law or equity.
        Subject to Section 15(e) hereof, each of the Company, Subscriber and any
        signator hereto in his personal capacity hereby waives, and agrees not to
        assert
        in any such suit, action or proceeding, any claim that it is not personally
        subject to the jurisdiction in New York of such court, that the suit, action
        or
        proceeding is brought in an inconvenient forum or that the venue of the suit,
        action or proceeding is improper. Nothing in this Section shall affect or
        limit
        any right to serve process in any other manner permitted by law.

      


      (g) Independent
        Nature of Subscribers.  
        The Company acknowledges that the obligations of each Subscriber under the
        Transaction Documents are several and not joint with the obligations of any
        other Subscriber, and no Subscriber shall be responsible in any way for the
        performance of the obligations of any other Subscriber under the Transaction
        Documents.  The Company acknowledges that the decision of each Subscriber
        to purchase Securities has been made by such Subscriber independently of
        any
        other Subscriber and independently of any information, materials, statements
        or
        opinions as to the business, affairs, operations, assets, properties,
        liabilities, results of operations, condition (financial or otherwise) or
        prospects of the Company which may have been made or given by any other
        Subscriber or by any agent or employee of any other Subscriber, and no
        Subscriber or any of its agents or employees shall have any liability to
        any
        Subscriber (or any other person) relating to or arising from any such
        information, materials, statements or opinions.  The Company acknowledges
        that nothing contained in any Transaction Document, and no action taken by
        any
        Subscriber pursuant hereto or thereto (including, but not limited to, the
        (i)
        inclusion of a Subscriber in the SB-2 Registration Statement and (ii) review
        by,
        and consent to, such Registration Statement by a Subscriber) shall be deemed
        to
        constitute the Subscribers as a partnership, an association, a joint venture
        or
        any other kind of entity, or create a presumption that the Subscribers are
        in
        any way acting in concert or as a group with respect to such obligations
        or the
        transactions contemplated by the Transaction Documents.  The Company
        acknowledges that each Subscriber shall be entitled to independently protect
        and
        enforce its rights, including without limitation, the rights arising out
        of the Transaction Documents, and it shall not be necessary
        for any
        other Subscriber to be joined as an additional party in any proceeding for
        such
        purpose.  The Company acknowledges that it has elected to provide
        all
        Subscribers with the same terms and Transaction Documents for the convenience
        of
        the Company and not because Company was required or requested to do so by
        the
        Subscribers.  The Company acknowledges that such procedure with respect
        to
        the Transaction Documents in no way creates a presumption that the Subscribers
        are in any way acting in concert or as a group with respect to the Transaction
        Documents or the transactions contemplated thereby.

      


      [THIS
        SPACE INTENTIONALLY LEFT BLANK]

      


      
        
           

        

        
          24

          
            

          

        

        
           

        

      

      


      SIGNATURE
        PAGE TO SUBSCRIPTION AGREEMENT (A)

      


      Please
        acknowledge your acceptance of the foregoing Subscription Agreement by signing
        and returning a copy to the undersigned whereupon it shall become a binding
        agreement between us.

       

      
        	 	 	 
	 	
                INNOVATIVE
                  FOOD HOLDINGS, INC.

                a
                  Florida corporation

              
	 
 	 
 	 
 
	
                 

              	By:  	 
	 	
                

                Name:
                  Joe Dimaggio

              
	 	
                Title:
                  CEO & President

              
	 	 
	 	
                Dated:
                  February _____, 2005

              


      

       

      


      


      
        	
                SUBSCRIBER

              	
                INITIAL
                  CLOSING PURCHASE PRICE

              	
                SECOND
                  CLOSING PURCHASE PRICE

              
	
                ALPHA
                  CAPITAL AKTIENGESELLSCHAFT

                Pradafant
                  7

                9490
                  Furstentums

                Vaduz,
                  Lichtenstein

                Fax:
                  011-42-32323196

                 

                 

                 

                 

                ___________________________

                (Signature)

                By:

              	
                $350,000.00

              	
                $120,000.00

              


      

      


      
        
           

        

        
          25

          
            

          

        

        
           

        

      

      


      SIGNATURE
        PAGE TO SUBSCRIPTION AGREEMENT (B)

      


      Please
        acknowledge your acceptance of the foregoing Subscription Agreement by signing
        and returning a copy to the undersigned whereupon it shall become a binding
        agreement between us.

       

      
        	 	 	 
	 	
                INNOVATIVE
                  FOOD HOLDINGS, INC.

                a
                  Florida corporation

              
	 
 	 
 	 
 
	 	By:  	 
	 	
                

                Name:
                  Joe Dimaggio

              
	 	
                Title:
                  CEO & President

              
	 	 
	 	
                Dated:
                  February _____, 2005

              


      

       

      


      


      
        	
                SUBSCRIBER

              	
                INITIAL
                  CLOSING PURCHASE PRICE

              	
                SECOND
                  CLOSING PURCHASE PRICE

              
	
                WHALEHAVEN
                  CAPITAL FUND LIMITED 

                3rd
                  Floor, 14 Par-Laville Road

                Hamilton,
                  Bermuda HM08

                Fax:
                  (441) 292-1373

                 

                 

                 

                 

                ___________________________

                (Signature)

                By:

              	
                $50,000.00

              	
                $30,000.00

              


      

      


      
        
           

        

        
          26

          
            

          

        

        
           

        

      

       

      LIST
        OF EXHIBITS AND SCHEDULES

      


      

        
          	
                  Attachment
                    1

                	
                   

                	
                  Disclosure
                    Schedule consisting of the following:

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    A1

                	
                   

                	
                  Form
                    of Class A Warrant

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    A2

                	
                   

                	
                  Form
                    of Class B Warrant

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    A3

                	
                   

                	
                  Form
                    of Class C Warrant

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    B

                	
                   

                	
                  Escrow
                    Agreement

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    C

                	
                   

                	
                  Form
                    of Legal Opinion

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    D

                	
                   

                	
                  Form
                    of Public Announcement or Form 8-K

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    E

                	
                   

                	
                  Security
                    and Pledge Agreement

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    F

                	
                   

                	
                  Guaranty
                    Agreement

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    G

                	
                   

                	
                  Collateral
                    Agent Agreement

                	
                   

                
	 	 	 	 
	
                  Exhibit
                    H

                	
                   

                	
                  Form
                    of Limited Standstill Agreement

                	
                   

                
	 	 	 	 
	
                  Schedule
                    5(d)

                	
                   

                	
                  Additional
                    Issuances / Capitalization

                	
                   

                
	 	 	 	 
	
                  Schedule
                    5(p)

                	
                   

                	
                  Undisclosed
                    Liabilities

                	
                   

                
	 	 	 	 
	
                  Schedule
                    9.1(e)

                	
                   

                	
                  Use
                    of Proceeds

                	
                   

                
	 	 	 	 
	
                  Schedule
                    9.1(p)

                	
                   

                	
                  Providers
                    of Limited Standstill Agreement

                	
                   

                
	 	 	 	 
	
                  Schedule
                    11.1

                	
                   

                	
                  Other
                    Securities to be Registered

                	 


        

      

       

      
        
           

        

        
          27