Exhibit 10.1



Exhibit 10.1

 




INVESTMENT
AGREEMENT

 

INVESTMENT
AGREEMENT (this "AGREEMENT"), dated as of February 25, 2005 by and between
HouseRaising, Inc., a North Carolina corporation (the "Company"), and Dutchess
Private Equities Fund, II, LP, a Delaware limited partnership (the "Investor").


 

 

Whereas,
the parties desire that, upon the terms and subject to the conditions contained
herein, the Investor shall invest up to Twelve Million dollars ($12,000,000) to
purchase the Company's Common Stock, $.001 par value per share (the "Common
Stock"); 

 

 

Whereas,
such investments will be made in reliance upon the provisions of Section 4(2)
under the Securities Act of 1933, as amended (the "1933 Act"), Rule 506 of
Regulation D, and the rules and regulations promulgated thereunder, and/or upon
such other exemption from the registration requirements of the 1933 Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder; and 

 

 

Whereas,
contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto (as amended from time to time, the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.


 

 

NOW
THEREFORE, in consideration of the foregoing recitals, which shall be considered
an integral part of this Agreement, the covenants and agreements set forth
hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows: 

 

 

SECTION
1. DEFINITIONS. 

 

As used
in this Agreement, the following terms shall have the following meanings
specified or indicated below, and such meanings shall be equally applicable to
the singular and plural forms of such defined terms.




“1933
Act” shall
have the meaning set forth in the preamble of this agreement.




“1934
Act” shall
mean the Securities Exchange Act of 1934, as it may be amended.




“Affiliate” shall
have the meaning specified in Section 5(h), below.




“Agreement” shall
mean this Investment Agreement.




“Best
Bid” shall
mean the highest posted bid price of the Common Stock.




“Buy
In” shall
have the meaning specified in Section 6, below.










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“Buy In
Adjustment Amount” shall
have the meaning specified in Section 6.




“Closing” shall
have the meaning specified in Section 2(h).




“Closing
Date” shall
mean no more than seven (7) Trading Days following the Put Notice
Date.




“Common
Stock” shall
have the meaning set forth in the preamble of this Agreement.




“Control” or
“Controls” shall
have the meaning specified in Section 5(h).




“Covering
Shares” shall
have the meaning specified in Section 6.




“Effective
Date” shall
mean the date the SEC declares effective under the 1933 Act the Registration
Statement covering the Securities.




“Environmental
Laws” shall
have the meaning specified in Section 4(m).




“Execution
Date” shall
mean the date indicated in the preamble to this Agreement.




“Indemnities” shall
have the meaning specified in Section 11.




“Indemnified
Liabilities” shall
have the meaning specified in Section 11.

 



“Ineffective
Period” shall
mean any period of time that the Registration Statement or any Supplemental
Registration Statement (as defined in the Registration Rights Agreement) becomes
ineffective or unavailable for use for the sale or resale, as applicable, of any
or all of the Registrable Securities (as defined in the Registration Rights
Agreement) for any reason (or in the event the prospectus under either of the
above is not current and deliverable) during any time period required under the
Registration Rights Agreement.




“Investor” shall
have the meaning indicated in the preamble of this Agreement.




“Material
Adverse Effect” shall
have the meaning specified in Section 4(a).




“Maximum
Common Stock Issuance” shall
have the meaning specified in Section 2(I).




“Minimum
Acceptable Price” with
respect to any Put Notice Date shall mean seventy-five percent (75%) of the
lowest closing bid prices for the ten (10) Trading Day period immediately
preceding such Put Notice Date.




“Open
Period” shall
mean the period beginning on and including the Trading Day immediately following
the Effective Date and ending on the earlier to occur of (i) the date
which is thirty-six (36) months from the Effective Date; or (ii)
termination of the Agreement in accordance with Section 9, below.










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“Pricing
Period” shall
mean the period beginning on the Put Notice Date and ending on and including the
date that is five (5) Trading Days after such Put Notice Date.




“Principal
Market” shall
mean the American Stock Exchange, Inc., the National Association of Securities
Dealers, Inc. Over-the-Counter Bulletin Board, the NASDAQ National Market System
or the NASDAQ SmallCap Market, whichever is the principal market on which the
Common Stock is listed.




“Prospectus” shall
mean the prospectus, preliminary prospectus and supplemental prospectus used in
connection with the Registration Statement.




“Purchase
Amount” shall
mean the total amount being paid by the Investor on a particular Closing Date to
purchase the Securities.




“Purchase
Price” shall
mean ninety-five percent (95%) of the lowest closing Best Bid price of the
Common Stock during the Pricing Period. 




“Put
Amount” shall
have the meaning set forth in Section 2(b) hereof. 




“Put
Notice” shall
mean a written notice sent to the Investor by the Company stating the Put Amount
in U.S. dollars, the Company intends to sell to the Investor pursuant to the
terms of the Agreement and stating the current number of Shares issued and
outstanding on such date.



“Put
Notice Date” shall
mean the Trading Day immediately following the day on which the Investor
receives a Put Notice, however a Put Notice shall be deemed delivered
on
(a) the
Trading Day it is received by facsimile or otherwise by the Investor if such
notice is received prior to 9:00 am Eastern Time, or (b) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 9:00 am Eastern Time on a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day. 




“Put
Restriction” shall
mean the days between the beginning of the Pricing Period and Closing Date.
During this time, the Company shall not be entitled to deliver another Put
Notice.




“Registration
Period” shall
have the meaning specified in Section 5(c), below.




“Registration
Rights Agreement” shall
have the meaning set forth in the recitals, above.




“Registration
Statement” means
the registration statement of the Company filed under the 1933 Act covering the
Common Stock issuable hereunder.










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“Related
Party” shall
have the meaning specified in Section 5(h).




“Resolution” shall
have the meaning specified in Section 8(e).




“SEC” shall
mean the U.S. Securities & Exchange Commission.




“SEC
Documents” shall
have the meaning specified in Section 4(f).




“Securities” shall
mean the shares of Common Stock issued pursuant to the terms of the
Agreement.




“Shares” shall
mean the shares of the Company’s Common Stock.




“Sold
Shares” shall
have the meaning specified in Section 6.




“Subsidiaries” shall
have the meaning specified in Section 4(a).




“Trading
Day” shall
mean any day on which the Principal Market for the Common Stock is open for
trading, from the hours of 9:30 am until 4:00 pm.




“Transaction
Documents” shall
mean this Agreement, the Registration Rights Agreement, and each of the other
agreements entered into by the parties hereto in connection with this
Agreement.

 

SECTION
2. PURCHASE AND SALE OF COMMON STOCK. 

 

(A)
PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of Twelve Million dollars ($12,000,000).

 

(B)
DELIVERY OF PUT NOTICES. 

 

(I)
Subject to the terms and conditions of the Transaction Documents, and from time
to time during the Open Period, the Company may, in its sole discretion, deliver
a Put Notice to the Investor which states the Put Amount (designated in U.S.
Dollars) which the Company intends to sell to the Investor on a Closing Date.
The Put Notice shall be in the form attached hereto as Exhibit F and
incorporated herein by reference. The amount that the Company shall be entitled
to Put to the Investor (the "Put Amount") shall be equal to, at the Company's
election, either: (A) Two Hundred percent (200%) of the average daily volume
(U.S. market only) of the Common Stock for the ten (10) Trading Days prior to
the applicable Put Notice Date, multiplied by the average of the three (3) daily
closing bid prices immediately preceding the Put Date, or (B) One Hundred
Thousand dollars ($100,000); provided that in no event will the Put Amount be
more than One Million Dollars ($1,000,000) with respect to any single Put.
During the Open Period, the Company shall not be entitled to submit a Put Notice
until after the previous Closing has been completed. The Purchase Price for the
Common Stock identified in the Put Notice shall be equal to ninety-five percent
(95%) of the lowest closing Best Bid price of the Common Stock during the
Pricing Period. 

 







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(II) If
any closing bid price during the applicable Pricing Period with respect to that
Put Notice is less than Seventy-Five percent (75%) of the closing bid prices of
the Common Stock for the ten (10) Trading Days prior to the Put Notice Date (the
"Minimum Acceptable Price"), the Put Notice will terminate at the Company's
request. In the event that the closing bid price for the applicable Pricing
Period is less than the Minimum Acceptable Price, the Company may elect, by
sending written notice to the Investor to cancel the Put Notice. 

 

(C)
RESERVED 

 

(D)
INVESTOR'S OBLIGATION TO PURCHASE SHARES. Subject to the conditions set forth in
this Agreement, following the Investor's receipt of a validly delivered Put
Notice, the Investor shall be required to purchase from the Company during the
related Pricing Period that number of Shares having an aggregate Purchase Price
equal to the lesser of (i) the Put Amount set forth in the Put Notice, and (ii)
twenty percent (20%) of the aggregate trading volume of the Common Stock during
the applicable Pricing Period times (x) the average of the lowest closing Best
Bid prices of the Company's Common Stock during the specified Pricing Period,
but only if said Shares bear no restrictive legend, are not subject to stop
transfer instructions, pursuant to Section 2(h), prior to the applicable Closing
Date. 

 

(E)
Reserved

 

(F)
CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding anything
to the contrary in this Agreement, the Company shall not be entitled to deliver
a Put Notice and the Investor shall not be obligated to purchase any Shares at a
Closing (as defined in Section 2(h)) unless each of the following conditions are
satisfied: 

 

(I) a
Registration Statement shall have been declared effective and shall remain
effective and available for the resale of all the Registrable Securities (as
defined in the Registration Rights Agreement) at all times until the Closing
with respect to the subject Put Notice; 

 

(II) at
all times during the period beginning on the related Put Notice Date and ending
on and including the related Closing Date, the Common Stock shall have been
listed on the Principal Market and shall not have been suspended from trading
thereon for a period of two (2) consecutive Trading Days during the Open Period
and the Company shall not have been notified of any pending or threatened
proceeding or other action to suspend the trading of the Common Stock;


 

(III) the
Company has complied with its obligations and is otherwise not in breach of a
material provision of, or in default under, this Agreement, the Registration
Rights Agreement or any other agreement executed in connection herewith which
has not been corrected prior to delivery of the Put Notice Date; 

 







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(IV) no
injunction shall have been issued and remain in force, or action commenced by a
governmental authority which has not been stayed or abandoned, prohibiting the
purchase or the issuance of the Securities; and 

 

(V) the
issuance of the Securities will not violate any shareholder approval
requirements of the Principal Market. 

 

If any of
the events described in clauses (i) through (v) above occurs during a Pricing
Period, then the Investor shall have no obligation to purchase the Put Amount of
Common Stock set forth in the applicable Put Notice. 

 

(G)
RESERVED

 

(H)
MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction of the
conditions set forth in Sections 2(f), 7 and 8, the closing of the purchase by
the Investor of Shares (a "Closing") shall occur on the date which is no later
than seven (7) Trading Days following the applicable Put Notice Date (each a
"Closing Date"). Prior to each Closing Date, (I) the Company shall deliver to
the Investor pursuant to this Agreement, certificates representing the Shares to
be issued to the Investor on such date and registered in the name of the
Investor; and (II) the Investor shall deliver to the Company the Purchase Price
to be paid for such Shares, determined as set forth in Sections 2(b) and 2(d).
In lieu of delivering physical certificates representing the Securities and
provided that the Company's transfer agent then is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Investor, the Company shall use its commercially
reasonable efforts to cause its transfer agent to electronically transmit the
Securities by crediting the account of the Investor's prime broker (which shall
be specified by the Investor a reasonably sufficient time in advance) with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. 

 

The
Company understands that a delay in the issuance of Securities beyond the
Closing Date could result in economic loss to the Investor. After the Effective
Date, as compensation to the Investor for such loss, the Company agrees to pay
late payments to the Investor for late issuance of Securities (delivery of
Securities after the applicable Closing Date) in accordance with the following
schedule (where "No. of Days Late" is defined as the number of trading days
beyond the Closing Date. The Amounts are cumulative.): 

 







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      LATE
      PAYMENT FOR EACH NO.
      OF DAYS LATE 
	$10,000
      OF COMMON STOCK
	 	 
	
      1
      
	
      $100

	
      2
      
	
      $200

	
      3
      
	
      $300

	
      4
      
	
      $400

	
      5
      
	
      $500

	
      6
      
	
      $600

	
      7
      
	
      $700

	
      8
      
	
      $800

	
      9
      
	
      $900

	
      10
      
	
      $1,000

	
      Over
      10 
	
      $1,000
      + $200 for each Business
      Day late beyond 10 days




 


The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand by the Investor. Nothing herein shall limit the
Investor's right to pursue actual damages for the Company's failure to issue and
deliver the Securities to the Investor, except to the extent that such late
payments shall constitute payment for and offset any such actual damages alleged
by the Investor, and any Buy In Adjustment Amount. 

 

(I)
OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything contained
herein to the contrary, if during the Open Period the Company becomes listed on
an exchange that limits the number of shares of Common Stock that may be issued
without shareholder approval, then the number of Shares issuable by the Company
and purchasable by the Investor, including the shares of Common Stock issuable
to the Investors, shall not exceed that number of the shares of Common Stock
that may be issuable without shareholder approval, subject to appropriate
adjustment for stock splits, stock dividends, combinations or other similar
recapitalization affecting the Common Stock (the "Maximum Common Stock
Issuance"), unless the issuance of Shares, including any Common Stock to be
issued to the Investor pursuant to Section 11(b), in excess of the Maximum
Common Stock Issuance shall first be approved by the Company's shareholders in
accordance with applicable law and the By-laws and Amended and Restated
Certificate of Incorporation of the Company, if such issuance of shares of
Common Stock could cause a delisting on the Principal Market. The parties
understand and agree that the Company's failure to seek or obtain such
shareholder approval shall in no way adversely affect the validity and due
authorization of the issuance and sale of Securities or the Investor's
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section 2(j).


 

SECTION
3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS. 

 

The
Investor represents and warrants to the Company, and covenants, that:


 

(A)
SOPHISTICATED INVESTOR. The Investor has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment decisions of this type that it is
capable of (I) evaluating the merits and risks of an investment in the
Securities and making an informed investment decision; (II) protecting its own
interest; and (III) bearing the economic risk of such investment for an
indefinite period of time. 

 







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(B)
AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Investor and is a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies. 

 

(C)
SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the Investor will
comply with the provisions of Section 9 of the 1934 Act, and the rules
promulgated thereunder, with respect to transactions involving the Common Stock.
The Investor agrees not to short, either directly or indirectly through its
affiliates, principals or advisors, the Company's common stock during the term
of this Agreement. 

 

(D)
ACCREDITED INVESTOR. Investor is an "Accredited Investor" as that term is
defined in Rule 501(a)(3) of Regulation D of the 1933 Act. 

 

(E) NO
CONFLICTS. The execution, delivery and performance of the Transaction Documents
by the Investor and the consummation by the Investor of the transactions
contemplated hereby and thereby will not result in a violation of Partnership
Agreement or other organizational documents of the Investor. 

 

(F)
OPPORTUNITY TO DISCUSS. The Investor has received all materials relating to the
Company's business, finance and operations which it has requested. The Investor
has had an opportunity to discuss the business, management and financial affairs
of the Company with the Company's management. 

 

(G)
INVESTMENT PURPOSES. The Investor is purchasing the Securities for its own
account for investment purposes and not with a view towards distribution and
agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption
from such registration provisions). 

 

(H) NO
REGISTRATION AS A DEALER. The Investor is not and will not be required to be
registered as a "dealer" under the 1934 Act, either as a result of its execution
and performance of its obligations under this Agreement or otherwise.


 

(I) GOOD
STANDING The
Investor is a Limited Partnership, duly organized, validly existing and in good
standing in the State of Delaware.

 

(J) TAX
LIABILITIES. The Investor understands that it is liable for its own tax
liabilities.

 

(K)
REGULATION M. The Investor will comply with Regulation M under the 1934 Act, if
applicable. 

 







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SECTION
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. 

 

Except as
set forth in the Schedules attached hereto, or as disclosed on the Company's SEC
Documents, the Company represents and warrants to the Investor that:


 

(A)
ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of North
Carolina, and has
the requisite corporate power and authorization to own its properties and to
carry on its business as now being conducted. Both the Company and the companies
it owns or controls, its “Subsidiaries,” are duly qualified to do business and
are in good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 1 and 4(b), below). 

 

(B)
AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS. 

 

(I) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof. 

 

(II) The
execution and delivery of the Transaction Documents by the Company and the
consummation by it, of the transactions contemplated hereby and thereby,
including without limitation the reservation for issuance and the issuance of
the Securities pursuant to this Agreement, have been duly and validly authorized
by the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors, or its shareholders.


 

(III) The
Transaction Documents have been duly and validly executed and delivered by the
Company. 

 

(IV) The
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies. 

 







9












 

(C)
CAPITALIZATION. As of the date hereof, the authorized capital stock of the
Company consists of (i) 100,000,000 shares of Common Stock, $0.001 par value per
share, of which as of the date hereof, 36,869,936 shares are issued and
outstanding; 5,000,000 shares of Preferred Stock authorized, $0.001 par value
per share, of which as of the date hereof, 1,000,000 shares of Class A
Convertible Preferred Stock are issued and outstanding; as of December 31, 2004,
9,384,696 shares were reserved for issuance pursuant to options, warrants and
other convertible securities. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in the Company's publicly available filings with Periodic Filings,


 

(I) no
shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company; (II) there are no outstanding debt securities; (III) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries; (IV) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(V) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (VI) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; (VII) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement; and (VIII) there is no dispute as
to the classification of any shares of the Company's capital stock. The Company
has furnished to the Investor, or the Investor has had access through EDGAR to,
true and correct copies of the Company's Amended and Restated Certificate of
Incorporation, as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.


 

(D)
ISSUANCE OF SHARES. The Company has reserved 6,000,000 Shares for issuance
pursuant to this Agreement has been duly authorized and reserved for issuance
(subject to adjustment pursuant to the Company's covenant set forth in Section
5(f) below) pursuant to this Agreement. Upon issuance in accordance with this
Agreement, the Securities will be validly issued, fully paid and non-assessable
and free from all taxes, liens and charges with respect to the issue thereof. In
the event the Company cannot register a sufficient number of Shares for issuance
pursuant to this Agreement, the Company will use its best efforts to authorize
and reserve for issuance the number of Shares required for the Company to
perform its obligations hereunder as soon as reasonably practicable.


 







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(E) NO
CONFLICTS. The execution, delivery and performance of the Transaction Documents
by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (I) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
By-laws; or (II) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or to the Company's knowledge result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws and regulations and the rules and regulations of the Principal
Market or principal securities exchange or trading market on which the Common
Stock is traded or listed) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected. Except as disclosed in Schedule 4(e), neither the Company nor
its Subsidiaries is in violation of any term of, or in default under, the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
By-laws or their organizational charter or by-laws, respectively, or any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that would not
individually or in the aggregate have a Material Adverse Effect. The business of
the Company and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, statute, ordinance, rule, order or
regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act to the Company's knowledge, the Company is not
required to obtain any consent, authorization, permit or order of, or make any
filing or registration (except the filing of a registration statement) with, any
court, governmental authority or agency, regulatory or self-regulatory agency or
other third party in order for it to execute, deliver or perform any of its
obligations under, or contemplated by, the Transaction Documents in accordance
with the terms hereof or thereof. All consents, authorizations, permits, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof and are in full force and effect as of the date hereof. Except as
disclosed in Schedule 4(e), the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company is not, and will not be, in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting of
the Common Stock by the Principal Market in the foreseeable future.


 







11












 

(F) SEC
DOCUMENTS; FINANCIAL STATEMENTS. As of September 30, 2004, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Investor or its representatives,
or they have had access through EDGAR to, true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, by a firm that is a member of the
Public Companies Accounting Oversight Board ("PCAOB") consistently applied,
during the periods involved (except (I) as may be otherwise indicated in such
financial statements or the notes thereto, or (II) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof and any material, nonpublic information provided to the
Investor by the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by the
Company prior to such Closing Date. 

 

(G)
ABSENCE OF CERTAIN CHANGES. Except as set forth in the SEC Documents, the
Company does not intend to change the business operations of the Company in any
material way. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings. 

 

(H)
ABSENCE OF LITIGATION. Except as set forth in the SEC Documents, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a Material Adverse Effect. 

 







12












 

(I)
ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company acknowledges
and agrees that the Investor is acting solely in the capacity of arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby. The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by the
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor's purchase of the Securities. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives. 

 

(J) NO
UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set
forth in the SEC Documents, since September 30, 2004, no event, liability,
development or circumstance has occurred or exists, or to the Company's
knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced. 

 

(K)
EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved
in any union labor dispute nor, to the knowledge of the Company or any of its
Subsidiaries, is any such dispute threatened. Neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that relations with their employees are good. No
executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the
Company that such officer intends to leave the Company's employ or otherwise
terminate such officer's employment with the Company. 

 

(L)
INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now conducted. Except
as set forth in the SEC Documents, none of the Company's trademarks, trade
names, service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights necessary to conduct its
business as now or as proposed to be conducted have expired or terminated, or
are expected to expire or terminate within two (2) years from the date of this
Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth in the SEC Documents,
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken commercially reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties. 

 







13












 

(M)
ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are, to the knowledge
of management of the Company, in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"); (II) have, to the
knowledge of management of the Company, received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses; and (III) are in compliance, to the knowledge of the
Company, with all terms and conditions of any such permit, license or approval
where, in each of the three (3) foregoing cases, the failure to so comply would
have, individually or in the aggregate, a Material Adverse Effect. 

 

(N)
TITLE. The Company and its Subsidiaries have good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in the SEC Documents or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries. 

 

(O)
INSURANCE. Each of the Company's Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company reasonably believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. 

 







14












 

(P)
REGULATORY PERMITS. The Company and its Subsidiaries have in full force and
effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect. 

 

(Q)
INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that (I) transactions are executed in accordance with management's
general or specific authorizations; (II) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles by a firm with membership to the PCAOB and to
maintain asset accountability; (III) access to assets is permitted only in
accordance with management's general or specific authorization; and (IV) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. 

 

(R) NO
MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect. 

 

(S) TAX
STATUS. The Company and each of its Subsidiaries has made or filed all United
States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. 

 

(T)
CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at least
ten (10) days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed in the SEC Documents, none
of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner. 

 







15












 

(U)
DILUTIVE EFFECT. The Company understands and acknowledges that the number of
shares of Common Stock issuable upon purchases pursuant to this Agreement will
increase in certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Open Period. The Company's
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The Board of Directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company. 

 

(V) RIGHT
OF FIRST REFUSAL. The Company shall not, directly or indirectly, without the
prior written consent of Investor which will not be unreasonably withheld,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition) any of
its Common Stock or securities convertible into Common Stock at a price that is
less than the market price of the Common Stock at the time of issuance of such
security or investment (a "Subsequent Financing") for a period of one (1) year
after the Effective Date, except (I) the granting of options or warrants to
employees, officers, directors and consultants, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or hereafter
duly adopted by the Company or for services rendered or to be rendered; (II)
shares issued upon exercise of any currently outstanding warrants or options and
upon conversion of any currently outstanding convertible debenture or
convertible preferred stock, in each case disclosed pursuant to Section 4(c);
(III) securities issued in connection with the capitalization or creation of a
joint venture with a strategic partner; (IV) shares issued to pay part or all of
the purchase price for the acquisition by the Company of another entity (which,
for purposes of this clause (iv), shall not include an individual or group of
individuals); and (V) shares issued in a bona fide public offering or bona fide
private placement by the Company of its securities.

 

(W)
LOCK-UP. The Company shall cause its officers, insiders, directors, and
affiliates or other related parties under control of the Company, to refrain
from selling Common Stock during each Pricing Period. 

 







16












 

(X) NO
GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any
person acting on its behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Common Stock offered hereby. 

 

(Y) NO
BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS will be payable by
the Company with respect to the transactions contemplated by this Agreement,
other than disclosed in this Agreement. 

 

SECTION
5. COVENANTS OF THE COMPANY 

 

(A) BEST
EFFORTS. The Company shall use commercially reasonable efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Section 7 of this
Agreement. 

 

(B) BLUE
SKY. The Company shall, at its sole cost and expense, on or before each of the
Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Investor at each of the Closings pursuant to this Agreement
under applicable securities or "Blue Sky" laws of such states of the United
States, as reasonably specified by Investor, and shall provide evidence of any
such action so taken to the Investor on or prior to the Closing Date.


 

(C)
REPORTING STATUS. Until the earlier to occur of (I) the first date which is
after the date this Agreement is terminated pursuant to Section 9 and on which
the Holders (as that term is defined in the Registration Rights Agreement) may
sell all of the Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto); and (II) the date on
which (A) the Holders shall have sold all the Securities; and (B) this Agreement
has been terminated pursuant to Section 9 (the "Registration Period"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as a reporting company
under the 1934 Act. 

 

(D) USE
OF PROCEEDS. The Company will use the proceeds from the sale of the Shares
(excluding amounts paid by the Company for fees as set forth in the Transaction
Documents) for general corporate and working capital purposes and acquisitions
or assets, businesses or operations or for other purposes that the Board of
Directors deem to be in the best interest of the Company. 

 

(E)
FINANCIAL INFORMATION. The Company agrees to make available to the Investor via
EDGAR or other electronic means the following to the Investor during the
Registration Period: (I) within five (5) Trading Days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly Reports
on Form 10-QSB, any Current Reports on Form 8-K and any Registration Statements
or amendments filed pursuant to the 1933 Act; (II) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries; (III) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders; and (IV) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc., unless such information is material nonpublic
information. 

 







17












 

(F)
RESERVATION OF SHARES. Subject to the following sentence, the Company shall take
all action necessary to at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the issuance of the Securities hereunder. In the event that the Company
determines that it does not have a sufficient number of authorized shares of
Common Stock to reserve and keep available for issuance as described in this
Section 5(f), the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares. 

 

(G)
LISTING. The Company shall promptly secure and maintain the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon the Principal Market and each other national securities exchange and
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, such listing
of all Registrable Securities from time to time issuable under the terms of the
Transaction Documents. Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market (excluding suspensions of
not more than one (1) trading day resulting from business announcements by the
Company). The Company shall promptly provide to the Investor copies of any
notices it receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 5(g).


 

(H)
TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two (2) years, shareholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (I) customary employment arrangements and benefit programs on
reasonable terms, (II) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (III) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(I) has a 5% or more equity interest in that person or entity, (II) has 5% or
more common ownership with that person or entity, (III) controls that person or
entity, or (IV) is under common control with that person or entity. "Control" or
"Controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity. 

 







18












 

(I)
FILING OF FORM 8-K. On or before the date which is three (3) Trading Days after
the Execution Date, the Company shall file a Current Report on Form 8-K with the
SEC describing the terms of the transaction contemplated by the Transaction
Documents in the form required by the 1934 Act, if such filing is required.


 

(J)
CORPORATE EXISTENCE. The Company shall use its best efforts to preserve and
continue the corporate existence of the Company. 

 

(K)
NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A
PUT. The Company shall promptly notify Investor upon the occurrence of any of
the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Securities: (I) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (II) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(III) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or notice of any proceeding for such
purpose; (IV) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (V) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company
shall promptly make available to Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to Investor any Put Notice
during the continuation of any of the foregoing events. 

 







19












 

(L)
REIMBURSEMENT. If (I) Investor becomes involved in any capacity in any action,
proceeding or investigation brought by any shareholder of the Company, in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person (other than as a result
of a breach of the Investor’s representations and warranties set forth in this
Agreement); or (II)Investor becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents (other than as a result of a breach of
the Investor’s representations and warranties set forth in this Agreement), or
if Investor is impleaded in any such action, proceeding or investigation by any
person, then in any such case, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition, other than with respect to any matter in which Investor is a named
party, the Company will pay to Investor the charges, as reasonably determined by
Investor, for the time of any officers or employees of Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this section shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any affiliates of Investor that are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of the Company,
Investor and any such affiliate and any such person.

 

SECTION
6. COVER. 

 

If the
number of Shares represented by any Put Notice (s) become restricted or are no
longer freely trading for any reason, and after the applicable Closing Date, the
Investor purchases, in an open market transaction or otherwise, the Company's
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by the Investor (the "Sold Shares"), which delivery
such Investor anticipated to make using the Shares represented by the Put Notice
(a "Buy-In"), the Company shall pay to the Investor the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (A) the Investor's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (B) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Investor
in immediately available funds immediately upon demand by the Investor. By way
of illustration and not in limitation of the foregoing, if the Investor
purchases Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to the Common Stock it
sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company
will be required to pay to the Investor will be $1,000. 

 







20












 

SECTION
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL. 

 

The
obligation hereunder of the Company to issue and sell the Securities to the
Investor is further subject to the satisfaction, at or before each Closing Date,
of each of the following conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion. 

 

(A) The
Investor shall have executed each of this Agreement and the Registration Rights
Agreement and delivered the same to the Company. 

 

(B) The
Investor shall have delivered to the Company the Purchase Price for the
Securities being purchased by the Investor between the end of the Pricing Period
and the Closing Date via a Put Settlement Sheet (hereto attached as Exhibit G)
After receipt of confirmation of delivery of such Securities to the Investor,
the Investor, by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company will disburse the funds constituting
the Purchase Amount. 

 

(C) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement. 

 

SECTION
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE. 

 

The
obligation of the Investor hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below. 

 

 

(A) The
Company shall have executed each of the Transaction Documents and delivered the
same to the Investor.

 

(B) The
Common Stock shall be authorized for quotation on the Principal Market and
trading in the Common Stock shall not have been suspended by the Principal
Market or the SEC, at any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions of not more than
one (1) Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing). 

 

(C) The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the applicable Closing Date as though made at that
time (except for (I) representations and warranties that speak as of a specific
date and (II) with respect to the representations made in Sections 4(g), (h) and
(j) and the third sentence of Section 4(k) hereof, events which occur on or
after the date of this Agreement and are disclosed in SEC filings made by the
Company at least ten (10) Trading Days prior to the applicable Put Notice Date)
and the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company on or before such Closing Date. The
Investor may request an update as of such Closing Date regarding the
representation contained in Section 4(c) above. 

 







21












 

(D) The
Company shall have executed and delivered to the Investor the certificates
representing, or have executed electronic book-entry transfer of, the Securities
(in such denominations as such Investor shall request) being purchased by the
Investor at such Closing. 

 

(E) The
Board of Directors of the Company shall have adopted resolutions consistent with
Section 4(b)(ii) above (the "Resolutions") and such Resolutions shall not have
been amended or rescinded prior to such Closing Date. 

 

(F)
reserved 

 

(G) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement. 

 

(H) The
Registration Statement shall be effective on each Closing Date and no stop order
suspending the effectiveness of the Registration statement shall be in effect or
to the Company's knowledge shall be pending or threatened. Furthermore, on each
Closing Date (I) neither the Company nor Investor shall have received notice
that the SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (II) no other suspension of the
use or withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist. 

 

(I) At
the time of each Closing, the Registration Statement (including information or
documents incorporated by reference therein) and any amendments or supplements
thereto shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or which would require public disclosure or an
update supplement to the prospectus. 




(J) If
applicable, the shareholders of the Company shall have approved the issuance of
any Shares in excess of the Maximum Common Stock Issuance in accordance with
Section 2(i) or the Company shall have obtained appropriate approval pursuant to
the requirements of North Carolina law and the Company’s Articles of
Incorporation and By-laws.










22












 

(K) The
conditions to such Closing set forth in Section 2(f) shall have been satisfied
on or before such Closing Date.




(L) The
Company shall have certified to the Investor the number of Shares of Common
Stock outstanding when a Put Notice is given to the Investor.

 

SECTION
9. TERMINATION. This Agreement shall terminate upon any of the following events:


 

(I) when
the Investor has purchased an aggregate of Twelve Million dollars ($12,000,000)
in the Common Stock of the Company pursuant to this Agreement; 

 

(II) on
the date which is thirty-six (36) months after the Effective Date; 

 

SECTION
10. SUSPENSION




This
Agreement shall be suspended upon any of the following events, and shall remain
suspended until such event is rectified:




(I) the
trading of the Common Stock is suspended by the SEC, the Principal Market or the
NASD for a period of two (2) consecutive Trading Days during the Open
Period;




(II) The
Common Stock ceases to be registered under the 1934 Act or listed or traded on
the Principal Market. Upon the occurrence of one (1) of the above-described
events, the Company shall send written notice of such event to the
Investor.

 

SECTION
11. INDEMNIFICATION. 

 

In
consideration of the parties mutual obligations set forth In the Transaction
Documents, each of the parties (in such capacity, an "Indemnitor") shall defend,
protect, indemnify and hold harmless the other and all of the other party's
shareholders, officers, directors, employees, counsel, and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and reasonable expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (I)
any misrepresentation or breach of any representation or warranty made by the
Indemnitor or any other certificate, instrument or document contemplated hereby
or thereby; (II) any breach of any covenant, agreement or obligation of the
Indemnitor contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby; or (III) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, except insofar as any such
misrepresentation, breach or any untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
information furnished to Indemnitor which is specifically intended for use in
the preparation of any such Registration Statement, preliminary prospectus,
prospectus or amendments to the prospectus. To the extent that the foregoing
undertaking by the Indemnitor may be unenforceable for any reason, the
Indemnitor shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any cause
of action or similar rights Indemnitor may have, and any liabilities the
Indemnitor or the Indemnitees may be subject to. 

 







23












 

SECTION
12. GOVERNING LAW; MISCELLANEOUS. 

 

(A)
GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
Boston, County of Suffolk, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. 

 

(B) LEGAL
FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the Transaction
Documents, each party shall pay the fees and expenses of its advisers, counsel,
the accountants and other experts, if any, and all other expenses incurred by
such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. Any attorneys' fees and expenses incurred by
either the Company or by the Investor in connection with the preparation,
negotiation, execution and delivery of any amendments to this Agreement or
relating to the enforcement of the rights of any party, after the occurrence of
any breach of the terms of this Agreement by another party or any default by
another party in respect of the transactions contemplated hereunder, shall be
paid on demand by the party which breached the Agreement and/or defaulted, as
the case may be. The Company shall pay all stamp and other taxes and duties
levied in connection with the issuance of any Securities. 

 

(C)
COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature. 

 







24












 

(D)
HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. 

 

(E)
SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. 

 

(F)
ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or
written agreements between the Investor, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein (including the other
Transaction Documents) contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. 

 

(G)
NOTICES. Any notices or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have
been delivered (I) upon receipt, when delivered personally; (II) upon receipt,
when sent by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (III) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be: 

 

If
to the Company:




HouseRaising,
Inc.

4801 East
Independence Road

Suite
201

Charlotte,North
Carolina 28212

Telephone:
704-532-2121

Facsimile:
704-536-0928

 

If
to the Investor:




Dutchess
Private Equities fund, LP, II 

312
Stuart Street

Boston,
MA 02116 

Telephone:
617-960-3582 

Facsimile:
617-249-0947










25












 

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

 

(H) NO
ASSIGNMENT. This Agreement may not be assigned. 

 

(I) NO
THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the
parties hereto and is not for the benefit of, nor may any provision hereof be
enforced by, any other person. 

 

(J)
SURVIVAL. The representations and warranties of the Company and the Investor
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings and the termination of this Agreement.


 

(K)
PUBLICITY. The Company and Investor shall consult with each other in issuing any
press releases or otherwise making public statements with respect to the
transactions contemplated hereby and no party shall issue any such press release
or otherwise make any such public statement without the prior consent of the
other parties, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by
law, in which such case the disclosing party shall provide the other parties
with prior notice of such public statement. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of Investor without the prior
consent of such Investor, except to the extent required by law. Investor
acknowledges that this Agreement and all or part of the Transaction Documents
may be deemed to be "material contracts" as that term is defined by Item
601(b)(10) of Regulation S-B, and that the Company may therefore be required to
file such documents as exhibits to reports or registration statements filed
under the 1933 Act or the 1934 Act. Investor further agrees that the status of
such documents and materials as material contracts shall be determined solely by
the Company, in consultation with its counsel. 

 

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

 







26












 

(M)
PLACEMENT AGENT. The Company agrees to pay US Euro Securities, Inc., a
California corporation and the Placement Agent hereunder ("US Euro"), a
registered broker dealer, one percent (1%) of the Put Amount on each draw toward
the fee. The aggregate maximum amount payable to US Euro during the Open Period
shall be ten thousand dollars ($10,000). The Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of
other persons or entities for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents. The Company shall indemnify and hold harmless the Investor, their
employees, officers, directors, agents, and partners, and their respective
affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses incurred in respect of
any such claimed or existing fees, as such fees and expenses are incurred.


 

(N) NO
STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party. 

 

(O)
REMEDIES. The Investor and each holder of the Shares shall have all rights and
remedies set forth in this Agreement and the Registration Rights Agreement and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any default or breach
of any provision of this Agreement, including the recovery of reasonable
attorneys fees and costs, and to exercise all other rights granted by law.


 

(P)
PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to
the Investor hereunder or under the Registration Rights Agreement or the
Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.


 

(Q)
PRICING OF COMMON STOCK. For purposes of this Agreement, the bid price of the
Common Stock in this Agreement shall be as reported on Bloomberg. 

 

* * *











27















SIGNATURE
PAGE OF INVESTMENT AGREEMENT 

 

Your
signature on this Signature Page evidences your agreement to be bound by the
terms and conditions of the Investment Agreement and the Registration Rights
Agreement as of the date first written above. 

 

 

The
undersigned signatory hereby certifies that he has read and understands the
Investment Agreement, and the representations made by the undersigned in this
Investment Agreement are true and accurate, and agrees to be bound by its terms.


 


	 	 	 
	 	
      DUTCHESS PRIVATE EQUITIES
      FUND, II, L.P. 

      BY ITS GENERAL PARTNER, 

      DUTCHESS CAPITAL MANAGEMENT, LLC
      

	 
 	 
 	 
 
		By:  	/s/ Douglas H.
    Leighton
	 	
      

      Name:
      Douglas H. Leighton
	 	Title:  Managing
      Member



 


	 	 	 
	 	HouseRaising,
      Inc.
	 
 	 
 	 
 
		By:  	/s/ Charles M.
  Skibo
	 	
      

      Name: Charles M. Skibo
	 	Title:  Chief Executive
      Officer

 







28












 



	
                               
         LIST
      OF EXHIBITS 

       

	
      EXHIBIT
      A 
	
      Registration
      Rights Agreement

	
      EXHIBIT
      B 
	
      Opinion
      of Company's Counsel

	
      EXHIBIT
      C 
	
      [reserved]

	
      EXHIBIT
      D 
	
      Broker
      Representation Letter

	
      EXHIBIT
      E 
	
      Board
      Resolution

	
      EXHIBIT
      F 
	
      Put
      Notice

	
      EXHIBIT
      G 
	
      Put
      Settlement Sheet




 







29













 

LIST
OF SCHEDULES 




 

Schedule
4(a) Subsidiaries 

 







30



















EXHIBIT
A 










31



















EXHIBIT
B 










32



















EXHIBIT
C 










33



















EXHIBIT
D 

[BROKER'S
LETTERHEAD] 

 

Date


Via
Facsimile 


 


Attention:


 








 

Re:
HouseRaising, Inc. 

 

 

Dear
__________________: 

 

 

It is our
understanding that the Form______ Registration Statement bearing SEC File Number
( ___-______) filed by HouseRaising, Inc., on Form _____ on __________, 200X was
declared effective on _________, 200X. 

 

 

This
letter shall confirm that ______________ shares of the common stock of
HouseRaising, Inc., are being sold on behalf of __________________ and that we
shall comply with the prospectus delivery requirements set forth in that
Registration Statement by filing the same with the purchaser. 

 

 

If you
have any questions please do not hesitate to call. 

 

 

Sincerely,


 

 

cc: .


 

 







34



















EXHIBIT
E 

 







35












 








EXHIBIT
F 

 

Date:


 

RE: Put
Notice Number __ 

 

Dear Mr.
Leighton, 

 

This is
to inform you that as of today, HouseRaising, Inc., a North Carolina corporation
(the "Company"), hereby elects to exercise its right pursuant to the Investment
Agreement to require Dutchess Private Equities Fund, II, LP. to purchase shares
of its common stock. The Company hereby certifies that: 

 

The
amount of this put is $__________. 

 

The
Pricing Period runs from ________ until _______. 

 

The
current number of shares issued and outstanding as of the Company are:


 








 

Regards,


 











Charles
M. Skibo

CEO

HouseRaising,
Inc. 

 







36

















EXHIBIT
G 

PUT
SETTLEMENT SHEET 

 

Date:


 

Charles,


 

Pursuant
to the Put given by HouseRaising, Inc. to Dutchess Private Equities Fund, II,
L.P. on _________________ 200x, we are now submitting the amount of common
shares for you to issue to Dutchess. 

 

Please
have a certificate bearing no restrictive legend totaling __________ shares
issued to Dutchess Private Equities Fund, II, LP immediately and send via DWAC
to the following account: 

 

XXXXXX


 

If not
DWAC eligible, please send FedEx Priority Overnight to: 

 

XXXXXX


 

Once
these shares are received by us, we will have the funds wired to the Company.


 

Regards,


 

Douglas
H. Leighton 






  







37












 




	
      DATE
	
      PRICE

	 	 
	
      Date
      of Day 1
	
      Closing
      Bid of Day 1

	
      Date
      of Day 2
	
      Closing
      Bid of Day 2

	
      Date
      of Day 3
	
      Closing
      Bid of Day 3

	
      Date
      of Day 4 
	
      Closing
      Bid of Day 4

	
      Date
      of Day 5 
	
      Closing
      Bid of Day 5

	 	 
	 	 
	 	 
	
      LOWEST
      1 (ONE) CLOSING BID IN PRICING PERIOD

	
      ------------

	
       

	
      PUT
      AMOUNT

	
      ------------

	
       

	
      AMOUNT
      WIRED TO COMPANY

	
      ------------

	 
	
      PURCHASE
      PRICE (95% (NINETY-FIVE PERCENT))

	
      ------------

	
       

	
      AMOUNT
      OF SHARES DUE

	
      ------------




 

 

 


The
undersigned has completed this Put as of this ___th day of _________, 20xx.


 

 

HouseRaising,
Inc.

 











Charles
M. Skibo, CEO 


 







38



















SCHEDULE
4(c) CAPITALIZATION 

 







39



















SCHEDULE
4(e) CONFLICTS 

 







40



















SCHEDULE
4(g) MATERIAL CHANGES 

 







41

















SCHEDULE
4(h) LITIGATION 

 







42



















SCHEDULE
4(l) INTELLECTUAL PROPERTY 

 







43



















SCHEDULE
4(n) LIENS 

 







44



















SCHEDULE
4(t) CERTAIN TRANSACTIONS 

 







45