Document:

Converted by EDGARwiz

DATED  August 15,  2006

BY AND BETWEEN

BROADVISION GLOBAL, LTD

AND

BROADCAST INTERNATIONAL INC.

TECHNOLOGY LICENCE AGREEMENT

THIS AGREEMENT is made this   15th   day of    August,     2006

BETWEEN

Broadvision Global Limited, a Company incorporated in the British Virgin Islands,and having its registered office at PO Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands IPTV Platform ; (hereinafter referred to as the "Licensor");

AND

Broadcast International Inc., a Company incorporated with limited liability under the laws of Utah, USA and having its principal business office at 7050 Union Park Ave. #600 Salt Lake City, Utah 84047 ("BI") (hereinafter called (“Licensee”).

WHEREAS

(1)

 The Licensor has received by exclusive license from Beijing Broadvision Information Technologies, Ltd. the right to distribute software comprising IPTV Platform Technologies (including Broadvision VOD, BroadVision Real Work and Broadvision WEBTV etc.) (the “IPTV Platform Technology”) as defined below.

(2)

The Licensor is willing to grant to the Licensee an exclusive permanent license to distribute the IPTV Platform Technology in the Territory in accordance with the terms herewith, and the Licensee is willing to accept such license and exercise such rights upon and subject to the terms and conditions contained herein.

1

NOW IT IS HEREBY AGREED as follows:

1.

DEFINITIONS

In this Agreement unless the subject or the context otherwise requires or admits the singular number shall include the plural number and vice versa and the expression “person” shall include a firm or corporation and the expressions set forth shall have the meanings as defined in this Agreement . 

"Confidential Information" means any written or otherwise tangible information (which is either marked confidential or is, by its nature, intended to be exclusively for the knowledge of the recipient alone) which is proprietary and confidential to a Party.

“Effective Date” means the date the conditions set out in Clause 2.1 have been fulfilled or waived as the Parties may agree in writing 

 “IPTV Platform Technology” means a software based system for implementing IPTV via the Internet ;

"Parties"   means The Licensor and the Licensee and "Party" mean anyone of them.

“Territory” means worldwide, excepting the P.R. China.

 

"US$"  means United States Dollars, the lawful currency of the United States of America.

2.

EFFECTIVE DATE AND TERM 

2.1       The grant of License hereunder is conditional upon

(a)

Approval by Licensor’s Board of Directors;

(b)

Approval by Licensee’s Board of Directors.

(c)   Execution of the Share Exchange Agreement between Licensee and Sun Media Investment Holdings Ltd. ;

       

(d)   Execution of the Stock Purchase Agreement between Licensor and Licensee;

2

Inspection of and satisfactory completion of due diligence and marketing surveys and investigations regarding the IPTV PlatformIPTV Platform Technology. 

The Parties shall procure fulfilment of the conditions specified in the above.  Unless specifically waived by the Parties, if any of the above conditions shall not be fulfilled on or before September 1st, 2006 or not waived in writing by a duly authorized representative of each Party by September 1st, 2006, this Agreement shall ipso facto cease and determine and none of the Parties shall have any claim against the other for costs, damages, compensation or otherwise, save for any claim arising from an antecedent breach of this Agreement. The Parties’ obligation of confidentiality shall survive the termination of this Agreement. 

2.2    This Agreement shall take effect as from the Effective Date and shall continue for an infinite period unless it is terminated by the Parties in accordance with the terms and conditions herein.

3.

GRANT OF LICENSE AND OBLIGATIONS OF THE LICENSOR

3.1

Licensor hereby grants to Licensee an exclusive license to: 1) utilize the IPTV PlatformIPTV Platform Technology for use by the Licensee in its business for its customers or other purposes; 2) distribute or sub-license the IPTV Platform IPTV Platform Technology in the Territory with the same terms and conditions herein.

3.2    The Licensor shall promptly after the Effective Date, and thereafter as and when further required by the Licensee, disclose or deliver full details of IPTV PlatformIPTV Platform Technology including but not limit, the source code.

3.3

In addition to the grant of the license hereunder, the Licensor shall provide the Licensee with any necessary consent or authorization from any relevant third party and other necessary support upon the Licensee’s request to enable the Licensee to lawfully explore the rights licensed hereunder in the Territory.

4.

WARRANTIES 

The Licensor warrants that:

(a)

it is a licensee of the IPTV PlatformIPTV Platform Technology and that it has all necessary rights and powers to grant the rights and licenses hereunder to the Licensee; 

(b)

the Licensee's use of the IPTV PlatformIPTV Platform Technology in accordance with the terms of this Agreement does not and will not 

3

infringe the intellectual property rights of any other person or constitute a breach of any contract of agreement of Licensor.

5.

LICENSEE'S OBLIGATIONS

The Licensee shall use the IPTV PlatformIPTV PLatform Technology in accordance with the specifications set forth herein and information supplied from time to time by the Licensor.

6.

CONFIDENTIALITY

6.1

Except as provided for herein, the Parties shall not use or divulge or allow to be divulged to any third party (other than its shareholders, officers, employees and advisors for purposes of performance or enforcement of this Agreement) any Confidential Information of the other Party disclosed to it. 

6.2

The obligations in this Clause 6 shall not extend to information which is or comes into public domain or is required to be disclosed under any applicable laws or regulations.

7.

FURTHER IMPROVEMENTS

All additions, improvements modifications or developments of the IPTV Platform Technology made or discovered by the Licensor during the term of this Agreement shall forthwith be communicated to the Licensee and the Licensor shall fully disclose the nature and manner of employing the same and such additions, improvements, modifications and developments shall be considered part of the IPTV Platform Technology licensed hereunder.

8.

CONSIDERATION

8.1  

 In consideration of the rights and licences granted hereunder to the Licensee and the other advantages and benefits conferred on the Licensee under this Agreement, the Licensee shall issue to Yan Lan Studio, Ltd and Beijing Broadvision Information Technologies, Ltd the sum of two million(2,000,000) common shares in the capital of the Licensee (“Consideration Shares”), which Consideration Shares shall be issued in equal amounts to the above named designees, in accordance with clause 8.2.

8.2

The Consideration Shares shall be issued and allotted as follows:

Within 20 days of the Effective Date, the Licensee shall deliver to the Licensor :

4

(a)   a share certificate evidencing the Consideration Shares  issued in the name of Licensor and a directors’ resolutions approving the issuance and allotment of the Consideration Shares to the Licensor or its nominee or such other approvals as may be necessary to effect such issuance; 

8.3

The Licensor agrees that it will not offer, sell, contract to sell or otherwise dispose of any shares of Licensee’s common stock received by reason of this Agreement until January 1, 2008 and thereafter it shall not sell any greater number of shares of such common stock in any calendar month that exceeds 5% of the average daily trading volume for the 30 trading days immediately preceding the sale of such stock.

9 .

INFRINGEMENT

.

If either Party shall become aware of any infringement or threatened infringement of any of the rights licensed hereunder, it shall immediately notify the other Party and before the commencement of any proceedings in relation thereto the Parties shall consult each other as to the action to be taken.

10. 

TERMINATION

10.1

If Licensee shall:-

(a)

suffer an order for the winding up or liquidation, or have an administration order placed on it; or

   

(b)

suffer a receiver to be appointed over any of its assets; or

(c)

commit any breach of this Agreement on its part contained herein and shall fail to remedy such breach within 30 days after written notice thereof from the Licensor specifying the nature of the breach

then and in any such case the Licensor shall be entitled at any time thereafter to terminate this Agreement forthwith by serving notice in writing upon the Licensee to that effect.

10.2

If Licensor shall:

(a)

suffer an order for the winding up or liquidation, or have an administration order placed on it; 

(b)

suffer a receiver to be appointed over any of its assets; or

5

(c)

commit any breach of this Agreement on its part contained herein and shall fail to remedy such breach within 30 days after written notice thereof from the Licensee specifying the nature of the breach

then Licensee may continue use of the IPTV Platform Technology throughout the remainder of the term of this Agreement.

11.

MISCELLANEOUS

11.1

Waiver. Any waiver (whether express or implied) by any Party of any breach of any of the terms or conditions of this Agreement by the other Party shall not prejudice any remedy of the waiving Party in respect of any continuing or other breach of the terms or conditions hereof.

11.2

Assignability.  The rights and benefits of any provision of this Agreement shall not be assigned by any Party without the prior written consent of the other.

11.3

Notices. Any notice or written communication provided for in this Agreement by either Party to the other, including but not limited to any and all offers, agenda for meetings, writings, or notices to be given hereunder, shall be made in English by facsimile, or by courier service delivered letter, promptly transmitted or addressed to the appropriate Party.  The date of receipt of a notice or communication hereunder shall be deemed to be seven (7) days after the letter is given to the courier service in the case of a courier service delivered letter and two (2) working days after dispatch of a facsimile if evidenced by a transmission report.  All notices and communications shall be sent to the appropriate address set forth below, until the same is changed by notice given in writing to the other Party.

11.4

Further Assurances. The Parties shall do all things necessary including executing all further documents as may be required for the purposes of giving effect to or facilitating the giving of effect to any of the provisions of this Agreement.

11.5

Entire Agreement. This Agreement including the Appendices hereto constitute the entire and only understanding between the Parties concerning the subject matter hereof and any previous or contemporaneous understandings or agreements oral or written between the Parties are deemed to be cancelled and superseded hereby.

11.6

Severability. If any part of this Agreement shall be declared void or unenforceable by any Court or body of competent jurisdiction such part shall be deemed severable from the remainder of this Agreement which shall continue in 

6

all other respects valid and enforceable. The Parties mutually agree to co-operate in revising this Agreement as may be necessary to meet the requirements of law and to substitute for an invalid Clause another to the same end and purpose insofar as legally permitted

12

GOVERNING LAW AND DISPUTE RESOLUTION

12.1

In the event any dispute arises in connection with the interpretation or implementation of this Agreement, the Parties shall attempt in the first instance to resolve such dispute through friendly consultations.  If the dispute is not resolved in this manner within sixty (60) days after the date on which one Party has served written notice on the other Party for the commencement of consultations, then either Party may refer the dispute to arbitration in accordance with the provisions of this clause 12.

12.2

This Agreement shall be construed, interpreted and applied in accordance with, and shall be governed by, the laws applicable in Hong Kong.

7

AS WITNESS the hands of the Parties hereto the day and year first before written.

Broadvision Global Limited

Signed by /s/  Bruno Wu                      

Bruno Wu, President

for and on behalf of  Broadvision Global Limited                                 

in the presence of

/s/ Chaucey Shey               

Chaucey Shey, Witness

Broadcast International Inc.

Signed by /s/ Rodney Tiede                

Rodney M. Tiede, President

for and on behalf of Broadcast International Inc.         

in the presence of

/s/ Reed L. Benson       

Reed L. Benson, Witness

8Exhibit 4.1

SUBSCRIPTION
AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of August         ,
2006, by and among Sweet Success Enterprises, Inc., a Nevada corporation (the “Company”), and the subscribers identified on the signature
page hereto (each a “Subscriber” and
collectively “Subscribers”).

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

WHEREAS, the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided
herein, and the Subscribers, in the aggregate, shall purchase up to Five
Million Dollars ($5,000,000) (the “Purchase Price”)
of principal amount of promissory notes of the Company (“Note”
or “Notes”), a form of which is annexed
hereto as Exhibit A, convertible into shares of
the Company’s common stock, $0.0001 par value (the “Common Stock”)
at a per share conversion price set forth in the Note (“Conversion Price”);
and share purchase warrants (the “Warrants”), in
the form annexed hereto as Exhibit B, to
purchase shares of Common Stock (the “Warrant Shares”).  The Notes, shares of Common Stock issuable
upon conversion of the Notes (the “Shares”), the
Warrants and the Warrant Shares are collectively referred to herein as the “Securities”; and

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

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

1.                                       Closing.  Subject to the satisfaction or waiver of the
terms and conditions of this Agreement, on the Closing Date, each Subscriber
shall purchase and the Company shall sell to each Subscriber a Note in the
principal amount designated on the signature page hereto for the purchase price
set forth on the signature page hereto. 
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, as soon as practicable following the
satisfaction or waiver of all conditions to closing set forth in this Agreement
(the “Closing Date”).

2.                                       Warrants.   On the Closing Date, the Company will issue
and deliver Warrants to the Subscribers. 
One Class A and one Class B Warrant will be issued for each two Shares
which would be issued on the Closing Date assuming the complete conversion of
the Notes issued on the Closing Date at the Conversion Price in effect on the
Closing Date.  The per Warrant Share exercise
price to acquire a Warrant Share upon exercise of a Class A Warrant shall be
$1.00.   The per Warrant Share exercise
price to acquire a Warrant Share upon exercise of a Class B Warrant shall be
$1.25. The Warrants shall be exercisable until five (5) years after the Actual
Effective Date (as defined in Section 11.1(iv) of this Agreement).

3.                                       Security
Interest.   The Subscribers will be
granted a security interest in all the assets of the Company, including
ownership of Subsidiaries, as defined in Section 5(a) of this Agreement, and in
the assets of the Subsidiaries to be memorialized in a “Security
Agreement”, a form of which is annexed hereto as Exhibit D.   The
Company will execute such other agreements, documents and financing statements
reasonably requested by Subscribers, which will be filed at the Company’s
expense

 

with the jurisdictions,
states and counties designated by the Subscribers.  The Company will also execute all such
documents reasonably necessary in the opinion of Subscriber to memorialize and
further protect the security interest described herein.  The Subscribers will appoint a Collateral
Agent to represent them collectively in connection with the security interest
to be granted to the Subscribers.  The
appointment will be pursuant to a “Collateral Agent Agreement”,
a form of which is annexed hereto as Exhibit E.

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

(a)                                  Organization
and Standing of the Subscribers.  If
the Subscriber is an entity, such Subscriber is a corporation, partnership or
other entity duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite corporate power to own its assets and to
carry on its business.

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

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

(d)                                 Information
on Company.   The Subscriber has been
furnished with or has had access at the EDGAR Website of the Commission to the
Company’s Form 10-KSB for the year ended December 31, 2005 and all periodic
reports filed with the Commission thereafter not later than five days before
the Closing Date (hereinafter referred to as the “Reports”).  In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in
writing (such other information is collectively, the “Other
Written Information”), and considered all factors the Subscriber
deems material in deciding on the advisability of investing in the Securities.

(e)                                  Information
on Subscriber.  The 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

 2
 

 

States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as
to enable the Subscriber to utilize the information made available by the
Company to evaluate the merits and risks of and to make an informed investment
decision with respect to the proposed purchase, which represents a speculative
investment.  The Subscriber has the authority
and is duly and legally qualified to purchase and own the Securities.  The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss
thereof.  The information set forth on
the signature page hereto regarding the Subscriber is accurate.

(f)                                    Purchase
of Notes and Warrants.  On the
Closing Date, the Subscriber will purchase the Notes and Warrants as principal
for its own account for investment only and not with a view toward, or for
resale in connection with, the public sale or any distribution thereof, but
Subscriber does not agree to hold the Notes and Warrants for any minimum amount
of time.

(g)                                 Compliance
with Securities Act.  The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act or any applicable state securities laws, by reason of their issuance
in a transaction that does not require registration under the 1933 Act (based
in part on the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held indefinitely unless a
subsequent disposition is registered under the 1933 Act or any applicable state
securities laws or is exempt from such registration.  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 when employed in connection with
the Company includes each Subsidiary [as defined in Section 5(a)] 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.

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

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

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

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED.  THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF

 3
 

 

AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT
UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SWEET SUCCESS ENTERPRISES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.”

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

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

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

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

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

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

(o)                                 Survival.  The foregoing representations and warranties
shall survive the Closing Date until three years after the Closing Date.

5.                                       Company
Representations and Warranties.  The
Company represents and warrants to and agrees with each Subscriber that except
as set forth in the Reports or the Other Written Information and as otherwise
qualified in the Transaction Documents:

(a)                                  Due Incorporation.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite

 4
 

 

corporate power to own its properties and to
carry on its business is disclosed in the Reports.  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 purpose of this Agreement, a “Material Adverse Effect”
shall mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken individually, or in the
aggregate, as a whole.  For purposes of this Agreement, “Subsidiary” means, with respect to any entity at any date,
any corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity) of
which more than 50% of (i) the outstanding capital stock having (in the
absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (ii) in the case
of a partnership or limited liability company, the interest in the capital or
profits of such partnership or limited liability company or (iii) in the
case of a trust, estate, association, joint venture or other entity, the
beneficial interest in such trust, estate, association or other entity business
is, at the time of determination, owned or controlled directly or indirectly
through one or more intermediaries, by such entity.  The Company does not have any Subsidiaries.

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

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

(d)                                 Additional
Issuances.   There are no outstanding
agreements or preemptive or similar rights affecting the Company’s Common Stock
or other 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 Common Stock or
equity of the Company except as described on Schedule
5(d).  The Common Stock and
all other equity of the Company on a fully diluted basis outstanding as of the
last trading day preceding the Closing Date is set forth on Schedule 5(d).

(e)                                  Consents.  No consent, approval, authorization or order
of any court, governmental agency or body or arbitrator having jurisdiction
over the Company, or any of its Affiliates, any Principal Market (as defined in
Section 9(b) of this Agreement), nor the Company’s shareholders is required for
the execution by the Company of the Transaction Documents and compliance and
performance by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities.

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

(i)                                     violate, conflict with, result in a breach of, or constitute a default
(or an event which with the giving of notice or the lapse of time or both would
be reasonably likely to constitute a default in any material respect) 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,

 5
 

 

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, by which the Company or any of its Affiliates is bound, or
to which any of the properties of the Company or any of its Affiliates is
subject, or (D) the terms of any “lock-up” or similar provision of any
underwriting or similar agreement to which the Company, or any of its
Affiliates is a party except the violation, conflict, breach, or default of
which would not have a Material Adverse Effect; or

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

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

(iv)   result in the
activation of any piggy-back registration rights of any person or entity
holding securities or debt 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 and upon exercise of the Warrants, the Shares and Warrant Shares
will be duly and validly issued, fully paid and nonassessable and, if
registered pursuant to the 1933 Act and resold pursuant to an effective
registration statement, will be free trading and unrestricted;

(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 provided Subscriber’s representations herein are true and accurate and
Subscribers take no actions or fail to take any actions required for their
purchase of the Securities to be in compliance with all applicable laws and
regulations; and

(v)      will have been
issued in reliance upon an exemption from the registration requirements of and
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.  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.

 6
 

 

(i)                                     Reporting
Company.  The Company is a
publicly-held company subject to reporting obligations pursuant to Section 13
of the Securities Exchange Act of 1934 (the “1934 Act”)
and has a class of common shares registered pursuant to Section 12(g) of the
1934 Act.  Pursuant to the provisions of
the 1934 Act, the Company has timely filed all reports and other materials
required to be filed thereunder with the Commission during the preceding
thirty-six months.

(j)                                     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, provided, however, that this provision
shall not prevent the Company from engaging in investor relations/public
relations activities consistent with past practices.

(k)                                  Information
Concerning Company.  The Reports
contain all material information relating to the Company and its operations and
financial condition as of their respective dates and all the information
required to be disclosed therein.   Since
the last day of the fiscal year of the most recent audited financial statements
included in the Reports (“Latest Financial Date”),
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 do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.

(l)                                     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.

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

(n)                                 Not
an 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 OTC Bulletin Board (“Bulletin Board”)
which would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder.  Nor will the Company or any of its Affiliates
take any action or steps that would cause the offer or issuance of the
Securities to be integrated with other offerings which would impair the
exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder. 
The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions relied upon in this Offering or
the Company’s ability to timely comply with its obligations hereunder.

 7
 

 

(o)                                 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.

(p)                                 Listing.  The Company’s common stock is quoted on the
Bulletin Board under the symbol SWTS.OB. 
The Company has not received any oral or written notice that its common
stock is not eligible nor will become ineligible for quotation on the Bulletin
Board nor that its common stock does not meet all requirements for the
continuation of such quotation.  The
Company satisfies all the requirements for the continued quotation of its
common stock on the Bulletin Board.

(q)                                 No
Undisclosed Liabilities.  The Company
has no liabilities or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since the Latest Financial Date and which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect,
except as disclosed on Schedule 5(q).

(r)                                    No
Undisclosed Events or Circumstances. 
Since the Latest Financial Date, 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.

(s)                                  Capitalization.  The authorized and outstanding capital stock
of the Company as of the date of this Agreement and the Closing Date (not
including the Securities) are set forth on Schedule 5(d).  Except as set forth on Schedule
5(d), there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or
giving any right to subscribe for any shares of capital stock of the Company or
any of its Subsidiaries.  All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.

(t)                                    Dilution.   The Company’s executive officers and
directors understand the nature of the Securities being sold hereby and
recognize that the issuance of the Securities will have a potential dilutive
effect on the equity holdings of other holders of the Company’s equity or
rights to receive equity of the Company. 
The board of directors of the Company has concluded, in its good faith
business judgment that the issuance of the Securities is in the best interests
of the Company.  The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Notes, and the Warrant Shares upon exercise of the Warrants is binding upon the
Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.

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

(v)                                 Transfer
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(v) hereto.

 8
 

 

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

(x)                                   Company Predecessor.   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.

(y)                                 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.

(z)                                   Survival.  The foregoing representations and warranties
shall survive until three years after the Closing Date.

6.                                       Regulation
D Offering.  The offer and issuance
of the Securities to the Subscribers is being made pursuant to the exemption
from the registration provisions of the 1933 Act afforded by Section 4(2) or
Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated
thereunder.  On the Closing Date, the
Company will provide an opinion reasonably acceptable to Subscriber from the
Company’s legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers.  A form of the legal opinion is annexed hereto
as Exhibit F.  The Company will provide, at the Company’s
expense, such other legal opinions in the future as are reasonably necessary
for the issuance and resale of the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants 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 the
Subscriber sells the Shares and Warrant Shares, assuming (i) the Registration
Statement (as defined below) is effective and the prospectus, as supplemented
or amended, contained therein is current and (ii) the Subscriber confirms in
writing to the transfer agent that the Subscriber has complied with the
prospectus delivery requirements, the restrictive legend can be removed and the
Shares and Warrant Shares will be free-trading, and freely transferable.  In the event that the Shares and Warrant
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, or for 90 days if pursuant to the other provisions of
Rule 144 of the 1933 Act).

(b)                                 Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber under the Transaction Documents or part
thereof by telecopying an executed and completed Notice of
Conversion (a form of which is annexed as Exhibit A
to the Note) to the Company via confirmed telecopier transmission or otherwise
pursuant to Section 13(a) of this Agreement. 
The Subscriber will not be required to surrender the Note until the Note
has been fully converted or satisfied. 
Each date on which a Notice of Conversion is telecopied to the Company
in accordance with the provisions hereof shall be deemed a Conversion
Date.  The Company will itself
or

 9
 

 

cause the Company’s transfer agent to transmit the
Company’s Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by
such Subscriber within three (3) business days after receipt by the Company of
the Notice of Conversion (such third day being the “Delivery
Date”).  In the event the
Shares are electronically transferable, then delivery of the Shares must
be made by electronic transfer provided request for such electronic transfer
has been made by the Subscriber and the Subscriber has complied with all
applicable securities laws in connection with the sale of the Common Stock,
including, without limitation, the prospectus delivery requirements.   A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers 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, the Subscriber hereby
indemnifies the Company against any and all loss or damage attributable to a
third-party claim in an amount in excess of the actual amount then due under
the Note.  “Business day”
and “trading day” as employed in the
Transaction Documents is a day that the New York Stock Exchange is open for
trading for three or more hours.

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

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

7.2.                              Mandatory Redemption at Subscriber’s Election.  In
the event (i) the Company is prohibited from issuing Shares, (ii) the Company
fails to timely deliver Shares on a Delivery Date, (iii) upon the occurrence of
any other Event of Default (as defined in the Note or in this Agreement), any
of the foregoing that continues for more than twenty (20) business days, (iv) a
Change in Control (as defined below), or (v) of the liquidation, dissolution or
winding up of the Company, then at the Subscriber’s election, the Company must
pay to the Subscriber ten (10) business days after request by the Subscriber (“Calculation Period”), a sum of money determined by
multiplying up to the outstanding principal amount of the Note designated by
the Subscriber by 120%, together with accrued but unpaid interest thereon (“Mandatory Redemption Payment”). The Mandatory Redemption
Payment must be received by the Subscriber on the same date as the Shares
otherwise deliverable or within ten (10) business days after request, whichever
is sooner (“Mandatory Redemption Payment Date”).
Upon receipt of the Mandatory Redemption Payment, the corresponding Note
principal and interest will be deemed paid and no longer outstanding.  Liquidated damages calculated pursuant to
Section 7.1(c) hereof, that have been

 

 10

 

 

paid or accrued for the ten day period prior to the actual receipt of
the Mandatory Redemption Payment by the Subscriber shall be credited against
the Mandatory Redemption Payment.  For
purposes of this Section 7.2, “Change in Control”
shall mean (i) the Company no longer having a class of shares publicly traded
or listed on a Principal Market, (ii) the Company becoming a Subsidiary of
another entity (other than a corporation formed by the Company for purposes of
reincorporation in another U.S. jurisdiction), (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, (iv) the sale, lease or transfer
of substantially all the assets of the Company or Subsidiaries, (v) if the
holders of the Company’s Common Stock as of the Closing Date beneficially own
at any time after the Closing Date less than forty percent of the Common Stock
owned by them on the Closing Date, or (vi) if the Chief Executive Officer of
the Company as of the Closing Date no longer serves as Chief Executive Officer
of the Company, except due to natural causes.

7.3.                              Maximum Conversion.  The
Subscriber shall not be entitled to convert on a Conversion Date that amount of
the Note in connection with that number of shares of Common Stock which would
be in excess of the sum of (i) the number of shares of common stock
beneficially owned by the Subscriber and its Affiliates on a Conversion Date,
and (ii) the number of shares of Common Stock issuable upon the conversion of
the Note with respect to which the determination of this provision is being
made on a Conversion Date, which would result in beneficial ownership by the
Subscriber and its Affiliates of more than 4.99% of the outstanding shares of
common stock of the Company on such Conversion Date.  Beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. 
Subject to the foregoing, the Subscriber shall not be limited to
aggregate conversions of only 4.99% and aggregate conversions by the Subscriber
may exceed 4.99%.  The Subscriber may
waive the conversion limitation described in this Section 7.3, in whole or in
part, upon and effective after 61 days prior written notice to the Company to
increase such percentage to up to 9.99%. 
The Subscriber may decide whether to convert a Note or exercise Warrants
to achieve an actual 4.99% or up to 9.99% ownership position as described
above.

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

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

 11
 

 

provide the Company written notice indicating the amounts payable to
the Subscriber in respect of the Buy-In.

7.6.                              Adjustments.   The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be adjusted as
described in this Agreement, the Notes and Warrants.

7.7.                              Redemption.    The Note and Warrants shall
not be redeemable or mandatorily convertible except as described in the Note
and Warrants.

8.                                       Finder
Fee/Due Diligence Fee/Legal Fees.

(a)                                  Finder’s
Fee/Due Diligence Fee.   The Company
on the one hand, and each Subscriber (for himself 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 Finder’s Fee/Due Diligence Fee other
than the one or more entities identified on Schedule 8
hereto, (each a “Finder”) 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
Finder the fees set forth on Schedule 8
hereto (“Finder/Due Diligence 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 Finder.

(b)                                 Legal Fees.   The Company shall pay to
Grushko & Mittman, P.C., a cash fee of $25,000 (“Legal Fees”)
(of which $5,000 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 Legal Fees and reimbursement for
estimated UCC searches and filing fees (less any amounts paid prior to a
Closing Date), and estimated printing and shipping costs for the closing
statements to be delivered to Subscribers, will be payable on the Closing Date
out of funds held pursuant to the Escrow Agreement.

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

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

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

 12
 

 

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

(d)                                 Filing Requirements.  From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will (A) cause its Common
Stock to continue 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 two (2)
years after the Closing Date.  Until the
earlier of the resale of the Shares and the Warrant Shares by each Subscriber
or two (2) years after the Closing Date, the Company will use its best efforts
to 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 for the purposes set forth on Schedule
9(e) hereto.  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, litigation related expenses or settlements,
brokerage fees, nor non-trade obligations outstanding on a Closing Date.

(f)                                    Reservation.   Prior to the Closing Date, the Company
undertakes to reserve, pro  rata, on behalf of the Subscribers
from its authorized but unissued common stock, a number of common shares equal
to 200% of the amount of Common Stock necessary to allow each Subscriber to be
able to convert all Notes issuable pursuant to this Agreement and interest
thereon and reserve 100% of the amount of Warrant Shares issuable upon exercise
of the Warrants.  Failure to have
sufficient shares reserved pursuant to this Section 9(f) shall be a material
default of the Company’s obligations under this Agreement and an Event of
Default under the Note.

(g)                                 Taxes.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, and exercise of the
Warrants, the Company will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company will pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefore.

(h)                                 Insurance.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, and exercise of the
Warrants, 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

 13
 

 

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.

(i)                                     Books and Records.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, and exercise of the
Warrants, the Company will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.

(j)                                     Governmental Authorities.   From the date of this Agreement and until
the conversion or satisfaction of the Note, in its entirety, and exercise of
the Warrants, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.

(k)                                  Intellectual Property.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, and exercise of the
Warrants, 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.

(l)                                     Properties.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, and exercise of the
Warrants, the Company will keep its properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make
all necessary and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
Material Adverse Effect.

(m)                               Confidentiality/Public Announcement.  From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or the Registration Statement or as otherwise
required in any other Commission filing, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber, 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 shall file a Form 8-K or make a
public announcement describing the Offering not later than the first business
day after the Closing Date.  In the Form
8-K or public announcement, the Company will specifically disclose the amount
of common stock outstanding immediately after the Closing.  A form of the proposed Form 8-K or public
announcement to be employed in connection with the Closing is annexed hereto as
Exhibit G.

(n)                                 Further Registration Statements.  
Except for a registration statement filed on behalf of the Subscribers
pursuant to Section 11 of this Agreement, the Company will not file with the
Commission or with state regulatory authorities, any registration statements
including but not limited to Forms S-8, 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 without the consent
of the Subscriber 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 180 days, or (ii) until

 14
 

 

all the Shares and Warrant
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 during
the pendency of an Event of Default as defined in the Note.

(o)                                 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 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 twenty (20) or more days in the
aggregate.

(p)                                 Non-Public Information.  The
Company covenants and agrees that neither it nor any other person acting on its
behalf will provide any Subscriber or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Subscriber shall have agreed in writing
to receive such information.  The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.  The Company will offer to the Subscriber an
opportunity to review and comment on the Registration Statement thereto between
three and five business days prior to the proposed filing date thereof.

(q)                                 Offering Restrictions.  
Until the expiration of the Exclusion Period and during the pendency of
an Event of Default, except for the Excepted Issuances [as defined in Section 12(a)],
the Company will not enter into an agreement to 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 Subscriber, which consent may
be withheld for any reason.   For so long
as the Notes are outstanding, except for the Excepted Issuances, 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.  The only officer, director, employee and
consultant stock option or stock incentive plan currently in effect or
contemplated by the Company has been submitted to the Subscribers.  No other plan will be adopted nor may any
options or equity not included in such plan be issued for so long as any sum is
outstanding under the Note.

(r)                                    Additional Negative Covenants.   So
long as at least twenty-five percent (25%) of the principal amount of the Notes
issued on each Closing Date is outstanding and during the pendency of an Event
of Default (as defined in the Note), without the consent of the Subscribers,
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 (i) the Excepted Issuances, (ii) (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

 15
 

 

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 or (g) a Lien described on Schedule 6.1 to the Security
Agreement (each of (a) through (g), a “Permitted Lien”)
and (iii) indebtedness for borrowed money which is not senior or pari passu in
right of payment to the payment of the Notes;

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

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

(iv)                              prepay any financing related or other
outstanding debt obligations; or

(v)                                 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 $10,000 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.

(s)                                  Lock
Up Agreement.   The Company will
deliver to the Subscribers on or before the Closing Date and enforce the
provisions of irrevocable Lock Up Agreements (“Lock Up
Agreements”) in the form annexed hereto as Exhibit H,
with the parties identified on Schedule 9(s)
hereto.

10.                                 Covenants
of the Company and Subscriber Regarding Indemnification.

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

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

 16
 

 

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

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

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

(i)                                     On one occasion, for a period commencing one hundred and fifty-one (151)
days after the Closing Date, but not later than two (2) years after the Closing
Date, upon a written request therefor from any record holder or holders of more
than 50% of the Shares issued and issuable upon conversion of the 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, or (C) which
have been issued without further transfer restrictions after a sale or transfer
pursuant to Rule 144 under the 1933 Act. 
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 (10) days after the Company gives such written notice.  Such other requesting record holders shall be
deemed to have exercised their demand registration right under this Section
11.1(i).

(ii)                                  If the Company at any time proposes to register any of its securities
under the 1933 Act for sale to the public, whether for its own account or for
the account of other security holders or both, except with respect to
registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days’ prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the “Seller”
or “Sellers”). In the event that any
registration pursuant to this Section 11.1(i) 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(i) 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

 17
 

 

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 SB-2 registration
statement (the “Registration Statement”) (or such
other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act within forty-five
(45) calendar days after the Closing Date (the “Filing Date”),
and cause the Registration Statement to be declared effective not later than
one hundred and fifty (150) 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
issuable upon conversion of all of the Notes issuable to the Subscribers, and
100% of the Warrant Shares issuable pursuant to this Agreement upon exercise of
the Warrants (collectively the “Registrable Securities”).
The Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro  rata, and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder.  The Registration
Statement will immediately be amended or additional registration statements
will be immediately filed by the Company as necessary to register additional
shares of Common Stock to allow the public resale of all Common Stock included
in and issuable by virtue of the Registrable Securities.  Except with the written consent of the
Subscriber, no securities of the Company other than the Registrable Securities
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 fewer than 150%
of the amount of Common Shares issuable upon full conversion of all sums due
under the Notes and 100% of the Warrant Shares issuable upon exercise of the
Warrants.

11.2.                        Registration
Procedures. If and whenever the Company is required by the provisions of
Section 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:

(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 Subscribers (by telecopier and by e-mail
addresses provided by Subscribers) and Grushko & Mittman, P.C. (by telecopier
and by email to
Counslers@aol.com) on or before 6:00 PM EST on
the same business day 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, 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;

 18
 

 

(d)                                 use its commercially 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 two 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
Shares;

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

(h)                                 provide to the Sellers copies of the
Registration Statement and amendments thereto five business days prior to the
filing thereof with the Commission.

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

11.4.                        Non-Registration
Events.  The Company and the
Subscribers agree that the Sellers will suffer damages if the Registration
Statement is not filed by the Filing Date and not declared effective by the
Commission by the Effective Date, and any registration statement required under
Section 11.1(i) or 11.1(ii) is not filed within 60 days after written request
and declared effective by the Commission within 120 days after such request,
and maintained in the manner and within the time periods contemplated by
Section 11 hereof, and it would not be feasible to ascertain the extent of such
damages with precision.  Accordingly, if
(A) the Registration Statement is not filed on or before the Filing Date, (B)
is not declared effective on or before the Effective Date, (C) 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 120 days after such written request, or (E)
any registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is filed and declared effective but shall thereafter cease to be effective
without being succeeded within fifteen (15) business days by an effective
replacement or amended registration statement or for a period of time which
shall exceed thirty (30) days in the aggregate per year (defined as a period of
365 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
two percent (2%) for each thirty (30) days or part thereof of the Aggregate
Principal Amount of the Notes remaining unconverted and

 19
 

 

purchase price of Shares issued upon conversion of the
Notes and exercise of the Warrants owned of record by such holder which are
subject to such Non-Registration Event. 
The Company must pay the Liquidated Damages in cash or provided delivery
is timely, at the Company’s election, with registered shares of Common stock
valued at the Conversion Price in effect on the first trading day of each
thirty day or shorter period for which liquidated damages are payable.  The Liquidated Damages must be paid within
ten (10) days after the end of each thirty (30) day period or shorter part
thereof for which Liquidated Damages are payable.  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.  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 set forth above.  Notwithstanding the foregoing, the Company
shall not be liable to the Subscriber under this Section 11.4 for any events or
delays occurring as a consequence of the acts or omissions of the Subscribers
contrary to the obligations undertaken by Subscribers in this Agreement.  Liquidated Damages will not accrue nor be
payable pursuant to this Section 11.4 nor will a Non-Registration Event be
deemed to have occurred for times during which Registrable Securities are
transferable by the holder of Registrable Securities pursuant to Rule 144(d) or
Rule 144(k) under the 1933 Act.

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 National Association of
Securities Dealers, Inc., 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.

11.6.                        Indemnification
and Contribution.

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

 

 20

 

 

from
which such damages arise, (ii) the final prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, or (iii) to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information
furnished by any such Seller, or any such controlling person in writing
specifically for use in such registration statement or prospectus.

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

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

 21
 

 

 

(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.

11.7.                        Delivery
of Unlegended Shares.

(a)                                  Within three (3) business days (such third business day being the “Unlegended Shares Delivery Date”) after the business day on
which the Company has received (i) a notice that Shares or Warrant Shares or
any other Common Stock held by a Subscriber have been sold pursuant to 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 Subscriber’s broker regarding compliance with the
requirements of Rule 144, the Company at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver to its transfer
agent (with copies to Subscriber) an appropriate instruction and opinion of
such counsel, directing the delivery of shares of Common Stock without any
legends including the legend set forth in Section 4(i) above (the “Unlegended Shares”); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted Shares certificate, if
any, to the Subscriber at the address specified in the notice of sale, via
express courier, by electronic transfer or otherwise on or before the
Unlegended Shares Delivery Date.

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

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

 22
 

 

 

default at a price per
share equal to 120% of the Purchase Price of such Common Stock and Warrant
Shares (“Unlegended Redemption Amount”).  The amount of the aforedescribed liquidated
damages that have accrued or been paid for the twenty day period prior to the
receipt by the Subscriber of the Unlegended Redemption Amount shall be credited
against the Unlegended Redemption Amount. 
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.

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

(e)                                  In
the event a Subscriber shall request delivery of Unlegended Shares as described
in Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or
for any other reason, unless, an injunction or temporary restraining order from
a court, on notice, restraining and or enjoining delivery of such Unlegended
Shares or exercise of all or part of said Warrant shall have been sought and
obtained and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the amount of the aggregate purchase price
of the Common Stock and Warrant Shares which are subject to the injunction or
temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment
in Subscriber’s favor.

12.                                 (a)                                  Right of First Refusal.  
Until one year after the Actual Effective Date, the Subscribers shall be
given not less than ten (10) business days prior written notice of any proposed
sale by the Company of its common stock or other securities or debt
obligations, except in connection with (i) full or partial consideration in
connection with a strategic merger, acquisition, consolidation or purchase of
substantially all of the securities or assets of corporation or other entity
which holders of such securities or debt are not at any time granted
registration rights, (ii) the Company’s issuance of securities in connection
with strategic license agreements and other partnering arrangements so long as
such issuances are not for the purpose of raising capital and which holders of
such securities or debt are not at any time granted registration rights, (iii)
the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock pursuant to stock option plans and employee stock
purchase plans described on Schedule 5(d)
hereto at prices equal to or higher than the closing price of the Common Stock
on the issue date of any of the foregoing, (iv) as a result of the exercise of
Warrants or conversion of Notes which are granted or issued pursuant to this
Agreement or that have been issued prior to the Closing Date, the issuance of
which has been disclosed in a Report filed not less than five (5) days prior to
the Closing Date, (v) the payment of any interest on the Notes and Liquidated
Damages pursuant to the Transaction Documents and (vi) accounts receivable
financing described on Schedule 6.1 to the Security Agreement (collectively the
foregoing are “Excepted Issuances”).  The Subscribers who exercise their rights
pursuant

 23
 

 

 

to
this Section 12(a) shall have the right during the ten (10) business days
following receipt of the notice to purchase such offered common stock, debt or
other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion to each other as their purchase of Notes
in the Offering.  In the event such terms
and conditions are modified during the notice period, the Subscribers shall be
given prompt notice of such modification and shall have the right during the
ten (10) business days following the notice of modification to exercise such
right.

(b)                                 Favored Nations Provision.   Other than in connection with the Excepted
Issuances, if at any time while Notes or Warrants are outstanding the Company
shall offer, issue or agree to issue any common stock or securities convertible
into or exercisable for shares of common stock (or modify any of the foregoing
which may be outstanding) to any person or entity at a price per share or
conversion or exercise price per share which shall be less than the Conversion
Price in respect of the Shares, or if less than the Warrant exercise price in
respect of the Warrant Shares, without the consent of each Subscriber holding
Notes, Shares, Warrants, or Warrant Shares, then the Company shall issue, for
each such occasion, additional shares of Common Stock to each Subscriber so
that the average per share purchase price of the shares of Common Stock issued
to the Subscriber (of only the Common Stock or Warrant Shares still owned by
the Subscriber) is equal to such other lower price per share and the Conversion
Price and Warrant exercise price shall automatically be adjusted as provided in
the Notes and the Warrants.  The average
Purchase Price of the Shares and average exercise price in relation to the
Warrant Shares shall be calculated separately for the Shares and Warrant
Shares.  The foregoing calculation and
issuance shall be made separately for Shares received upon conversion and
separately for Warrant Shares.  The
delivery to the Subscriber of the additional shares of Common Stock shall be
not later than two (2) business days after the closing date of the transaction
giving rise to the requirement to issue additional shares of Common Stock.  The Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares of
Common Stock except that the Filing Date and Effective Date vis-à-vis such
additional common shares shall be, respectively, the thirtieth (30th) and sixtieth
(60th) date after the closing date giving rise to the requirement to issue
the additional shares of Common Stock. 
For purposes of the issuance and adjustment described in this paragraph,
the issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the issuance of the additional shares of
Common Stock upon the sooner of the agreement to or actual issuance of such
convertible security, warrant, right or option and again at any time upon any
subsequent issuances of shares of Common Stock upon exercise of such conversion
or purchase rights if such issuance is at a price lower than the Conversion
Price or Warrant exercise price in effect upon such issuance.  The rights of the Subscriber set forth in
this Section 12 are in addition to any other rights the Subscriber has pursuant
to this Agreement, the Note, any Transaction Document, and any other agreement
referred to or entered into in connection herewith.   The Subscriber is also given the right to
elect to substitute any term or terms of any other offering in connection with
which the Subscriber has rights as described in Section 12(a), for any term or
terms of the Offering in connection with Securities owned by Subscriber as of
the date the notice described in Section 12(a) is required to be given to
Subscriber.

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

 24
 

 

 

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: Sweet Success Enterprises, Inc., 1250 NE
Loop 410, Suite 630, San Antonio, TX 78209, Attn: William J. Gallagher, CEO,
telecopier: (210) 824-3398, with a copy by telecopier only to: Law Office of
Gary A. Agron, 5445 DTC Parkway, Suite 520, Greenwood Village, CO 80111-3009,
telecopier: (303) 770-7257, and (ii) if to the Subscriber, to: the one or more
addresses and telecopier numbers indicated on the signature pages hereto, with
an additional copy by telecopier only to: Grushko & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575, and (iii) if to the Finder, to: the address and telecopier number set
forth on Schedule 8 hereto.

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

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

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

(e)                                  Specific Enforcement, Consent to Jurisdiction.  To the extent permitted by law,
the Company and Subscriber acknowledge and agree that irreparable damage would
occur in the

 25
 

 

 

event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached.  It is accordingly agreed that the parties
shall be entitled to one or more preliminary and final injunctions to prevent
or cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.  Subject to Section 13(d) hereof, each of the
Company, Subscriber and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of such
court, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper.  Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.

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

(g)                                 Independent Nature of Subscribers.  
  The Company acknowledges that the obligations of each Subscriber
under the Transaction Documents are several and not joint with the obligations
of any other Subscriber, and no Subscriber shall be responsible in any way for
the performance of the obligations of any other Subscriber under the
Transaction Documents. The Company acknowledges that each Subscriber has
represented that the decision of each Subscriber to purchase Securities has
been made by such Subscriber independently of any other Subscriber and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company
which may have been made or given by any other Subscriber or by any agent or
employee of any other Subscriber, and no Subscriber or any of its agents or
employees shall have any liability to any Subscriber (or any other person)
relating to or arising from any such information, materials, statements or
opinions.  The Company acknowledges that nothing contained in any
Transaction Document, and no action taken by any Subscriber pursuant hereto or
thereto (including, but not limited to, the (i) inclusion of a Subscriber in
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.

(h)                                 Consent.   As used in the Agreement, “consent of the
Subscribers” or similar language means the consent of holders of not less than
75% of the total of the Shares issued and issuable upon conversion of
outstanding Notes owned by Subscribers on the date consent is requested.

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

[THIS SPACE INTENTIONALLY LEFT
BLANK]

 26
 

 

 

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.

	
  

  	
  SWEET SUCCESS
  ENTERPRISES, INC.

  a Nevada corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dated: August          ,
  2006

  

 

	
  

  	
   

  	
  NOTE

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PRINCIPAL

  	
   

  	
  CLASS A

  	
   

  	
  CLASS B

  	
   

  
	
  SUBSCRIBER

  	
   

  	
  AMOUNT

  	
   

  	
  WARRANTS

  	
   

  	
  WARRANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name
  of Subscriber:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fax
  No.:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

 27
 

 

 

LIST OF EXHIBITS AND SCHEDULES

	
  Exhibit A

  	
   

  	
  Form of Note

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Form of Warrant

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Escrow Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Form of Security Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  Form of Collateral Agent Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit F

  	
   

  	
  Form of Legal Opinion

  
	
   

  	
   

  	
   

  
	
  Exhibit G

  	
   

  	
  Form of Form 8-K or Public Announcement

  
	
   

  	
   

  	
   

  
	
  Exhibit H

  	
   

  	
  Form of Lock Up Agreement

  
	
   

  	
   

  	
   

  
	
  Schedule 5(d)

  	
   

  	
  Additional Issuances / Capitalization

  
	
   

  	
   

  	
   

  
	
  Schedule 5(q)

  	
   

  	
  Undisclosed Liabilities

  
	
   

  	
   

  	
   

  
	
  Schedule 5(v)

  	
   

  	
  Transfer Agent

  
	
   

  	
   

  	
   

  
	
  Schedule 8

  	
   

  	
  Finder

  
	
   

  	
   

  	
   

  
	
  Schedule 9(e)

  	
   

  	
  Use of Proceeds

  
	
   

  	
   

  	
   

  
	
  Schedule 9(s)

  	
   

  	
  Lock Up Agreement Providers

  
	
   

  	
   

  	
   

  
	
  Schedule 11.1

  	
   

  	
  Other Registrable Securities

  
	
   

  	
   

  	
   

  
	
  Schedule 12(a)

  	
   

  	
  Excepted Issuances described in Reports and Other
  Written Information

  

 

 28
 

 

 

EXHIBIT G

PRESS
RELEASE AND FORM 8K

On August    ,2006, the
Company issued a press release announcing that it had completed the private
placement of $   million face amount of secured 8% convertible debentures,
convertible into shares of the Company’s common stock at any time until August
2008. The debentures are secured by substantially all of the Company’s assets
and contain customary antidilution provisions. The conversion price of the
debentures will be the lesser of $5.00 per share or 75% of the average of the
closing bid prices of the common stock for the five trading days prior to any
conversion.

Investors, all of whom were accredited, were
also granted one Class A and one Class B common stock purchase warrant for each
two shares that are purchasable upon conversion of the debentures. For purposes
of issuing the warrants, the conversion price assuming full conversion of the
debentures on the closing date was deemed to be
$      per share. The A warrants are exercisable
at $1.00 per share and the B warrants are exercisable at $1.25 per share. Both
warrants expire in August 2011.

The Company has agreed to file a registration
statement with the Securities and Exchange Commission promptly within 45 days
from the closing date of the private placement in order to allow for the
registration of the common stock issuable upon conversion of the debentures and
exercise of the warrants. Funds from the sale of the debentures will be used
primarily for marketing, inventory development, payment of debt and working
capital.

 29
 

 

EXHIBIT H

LOCK UP
AGREEMENT

This AGREEMENT
(the “Agreement”) is made as of the      day of August,
2006, by the signatories hereto (each a “Holder”), in connection with his
ownership of shares of Sweet Success Enterprises, Inc., a Nevada 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 actual and/or beneficial owner of the amount of shares of the
Common Stock, $0.0001 par value, of the Company (“Common Stock”) and rights to
purchase Common Stock designated on the signature page hereto.

b.                                      Holder
acknowledges that the Company has entered into or will enter into an agreement
with each subscriber (“Subscription Agreement”) to the Company’s secured
convertible promissory notes and warrants (the “Subscribers”), for the sale to
the Subscribers of an aggregate of up to $5,000,000 of principal amount of
secured convertible promissory notes and warrants (the “Offering”).  Holder understands that, as a condition to
proceeding with the Offering, the Subscribers have required, and the Company
has agreed to obtain an agreement from the Holder to refrain from selling any
securities of the Company from the date of the Subscription Agreement until the
sooner of (i) the end of the Exclusion Period as defined in the Subscription
Agreement, or (ii) until less than one-third of the principal amount of the Notes
issued pursuant to the Subscription Agreement is outstanding (the “Restriction
Period”).

2.                                       Share
Restriction.

a.                                       Holder
hereby agrees that during the Restriction Period, the Holder will not sell 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 or
acquires hereafter during the Restriction Period, other than in connection with
an offer made to all shareholders of the Company in connection with any 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.

b.                                      Any
subsequent issuance to and/or acquisition of shares or the right to acquire
shares by Holder will be subject to the provisions of this Agreement.

c.                                       Notwithstanding
the foregoing restrictions on transfer, the Holder may, at any time and from
time to time during the Restriction Period, transfer the Common Stock (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, provided, that, in the case of any gift
or transfer described in clauses (i), (ii) or (iii), 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 hereof, “immediate family” means any relationship by blood, marriage
or adoption, not more remote than first cousin.

 30
 

 

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, construed and enforced in accordance with the laws
of the State of New York without regard to conflicts of laws principles that
would result in the application of the substantive laws of another
jurisdiction, except to the extent that the securities laws of the state in
which Holder resides and federal securities laws may apply.  Any proceeding brought to enforce this
Agreement may be brought exclusively in courts sitting in New York County, New
York.

c.                                       This
Agreement contains the entire agreement of the Holder with respect to the
subject matter hereof.

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 nor to amend or terminate this Agreement
without the consent of the Subscribers.

g.                                      The
Subscribers are third party beneficiaries of this Agreement, with right of
enforcement.

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 Owned

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Number of Shares
  of Common Stock

  
	
   

  	
  Beneficially
  Owned

  
	
   

  	
   

  
	
   

  	
  COMPANY:

  
	
   

  	
  SWEET
  SUCCESS ENTERPRISES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
				

 

 31

 

Schedule
5(d)

Capitalization

	
  Stock Type

  	
   

  	
  Authorized

  	
   

  	
  Outstanding

  	
   

  	
  Strike

  	
   

  	
  Expiration

  	
   

  
	
  Common Stock

  	
   

  	
  60,000,000

  	
   

  	
  15,522,545

  	
  *

  	
   

  	
   

  	
   

  	
   

  
	
  Preferred Stock

  	
   

  	
  10,000,000

  	
   

  	
  140,000

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Warrants

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A Warrants

  	
   

  	
  70,000

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  EXPIRED

  	
   

  
	
  B Warrants

  	
   

  	
  375,000

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  EXPIRED

  	
   

  
	
  C Warrants

  	
   

  	
  375,000

  	
   

  	
  75,000

  	
   

  	
  $

  	
  3.00

  	
   

  	
  12/31/2007

  	
   

  
	
  NutriSystems

  	
   

  	
  200,000

  	
   

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  EXPIRED

  	
   

  

 

*Includes 250,000 shares granted but not
yet issued.

Summary
of Additional Options and Warrants:

	
  Name of Consultant

  	
   

  	
  Stock options

  issued

  	
   

  	
  Warrants

  issued

  	
   

  	
  Contingent

  options

  	
   

  	
  Contingent

  warrants

  	
   

  	
  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Alicia Smith Kriese

  	
   

  	
  80,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  1.50

  	
   

  
	
  Alicia Smith Kriese

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.84

  	
   

  
	
  Chandrasekhar Mallangi

  	
   

  	
  20,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  1.10

  	
   

  
	
  Chandrasekhar Mallangi

  	
   

  	
  20,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  1.50

  	
   

  
	
  Frederick Nader

  	
   

  	
  50,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.70

  	
   

  
	
  James Haworth

  	
   

  	
  600,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.70

  	
   

  
	
  James Stock

  	
   

  	
  50,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  1.00

  	
   

  
	
  James Stock

  	
   

  	
  50,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  2.00

  	
   

  
	
  Jeff Morehouse

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.80

  	
   

  
	
  Jennifer Horsfall

  	
   

  	
  600,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.17

  	
   

  
	
  John Milgrim

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.22

  	
   

  
	
  John Milgrim

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.50

  	
   

  
	
  John Milgrim

  	
   

  	
  100,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.80

  	
   

  
	
  Jon Barron

  	
   

  	
  20,000

  	
   

  	
  —

  	
   

  	
  380,000

  	
   

  	
  —

  	
   

  	
  $

  	
  2.50

  	
   

  
	
  Jon Barron

  	
   

  	
  200,000

  	
   

  	
  —

  	
   

  	
  200,000

  	
   

  	
  —

  	
   

  	
  $

  	
  0.70

  	
   

  
	
  KBK Ventures

  	
   

  	
  —

  	
   

  	
  250,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.80

  	
   

  
	
  Mark Burnett

  	
   

  	
  —

  	
   

  	
  1,050,000

  	
   

  	
  —

  	
   

  	
  200,000

  	
   

  	
  $

  	
  0.70

  	
   

  
	
  Mark Burnett

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  750,000

  	
   

  	
  $

  	
  1.25

  	
   

  
	
  Michael Goldberg

  	
   

  	
  150,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.40

  	
   

  
	
  Nest Ventures LLC

  	
   

  	
  —

  	
   

  	
  250,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.35

  	
   

  
	
  Sam Freeman

  	
   

  	
  350,000

  	
   

  	
  —

  	
   

  	
  300,000

  	
   

  	
  —

  	
   

  	
  $

  	
  0.50

  	
   

  
	
  Sam Freeman

  	
   

  	
  —

  	
   

  	
  25,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.70

  	
   

  
	
  Sam Freeman

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  200,000

  	
   

  	
  $

  	
  1.07

  	
   

  
	
  W. Curtis Hargis

  	
   

  	
  25,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.70

  	
   

  
	
  W. Curtis Hargis

  	
   

  	
  400,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  0.50

  	
   

  
	
  Thomas Colbourn

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  50,000

  	
   

  	
  —

  	
   

  	
  $

  	
  0.90

  	
   

  
	
  C Warrants Outstanding

  	
   

  	
  —

  	
   

  	
  75,000

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  3.00

  	
   

  
	
  R. Glenn Williamson

  	
   

  	
  250,000

  	
   

  	
  —

  	
   

  	
  500,000

  	
   

  	
  —

  	
   

  	
  $

  	
  0.35

  	
   

  
	
  Morehouse Debt
  Conversion

  	
   

  	
  520,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  0.60

  	
   

  
	
  TOTAL

  	
   

  	
  3,885,000

  	
   

  	
  1,650,000

  	
   

  	
  1,430,000

  	
   

  	
  1,150,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Options and Warrants
  Issued

  	
   

  	
  5,535,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Contingent Options

  	
   

  	
  1,430,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Contingent Warrants

  	
   

  	
  1,150,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  8,115,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

 

Schedule 5(q)

Sweet
Success Enterprises, Inc.

Summary of Liabilities

As of 6/30/06

	
   

  	
   

  	
  3.31.06

  	
   

  	
  6.30.06 (unaudited)

  	
   

  
	
  Vendor

  	
   

  	
  Adj. AP

  summary-Trial

  balance

  	
   

  	
  Approximate

  Activity

  	
   

  	
  Approximate AP

  Summary

  	
   

  
	
  Accounts Payable
  - Trade Advances & Accrued Expenses:

  	
   

  	
  564,655.66

  	
   

  	
  245,644.34

  	
   

  	
  810,300.00

  	
   

  
	
  CEO Cast Stock
  to be Issued

  	
   

  	
  112,500.00

  	
   

  	
  21,000.00

  	
   

  	
  133,500.00

  	
   

  
	
  Other Consultant
  Stock to be Issued

  	
   

  	
   

  	
   

  	
  144,500.00

  	
   

  	
  144,500.00 

  	
  (1)

  
	
  Royalties

  	
   

  	
  857.00

  	
   

  	
  343.00

  	
   

  	
  1,200.00

  	
   

  
	
  Notes Payable

  	
   

  	
  520,000.00

  	
   

  	
  (494,500.00

  	
  )

  	
  25,500.00

  	
   

  
	
  Advances to JAG

  	
   

  	
  108,362.00

  	
   

  	
  (3,362.00

  	
  )

  	
  105,000.00

  	
   

  
	
  Advances to
  Gallagher(s)

  	
   

  	
  53,630.00

  	
   

  	
  6,370.00

  	
   

  	
  60,000.00 

  	
  (2)

  
	
  Deferred Revenue

  	
   

  	
  32,550.00

  	
   

  	
  5,450.00

  	
   

  	
  38,000.00

  	
   

  
	
  Other

  	
   

  	
  19,380.00

  	
   

  	
  10,620.00

  	
   

  	
  30,000.00

  	
   

  
	
  Totals

  	
   

  	
  847,279.00

  	
   

  	
  (309,579.00

  	
  )

  	
  537,700.00

  	
   

  
	
  Grand
  Totals

  	
   

  	
  1,411,934.66

  	
   

  	
  (63,934.66

  	
  )

  	
  1,348,000.00

  	
   

  
	
  Less Non-Cash
  Related Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (278,000.00

  	
  )

  
	
  Add Amounts
  Incurred Subsequent to 6/30/06

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  18,000.00

  	
  (2)

  
	
  Cash
  Related Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  1,088,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  rounded
  to

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  1,100,000.00

  	
   

  
									

 

NOTE: The
quarterly 6.30.06 activity and balances are considered “in process” pending
completion of 2nd Quarter preparation and auditor review and hence further adjustments
will be added. The above represents most current estimates.

(1) - Certain
liabilities in the Additional Stock to Be Issued amount was reduced subsequent
to 6/30/06 by approximately $66,500.

(2) - Additional
advances in the sum of approximately $18,000 were given to the Company by Ben
Gallagher subsequent to 6/30/06.

 

 

Schedule
5(v)

Transfer
Agent

Corporate
Stock Transfer

Carylyn
K. Bell, President

3200
Cherry Creek Dr. Suite 430

Denver,
CO 80209

(303)
282-4800 (Telephone)

(303)
282-5800 (Fax)

 

Schedule 8

FINDER:

Econor
Investments Ltd.

C/o
Mosi Kraus

140
Birmensdorfer Str

8003
Zurich, Switzerland

Fax: 011 411 451-0946

Cash
Fee.   The Company agrees that it will pay the
Finder, on the Closing Date a fee of ten percent (10%) of the Purchase Price (“Finder’s Cash Fee”).  The Company represents that there are no
other parties entitled to receive fees, commissions, or similar payments in
connection with the Offering except the Finder.

Warrant Exercise Compensation.   The Finder will also be paid
by the Company ten percent (10%) of the cash proceeds received by the Company
from exercise of the Warrants (“Warrant
Exercise Compensation”).  The
Warrant Exercise Compensation must be paid by the Company to the Finder within
five (5) days after each receipt by the Company of Warrant Exercise cash
proceeds.

Finder’s Warrants.  On the Closing Date, the Company will issue
to the Finder, ten (10) Warrants for each one hundred (100) Warrants issuable
on the Closing Date to the Subscribers (“Finder’s Warrants”) similar to and carrying the same rights as the
Class A Warrants issuable to the Subscribers except that Warrant Exercise
Compensation will not be payable in connection with such Finder’s Warrants.

All the representations, covenants, warranties, undertakings, remedies,
liquidated damages, indemnification, and other rights including but not limited
to reservation requirements and registration rights made or granted to or for
the benefit of the Subscribers are hereby also made and granted to and for the
benefit of the Finder in respect of the Finder’s Warrants and the Warrant
Shares issuable upon exercise of the Finder’s Warrants.

 

Schedule
9(e)

Use of
Proceeds

Sweet Success
Enterprises, Inc.

 

	
  Investment

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bank Commission
  (10%)

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  Offering Expenses
  (2%)

  	
   

  	
  $

  	
  100,000

  	
   

  
	
  Legal and Other
  Transactional Related Expenses

  	
   

  	
  $

  	
  100,000

  	
   

  
	
  Liabilities for
  Accounts and Notes Payable

  	
   

  	
  $

  	
  1,100,000

  	
   

  
	
  Working Capital

  	
   

  	
  $

  	
  700,000

  	
   

  
	
  Inventory Costs

  	
   

  	
  $

  	
  1,500,000

  	
   

  
	
  Asset
  Acquisition for POS Coolers (Quantity 200)

  	
   

  	
  $

  	
  100,000

  	
   

  
	
  Marketing

  	
   

  	
  $

  	
  900,000

  	
   

  
	
  Totals

  	
   

  	
  $

  	
  5,000,000

  	
   

  

 

 

Schedule
9(s)

Lock Up
Agreement Providers

 

	
  Name

  	
   

  	
  Number of

  Shares

  Common

  Stock

  Issued

  	
   

  	
  Converted

  Preferred

  Stock

  Issued

  	
   

  	
  Number of

  Stock

  Options

  and

  Warrants

  Issued

  	
   

  	
  total

  shares

  	
   

  	
  Percent

  of Class

  	
   

  
	
  William J.
  Gallagher

  	
   

  	
  2,000,000

  	
   

  	
  1,000,000

  	
   

  	
  —

  	
   

  	
  3,000,000

  	
   

  	
  18.4

  	
  %

  
	
  Graydon Webb

  	
   

  	
  150,000

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  150,000

  	
   

  	
  1.0

  	
  %

  
	
  Glenn Williamson

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  500,000

  	
   

  	
  500,000

  	
   

  	
  3.2

  	
  %

  
	
  Jon Barron

  	
   

  	
  150,000

  	
   

  	
   

  	
   

  	
  220,000

  	
   

  	
  370,000

  	
   

  	
  2.4

  	
  %

  
	
  Robert
  Lippincott

  	
   

  	
  120,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  120,000

  	
   

  	
  0.8

  	
  %

  
	
  Theodore M.
  Heesch

  	
   

  	
  50,000

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  50,000

  	
   

  	
  0.3

  	
  %

  
	
  James Haworth

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  600,000

  	
   

  	
  600,000

  	
   

  	
  3.8

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  All officers and
  directors as a group (7 persons)

  	
   

  	
  2,470,000

  	
   

  	
  1,000,000

  	
   

  	
  1,320,000

  	
   

  	
  4,790,000

  	
   

  	
  27.2

  	
  %

  

 

 

Schedule
11.1

Other
Registrable Securities

 

Schedule
12(a)

Excepted
Issuances described in Reports and Other Written Information

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}]]