ex10-1.htm


    
      

    

    Exhibit
10.1


     

     

    SUBSCRIPTION
AGREEMENT

     

     

    THIS SUBSCRIPTION AGREEMENT
(this “Agreement”),
dated as of October 31, 2008, by and among IDO Security Inc. (formerly known as
The Medical Exchange Inc.), a Nevada 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”); and

     

    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 $1,351,137.50 (the "Purchase Price") of principal
amount of promissory notes of the Company (“Note” or “Notes”), a form of which is
annexed hereto as Exhibit
A, convertible into shares of the Company's common stock, $0.001 par
value (the "Common
Stock") at a per share conversion price set forth in the Note (“Conversion Price”); up to
$3,377,843.75 stated value of Series A Preferred Stock of the Company (“Preferred Stock”) convertible
into the Common Stock, subject to the rights and preferences in the Certificate
of Designation in the form annexed hereto as Exhibit B; and share purchase
warrants (the “Warrants”), in the form
annexed hereto as Exhibit
C, to purchase shares of Common Stock (the “Warrant
Shares”).  The Notes, shares of Common Stock issuable upon
conversion of the Notes (the “Note Conversion Shares”), the Preferred Stock
and Shares of Common Stock issuable upon conversion of the Preferred Stock
(“Preferred Conversion
Shares”) (Note Conversion Shares and Preferred Conversion Shares are
collectively referred to herein as “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 D (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.           Closing.   The
“Closing Date” shall be
deemed as of October 31, 2008. 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 or waiver of
all conditions to closing set forth in this Agreement.   Subject
to the satisfaction or waiver of the terms and conditions of this Agreement, on
the 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 for the Purchase Price indicated thereon and the amount of Preferred
Stock described pursuant to Section 3 below, and Warrants as described in
Section 2 of this Agreement.

    


    2.           Warrants.  On
the Closing Date, the Company will issue and deliver Warrants to the
Subscribers.  One Class C 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 C Warrant shall be equal to
$0.25.   The Class C Warrants shall be exercisable until five (5)
years after the Closing Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    3.           Preferred
Stock.   On the Closing Date, the Company will issue and
deliver the Preferred Stock to the Subscribers.  The timely filing of
the Certificate of Designation and the timely issuance and delivery of the
Preferred Stock are material terms of this Agreement and failure to strictly
comply with the terms of this Section 3 shall be an Event of Default under the
Notes.  Each Subscriber will be issued shares of the Company’s
Preferred Stock equal to 250% of the Principal Amount of the Notes being issued
to such Subscriber.

    


    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)           Organization and Standing of
the Subscribers.  If the
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization.

    


     
(b)           Authorization and
Power.  Each Subscriber has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Notes, Preferred Stock and
Warrants being sold to it hereunder.  The execution, delivery and
performance of this Agreement by such Subscriber and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required.  This Agreement
has been duly authorized, executed and delivered by such Subscriber and
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Subscriber enforceable against the Subscriber in
accordance with the term hereof.

     

     
(c)           No Conflicts.  The execution, delivery and performance of
this Agreement and the consummation by such Subscriber of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of such Subscriber’s charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber).  Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Securities in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, such Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company
herein.

     

     
(d)           Information on
Company.   The Subscriber has been furnished with or has
had access at the EDGAR Website of the Commission to the Company's Form 10-KSB
filed on April 15, 2008 for the fiscal year ended December 31, 2007, the
quarterly reports for each of the three month periods ended March 31, 2008 and
June 30, 2008, together with all subsequent filings made with the Commission
available at the EDGAR website (hereinafter referred to collectively as the
"Reports").  In
addition, the Subscriber may have received in writing from the Company such
other information concerning its operations, financial condition and other
matters as the Subscriber has requested in writing, identified thereon as OTHER
WRITTEN INFORMATION (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. Each Subscriber, severally
and  not jointly, hereby represents that, in connection with the
Subscriber’s investment or the Subscriber’s decision to purchase the Securities,
except as herein provided, the Subscriber has not relied on any statement or
representation of any person, including any such statement or representation by
the Company or the placement agent or any of their respective controlling
persons,  officers, directors, partners, agents and employees or any of
their respective attorneys, except as specifically set forth in the Transaction
Documents.

     

    
      
         

      

      
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(e)           Information on
Subscriber.  The Subscriber is, and will be at the time of the
conversion of the Notes, Preferred Stock and exercise 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.

     

     
(f)            Purchase of Notes, Preferred
Stock and Warrants.  On the Closing Date, the Subscriber will
purchase the Notes, Preferred Stock 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.

     

     
(g)           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.  The Subscribers will comply with all
applicable rules and regulations in connection with the sales of the securities
including laws relating to short sales.

     

     
(h)           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 THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."

     

     
(i)           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 THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."

     

    
      
         

      

      
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(j)            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 THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."

     

     
(k)           Preferred Stock
Legend.   The Preferred Stock 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 AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.”

     

     
(l)           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.

     

     
(m)          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 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.

     

     
(n)           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 unless an exemption from registration 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.  Affiliate includes each subsidiary of the
Company.  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.

     

    
      
         

      

      
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(o)           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.

     

     
(p)           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 the Closing Date shall be true and correct as of the Closing
Date.

     

     
(q)           Survival.  The
foregoing representations and warranties shall survive the Closing Date for a
period of three years.

     

    5.           Company Representations and
Warranties.  The Company represents and warrants to and agrees
with each Subscriber that as of the date hereof and the Closing Date and unless
the Company notifies the Subscribers prior to the Closing Date, as follows
(except as set forth on the Schedule of Exceptions delivered to the
Subscribers with each numbered Schedule corresponding to the section number
herein or in the Reports):

     

     
(a)           Due
Incorporation.  The Company is a corporation or other entity
duly incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has the
requisite corporate power to own its properties and to carry on its business as
presently conducted.  The Company 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 purposes 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 and its
Subsidiaries 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 30% 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.  The Company’s Subsidiaries as of the
Closing Date are set forth on Schedule 5(a).

     

     
(b)           Outstanding
Stock.  All issued and outstanding shares of capital stock of
the Company and Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable.

     

     
(c)           Authority;
Enforceability.  This Agreement, the Note, the Preferred Stock,
the Certificate of Designation, the Warrants, the Escrow Agreement, the
Intercreditor and Modification 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 of the Company 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.

     

    
      
         

      

      
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(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 or issuance of any shares of Common Stock or equity of the
Company or Subsidiaries or other equity interest in the Company except as
described in the Reports or on Schedule 5(d).  The
Common Stock of the Company on a fully diluted basis outstanding as of the last
Business Day preceding the Closing Date is set forth 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 OTC Bulletin Board (the “Bulletin Board”) 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.  The Transaction Documents and
the Company’s performance of its obligations thereunder has been unanimously
approved by the Company’s Board of Directors.

     

     
(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, (B) to the Company's knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (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 of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates 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 of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
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 or any of its Affiliates except
as described herein; or

     

     (iii)         except
as described in Schedule
5(d), 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, nor result in the acceleration of the due date of any
obligation of the Company; or

     

                 (iv)        will
result in the triggering 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; or

     

    
      
         

      

      
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(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 issuance of the
Shares upon conversion of the Notes and Preferred Stock and the Warrant Shares
and upon exercise of the Warrants, the Shares and Warrant Shares will be duly
and validly issued, fully paid and non-assessable and if registered pursuant to
the 1933 Act and resold pursuant to an effective registration statement will be
free trading and unrestricted;

     

     (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)         assuming
the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 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 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 which litigation if adversely determined would
have a Material Adverse Effect.

     

     
(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 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 and Other Written Information contain all
material 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 Event relating to
the Company's business, financial condition or affairs not disclosed in the
Reports. The Reports and Other Written Information 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, taken as a whole,
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 is not in violation of its articles of incorporation or
bylaws.  The Company 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, (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 the
Company’s knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse
Effect.

     

    
      
         

      

      
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(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 Bulletin Board which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder.  Nor will the Company nor any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to be
integrated with other offerings which would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder.  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, which would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder.

     

     
(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)           No Undisclosed
Liabilities.  The Company 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 the Company businesses since December 31, 2007 and which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or on Schedule 5(o).

     

     
(p)           No Undisclosed Events or
Circumstances.  Since December 31, 2007, no event or
circumstance has occurred or exists with respect to the Company or its
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.

     

     
(q)           Capitalization.  The
authorized and outstanding capital stock of the Company and Subsidiaries as of
the date of this Agreement and the Closing Date (not including the Securities)
are set forth in the Reports or on Schedule
5(d).  Except as set forth on 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 any of its Subsidiaries.

     

     
(r)           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 Preferred Stock 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.

     

    
      
         

      

      
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(s)           No Disagreements with
Accountants and Lawyers.  There are no material disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise between the Company and the accountants and lawyers presently employed by
the Company, including but not limited to disputes or conflicts over payment
owed to such accountants and lawyers, nor have there been any such disagreements
during the two years prior to the Closing Date.

     

     
(t)           Investment
Company.   Neither the Company nor any Affiliate of the
Company is an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.

     

     
(u)           Foreign Corrupt
Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

     

     
(v)           Reporting
Company.  The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934
Act") and has a class of Common Stock registered pursuant to Section
12(g) of the 1934 Act.  Pursuant to the provisions of the 1934 Act,
the Company has timely filed all reports and other materials required to be
filed thereunder with the Commission during the preceding twelve
months.

     

     
(w)           Listing.  The
Company's Common Stock is quoted on the Bulletin Board under the symbol
IDOI.OB.  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
Bulletin Board nor that its Common Stock does not meet all requirements for the
continuation of such quotation.  The Company satisfies all the
requirements for the continued quotation of its Common Stock on the Bulletin
Board.

     

     
(x)           DTC
Status.   The Company’s transfer agent is a participant in
and the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on Schedule
5(x) hereto.

     

     
(y)           Solvency.   Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the Notes
hereunder, the Company does not intend to incur debts that would be beyond its
ability to pay as such debts mature.

     

     
(z)           Company Predecessor and
Subsidiaries.   The Company makes each of the
representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j),
(l), (o), (p), (q), (s), (t), and (u) of this Agreement, as same relate to the
Subsidiary of the Company.  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, apply and refer to the Company and
its predecessors.

     

     (AA)        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 the Closing Date, shall be true and correct in all material respects as
of the Closing Date.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

     (BB)         Survival.  The
foregoing representations and warranties shall survive the Closing Date for a
period of three years.

     

    6.           Regulation D Offering/Legal
Opinion.  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 E.  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 Preferred Stock and exercise of
the Warrants pursuant to an effective registration statement, Rule 144 under the
1933 Act or an exemption from registration.

    


                     7.1.       Conversion of Note and
Preferred Stock.

     

     
(a)           Upon the
conversion of a Note, interest, any sum due to the Subscriber under the
Transaction Documents, including Liquidated Damages, Preferred Stock, 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 permitted 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 the certificates representing such shares shall
contain no legend other than the usual 1933 Act restriction from transfer
legend.  If and when the Subscriber sells the Shares, assuming (i) a
registration statement registering such shares under the 1933 Act is effective
and the prospectus, as supplemented or amended, contained therein is current and
(ii) the Subscriber or its agent confirms in writing to the transfer agent that
the Subscriber has complied with the prospectus delivery requirements, the
Company will reissue the Shares without restrictive legend and the Shares will
be free-trading, and freely transferable.  In the event that the
Shares are sold in a manner that complies with an exemption from registration,
the Company will promptly instruct its counsel to issue to the transfer agent an
opinion permitting removal of the legend indefinitely if pursuant to Rule
144(b)(1)(i) of the 1933 Act, or for 90 days, if pursuant to other provision
of Rule 144 of the 1933 Act.

     

     
(b)           Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, Preferred Stock, or part thereof by telecopying, or otherwise
delivering a completed Notice of Conversion (a form of which is annexed as Exhibit A to the Note and the
Certificate of Designation) 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 or stock certificate
representing the Preferred Stock until the Note or stock certificate
representing the Preferred Stock 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 by 6 PM (or if received by
the Company after 6 PM then the next business day) 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 or the Preferred Stock 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
or stock certificate representing the balance of the Preferred Stock not so
converted will be provided by the Company to the Subscriber if requested by
Subscriber, provided the Subscriber delivers the original Note or stock
certificate to the Company. In the event that a Subscriber elects not to
surrender a Note or stock certificate representing the Preferred Stock for
reissuance upon partial payment or conversion of a Note or Preferred Stock, 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 or Shares of Preferred Stock actually held.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

     
(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, respectively later than the Delivery Date or 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 or stated
value of Preferred Stock (and proportionately for other amounts) 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 within seven (7) business
days after the Delivery Date or make payment within seven (7) business days
after the Mandatory Redemption Payment Date (as defined in Section 7.2 below),
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.

     

     
(d)           Upon the
increase by the Company of its authorized number of shares of Common Stock no
later than March 31, 2009, the Company agrees and acknowledges that despite the
pendency of a not yet effective registration statement which includes for
registration the Securities, the Subscriber is permitted to and the Company will
issue to the Subscriber Shares upon conversion of the Note or Preferred Stock
and Warrant Shares upon exercise of the Warrants.  Such Shares will,
if required by law, bear the legends described in Section 4 above and if the
requirements of Rule 144 under the 1933 Act are satisfied, be resalable
thereunder.

    


    7.2.        Mandatory Redemption at
Subscriber’s Election.  In the event (i) the Company is
prohibited from issuing Shares, (ii) upon the occurrence of any other Event of
Default (as defined in the Note or in this Agreement), that continues for more
than twenty (20) business days, (iii) a Change in Control (as defined below), or
(iv) of the liquidation, dissolution or winding up of the Company, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber (“Calculation Period”), a sum of
money determined by multiplying up to the outstanding principal amount of the
Note or stated value of Preferred Stock designated by the Subscriber by 120%
("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the
Subscriber on the same date as the 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 or stated value of Preferred Stock
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 ten day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment.  For purposes of this Section 7.2, “Change in Control” shall mean
(i) the Company no longer having a class of shares publicly traded or listed on
a Principal Market, (ii) the Company becoming a Subsidiary of another entity
(other than a corporation formed by the Company for purposes of reincorporation
in another U.S. jurisdiction) and (iii) the sale, lease or transfer of
substantially all the assets of the Company or Subsidiaries.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

                    
7.3.       Maximum
Conversion.  The Subscriber shall not be entitled to convert on
a Conversion Date that amount of the Note or Preferred Stock 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 or Preferred Stock 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 increase the permitted beneficial ownership amount up to 9.99%
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%.

    


    7.4.        Injunction Posting of
Bond.  In the event a Subscriber shall elect to convert the
Preferred Stock, a Note or part thereof, 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 notice, restraining and
or enjoining conversion of all or part of such Note shall have been sought and
obtained by the Company or at the Company’s request or with the Company’s
assistance, and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the outstanding principal and interest of
the Note, outstanding stated value of the Preferred Stock or aggregate purchase
price of the Shares which are sought to be 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 in Subscriber’s favor.

    


                    
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 or
the Preferred Stock by the Delivery Date and if after seven (7) business days
after the Delivery Date the Subscriber or a broker on the Subscriber’s behalf
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, stated value of the Preferred Stock 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 or the
Preferred Stock, the Company shall be required to pay the Subscriber $1,000 plus
interest. The Subscriber shall provide the Company written notice and evidence
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 or the Preferred Stock and exercise of the Warrants
shall be equitably adjusted and as otherwise described in this Agreement, the
Notes, Certificate of Designation and Warrants.

     

    
      
         

      

      
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    7.7.        Redemption.    The
Notes, Preferred Stock and Warrants shall not be redeemable or callable by the
Company except as described in the Notes, Certificate of Designation, Warrants
and Subscription Agreement.

    


                     8.         
Legal
Fees.  The Company shall pay to Grushko & Mittman, P.C., a
cash fee of $18,000 (“Legal
Fees”) as reimbursement for services rendered to the Subscribers in
connection with this Agreement and the purchase and sale of the Notes, Preferred
Stock and Warrants (the “Offering”).  Reimbursement
for estimated UCC searches and filing fees (less any amounts paid prior to a
Closing Date), and estimated printing and shipping costs for the closing
statements to be delivered to Subscribers, will be payable on the Closing Date
out of funds held pursuant to the Escrow Agreement.

     

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

     

     
(a)           Stop
Orders.  The Company will advise the Subscribers, within
twenty-four hours 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/Quotation.  The
Company shall promptly secure the quotation or listing of the Shares and Warrant
Shares upon each national securities exchange, or automated quotation system
upon which they are or become eligible for quotation or listing (subject to
official notice of issuance) and shall maintain same so long as any Notes,
Preferred Stock or Warrants are outstanding.  The Company will
maintain the quotation or listing of its Common Stock on the NYSE Alternext US,
Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global Select Market,
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.  As of the date of this Agreement and the Closing Date,
the Bulletin Board 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)           Filing
Requirements.  From the date of this Agreement and until the
last to occur of (i) two (2) years after the Closing Date, (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to an effective registration statement or are eligible for resale
pursuant to Rule 144, without regard to volume limitations or (iii) the Notes
and Preferred Stock are no longer outstanding (the date of occurrence of the
last such event being the “End
Date”), the Company will (A) cause its Common Stock to be registered
under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with
its reporting and filing obligations under the 1934 Act, (C) voluntarily comply
with all reporting requirements that are applicable to an issuer with a class of
shares registered pursuant to Section 12(g) of the 1934 Act, if Company is not
subject to such reporting requirements, and (D) 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 the End Date.  Until the End Date, the Company will continue the
listing or quotation of the Common Stock on a 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.  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.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

     
(e)           Use of
Proceeds.  The proceeds of the Offering will be employed by the
Company for working capital and general corporate purposes.   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 except as described on Schedule
9(e).   Except as disclosed on Schedule 9(e), for so long as
any Notes are outstanding, the Company will not prepay any financing related
debt obligations nor redeem any equity instruments of the Company.

     

     
(f)           Reservation.   On
or before March 31, 2009, and at all times thereafter, the Company shall have
reserved, pro rata, on behalf of
each holder of a Note, Preferred Stock or Warrant, from its authorized but
unissued Common Stock, a number of common shares equal to 125% of the amount of
Common Stock necessary to allow each holder of a Note to be able to convert all
such outstanding Notes, Preferred Stock and interest and 100% of the Warrant
Shares issuable upon exercise of the Warrants.

     

     
(g)           DTC
Program.  At all times that Notes, Preferred Stock or Warrants
are outstanding, the Company will employ as the transfer agent for the Common
Stock, Shares and Warrant Shares a participant in the Depository Trust Company
Automated Securities Transfer Program.

     

     
(h)           Taxes.  From
the date of this Agreement and until the End Date, 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.

     

     
(i)            Insurance.  From
the date of this Agreement and until the End Date, 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 less reasonable deductible amounts; 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.

     

     
(j)            Books and
Records.  From the date of this Agreement and until the End
Date, 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.

     

     
(k)           Governmental
Authorities.   From the date of this Agreement and until
the End Date, 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.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

     
(l)           Intellectual
Property.  From the date of this Agreement and until the End
Date, 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, unless it is sold for
value.

     

     
(m)          Properties.  From
the date of this Agreement and until the End Date, 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.

     

     
(n)           Confidentiality/Public
Announcement.  From the date of this Agreement and until the
End Date, the Company agrees that except in connection with a Form 8-K or any
registration statements regarding the Subscribers’ Securities or in
correspondence with the SEC regarding same, 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 not later than the fourth business day
after the Closing Date.  Prior to filing or announcement, such Form
8-K or public announcement will be provided to Subscribers for their review and
approval.  In the Form 8-K or public announcement, the Company will
specifically disclose the amount of Common Stock outstanding immediately after
the Closing.  Upon  delivery by the Company to Subscriber
after the Closing Date of any notice or information, in writing, electronically
or otherwise, and while a Note, Preferred Stock, Shares, Warrants, or Warrant
Shares are held by Subscriber, unless the  Company has in good faith
determined that the matters relating to such notice do not
constitute material, nonpublic information relating to
the Company or Subsidiaries, the Company  shall within one
business day after any such delivery publicly disclose such 
material,  nonpublic  information on a
Report on Form 8-K or otherwise.  In the event that
the Company believes that a notice or communication to
Subscriber contains material, nonpublic information, relating to the Company or
Subsidiaries, the Company shall so indicate to the Subscriber contemporaneously
with delivery of such notice or information.  In the absence of any
such indication, the Subscriber shall be allowed to presume that all
matters relating to such notice and information do not constitute material,
nonpublic information relating to the Company or
Subsidiaries.

     

                 
(o)           Non-Public
Information.  The Company covenants and agrees that except for
the Reports, Other Written Information and schedules and exhibits to this
Agreement, which information the Company undertakes to will publicly disclose
not later than the sooner of the required or actual filing date of the Form 8-K
described in Section 9(n) above, neither it nor any other person acting on its
behalf will at any time 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 keep such information in confidence.  The Company understands and
confirms that each Subscriber shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

     

     
(p)           Negative
Covenants.   So long as a Note is outstanding, without the
consent of the Subscriber, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:

     

     
(i)         create, incur, assume
or suffer to exist any pledge, hypothecation, assignment, deposit arrangement,
lien, charge, claim, security interest, security title, mortgage, security deed
or deed of trust, easement or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Uniform Commercial Code or comparable law of any jurisdiction) (each,
a “Lien”) upon any of
its property, whether now owned or hereafter acquired except for:  (A)
the Excepted Issuances (as defined in Section 12 hereof), (B) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property; and (g) up to $1,000,000 line of credit with a recognized
banking institution or up to $1,000,000 of inventory factoring for the Closing
Date’s ordinary course of business by a recognized factor which typically
conducts such factoring arrangements (each of (a) through (g), a “Permitted Lien”), (C)
indebtedness for borrowed money which is not senior or pari passu in right of
payment to the payment of the Notes or distribution of the Company’s assets and
(D) indebtedness which shall be used to repay the Notes;

     

    
      
         

      

      
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(ii)         amend
its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscriber;

     

     
(iii)        repay, repurchase or offer
to repay, repurchase or otherwise acquire or make any dividend or distribution
in respect of any of its Common Stock, preferred stock, or other equity
securities other than to the extent permitted or required under the Transaction
Documents.

     

     
(iv)       engage in any transactions with
any officer, director, employee or any Affiliate of the Company, 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 entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $100,000 other than (i)
for payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company, and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company; or

     

     
(v)        prepay or redeem any
financing related debt or past due obligations outstanding as of the Closing
Date except as described on Schedule 9(e).

     

     
(q)           Offering
Restrictions.    Until the expiration of the
Exclusion Period, which shall be defined as the sooner of (i) 180 days after the
Closing Date, or (ii) until the Shares and Warrant Shares have been resold or
transferred by the Subscribers pursuant to a registration statement or Rule 144
without regard to volume limitation, the Exclusion Period will be tolled or
reinstated, as the case may be, during the pendency of an Event of Default as
defined in the Note or Certificate of Designation, and/or during the pendency of
an Event of Default, except for the Excepted Issuances, the Company will not
enter into an agreement to issue nor issue any equity, convertible debt or other
securities convertible into Common Stock or equity of the Company nor modify any
of the foregoing which may be outstanding at anytime, without the prior written
consent of Subscribers holding 66.67% of the outstanding principal amounts of
the Notes, which consent may be withheld for any reason. For so long as the Notes
and Preferred Stock are outstanding, the Company will not enter into any Equity
Line of Credit or similar agreement, nor issue nor agree to issue any floating
or Variable Priced Equity Linked Instruments nor any of the foregoing or equity
with price reset rights (collectively, the “Variable Rate
Restrictions”).   For purposes hereof, “Equity Line of Credit” shall
include any transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at
an agreed price or price formula, and “Variable Priced Equity Linked
Instruments” shall include: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock either (1) at any conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for Common Stock at any time after the initial issuance
of such debt or equity security, or (2) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date at any time
after the initial issuance of such debt or equity security due to a change in
the market price of the Company’s Common Stock since date of initial issuance,
and (B) any amortizing convertible security which amortizes prior to its
maturity date, where the Company is required or has the option to (or the
investor in such transaction has the option to require the Company to) make such
amortization payments in shares of Common Stock which are valued at a price that
is based upon and/or varies with the trading prices of or quotations for Common
Stock at any time after the initial issuance of such debt or equity security
(whether or not such payments in stock are subject to certain equity
conditions).  The only officer, director, employee and consultant
stock option or stock incentive plan currently in effect or contemplated by the
Company is described on Schedule 5(d).

     

    
      
         

      

      
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(r)           Seniority.   Except
for Permitted Liens and as otherwise provided for herein, until the Notes are
fully satisfied or converted, the Company shall not grant nor allow any security
interest to be taken in the assets of the Company or any Subsidiary; nor issue
any debt, equity or other instrument which would give the holder thereof
directly or indirectly, a right in any assets of the Company or any Subsidiary,
equal or superior to any right of the holder of a Note in or to such
assets.

     

     
(s)           Notices.   For
so long as the Subscribers hold any Securities, the Company will maintain as
United States address and United States fax number for notices purposes under
the Transaction Documents.

     

    10.         Covenants of the Company and
Subscriber Regarding Indemnification.

     

     
(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.

     

    
      
         

      

      
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(c)           In no event
shall the liability of any Subscriber or permitted successor hereunder or under
any Transaction Document or 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 Securities.

     

     
(d)           The
procedures set forth in Section 11.1 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.

     

    11.1.      Indemnification and
Contribution.

     

     
(a)           In the
event of a registration of any 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 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 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 11.1(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.

     

     
(b)           In the
event of a registration of any of the 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
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
Securities covered by such registration statement.

     

    
      
         

      

      
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(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 11.1(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.1(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 11.1(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
11.1 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 11.1 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 11.1;
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.

     

    11.2.      Delivery of Unlegended
Shares.

     

     
(a)           Within
three (3) business days (such third business day being the “Unlegended Shares Delivery
Date”) after the business day on which the Company has received (i) a
notice that Shares or Warrant Shares or any other Common Stock held by a
Subscriber have been sold pursuant to a 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 and if required, 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(i) above (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 submitted
Shares certificate, 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.  

     

    
      
         

      

      
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(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 11.2 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 (“Unlegended Redemption
Amount”).  The amount of the aforedescribed liquidated damages
that have accrued or been paid for the twenty day period prior to the receipt by
the Subscriber of the Unlegended Redemption Amount shall be credited against the
Unlegended Redemption Amount.  The Company shall pay any payments
incurred under this Section in immediately available funds upon
demand.

     

     
(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 or a broker on the Subscriber’s behalf, 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.

     

    
      
         

      

      
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(e)           In the
event a Subscriber shall request delivery of Unlegended Shares as described in
Section 11.2 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.2, 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 120% 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.

    


    11.3.      In
the event commencing one hundred and eighty-one (181) days after the issue date
of the Notes, Preferred Stock and Warrants, a Subscriber is not permitted to
resell any of the Shares or Warrant Shares without any restrictive
legend, and such sales are not permitted as a result of the unavailability
to Subscriber of Rule 144(b) under the 1933 Act or any successor rule (a “144 Default”), and the sole
reason for the 144 Default is that the Company is not current in its SEC
periodic filings, and Subscriber is not an Affiliate or “control person” of
the Company, then the Company shall pay such Subscriber as liquidated damages
and not as a penalty an amount equal to two percent (2%) for each thirty (30)
days (or such lesser pro-rata amount for any period less than thirty (30) days)
thereafter of the purchase price of the Shares and Warrant Shares owned by such
Subscriber during the pendency of the 144 Default.  Liquidated damages
shall not be payable pursuant to this Section 11.3 in connection with Shares and
Warrant Shares for such times as such Shares and Warrant Shares may be sold by
the holder thereof without restriction pursuant to Section 144(b)(1) of the 1933
Act.

    


    12.         Additional
Agreements.

     

     
(a)           Right of First
Refusal.   Until one year after the Closing Date, the
Subscribers shall be given not less than ten (10) 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) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of corporation or
other entity which holders of such securities or debt are not at any time
granted registration rights, (ii) the Company’s
issuance of securities in connection with strategic license agreements and other
partnering arrangements so long as such issuances are not for the primary
purpose of raising capital and which holders of such securities or debt
are not at any time granted registration rights,
(iii) the Company’s issuance of Common Stock or the issuances or grants of
options to purchase Common Stock pursuant to director stock option plans and
employee stock purchase plans described on Schedule 12(a) hereto at prices equal to or higher than the closing
price of the Common Stock on the issue date of any of the foregoing, except as
provided in Schedule 12(a)(iv) as a result
of the exercise of Warrants or conversion of Notes, or Preferred Stock which are
granted or issued pursuant to this Agreement or that have been issued prior to
the Closing Date on the same terms and conditions as disclosed in a Report filed
not less than five (5) days prior to the Closing Date without amendment thereto,
(v) the payment of any interest on the Notes and Liquidated Damages pursuant to
the Transaction Documents and (vi) the Company’s issuance of up to 100,000
shares of the Company’s Common Stock (or securities convertible into shares of
common stock) to service providers as disclosed on Schedule 12(a) herein (collectively the foregoing are “Excepted
Issuances”).  The Subscribers who exercise their rights
pursuant to this Section 12(a) shall have the right during the ten (10) 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 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 ten (10) business days
following the notice of modification to exercise such right.

     

    
      
         

      

      
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(b)           Favored Nations
Provision.   Other than in connection with the Excepted
Issuances, if at any time the Notes, Preferred Stock or Warrants are
outstanding, the Company shall offer, issue or agree to issue (the “Lower Price
Issuance”) 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 in respect of the Shares ,
or if less than the Warrant exercise price in respect of the Warrant Shares,
without the consent of Subscribers holding 66.67% of the outstanding principal
amount of Notes, then the Company shall issue, for each such occasion,
additional shares of Common Stock to each Subscriber respecting those Notes,
Preferred Stock, Warrants and Shares that remain outstanding at the time of the
Lower Price Issuance so that the average per share purchase price of the shares
of Common Stock issued to the Subscriber (of only the Common Stock, Shares 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.  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 the Notes or Preferred Stock
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.  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, Preferred Stock, any Transaction Document, and any other
agreement referred to or entered into in connection herewith or to which the
Subscriber and Company are parties.  The Subscriber is also given the
right to elect to substitute any term or terms of any other offering in
connection with which the Subscriber has rights as described in Section 12(a),
for any term or terms of the Offering in connection with Securities owned by
Subscriber as of the date the notice described in Section 12(a) is required to
be given to Subscriber.

     

     
(c)           Maximum Exercise of
Rights.   In the event the exercise of the rights
described in Sections 12(a) and 12(b) 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.

     

     
(d)           Security
Interest.   On or about December 24, 2007, subscribers to
an aggregate investment of $5,404,550 in Promissory Notes and Warrants of the
Company (“Initial Investment”) were granted a security interest in assets of the
Company.  The security interest was memorialized in a Security
Agreement.  The Company, subscribers to the Initial Investment and
Subscribers herein will execute such other agreements, documents and financing
statements, including but not limited to an Intercreditor and Modification
Agreement and Modification, Waiver and Consent Agreement reasonably requested by
Subscribers to affirm and modify the terms of such Security Agreement and
financing statements, in order to grant Subscribers herein a senior priority security interest
in the assets of the Company, which will 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 Subscribers to memorialize and further
protect the security interest described herein.  The subscribers to
the Initial Investment appointed a Collateral Agent to represent them
collectively in connection with the security interest.  The
appointment was pursuant to a Collateral Agent Agreement.  The
subscribers to the initial investment, the Company and Subscribers herein will
execute such other agreements necessary in order to provide that the Collateral
Agent Agreement dated as of December 24, 2007 as amended is the Collateral Agent
Agreement which shall govern the rights and obligations of the Subscribers to
the Initial Investment and Subscribers herein and shall remain in full force and
effect except as modified in the Intercreditor and Modification Agreement and in
the Modification, Waiver and Consent Agreement.  The Company agrees
the Notes and all sums due under the Notes and the Transaction Documents (as
defined in Section 5(c) above) are included in the term “Obligations” as defined in the
Security Agreement, as amended, and are secured by the Collateral (as defined in
the Security Agreement as amended) but such Obligations of the Offering
herein will have senior priority to the security interest granted to the Initial
Investors pursuant to the Security Agreement entered into in connection with the
Initial Investment.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

    13.         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: IDO
Security Inc., 17 State Street, New York, NY 10004, Fax: (646) 285-0026, with a
copy by telecopier only to: Aboudi & Brounstein, 3 Gavish St., Kfar Saba,
Israel, Fax: 972-9-764-4834, and (ii) if to the Subscriber, 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, Fax: (212) 697-3575.

    


     
(b)           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 the Company shall be assigned without prior notice to and the
written consent of the Subscribers.

     

     
(c)            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.

     

     
(d)           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 conflicts
of laws principles that would result
in the application of the substantive laws of another
jurisdiction.  Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the civil or state courts of New York or in the federal courts located in New
York County.  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

        
          

        

      

      
         

      

    

     

     
(e)           Specific Enforcement,
Consent to Jurisdiction.  To the extent permitted by law, 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 one or more
preliminary and final 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 13(d) 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.

     

     
(f)           Damages.   In
the event the Subscriber is entitled to receive any liquidated damages pursuant
to the Transactions, the Subscriber may elect to receive the greater of actual
damages or such liquidated damages.

     

     
(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 each
Subscriber has represented 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 a 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.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

     
(h)           Consent.   As
used in the Agreement, “consent of the Subscribers” or similar language means
the consent of holders of not less than 66.67% of the total of the Shares issued
and issuable upon conversion of outstanding Notes owned by Subscribers on the
date consent is requested.

     

     
(i)            Equal
Treatment.   No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the parties to the Transaction Documents.

     

     
(j)           Maximum
Payments.   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.

     

     
(k)           Calendar Days/Time
Periods.   All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated.  The terms
“business days” and “trading days” shall mean days that the New York Stock
Exchange is open for trading for three or more hours.  Time periods
shall be determined as if the relevant action, calculation or time period were
occurring in New York City.

     

     
(l)           Maximum
Liability.   In no event shall the liability of any
Subscriber or permitted successor hereunder or under any Transaction Document or
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 the Shares.

     

     
(m)          Captions: Certain
Definitions.  The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.  As used in this Agreement the term
“person” shall
mean and include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.

     

     
(n)          Severability.  In
the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by an authority having jurisdiction and venue, that
determination shall not impair or otherwise affect the validity, legality or
enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement.

     

     
(o)           Successor
Laws.  References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms.  A
successor rule to Rule 144(b)(1)(i) shall include any rule that would be
available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding
period.

     

    


     

    


     

    [THIS
SPACE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

     

    SIGNATURE PAGE TO SUBSCRIPTION
AGREEMENT

     

    


    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.

    


    
      	 
      	IDO
      SECURITY INC.	 
      
	 
      	a
      Nevada corporation	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
              By:

            	
               

            	 
      
	 
      	 
      	
              Name:
      Michael Goldberg

            	 
      
	 
      	 
      	
              Title:  CEO

            	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	
              Dated
      as of October 31, 2008

            	 
      


    

    


    


    


    
      	
              SUBSCRIBER

            	
              NOTE

              PRINCIPAL

              AMOUNT

            	
              PREFERRED

              STOCK

            	
              CLASS
      C WARRANTS

            
	
               

              Name
      of Subscriber: ________________________

               

              _________________________________________

               

              Address:
      _________________________________

               

              _________________________________________

               

              Fax
      No.: _________________________________

               

               

               

               

              ________________________________________

              (Signature)

              By: