Unassociated Document


    
      Exhibit 10.1

       

      DRAWDOWN EQUITY FINANCING
AGREEMENT

       

      THIS AGREEMENT dated as of
the day
of February 8, 2011 (the “Agreement”) between
Auctus Private Equity Fund,
LLC a Massachusetts corporation (the “Investor”), and Electronic Control Security,
Inc a corporation organized and existing under the laws of New Jersey
(the “Company”).

       

      WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Company
shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to Ten Million 
Dollars ($10,000,000) of the Company’s common stock, par value $0.001 per
share (the “Common
Stock”); and

       

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

       

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

       

      NOW, THEREFORE, the parties hereto
agree as follows:

       

      ARTICLE
I.

      Certain
Definitions

       

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

       

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

       

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

       

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

       

      Section
  1.5          “Bid Price” shall
mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of the
Common Stock on the Principal Market or if the Common Stock is not traded on a
Principal Market, the highest reported bid price for the Common Stock, as
furnished by the Financial Industry Regulatory Authority (“FINRA”).

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      Section
  1.8          “Commitment Period”
shall mean the period commencing on the earlier to occur of (i) the Effective
Date, or (ii) such earlier date as the Company and the Investor may mutually
agree in writing, and expiring on the earliest to occur of (x) the date on which
the Investor shall have made payment of Advances pursuant to this Agreement in
the aggregate amount of the Commitment Amount, (y) the date this Agreement is
terminated pursuant to Section 10.2 or (z) the date occurring sixty (60) months
after the Effective Date.

       

      Section
  1.9           “Common Stock” shall
mean the Company’s common stock, par value $0.001 per share.

       

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

       

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

       

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

       

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

       

      Section
1.14.         “Floor” The “Floor
Price” shall be defined as a) a fixed-price floor provided by the Company or b)
as Seventy-Five (75%) of the average of the closing volume weighted average
price (“VWAP”) over the preceding ten (10) trading days prior to the Drawdown
Notice Date, in each case at the Company’s option. The “Floor” can be waived at
the discretion of the Company.

       

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

       

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

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      Section
1.18.          “FINRA” shall mean the
Financial Industry Regulatory Authority

       

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

       

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

       

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

       

      Section
1.22.          “Purchase Price” shall
be set at Ninety-Six (96%) percent of the lowest closing VWAP  of the
common stock during the Pricing Period.

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

       

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

       

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

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

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

       

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

       


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

          

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

          

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

       

      ARTICLE
II

      Advances

       

      Section
2.1            
Advances.

       

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

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

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      Section
  2.2          
Mechanics.

       

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

       

                   
Date of
Delivery of Drawdown Notice.  A Drawdown Notice shall be
deemed delivered on: (i) the Trading Day it is received by email to louposner@auctusfund.com and tjs@auctusfund.com as well as by facsimile to
(617)532-6402. If such notice is received prior to 5:00 pm Eastern Time; or (ii)
the immediately succeeding Trading Day if Drawdown Notice is received by
facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any
time on a day which is not a Trading Day.  No Drawdown Notice may be deemed
delivered on a day that is not a Trading Day.  Immediately following
the submission of the Drawdown Notice, the Company will endeavor to advise the
Investor orally by telephone of the submission of the Drawdown
Notice.

       

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

      (a)  Company’s
Obligations Upon Closing.

       

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

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

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

       

                   
Section
2.4.             
Hardship. 

       

      The
Company acknowledges that the Investor shall suffer financial hardship and
therefore shall be liable for any and all losses, commissions, fees, interest,
legal fees or any other financial hardship caused to the Investor.

       

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

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

        
        

      

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

       

      
        	
                Payments
      for Each Number of Days Overdue

              	
                For
      each $10,000 Worth of Common Stock

              
	 
      	 
      
	
                1

              	
                $100

              
	
                2

              	
                $200

              
	
                3

              	
                $300

              
	
                4

              	
                $400

              
	
                5

              	
                $500

              
	
                6

              	
                $600

              
	
                7

              	
                $700

              
	
                8

              	
                $800

              
	
                9

              	
                $900

              
	
                10

              	
                $1000

              
	
                Over
      10

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

              


      

       

      ARTICLE
III

      Representations
and Warranties of Investor

       

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

       

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

       

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

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

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

       

      Section
3.8            No General
Solicitation.  Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the shares of Common
Stock offered hereby.

       

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

       

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

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

       

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

      
      

       

      ARTICLE
IV.

      Representations
and Warranties of the Company

       

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

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

       

      Section
 4.2           Authorization, Enforcement, Compliance with
Other Instruments.  (i) The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement and any related agreements, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement and any related agreements by the Company and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by the Company’s Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement and
any related agreements have been duly executed and delivered by the Company,
(iv) this Agreement, the Registration Rights Agreement and assuming the
execution and delivery thereof and acceptance by the Investor and any related
agreements constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.

       


      Section
  4.2.1        Capitalization. 
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock $0.001 par
value per share of which approximately 10,529,911 shares of Common Stock are
outstanding and 5,000,000 shares of preferred stock, of which (i) 1,000,000
shares have been designated as Series A Convertible Preferred stock, par value
$0.001 per share, of which 300,000 shares are outstanding and (ii) 2,000 have
been designated as Series B Convertible Preferred Stock, par value $0.001 per
share, of which 791 shares are outstanding. All of such outstanding shares have
been validly issued and are fully paid and nonassessable.  Except as
disclosed in the SEC Documents, no shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company.  Except as disclosed in the SEC
Documents, as of the
date hereof, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii)  there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the Securities
Act (except pursuant to the Registration Rights Agreement).  There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any related agreement or the consummation
of the transactions described herein or therein.  This section shall not
prevent the Company, after the date hereof, from obtaining other funding or
other means of financing.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      The
Company has furnished to the Investor via the SEC's
live EDGAR filing service true and
correct copies of the Company’s Certificate of Incorporation, as amended and as
in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s By-laws, as in effect on the date
hereof (the “By-laws”), and via
conference call the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect
thereto.

       

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

       

      
        
          
          

        

        
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      Section
 4.4           SEC Documents; Financial
Statements.  As of the date hereof, the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934
Act.   As of their respective dates, to the Company’s knowledge, the
financial statements of the Company disclosed in the SEC Documents (the “Financial Statements”) complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.  Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and, fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).  No other information provided by or on behalf of the
Company to the Investor which is not included written in the SEC Documents
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

       

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

       

      
        
          
          

        

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

       

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

       

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

       

      Section
4.9        
    Environmental
Laws.  The Company and its subsidiaries are (i) in compliance with
any and all applicable material foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except, in each such case, any such matter that could not
reasonably be expected to have a Material Adverse Effect.

       

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

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      Section
 4.13         Internal Accounting
Controls.  Except as disclosed in the SEC documents, the Company and
each of its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. Representation by the company relating to internal controls will be
made at such time the registration filing has been approved.

       

      Section
4.14          No Material Adverse
Breaches, etc.  Except as set forth in the disclosure schedules,
neither the Company nor any of its subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company’s officers has or is expected in
the future to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.  Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is in breach of any contract or
agreement which breach, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

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

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

       

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

       

      ARTICLE  V.

      Indemnification

       

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

       

      Section
    5.1        
Indemnification.

       

            
(a)        In consideration of the Investor’s
execution and delivery of this Agreement, and in addition to all of the
Company’s other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investor, and all of its officers,
directors, partners, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Investor
Indemnitees”) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Investor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by the Investor Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees.  To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.

       

      
        
          
          

        

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

         

      Promptly
after receipt by any Indemnitees of notice of any claim or of the commencement
of any action in respect of which indemnity may be sought, the Indemnitees will
promptly notify indemnifying party in writing of the receipt or commencement
thereof; and indemnifying party shall have the right to assume the defense of
such claim or action (including the employment of counsel at its own expense)
through counsel of its own choosing, that is reasonably acceptable to the
Indemnitees, by so notifying the Indemnitees within thirty (30) calendar days of
the first receipt of such notice.  The Indemnitees shall have the
right to participate in the defense thereof and to employ up to one counsel at
its own expense, separate from the counsel employed by the indemnifying
party.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      The
indemnifying party will not settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding in respect of
which indemnification could be sought hereunder, unless such settlement,
compromise or consent includes an unconditional release of each Indemnitee from
all liability arising out of such claim, action or proceeding.

       

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

       

      ARTICLE
VI.

      Covenants
of the Company

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

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

        


      Section
6.9.            Market
Activities.             
The Company will not, directly or indirectly, (i) take any action designed to
cause or result in, or that constitutes or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Common Stock; this does not
include any ordinary shareholder information dissemination, such as, investor
relations activities, press releases, paid product advertising, or paid
marketing to advertise the Company's applications that may have an indirect
effect on the price of the Company's Common Stock or (ii) engage in the sale of
the Company’s stock on the open market transaction; however,  this
does not preclude the Company from issuing stock for acquisitions, to pay
employees, to pay consultants or for any other reasons deemed in the best
interests of the Company by its management.

       

      
        
          
          

        

        
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      ARTICLE
VII.

      Conditions
for Advance and Conditions to Closing

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

      ARTICLE
VIII.

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

       

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

       

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

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

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

       

      ARTICLE
XI.

      Choice of Law/Jurisdiction

       

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

       

      ARTICLE
X.

      Assignment;
Termination

       

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

       

      Section
   10.2        Termination. 

       

      (a)             
Unless terminated earlier as herein provided, the obligations of the Investor to
make Advances under Article II hereof shall terminate sixty (60) months after
the Effective Date.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

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

       

      (c
)           The
obligations and rights of each of the Company and the Investor are terminable by
the Company at any time upon written notice to the Investor subject at all times
to the terms, conditions and obligations that the Company may have to the
Investor, including and without limit to any fees, charges and obligations
described herein

       

      ARTICLE
XI.

      Notices

       

      a.                          
Section
     11.0.0.1        
Notices. 
Any notices, consents, waivers, or other communications required or permitted to
be given under the terms of this Agreement must be in writing and will be deemed
to have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile, provided a copy is mailed by U.S. certified
mail, return receipt requested; (iii) three (3) days after being sent by U.S.
certified mail, return receipt requested, or (iv) one (1) day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same.  The addresses and facsimile
numbers for such communications shall be:

       

      
      

      
        
          
            	
                    If
      to the Company, to:

                  	
                    Electronic
      Control Security, Inc.

                  
	 
      	
                     790
      Bloomfield Avenue,

                  
	 
      	
                    Clifton,
      NJ 07012

                  
	 
      	
                    Telephone:
      (973) 574-8555

                  
	 
      	
                    Facsimile:
      (973)-574-8562____

                  
	 
      	 
      
	
                     With
      a copy to

                  	
                    David
      Aboudi

                  
	 
      	
                    Aboudi
      & Brounstein Law Offices

                  
	 
      	
                    3
      Gavish Street Kfar Saba Israel

                  
	 
      	
                    Kfar
      Saba, Israel

                  
	 
      	
                     Facsimile
      +972-9-764-4834

                     

                  
	
                    If
      to the Investor, to:

                  	
                    Auctus
      Private Equity Fund, LLC

                  
	 
      	
                    One
      Beacon St. 34th
      Floor

                  
	 
      	
                    Boston,
      MA 02108

                  
	 
      	
                    ATTN:
      Lou Posner

                  
	 
      	
                    Telephone:
      617-532-6408

                  
	 
      	
                    Facsimile:
      617-532-6402

                  


          

        

      

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      
        With a
copy to: 

      

       

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

       

      ARTICLE
XII.

      Miscellaneous

       

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

       

      Section
  12.2        Entire Agreement;
Amendments.  This Agreement supersedes all other prior oral or
written agreements between the Investor, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Investor makes any representation, warranty, covenant or
undertaking with respect to such matters.  No provision of this Agreement
may be waived or amended other than by an instrument in writing signed by the
party to be charged with enforcement.

       

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

       

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

       

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

       

            (b)       
Origination
Fee. The Company is obligated to pay the Investor a non-refundable
origination fee equal to Five
Thousand Dollars ($5,000), which has been paid and Seven Thousand Five Hundred Dollars
($7,500) in cash which will be taken out of the proceeds of the first
Drawdown.

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

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

       

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]


      
        
           


        

        
          25

          
            

          

        

        
           


        

      

       

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

      
      

      
        
          
            
              	 
      	
                      COMPANY:

                    
	 
      	
                      Electronic
      Control Security, Inc.

                    
	 
      	 
      
	 
      	
                      By:

                    	/s/
      Arthur Barchenko
	 
      	
                      Name:
      Arthur Barchenko

                    
	 
      	
                      Title: CEO

                    
	 
      	 
      
	 
      	
                      INVESTOR:

                    
	 
      	
                      Auctus
      Private Equity Fund, LLC

                    
	 
      	 
      
	 
      	
                      By:

                    	/s/
      Lou Posner
	 
      	
                      Name:
      Lou Posner

                    
	 
      	
                      Title:
      Managing Director

                    


            

          

        

      

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
A

       

      DRAWDOWN
NOTICE

       

      Electronic
Control Security, Inc.

       

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

       

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

       

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

       

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

       

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

       

      5.             
 The Advance requested is _____________________.

       

      6.    
          Unless waived by the
Company pursuant to the Drawdown Equity Financing Agreement, the “Floor Price”
for this Drawdown Notice shall be: (Please check one):

       

       
______                      $______
per share

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

       
____                           Seventy-Five
(75%) of the average of the closing volume weighted average price (VWAP) over
the preceding ten (10) trading days prior to the Drawdown Notice
Date.

       

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

      

        
          
            
              	
                      Electronic
      Control Security, Inc.

                    
	
                      By:

                    	 
      
	
                      Name:
      Arthur Barchenko

                    
	
                      Title:
      CEO

                    


            

          

        


        
          
             


          

          
            28