EXHIBIT
      10.23

     

    SUBSCRIPTION
      AGREEMENT

     

     

    THIS
      SUBSCRIPTION AGREEMENT
      (this
“Agreement”),
      is
      dated as of September 10, 2007, by and among Neonode Inc. (formerly known as
      SBE, Inc.), a Delaware corporation
      (the
“Company”),
      and
      the subscribers identified on the signature page hereto (each a “Subscriber”
and
      collectively “Subscribers”).

     

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

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Subscribers, as provided herein,
      and the Subscribers, in the aggregate, shall purchase for up to $10,000,000
      in
      the aggregate (the "Purchase
      Price"):

     

    
      	 	
              (i)

            	
              up
                to $5,000,000 (the “Principal
                Amount”)
                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 (“Conversion
                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 (the “Conversion
                Price”);

            


    

     

    
      	 	
              (ii)

            	
              up
                to 1,666,667 shares of Common Stock (the “Shares”)
                at a per share purchase price of $3.00;
                and

            


    

     

    
      	 	
              (iii)

            	
              up
                to 2,321,429 Common Stock purchase warrants (the “Warrants”),
                in the form annexed hereto as Exhibit
                B,
                exercisable to purchase shares of Common Stock (the “Warrant
                Shares”)
                at a per share purchase price equal to the sum of (a) the market
                price (as
                determined under the NASDAQ Marketplace Rules) of the Common Stock
                on the
                date prior to the Closing Date and (b) $.01 (the “Exercise
                Price”).

            


    

     

    The
      Notes, Conversion Shares, the Shares, the Warrants and the Warrant Shares are
      collectively referred to herein as the "Securities";

     

    WHEREAS,
      the
      aggregate proceeds of the sale of the Notes, Shares, and 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
      C
      (the
“Escrow
      Agreement”);
      

     

    WHEREAS,
      the
      Company has outstanding $3,250,000 in principal amount of 8% senior promissory
      notes, due December 31, 2007 (the “Bridge
      Notes”)
      and an
      option to purchase $750,000 of Bridge Notes, and the Bridge Notes, including
      all
      accrued interest, are convertible into the Securities; and

     

    WHEREAS,
      the
      Company will seek to arrange for private sales of approximately 400,000 shares
      of Common Stock and warrants to purchase 200,000 shares of Common Stock (such
      shares and the shares underlying such warrants, the “Key
      Person Securities”)
      by
      certain key personnel simultaneously with closing under the 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

        
          

        

      

      
        
        

      

    

     

    1. Closing
      Date.
      The
“Closing
      Date”
shall
      be the date that the Purchase Price is transmitted by wire transfer or otherwise
      credited to or for the benefit of the Company. 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, Units (as defined below) at a price
      per
      Unit of $3,000.

     

    2. Units.
      The
      Notes, Shares and Warrants will be sold in units (“Units”).
      Each
      Unit purchased for $3,000 will entitle the Subscriber to receive a Note in
      the
      Principal Amount of $1,500, 500 Shares at an allocated Purchase Price of $3.00
      per Share, and 696.5 Warrants.

    


    3. Warrants.
      The
      Exercise Price to acquire a Warrant Share upon exercise of a Warrant shall
      be
      determined at close of business on the date immediately prior to the Closing
      Date. The Warrants shall be exercisable commencing six months after the Closing
      Date and until five years after the Closing Date of the Warrants. The other
      terms of the Warrants are set forth in the form of Warrant annexed hereto as
      Exhibit
      B.

     

    4. Subscriber
      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 such
      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.
      Such
      Subscriber has the requisite power and authority to enter into and perform
      this
      Agreement and the other Transaction Documents and to purchase the Notes and
      Warrants being sold to it hereunder. The execution, delivery and performance
      of
      this Agreement and the other Transaction Documents 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
      and the other Transaction Documents have been duly authorized, executed and
      delivered by such Subscriber and constitutes, or shall constitute when executed
      and delivered, a valid and binding obligation of such Subscriber enforceable
      against such Subscriber in accordance with the terms thereof.

     

    (c) No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the other Transaction
      Documents and the consummation by such Subscriber of the transactions
      contemplated hereby and thereby 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 and the other Transaction Documents 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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (d) Information
      on Company.
      Such
      Subscriber has been furnished with or has had access at the EDGAR Website of
      the
      Commission to the Company's Form 10-K filed on January 29, 2007 for the fiscal
      year ended October 31, 2006, and the financial statements included therein
      for
      the year ended October 31, 2006, together with all subsequent filings made
      with
      the Commission available at the EDGAR website including the filings relating
      to
      the meeting of the Company’s stockholders held on August 10, 2007 (hereinafter
      referred to collectively as the "Reports").
      In
      addition, such
      Subscriber may have received in writing from the Company such other information
      concerning its operations, financial condition and other matters as such
      Subscriber has requested in writing, identified thereon as OTHER WRITTEN
      INFORMATION (such other information is collectively, the "Other
      Written Information"),
      and
      considered all factors such
      Subscriber deems material in deciding on the advisability of investing in the
      Securities. 

     

    (e) Information
      on Subscriber.
      Such
      Subscriber is, and will be at the time of the conversion of the Notes 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 such
      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.
      Such
      Subscriber has the authority and is duly and legally qualified to purchase
      and
      own the Securities. Such
      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 such
      Subscriber is accurate.

     

    (f) Purchase
      of Notes and Warrants.
      On the
      Closing Date, such
      Subscriber will purchase the Notes, Shares 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 Laws.
      Such
      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
such
      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.
      Such
      Subscriber 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, Conversion Shares and the Warrant Shares shall bear the following or
      similar legend:

     

    
      
        	 	
                "THE
                  ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
                  HAS
                  NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                  NOR
                  APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
                  FOR
                  SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
                  EFFECTIVE
                  REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
                  ACT OF
                  1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
                  BE
                  SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
                  IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
                  RULE 144 OR
                  RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
                  MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
                  OTHER LOAN
                  OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

              	 


      

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (i) Warrants
      Legend.
      The
      Warrants shall bear the following or
      similar legend:

     

    
      	 	
              "NEITHER
                THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
                NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
                BEEN
                REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
                STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
                SOLD,
                TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
                REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
                OF
                1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
                BE
                SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
                IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
                144 OR
                RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
                MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
                LOAN
                OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES." 

            	 


    

     

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

     

    
      	 	
              "NEITHER
                THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
                NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE
                BEEN
                REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
                STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
                SOLD,
                TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
                REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
                OF
                1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
                BE
                SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
                IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
                144 OR
                RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
                MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
                LOAN
                OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
                " 

            	 


    

     

    (k) Communication
      of Offer.
      The
      offer to sell the Securities was directly communicated to such Subscriber by
      the
      Company. At no time was such 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.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (l) Authority;
      Enforceability.
      This
      Agreement and other agreements delivered together with this Agreement or in
      connection herewith have been duly authorized, executed and delivered by such
      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 such 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 such Subscriber relating
      hereto.

    


    (m) Restricted
      Securities.
      Such
      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.

    


    (n) No
      Governmental Review.
      Such
      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.

    


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

    


    (p) Survival.
      The
      foregoing representations and warranties shall survive the Closing
      Date.

     

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

     

    (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, prospects, 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 Subsidiaries as of the Closing Date are set forth on Schedule
      5(a).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (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 Shares, the Warrants, Escrow Agreement, Lockup
      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.

     

    (d) Capitalization
      and Additional Issuances.
      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 on Schedule
      5(d).
      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 on Schedule
      5(d).
      The
      Common Stock, options, warrants, agreements and other rights to acquire equity
      of the Company and any Subsidiary outstanding as of the last Business Day
      preceding the Closing Date is set forth on Schedule
      5(d).
      The
      only
      officer, director, employee and consultant stock option or stock incentive
      plan
      in effect or contemplated by the Company as of the Closing Date is described
      on
Schedule
      5(d).

     

    (e) Consents.
      No
      consent, approval, authorization or order of any court, governmental agency
      or
      body or arbitrator having jurisdiction over the Company, or any of its
      Affiliates, the Nasdaq Capital Market (the “NCM”)
      or 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 the Transaction Documents 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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (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, Conversion Shares and Warrant Shares, such Shares, Conversion 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 and 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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (j) Information
      Concerning Company.
      The
      Reports including the exhibits and financial statements included therewith,
      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 dates of the
      most recent 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 including the exhibits
      and
      financial statements included therewith, 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) not in violation of any statute, rule
      or regulation of any governmental authority which violation would have a
      Material Adverse Effect.

     

    (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 NCM which would impair the exemptions relied upon in
      this
      Offering or the Company’s ability to timely comply with its obligations
      hereunder. Neither the Company nor any of its Affiliates will 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 that 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, other than those incurred in the ordinary course of the Company
      businesses since the date of the most recent audited financial statements of
      the
      Company contained in the Reports, 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
      the date of the most recent audited financial statements of the Company
      contained in the Reports, 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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (q) 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 Conversion
      Shares upon conversion of the Notes, and the Warrant Shares upon exercise of
      the
      Warrants, is binding upon the Company and enforceable regardless of the dilution
      such issuance may have on the ownership interests of other shareholders of
      the
      Company or parties entitled to receive equity of the Company.

     

    (r) 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.

    


    (s) 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.

     

    (t) 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.

    


    (u) 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.

    


    (v) Listing.
      The
      Company's Common Stock is quoted on the NCM under the symbol SBEI. Except as
      disclosed on a current report on Form 8-K filed with the Commission on March
      23,
      2007, the Company has not received any oral or written notice that its Common
      Stock is not eligible nor will become ineligible for listing on the NCM nor
      that
      its Common Stock does not meet all requirements for the continuation of such
      listing. The Company satisfies all the requirements for the continued listing
      of
      its Common Stock on the NCM.

    


    (w) 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(w)
      hereto.

    


    (x) 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
      and Shares, (i) the Company’s fair saleable value of its assets exceeds the
      amount that will be required to be paid on or in respect of the Company’s
      existing debts and other liabilities (including known contingent liabilities)
      as
      they mature; (ii) the Company’s assets do not constitute unreasonably small
      capital to carry on its business for the current fiscal year as now conducted
      and as proposed to be conducted including its capital needs taking into account
      the particular capital requirements of the business conducted by the Company,
      and projected capital requirements and capital availability thereof; and (iii)
      the current cash flow of the Company, together with the proceeds the Company
      would receive, were it to liquidate all of its assets, after taking into account
      all anticipated uses of the cash, would be sufficient to pay all amounts on
      or
      in respect of its debt when such amounts are required to be paid. The Company
      does not intend to incur debts beyond its ability to pay such debts as they
      mature (taking into account the timing and amounts of cash to be payable on
      or
      in respect of its debt).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (y) 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), (r), (s), (u), and (x) 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. The Company represents that it owns
      100% of the outstanding equity of the Subsidiaries and rights to receive equity
      of the Subsidiaries free and clear of all liens, encumbrances and claims, except
      as set forth on Schedule 5(d). No person or entity other than the Company has
      the right to own and receive any equity interest in the
      Subsidiaries.

    


    (z) 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; provided,
      that, if such representation or warranty is made as of a different date in
      which
      case such representation or warranty shall be true as of such date.

     

    (AA) Survival.
      The
      foregoing representations and warranties shall survive the Closing
      Date.

     

    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 the Subscribers 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
      D.
      The
      Company will provide, at the Company's expense, such other legal opinions,
      if
      any, as are reasonably necessary in each Subscriber’s opinion for the issuance
      and resale of the Common Stock issuable upon conversion of the Notes 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.

    


    (a) Upon
      the
      conversion of a Note or part thereof, the Company shall, at its own cost and
      expense, take all necessary action, including obtaining and delivering, an
      opinion of counsel to assure that the Company's transfer agent shall issue
      stock
      certificates in the name of Subscriber (or its 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 a Subscriber sells the Conversion Shares, assuming (i) the Registration
      Statement (as defined below) is effective and the prospectus, as supplemented
      or
      amended, contained therein is current and (ii) such Subscriber or its agent
      confirms in writing to the transfer agent that such Subscriber has complied
      with
      the prospectus delivery requirements, the Company will reissue the Conversion
      Shares without restrictive legend and the Conversion Shares will be
      free-trading, and freely transferable. In the event that the Conversion 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(k) of the 1933 Act, provided that Subscriber delivers all reasonably
      requested representations in support of such opinion).

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (b) A
      Subscriber will give notice of its decision to exercise its right to convert
      the
      Note, interest, 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) to the Company via confirmed telecopier transmission or otherwise pursuant
      to Section 13(a) of this Agreement. Such Subscriber will not be
      required to surrender the Note
      until
      the Note has been fully converted or satisfied. Each date on which a Notice
      of
      Conversion is telecopied to the Company in accordance with the provisions hereof
      by 6 PM Eastern Time (“ET”) (or if received by the Company after 6 PM ET 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 Conversion Shares to such
      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 Conversion Shares are electronically transferable, then delivery
      of the Conversion Shares must
      be made
      by electronic transfer provided request for such electronic transfer has been
      made by the Subscriber.
      A Note representing the balance of the Note not so converted will be provided
      by
      the Company to such Subscriber if requested by Subscriber, provided such
      Subscriber delivers the
      original Note to the Company. In the event that a Subscriber elects not to
      surrender a Note for reissuance upon partial payment or conversion of a Note,
      such Subscriber hereby indemnifies the Company against any and all loss or
      damage attributable to a third-party claim in an amount in excess of the actual
      amount then due under the Note.

    


    (c) The
      Company understands that a delay in the delivery of the Conversion 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 a Subscriber for such loss,
      the Company agrees to pay (as liquidated damages and not as a penalty) to such
      Subscriber for late issuance of Conversion 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
      (and proportionately for other amounts) being converted of the corresponding
      Conversion 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 Conversion 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), such 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 such 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) The
      Company agrees and acknowledges that despite the pendency of a not yet effective
      Registration Statement which includes for registration the Registrable
      Securities (as defined in Section 11.1(iv)), a Subscriber is permitted to and
      the Company will issue to such Subscriber Conversion Shares and Warrant Shares
      upon exercise of the Warrants. Such Conversion 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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    7.2. Mandatory
      Redemption at Subscriber’s Election.
      In the
      event (i) the Company is prohibited from issuing Conversion 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 each Subscriber ten (10) business days after request by each Subscriber
      (“Calculation
      Period”),
      a sum
      of money determined by multiplying up to the outstanding principal amount of
      the
      Note designated by each such Subscriber by 110%, plus accrued but unpaid
      interest ("Mandatory
      Redemption Payment").
      The
      Mandatory Redemption Payment must be received by each Subscriber on the same
      date as the Conversion Shares otherwise deliverable or within ten (10) business
      days after request, whichever is sooner ("Mandatory
      Redemption Payment Date").
      Upon
      receipt of the Mandatory Redemption Payment, the corresponding Note principal
      and interest will be deemed paid and no longer outstanding. Liquidated damages
      calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
      for
      the ten day period prior to the actual receipt of the Mandatory Redemption
      Payment by a 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 (as defined in Section 9(b)), (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), (iii)
      a
      majority of the board of directors of the Company as of the Closing Date no
      longer serving as directors of the Company except due to natural causes (which
      shall include, termination of such directors by the holders of more than 50%
      of
      the equity outstanding as of the Closing Date), and (iv) the sale, lease or
      transfer of substantially all the assets of the Company or its
      Subsidiaries.

    


    7.3. Maximum
      Conversion.
      No
      Subscriber shall be entitled to convert on a Conversion Date that amount of
      the
      Note in connection with that number of shares of Common Stock which would be
      in
      excess of the sum of (i) the number of shares of Common Stock beneficially
      owned
      by such Subscriber and its Affiliates on a Conversion Date, and (ii) the number
      of shares of Common Stock issuable upon the conversion of the Note with respect
      to which the determination of this provision is being made on a Conversion
      Date,
      which would result in beneficial ownership by such 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 1934 Act, and Rule 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. Such
      Subscriber may allocate which of the equity of the Company deemed beneficially
      owned by such 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 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, or
      aggregate purchase price of the Conversion Shares which are sought to be subject
      to the injunction, which bond shall remain in effect until the final
      unappealable disposition of the litigation and the proceeds of which shall
      be
      payable to such Subscriber to the extent Subscriber obtains judgment in
      Subscriber’s favor.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

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

     

    7.6 Redemption.
      The
      Notes shall not be redeemable or callable by the Company except as described
      in
      the Note. 

    


    8. Broker/Due
      Diligence Fee/Legal Fees.

    


    (a)  Broker’s
      Commission.
      The
      Company on the one hand, and each Subscriber (for himself or itself only) on
      the
      other hand, agrees to indemnify the other against and hold the other harmless
      from any and all liabilities to any persons claiming brokerage commissions
      or
      similar fees other than Empire Asset Management, Inc. (the “Broker”)
      on
      account of services purported to have been rendered on behalf of the
      indemnifying party in connection with this Agreement or the transactions
      contemplated hereby and arising out of such party’s actions. Anything in this
      Agreement to the contrary notwithstanding, each Subscriber is providing
      indemnification only for such Subscriber’s own actions and not for any action of
      any other Subscriber. Each Subscriber’s liability hereunder is several and not
      joint. The Company agrees that it will pay the Broker an aggregate cash fee
      equal to 7.5% of the Purchase Price on the Closing Date directly out of the
      funds held pursuant to the Escrow Agreement (“Broker’s
      Fees”).
      The
      Company represents that there are no other parties entitled to receive fees,
      commissions, or similar payments in connection with the offering described
      in
      this Agreement except the Broker. On the Closing Date, the Company will issue
      to
      the Broker, five year warrants to purchase Units (the
      “Broker’s
      Warrants”)
      in
      an
      amount equal to 7.5% of the Units issued hereunder. The Broker may designate
      itself, employees or other persons (the “Broker
      Holders”)
      to
      receive all or a portion of the Broker’s Warrants at Closing. All the
      representations, covenants, warranties, undertakings, remedies, liquidated
      damages, indemnification, and other rights including but not limited to
      reservation and registration rights made or granted to or for the benefit of
      the
      Subscribers are hereby also made by the Company and granted to the Broker
      Holders.

     

    (b) Subscriber’s
      Legal Fees.
      The
      Company shall pay to Grushko & Mittman, P.C., a fee of $50,000
      (“Subscriber’s
      Legal Fees”)
      (of
      which $10,000 has been paid) as reimbursement for services rendered to the
      Subscribers in connection with this Agreement and the purchase and sale of
      the
      Notes and Warrants (the “Offering”).
      The
      Subscriber’s Legal Fees and expenses will be payable out of funds held pursuant
      to the Escrow Agreement. Grushko & Mittman, P.C. will be reimbursed at
      Closing for all lien searches, filing fees, and printing and shipping costs
      for
      the closing statements to be delivered to Subscribers and for background checks
      on the senior management of the Company and Subsidiaries conducted on behalf
      of
      Subscribers.

     

    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.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (b) Listing/Quotation.
      The
      Company shall promptly secure the quotation or listing of the Shares, Conversion
      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
      Warrants are outstanding. The Company will maintain the quotation or listing
      of
      its Common Stock on the American Stock Exchange, NCM, Nasdaq Global Market,
      Nasdaq Global Select Market, OTC Bulletin Board, or New York Stock Exchange
      (whichever of the foregoing is at the time the principal trading exchange or
      market for the Common Stock (the “Principal
      Market”),
      and
      will comply in all respects with the Company's reporting, filing and other
      obligations under the bylaws or rules of the Principal Market, as applicable.
      The Company will provide the Subscribers copies of all notices it receives
      notifying the Company of the threatened and actual delisting of the Common
      Stock
      from any Principal Market. As of the date of this Agreement and the Closing
      Date, the NCM 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 the Subscribers.

     

    (d) Filing
      Requirements.
      From
      the
      date of this Agreement and until the last to occur of (i) two (2) years after
      the Closing Date, or (ii) until all the Shares, Conversion Shares and Warrant
      Shares have been resold or transferred by all the Subscribers pursuant to the
      Registration Statement or pursuant to Rule 144, without regard to volume
      limitations (the 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.

     

    (e) Use
      of
      Proceeds.
      The
      proceeds of the Offering will be employed by the Company as described on
Schedule
      9(e).
      Except
      as set forth on Schedule
      9(e),
      the
      Purchase Price may not and will not be used for accrued and unpaid officer
      and
      director salaries, payment of financing related debt, redemption of outstanding
      notes or equity instruments of the Company nor non-trade obligations outstanding
      on a Closing Date. 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.
      Prior
      to the Closing Date, and at all times thereafter, the Company shall have
      reserved, pro rata,
      on
      behalf of each holder of a Note or Warrant, from its authorized but unissued
      Common Stock, a number of common shares equal to 150%
      of
      the amount of Common Stock necessary to allow each holder of a Note to be able
      to convert all such outstanding Notes and interest (if any) and reserve the
      amount of Warrant Shares issuable upon exercise of the Warrants. 

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (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 and the registration statement or 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
      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 the Subscribers after the Closing
      Date of any notice or information, in writing, electronically or otherwise,
      and
      while a Note, Conversion Shares, Warrants, or Warrant Shares are held by such
      Subscribers, 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 a Subscriber contains material, nonpublic
      information, relating to the Company or Subsidiaries, the Company shall so
      indicate to such Subscriber contemporaneously with delivery of such notice
      or
      information. In the absence of any such indication, such 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 its Subsidiaries.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (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 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 Subscribers, except as
      described on Schedule
      9(p),
      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), and (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) Liens created with respect to bona fide
      financings secured by the Company’s accounts receivable or inventory (each of
      (a) through (g), a “Permitted
      Lien”);

    


    (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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (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.     

     

    (q) Further
      Registration Statements.
      Except
      for a registration statement filed on behalf of the Subscribers pursuant to
      Section 11 of this Agreement, and as set forth on Schedule
      11.1
      hereto,
      the Company will not, without the consent of the Subscribers, file with the
      Commission or with state regulatory authorities any registration statements
      or
      amend any already filed registration statement to increase the amount of Common
      Stock registered therein, or reduce the price of which such Common Stock is
      registered therein, (including but not limited to Forms S-8), until the
      expiration of the “Exclusion
      Period,”
which
      shall be defined as the sooner of (i) the Registration Statement having been
      current and available for use in connection with the resale of all of the
      Registrable Securities (as defined in Section 11.1(i)) for a period of sixty
      (60) days, or (ii) until all the Conversion Shares have been resold or
      transferred by the Subscribers pursuant to the Registration Statement or Rule
      144, without regard to volume limitations. 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.

     

    (r) Blackout.
      The
      Company undertakes and covenants that, until the end of the Exclusion Period,
      the Company will not enter into any acquisition, merger, exchange or sale or
      other transaction or fail to take any action that could have the effect of
      delaying the effectiveness of any pending Registration Statement or causing
      an
      already effective Registration Statement to no longer be effective or current
      for a period of forty-five or more days in the aggregate during any three
      hundred and sixty-five day period.

     

    (s) Offering
      Restrictions.
      Until
      the expiration of the Exclusion Period and/or during the pendency of an Event
      of
      Default, except for the Excepted Issuances and as described on Schedule
      9(s),
      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 the Subscribers, which consent may be
      withheld for any reason. For a period of one hundred eighty (180) days after
      the
      Actual Effective Date (as defined below), the Company will not call or redeem
      any of its outstanding warrants. For so long as the Notes 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 any 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).

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (t) Lockup
      Agreement.
      The
      Company will deliver to the Subscribers on or before the Closing Date and
      enforce the provisions of an irrevocable lockup agreement (“Lockup
      Agreement”)
      in the
      form annexed hereto as Exhibit
      E,
      with
      the persons identified on Schedule
      9(t).
      

     

    (u) 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 or potential of the holder of a Note in or to
      such assets.

     

    (v) 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 Regarding Indemnification.

     

    (a) The
      Company agrees to indemnify, hold harmless, reimburse and defend the
      Subscribers, the Subscribers' officers, directors, agents, Affiliates, members,
      managers, 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 representation or 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) The
      procedures set forth in Section 11.6 shall apply to the indemnification set
      forth in Section 10(a).

     

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

     

    (i) On
      one
      occasion, for a period commencing one hundred and twenty-one (121) days after
      the Closing Date, but not later than two years after the Closing Date, upon
      a
      written request therefor from any record holder or holders of more than 50%
      of
      the Shares, Conversion Shares issued and issuable upon conversion of the
      outstanding Notes and outstanding Warrant Shares, the Company shall prepare
      and
      file with the Commission a registration statement under the 1933 Act registering
      the Registrable Securities, as defined in Section 11.1(iv) hereof, which are
      the
      subject of such request for unrestricted public resale by the holder thereof.
      For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall
      not
      include Securities which are (A) registered for resale in an effective
      registration statement, (B) included for registration in a pending registration
      statement, (C) which have been issued without further transfer restrictions
      after a sale or transfer pursuant to Rule 144 under the 1933 Act or (D) which
      may be resold under Rule 144(k) or Rule 144 without volume limitations. Upon
      the
      receipt of such request, the Company shall promptly give written notice to
      all
      other record holders of the Registrable Securities that such registration
      statement is to be filed and shall include in such registration statement
      Registrable Securities for which it has received written requests within ten
      days after the Company gives such written notice. Such other requesting record
      holders shall be deemed to have exercised their demand registration right under
      this Section 11.1(i).

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (iv) The
      Company shall file with the Commission a Form S-3 registration statement (the
      “Registration
      Statement”)
      (or
      such other form that it is eligible to use) in order to register the Registrable
      Securities for resale and distribution under the 1933 Act within fifty (50)
      calendar days after the Closing Date (the
      “Filing
      Date”),
      and
      cause the Registration Statement to be declared effective not
      later
      than one hundred and twenty (120) calendar days after the Closing Date
(the
      “Effective
      Date”).
      The
      Company will register not less than a number of shares of common stock in the
      aforedescribed registration statement that is equal to 150%
      of
      the Shares, Conversion Shares issued and issuable upon conversion of the Notes,
      100% of the Warrant Shares issuable upon exercise of the Warrants, 125% of
      the
      Common Stock issuable upon exercise of the Broker’s Warrants directly or
      indirectly (upon exercise of Warrants or Notes issuable upon such exercise)
      and
      100% of the Key Person Securities (collectively the “Registrable
      Securities”).
      The
      Registrable Securities shall be reserved and set aside exclusively for the
      benefit of each Subscriber, Broker Holder and purchaser of Key Person
      Securities, pro rata,
      and not
      issued, employed or reserved for anyone other than each such person. The
      Registration Statement will immediately be amended or additional registration
      statements will be immediately filed by the Company as necessary to register
      additional shares of Common Stock to allow the public resale of all Common
      Stock
      included in and issuable by virtue of the Registrable Securities. Except with
      the written consent of the Subscribers, no securities of the Company other
      than
      the Registrable Securities or the securities described on Schedule
      11.1,
      will be
      included in the Registration Statement. It shall be deemed a Non-Registration
      Event if at any time after the date the Registration Statement is declared
      effective by the Commission (“Actual
      Effective Date”)
      the
      Company has registered for unrestricted resale on behalf of the Subscribers
      less
      than all of the Registrable Securities required to be registered as described
      in
      this Agreement (“Shortfall”).
      The
      Company shall cause to be registered a sufficient amount of shares of Common
      stock in order to eliminate the Shortfall within 60 days after the date the
      Shortfall occurs. Failure to eliminate the Shortfall within such 60 day period
      shall be a Non-Registration Event. Except for Common Stock described on
Schedule
      11.1,
      no
      other securities of the Company will be included in the Registration Statement
      other than the Registrable Securities.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (v) The
      amount of Registrable Securities required to be included in the Registration
      Statement as described in Section 11.1(iv) (“Initial
      Registrable Securities”)
      shall
      be limited to not less than 100% of the maximum amount (“Rule
      415 Amount”)
      of
      Common Stock which may be included in a single Registration Statement without
      exceeding registration limitations imposed by the Commission pursuant to Rule
      415 of the 1933 Act but in any event not less than 3,100,000 shares of Common
      Stock. In the event that less than all of the Initial Registrable Securities
      are
      included in the Registration Statement as a result of the limitation described
      in this Section 11.1(v), then the Company will file additional Registration
      Statements each registering the Rule 415 Amount (each such Registration
      Statement a “Subsequent
      Registration Statement”),
      seriatim,
      until
      all of the Initial Registrable Securities have been registered. The Filing
      Date
      and Effective Date of each such additional Registration Statement shall be,
      respectively, fourteen (14) and forty-five (45) days after the first day such
      Subsequent Registration Statement may be filed without objection by the
      Commission based on Rule 415 of the 1933 Act.

     

    (vi) Unless
      otherwise instructed in writing by a holder of Registrable Securities and only
      if the initial Registration Statement does not include all of the Registrable
      Securities, the Registrable Securities will be registered on behalf of each
      such
      holder in the Registration Statements based in the following order and
      priority:

     

    (A) Shares.

     

    (B) Conversion
      Shares issued and issuable upon conversion of the Notes (based on the multiple
      set forth above).

     

    (C) Issued
      Warrants Shares.

     

    (D) Warrant
      Shares issuable upon not yet exercised Warrants.

     

    (vii) The
      foregoing notwithstanding, Registrable Securities shall be allocated and
      registered pro rata among the Subscribers based upon their initial investments
      in the Offering.

     

    (viii) Each
      Seller shall answer the questions set forth in Selling Shareholder Questionnaire
      (“Shareholder
      Questionnaire”)
      in the
      form attached as Exhibit
      F
      and
      deliver such completed questionnaire to the Company prior to the Company’s
      filing of any Registration Statement. Seller represents that the information
      provided by such Seller shall be true and correct as of the Closing Date and
      the
      date such Shareholder Questionnaire is delivered to the Company. Seller will
      notify the Company promptly of any material change of any such information
      until
      such time as the Seller has sold all of its Shares or Warrant Shares or until
      the Company is no longer required to keep the Registration Statement
      effective.

     

    (ix) The
      Company agrees that if it is eligible to file a Registration Statement pursuant
      to Sections 11.1(i) or 11.1(iv) on Form S-3 (or a successor form) in connection
      with the Registrable Securities, then such Registration Statement will be filed
      on Form S-3 (or a successor form).

     

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

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (a) subject
      to the timelines provided in this Agreement, prepare and file with the
      Commission a registration statement required by Section 11, with respect to
      such
      securities and use its best efforts to cause such registration statement to
      become and remain effective for the period of the distribution contemplated
      thereby (determined as herein provided), promptly provide to the holders of
      the
      Registrable Securities copies of all filings and Commission letters of comment
      and notify the Subscribers (by telecopier and by e-mail addresses provided
      by
      the Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com)
      on or
      before the second business day thereafter that the Company receives notice
      that
      (i) the Commission has no comments or no further comments on the Registration
      Statement, and (ii) the registration statement has been declared effective
      (failure to timely provide notice as required by this Section 11.2(a) shall
      be a
      material breach of the Company’s obligation and an Event of Default as defined
      in the Notes
      and
      a Non-Registration Event as defined in Section 11.4 of this Agreement);


     

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


     

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

     

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

     

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

     

    (f) notify
      the Subscribers within twenty-four hours of the Company’s becoming aware that a
      prospectus relating thereto is required to be delivered under the 1933 Act,
      of
      the happening of any event of which the Company has knowledge as a result of
      which the prospectus contained in such registration statement, as then in
      effect, includes an untrue statement of a material fact or omits to state a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading in light of the circumstances then existing or which
      becomes subject to a Commission, state or other governmental order suspending
      the effectiveness of the registration statement covering any of the Registrable
      Securities;

     

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


     

    
      
        
        

      

      
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    (h) provide
      to the Sellers copies of the Registration Statement and amendments thereto
      five
      business days prior to the filing thereof with the Commission. Any Subscriber’s
      failure to comment on any Registration Statement or other document provided
      to a
      Subscriber or its counsel shall not be construed to constitute approval thereof
      nor the accuracy thereof.

     

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

     

    11.4. Non-Registration
      Events.
      The
      Company agrees that the Sellers will suffer damages if the Registration
      Statement is not filed by the Filing Date and not declared effective by the
      Commission by the Effective Date, and any registration statement required under
      Section 11.1(i) or 11.1(ii) is not filed within 60 days after written request
      and declared effective by the Commission within 90 days after such request,
      and
      maintained in the manner and within the time periods contemplated by Section
      11
      hereof, and it would not be feasible to ascertain the extent of such damages
      with precision. Accordingly, if (A) the Registration Statement is not filed
      on
      or before the Filing Date, (B) the Registration Statement is not declared
      effective on or before the required Effective Date, (C) due to the action or
      inaction of the Company the Registration Statement is not declared effective
      within three (3) business days after receipt by the Company or its attorneys
      of
      a written or oral communication from the Commission that the Registration
      Statement will not be reviewed or that the Commission has no further comments,
      (D) if the registration statement described in Sections 11.1(i) or 11.1(ii)
      is
      not filed within 60 days after such written request, or is not declared
      effective within 90 days after such written request, or (E) any registration
      statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and
      declared effective but shall thereafter cease to be effective without being
      succeeded within twenty-five (25) business days by an effective replacement
      or
      amended registration statement or for a period of time which shall exceed forty
      (45) days in the aggregate per year (defined as every rolling period of 365
      consecutive days commencing on the Actual Effective Date (each such event
      referred to in clauses A through E of this Section 11.4 is referred to herein
      as
      a "Non-Registration
      Event"),
      then
      the Company shall deliver to the holder of Registrable Securities, as
Liquidated
      Damages,
      an
      amount equal to one and one-half percent (1.5%) for each thirty (30) days (or
      such lesser pro-rata amount for any period of less than thirty (30) days) of
      the
      principal amount of the outstanding Notes, purchase price of the Shares,
and
      purchase price of Conversion Shares and Warrant Shares issued upon conversion
      of
      Notes and exercise of Warrants held by Subscriber which are subject to such
      Non-Registration Event (collectively “Aggregate
      Purchase Price”).
      The
      maximum Liquidated Damages payable to each Subscriber pursuant to this Section
      11.4 shall not exceed eighteen percent (18%) of each such Subscriber’s Aggregate
      Purchase Price. The Company must pay the Liquidated Damages in cash. The
      Liquidated Damages must be paid within ten (10) days after the end of each
      thirty (30) day period or shorter part thereof for which Liquidated Damages
      are
      payable. In the event a Registration Statement is filed by the Filing Date
      but
      is withdrawn prior to being declared effective by the Commission, then such
      Registration Statement will be deemed to have not been filed and Liquidated
      Damages will be calculated accordingly. All
      oral
      or written comments received from the Commission relating to the Registration
      Statement must be satisfactorily responded to within
      ten (10) business days after receipt of comments from the Commission.
      Failure
      to
      timely respond to Commission comments is a Non-Registration Event for which
      Liquidated Damages shall accrue and be payable by the Company to the holders
      of
      Registrable Securities at the same rate and amounts set forth above calculated
      from the date the response was required to have been made.

     

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

     

    
      
        
        

      

      
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    11.6. Indemnification
      and Contribution.

     

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

     

    (b) In
      the
      event of a registration of any of the Registrable Securities under the 1933
      Act
      pursuant to Section 11, each Seller severally but not jointly will, to the
      extent permitted by law, indemnify and hold harmless the Company, and each
      person, if any, who controls the Company within the meaning of the 1933 Act,
      each officer of the Company who signs the registration statement, each director
      of the Company, each underwriter and each person who controls any underwriter
      within the meaning of the 1933 Act, against all losses, claims, damages or
      liabilities, joint or several, to which the Company or such officer, director,
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in the registration statement
      under which such Registrable Securities were registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading,
      and will reimburse the Company and each such officer, director, underwriter
      and
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action, provided, however, that the Seller will be liable hereunder
      in any such case if and only to the extent that any such loss, claim, damage
      or
      liability arises out of or is based upon an untrue statement or alleged untrue
      statement or omission or alleged omission made in reliance upon and in
      conformity with information pertaining to such Seller, as such, furnished in
      writing to the Company by such Seller specifically for use in such registration
      statement or prospectus, and provided, further, however, that the liability
      of
      the Seller hereunder shall be limited to the net proceeds actually received
      by
      the Seller from the sale of Registrable Securities pursuant to 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 11.6(c) and shall only relieve it from any liability
      which it may have to such indemnified party under this Section 11.6(c), except
      and only if and to the extent the indemnifying party is prejudiced by such
      omission. In case any such action shall be brought against any indemnified
      party
      and it shall notify the indemnifying party of the commencement thereof, the
      indemnifying party shall be entitled to participate in and, to the extent it
      shall wish, to assume and undertake the defense thereof with counsel
      satisfactory to such indemnified party, and, after notice from the indemnifying
      party to such indemnified party of its election so to assume and undertake
      the
      defense thereof, the indemnifying party shall not be liable to such indemnified
      party under this Section 11.6(c) for any legal expenses subsequently incurred
      by
      such indemnified party in connection with the defense thereof other than
      reasonable costs of investigation and of liaison with counsel so selected,
      provided, however, that, if the defendants in any such action include both
      the
      indemnified party and the indemnifying party and the indemnifying party shall
      have reasonably concluded that there may be reasonable defenses available to
      indemnified party 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, reasonably satisfactory to the indemnified and indemnifying party,
      and
      to assume such legal defenses and otherwise to participate in the defense of
      such action, with the reasonable expenses and fees of such separate counsel
      and
      other expenses related to such participation to be reimbursed by the
      indemnifying party as incurred.

     

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

     

    11.7. Delivery
      of Unlegended Conversion 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,
      Conversion Shares or Warrant Shares or any other Common Stock held by a
      Subscriber have been sold pursuant to the Registration Statement or Rule 144
      under the 1933 Act, (ii) a representation that the prospectus delivery
      requirements, or the requirements of Rule 144, as applicable 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 a
      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 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, 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 the Depository Trust Company through its Deposit
      Withdrawal Agent Commission system, if such transfer agent participates in
      such
      DWAC system. Such delivery must be made on or before the Unlegended Shares
      Delivery Date.

    


    (c) The
      Company understands that a delay in the delivery of the Unlegended Shares
      pursuant to Section 11 hereof later than two business days after the Unlegended
      Shares Delivery Date could result in economic loss to a Subscriber. As
      compensation to a Subscriber for such loss, the Company agrees to pay late
      payment fees (as liquidated damages and not as a penalty) to the Subscriber
      for
      late delivery of Unlegended Shares in the amount of $100 per business day after
      the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
      subject to the delivery default. If during any 360 day period, the Company
      fails
      to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
      of thirty (30) days, then each Subscriber or assignee holding Securities subject
      to such default may, at its option, require the Company to redeem all or any
      portion of the Conversion Shares and Warrant Shares subject to such default
      at a
      price per share equal to the greater of (i) 120% of the purchase price of such
      shares, or (ii) a fraction in which the numerator is the highest closing price
      of the Common Stock during the aforedescribed thirty day period and the
      denominator of which is the lowest Note Conversion Price during such thirty
      day
      period, multiplied by the purchase price of such shares and Exercise Price
      of
      such Warrant Shares (“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 11.7 or Warrant Shares upon exercise of Warrants and the Company is
      required to deliver such Unlegended Shares pursuant to Section 11.7 or the
      Warrant Shares pursuant to the Warrants, the Company may not refuse to deliver
      Unlegended Shares or Warrant 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 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 amount of the aggregate purchase price of the Shares
      and
      Warrant Shares which are subject to the injunction or temporary restraining
      order, which bond shall remain in effect until the final unappealable
      disposition of the litigation of the dispute and the proceeds of which shall
      be
      payable to such Subscriber to the extent Subscriber obtains judgment in
      Subscriber’s favor.

     

    12. (a) Favored
      Nations Provision.
      Until
      the sooner of eighteen months after the Actual Effective Date or the date upon
      which less than $2,000,000 of Principal Amount of Notes remains outstanding
      (the
      earlier of such dates, the “Dilution
      Termination Date”),
      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
      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 to
      employees, directors, and consultants, pursuant to plans described on
Schedule
      5(d),
      (iv) as
      a result of the exercise of Warrants or conversion of Notes which are granted
      or
      issued pursuant to this Agreement on the terms described in the Transaction
      Documents as of the Closing Date, and (v) as described on Schedule
      12(a)
      (collectively the foregoing are “Excepted
      Issuances”),
      the
      Company shall agree to or issue (the “Lower
      Price Issuance”),
      respectively, any Common Stock, Convertible Security or Common Stock Purchase
      Right as defined below (or modify any of the foregoing which may be outstanding)
      to any person or entity (w) at a price per share (in the case of Common Stock)
      which shall be less than the purchase price of the Shares (the “Lower
      Share Price”),
      (x)
      at a price per share (in the case of Common Stock) which shall be less than
      the
      Conversion Price of Conversion Shares then outstanding (the “Lower
      Conversion Share Price”),
      (y)
      convertible or exchangeable at a conversion price (in the case of Convertible
      Securities) which shall be less than the Conversion Price of the Notes then
      outstanding (the “Lower
      Conversion Price”),
      or
      (z) exercisable at an exercise price (in the case of Common Stock Purchase
      Rights) which shall be less than the Exercise Price of the Warrants (the
“Lower
      Exercise Price”),
      without the consent of the Subscribers, then, for each such occasion, (ww)
      in
      the case of clause (w) above, the Company shall issue additional shares of
      Common Stock to each Subscriber respecting the Shares so that the average price
      paid by such Subscriber for the Shares shall be equal to the Lower Share Price,
      (xx) in the case of clause (x) above, the Company shall issue additional shares
      of Common Stock to each Subscriber respecting any Conversion Shares received
      on
      conversion of Notes prior to such occasion so that the average price paid by
      such Subscriber for the Conversion Shares shall be equal to the Lower Conversion
      Share Price, (yy) in the case of clause (y) above, the Company shall lower
      the
      Conversion Price of Notes that are outstanding at the time of such occasion
      to
      the Lower Conversion Price and (zz) in the case of clause (z) above, the Company
      shall lower the Exercise Price of Warrants that are outstanding at the time
      of
      such occasion to the Lower Exercise Price. The delivery to a 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 example, the issuance of securities similar to the Units
      (and
      the Shares, Notes and Warrants included therein) at similar prices, including
      without limitation upon conversion of Bridge Notes, would not require any
      adjustment under this Agreement. Each Subscriber is granted the registration
      rights described in Section 11 hereof in relation to such additional shares
      of
      Common Stock. The rights of each Subscriber set forth in this Section 12 are
      in
      addition to any other rights the Subscriber has pursuant to this Agreement,
      the
      Note, any Transaction Document, and any other agreement referred to or entered
      into in connection herewith or to which such Subscriber and Company are parties.
      Each Subscriber is also given the right to elect to substitute any term or
      terms
      of any other offering in connection with which such Subscriber has rights as
      described in Section 12(a), for any term or terms of the Offering in connection
      with Securities owned by such Subscriber as of the date the notice described
      in
      Section 12(a) is required to be given to such Subscriber. The Company will
      not
      engage in a Lower Price Issuance if the Company’s compliance with this Section
      12(a) could result in a violation of the Nasdaq Marketplace Rules. “Convertible
      Securities”
means
      any securities of the Company or the Subsidiaries, including without limitation
      any debt or preferred stock, which would entitle the holder thereof directly
      or
      indirectly to acquire at any time Common Stock without payment of additional
      consideration. “Common
      Stock Purchase Rights”
means
      any securities of the Company or the Subsidiaries (other than Convertible
      Securities), including without limitation rights, options, warrants or other
      instruments that are at any time directly or indirectly exercisable to purchase
      or exchangeable for, or otherwise entitles the holder thereof to receive, Common
      Stock.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (b) Maximum
      Exercise of Rights.
      In the
      event the exercise of the rights described in Section 12(a) would
      or
      could 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 applicable maximum
      amount set forth calculated in the manner described in Section 7.3 of this
      Agreement. The determination of when such Common Stock may be issued shall
      be
      made by each Subscriber as to only such Subscriber.

     

    13. 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: Neonode Inc., 4000 Executive
      Parkway, Suite 200, San Ramon, CA 94583, Attn: CFO, telecopier:
      (925) 355-2020, and Biblioteksgatan 11, S111 46 Stockholm, Sweden, Attn:
      President, telecopier: 01146 8678 1851, with a copy by telecopier only to:
      Hahn
& Hessen LLP, 488 Madison Avenue, New York, NY 10022, Attn: James Kardon,
      Esq., telecopier: (212) 478-7400, (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, telecopier: (212) 697-3575, and
      (iii) if to the Broker, to: Empire Asset Management, Inc., 2 Rector Street,
      15th
      Floor, New York, NY 10006, telecopier: 212-417-8229.

     

    (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 the Company and the
      affected Subscriber and as described in Section 13(h). 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. 

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    (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 principles of conflicts of laws. Any action
      brought by either party against the other concerning the transactions
      contemplated by this Agreement shall be brought only in the state courts of
      New
      York or in the federal courts located in the state and county of New York.
      The
      parties to this Agreement hereby irrevocably waive any objection to jurisdiction
      and venue of any action instituted hereunder and shall not assert any defense
      based on lack of jurisdiction or venue or based upon forum
      non conveniens.
      The
      parties executing this Agreement and other agreements referred to herein or
      delivered in connection herewith on behalf of the Company agree to submit to
      the
      in personam jurisdiction of such courts and hereby irrevocably 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.
      Each party hereby irrevocably waives personal service of process and consents
      to
      process being served in any suit, action or proceeding in connection with this
      Agreement or any other Transaction Document by mailing a copy thereof via
      registered or certified mail or overnight delivery (with evidence of delivery)
      to such party at the address in effect for notices to it under this Agreement
      and agrees that such service shall constitute good and sufficient service of
      process and notice thereof. Nothing contained herein shall be deemed to limit
      in
      any way any right to serve process in any other manner permitted by
      law.

     

    (e) Specific
      Enforcement, Consent to Jurisdiction.
      The
      Company and Subscriber acknowledge and agree that irreparable damage would
      occur
      in the event that any of the provisions of this Agreement were not performed
      in
      accordance with their specific terms or were otherwise breached. It is
      accordingly agreed that the parties shall be entitled to seek an injunction
      or
      injunctions to prevent or cure breaches of the provisions of this Agreement
      and
      to enforce specifically the terms and provisions hereof, this being in addition
      to any other remedy to which any of them may be entitled by law or equity.
      Subject to Section 13(d) hereof, the Company hereby irrevocably 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.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (f) 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 the 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.

     

    (g) 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.

     

    (h) Consent.
      As used
      in the Agreement, “consent of the Subscribers” or similar language means the
      consent of holders (the “Required
      Holders”)
      of not
      less than 60% of the total of the Shares, Conversion Shares issued and issuable
      upon conversion of outstanding Notes held 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 Subscribers and their
      permitted successors and assigns.

     

    (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.
      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. Any deadline that falls on
      a
      non-business day in any of the Transaction Documents shall be automatically
      extended to the next business day and interest, if any, shall be calculated
      and
      payable through such extended period. 

    


    (l) 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.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (m) 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.

     

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      	NEONODE
              INC.
	a
              Delaware corporation
	 	 
	By:	 
	 	
              Name:

            
	 	
              Title:

            
	Dated:
              September 10, 2007


    

     

    
      	
              SUBSCRIBER

            	
              AGGREGATE

              PURCHASE

              PRICE (CASH)

            	  	
              PRINCIPAL

              AMOUNT OF

              NOTE

            	 	
              SHARES

            	 	
              WARRANTS

            
	
              Name
                of Subscriber: 

               

              _________________________________________

               

              Address:
                _________________________________________

               

              _________________________________________

               

              Fax
                No.: _________________________________________

              Email
                address (not to - notice): 

              __________________________________

              Social
                Security Number or Taxpayer ID# (if applicable):
                _______________________________

              Jurisdiction
                of organization (for entities):
                __________________________________

               

               

              _____________________________________________

              (Signature)

              By:
                _____________________________________________

              Name:
                _____________________________________________

              Title:
                _____________________________________________

            	 	 	 	 	 	 	 


    

    


    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    


    LIST
      OF EXHIBITS AND SCHEDULES

     

    

      
        	
                Exhibit
                  A

              	
                Form
                  of Note

              
	 	 
	
                Exhibit
                  B

              	
                Form
                  of Warrant

              
	 	 
	
                Exhibit
                  C

              	
                Escrow
                  Agreement

              
	 	 
	
                Exhibit
                  D

              	
                Form
                  of Legal Opinions

              
	 	 
	
                Exhibit
                  E

              	
                Form
                  of Lockup Agreement

              
	 	 
	
                Exhibit
                  F

              	
                Subscriber
                  Questionnaire

              
	 	 
	
                Schedule
                  5(a)

              	
                Subsidiaries

              
	 	 
	
                Schedule
                  5(d)

              	
                Additional
                  Issuances / Capitalization / Reset Rights

              
	 	 
	
                Schedule
                  5(o)

              	
                Undisclosed
                  Liabilities

              
	 	 
	
                Schedule
                  5(o)-1

              	
                Form
                  of Amendment to Senior Secured Notes

              
	 	 
	
                Schedule
                  5(w)

              	
                Transfer
                  Agent

              
	 	 
	
                Schedule
                  9(e)

              	
                Use
                  of Proceeds

              
	 	 
	
                Schedule
                  9(p)

              	
                Permitted
                  Liens

              
	 	 
	
                Schedule
                  9(s)

              	
                Permitted
                  Issuances

              
	 	 
	
                Schedule
                  9(t)

              	
                Lockup
                  Agreement Providers

              
	 	 
	
                Schedule
                  11.1

              	
                Other
                  Registrable Shares

              
	 	 
	
                Schedule
                  12(a)

              	
                Additional
                  Excepted Issuances

              


      

    

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      E

    


    LOCKUP
      AGREEMENT

     

    This
      AGREEMENT (the "Agreement") is made as of the ____ day of September, 2007,
      by
      _________________ ("Holder"), maintaining an address at c/o Neonode
      Inc., 4000 Executive Parkway, Suite 200, San Ramon, CA 94583, telecopier:
      (925) 355-2020,
      in
      connection with his or its ownership of shares of Neonode Inc.,
      a
      Delaware corporation
      (the "Company").

    


    NOW,
      THEREFORE, for good and valuable consideration, the sufficiency and receipt
      of
      which consideration are hereby acknowledged, Holder agrees as
      follows:

    


    1. Background.

    


    a.
       Holder
      is
      the beneficial owner of the amount of shares of the Common Stock, $.001 par
      value, of the Company (“Common Stock”) designated on the signature page
      hereto.

    


    b. Holder
      acknowledges that the Company has entered into or will enter into at or about
      the date hereof agreements with subscribers to the Company’s Notes, convertible
      into Common Stock and Warrants (the “Subscribers”). Holder understands that, as
      a condition to proceeding with the Offering, the Subscribers have required,
      and
      the Company has agreed to obtain on behalf of the Subscribers an agreement
      from
      the Holder to refrain from selling any securities of the Company from the date
      of the Subscription Agreement until one year after the Closing Date (as defined
      in the Subscription Agreement). The Holder has entered into this Agreement
      in
      order to induce the Subscribers to enter into the Subscription Agreement. This
      Agreement is effective as of the Closing Date.

    


    2. Sale
      Restriction. 

    


    a. Holder
      hereby agrees that during the Restriction Period without the consent of the
      Required Holders (as defined in the Subscription Agreement), the Holder will
      not
      sell, transfer or otherwise dispose of any shares of Common Stock or any
      options, warrants or other rights to purchase shares of Common Stock or any
      other security of the Company which Holder owns or has a right to acquire as
      of
      the date hereof, other than in connection with an offer made to all shareholders
      of the Company in connection with merger, consolidation or similar transaction
      involving the Company. Holder further agrees that the Company is authorized
      to
      and the Company agrees to place "stop orders" on its books to prevent any
      transfer of shares of Common Stock or other securities of the Company held
      by
      Holder in violation of this Agreement. The Company agrees not to allow to occur
      any transaction inconsistent with this Agreement.

    


    b. Any
      subsequent issuance to and/or acquisition by Holder of Common Stock or options
      or instruments convertible into Common Stock (“Convertible Securities”) will be
      subject to the provisions of this Agreement.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    c. Notwithstanding
      the foregoing restrictions on transfer, the Holder may, at any time and from
      time to time during the Restriction Period, transfer all or a portion of the
      shares of Common Stock or Convertible Securities (i) as bona fide gifts or
      transfers by will or intestacy, (ii) to any trust for the direct or indirect
      benefit of the undersigned or the immediate family of the Holder, provided
      that
      any such transfer shall not involve a disposition for value, (iii) to a
      partnership which is the general partner of a partnership of which the Holder
      is
      a general partner, (iv) private sales, provided the Common Stock or Convertible
      Securities (other than Key Person Securities (as
      defined in the Subscription Agreement), which
      shall not be subject to restrictions) are subject to transfer restrictions
      under
      the Securities Act of 1933, as amended, subsequent to such transfer, (v) each
      ninety (90) days up to ten percent (10%) of the Common Stock owned by the Holder
      on the Closing Date, in market transactions at not less than $3.25 per share
      of
      Common Stock, (vi) each ninety (90) days up to twenty-five percent (25%) of
      the
      Common Stock owned by the Holder on the Closing Date, in market transactions
      at
      not less than $6.50 per share of Common Stock, (vii) each ninety (90) days
      up to
      fifty percent (50%) of the Common Stock owned by the Holder on the Closing
      Date,
      in market transactions at not less than $8.00 per share of Common Stock, (viii)
      all of the Common Stock owned by the Holder on the Closing Date, in market
      transactions at not less than $9.00 per share of Common Stock and (ix) purchased
      upon exercise of warrants called by the Company and registered under applicable
      securities law; provided, that, in the case of any gift or transfer described
      in
      clauses (i), (ii), (iii) and (iv), each donee or transferee agrees in writing
      to
      be bound by the terms and conditions contained herein in the same manner as
      such
      terms and conditions apply to the undersigned. For purposes of clauses (v),
      (vi)
      and (vii) the Holder should be deemed to include any and all transferees of
      such
      Holder pursuant to clauses (i), (ii), (iii) and (iv). For purposes hereof,
      "immediate family" means any relationship by blood, marriage or adoption, not
      more remote than first cousin. In no event may sales pursuant to clauses (v),
      (vi) and (vii) during any ninety (90) day period exceed twenty-five percent
      (25%) of the average weekly volume of Common Stock trading for the month
      preceding such sales.

    


    3. Miscellaneous.

    


    a. At
      any
      time, and from time to time, after the signing of this Agreement Holder will
      execute such additional instruments and take such action as may be reasonably
      requested by the Subscribers to carry out the intent and purposes of this
      Agreement.

    


    b. This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without regard to principles of conflicts of laws. Any action
      brought by either party against the other concerning the transactions
      contemplated by this Agreement shall be brought only in the state courts of
      New
      York or in the federal courts located in the state of New York. The parties
      to
      this Agreement hereby irrevocably waive any objection to jurisdiction and venue
      of any action instituted hereunder and shall not assert any defense based on
      lack of jurisdiction or venue or based upon forum
      non conveniens.
      The
      parties executing this Agreement and other agreements referred to herein or
      delivered in connection herewith agree to submit to the in personam jurisdiction
      of such courts and hereby irrevocably 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.
      Notices hereunder shall be given in the same manner as set forth in the
      Subscription Agreement. Each party hereby irrevocably waives personal service
      of
      process and consents to process being served in any suit, action or proceeding
      in connection with this Agreement or any other Transaction Document by mailing
      a
      copy thereof via registered or certified mail or overnight delivery (with
      evidence of delivery) to such party at the address in effect for notices to
      it
      under this Agreement and agrees that such service shall constitute good and
      sufficient service of process and notice thereof. Nothing contained herein
      shall
      be deemed to limit in any way any right to serve process in any other manner
      permitted by law. Holder irrevocably appoints Neonode Inc. its true and lawful
      agent for service of process upon whom all processes of law and notices may
      be
      served and given in the manner described above; and such service and notice
      shall be deemed valid personal service and notice upon Holder with the same
      force and validity as if served upon Holder.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    c. The
      restrictions on transfer described in this Agreement are in addition to and
      cumulative with any other restrictions on transfer otherwise agreed to by the
      Holder or to which the Holder is subject to by applicable law.

    


    d. This
      Agreement shall be binding upon Holder, its legal representatives, successors
      and assigns.

    


    e. This
      Agreement may be signed and delivered by facsimile and such facsimile signed
      and
      delivered shall be enforceable.

    


    f. The
      Company agrees not to take any action or allow any act to be taken which would
      be inconsistent with this Agreement.

    


    g. The
      Holder acknowledges that this Lockup Agreement is being entered into for the
      benefit of the Subscribers identified in the Subscription Agreement dated on
      or
      about September 10, 2007 among the Company and the Subscribers, may be enforced
      by the Subscribers and may not be amended without the consent of the Subscriber,
      which may be withheld for any reason.

    


    IN
      WITNESS WHEREOF, and intending to be legally bound hereby, Holder has executed
      this Agreement as of the day and year first above written.

    


    
      	
              HOLDER:

            
	 
	 
	 
	
              (Signature
                of Holder)

            
	 
	 
	
              (Print
                Name of Holder)

            
	 
	 
	
              Number
                of Shares of Common Stock Beneficially Owned

            
	 
	 
	
              COMPANY:

            
	 
	
              NEONODE
                INC.

            
	 
	 	 
	
              By:

            	 


    

    


    
      
        
        

      

      
        35