Document:

Exhibit 10.1

    SECURITIES
      PURCHASE AGREEMENT

     

    BY
      AND BETWEEN

     

    THEATER
      XTREME ENTERTAINMENT GROUP, INC.

     

    AND

     

    KINZER
      TECHNOLOGY, LLC

     

    

     

    

     

    DECEMBER
      22, 2006

     

    

    

    
      
        
           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    
      	
              TABLE
                OF CONTENTS

            
	
               

            	 	
              Page

            
	
              ARTICLE
                I DEFINITIONS

            	
              1 

            
	
              1.1

            	
              Definitions

            	
              1

            
	
              ARTICLE
                II PURCHASE AND SALE

            	
              4

            
	
              2.1

            	
              Closing

            	
              4

            
	
              2.2

            	
              Deliveries

            	
              5

            
	
              ARTICLE
                III REPRESENTATIONS AND WARRANTIES

            	
              5

            
	
              3.1

            	
              Representations
                and Warranties of the Company

            	
              5

            
	
              3.2

            	
              Representations
                and Warranties of Purchaser

            	
              15

            
	
              ARTICLE
                IV OTHER AGREEMENTS OF THE PARTIES

            	
              17

            
	
              4.1

            	
              Transfer
                Restrictions.

            	
              17

            
	
              4.2

            	
              Acknowledgment
                of Dilution

            	
              19

            
	
              4.3

            	
              Furnishing
                of Information

            	
              19

            
	
              4.4

            	
              Integration

            	
              20

            
	
              4.5

            	
              Reservation
                and Listing of Conversion Shares.

            	
              20

            
	
              4.6

            	
              Exercise
                Procedures

            	
              20

            
	
              4.7

            	
              Securities
                Laws Disclosure; Publicity

            	
              20

            
	
              4.8

            	
              Shareholder
                Rights Plan

            	
              21

            
	
              4.9

            	
              [INTENTIONALLY
                DELETED.]

            	
              21

            
	
              4.10

            	
              No
                Impairment

            	
              21

            
	
              4.11

            	
              Indemnification
                of Purchaser

            	
              21

            
	
              4.12

            	
              Blue
                Sky Filings

            	
              22

            
	
              4.13

            	
              Piggy-Back
                Registrations

            	
              22

            
	
              ARTICLE
                V MISCELLANEOUS

            	
              23

            

    

     

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

     

    
      	
              5.1

            	
              Fees
                and Expenses

            	
              23

            
	
              5.2

            	
              Entire
                Agreement

            	
              23

            
	
              5.3

            	
              Notices

            	
              23

            
	
              5.4

            	
              Amendments;
                Waivers

            	
              23

            
	
              5.5

            	
              Headings

            	
              24

            
	
              5.6

            	
              Successors
                and Assigns

            	
              24

            
	
              5.7

            	
              No
                Third-Party Beneficiaries

            	
              24

            
	
              5.8

            	
              Governing
                Law

            	
              24

            
	
              5.9

            	
              Survival

            	
              25

            
	
              5.10

            	
              Execution

            	
              25

            
	
              5.11

            	
              Severability

            	
              25

            
	
              5.12

            	
              Rescission
                and Withdrawal Right

            	
              25

            
	
              5.13

            	
              Replacement
                of Securities

            	
              25

            
	
              5.14

            	
              Remedies

            	
              26

            
	
              5.15

            	
              Payment
                Set Aside

            	
              26

            
	
              5.16

            	
              Usury

            	
              26

            
	
              5.17

            	
              Liquidated
                Damages

            	
              26

            
	
              5.18

            	
              Construction

            	
              27

            

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    EXHIBITS:

     

    Exhibit
      A Form
      of
      Debenture

    Exhibit
      B Form
      of
      Warrant

    

    

    SCHEDULES:

    

    Schedule
      3.1(d) Conflicts

    Schedule
      3.1(e) Filings, Consents and Approvals

    Schedule
      3.1(g) Participation Rights

    Schedule
      3.1(z) Indebtedness

    Schedule
      3.1(ee) Senior Indebtedness

    

    

    
      
        
        

        
        

      

      
        iii

        
          

        

      

      
        
        

        
        

      

    

    

      SECURITIES
        PURCHASE AGREEMENT

      

      This
        Securities Purchase Agreement (this “Agreement”) is dated as of December 22,
        2006 by and between Theater Xtreme Entertainment Group, Inc., a Florida
        corporation (the “Company”), and Kinzer Technology, LLC, a Virginia limited
        liability company (“Purchaser”).

      

      WHEREAS,
        subject to the terms and conditions set forth in this Agreement and pursuant
        to
        Section 4(2) of the Securities Act, the Company desires to issue and sell
        to
        Purchaser, and Purchaser desires to purchase from the Company, securities
        of the
        Company as more fully described in this Agreement.

      

      NOW,
        THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
        and for other good and valuable consideration, the receipt and adequacy of
        which
        are hereby acknowledged, the Company and Purchaser agree as
        follows:

      

      ARTICLE
        I

      DEFINITIONS

       

      1.1  Definitions.
        In
        addition to the terms defined elsewhere in this Agreement: (a) capitalized
        terms
        that are not otherwise defined herein have the respective
        meanings given to such terms in the Debenture or Warrant (as defined herein),
        and (b) the following terms have the respective meanings set forth in this
        Section 1.1:

       

      “Affiliate”
means
        any Person that, directly or indirectly through one or more intermediaries,
        controls or is controlled by or is under common control with a Person, as
        such
        terms are used in and construed under Rule 144 under the Securities Act.
        

      

      “Cash
        Amount”
shall
        have the meaning ascribed to such term in Section 4.5(c).

      

      “Closing”
means
        the closing of the purchase and sale of the Debenture and Warrant pursuant
        to
        Section 2.1.

      

      “Closing
        Date”
means
        the Trading Day when all of the Transaction Documents have been executed
        and
        delivered by the applicable parties thereto, and all conditions precedent
        to (i)
        the Purchaser’s obligations to pay the Purchase Price and (ii) the Company’s
        obligations to deliver the Debenture and Warrant have been satisfied or
        waived.

      

      “Commission”
means
        the Securities and Exchange Commission.

      

      “Common
        Stock”
means
        the common stock of the Company, par value $0.001 per share, and any other
        class
        of securities into which such securities may hereafter be reclassified or
        changed.

      

      “Common
        Stock Equivalents”
means
        any securities of the Company which would entitle the holder thereof to acquire
        at any time Common Stock, including, without limitation, any debt, preferred
        stock, rights, options, warrants or other instrument that is at any time
        convertible into or exercisable or exchangeable for, or otherwise entitles
        the
        holder thereof to receive, Common Stock.

      

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      “Company
        Counsel”
means
        Ballard Spahr Andrews and Ingersoll, LLP with offices at 1735 Market Street,
        51st
        Floor,
        Philadelphia, Pennsylvania, 19103−7599.

      

      “Contracts”
shall
        have the meaning ascribed to such term in Section 3.1(jj).

      

      “Debenture”
means
        the 10% Debenture issued by the Company to Purchaser, in the form of
Exhibit
        A
        attached
        hereto.

      

      “Designated
        Officers”
means
        Scott R. Oglum, Kenneth Warren, and James J. Vincenzo, the Chief Executive
        Officer, President, and Chief Financial Officer of the Company, respectively
        

      

      “ERISA”
means
        the Employee Retirement Income Security Act of 1974, as amended.

      

      “Evaluation
        Date”
shall
        have the meaning ascribed to such term in Section 3.1(r).

      

      “Exchange
        Act”
means
        the Securities Exchange Act of 1934, as amended, and the rules and regulations
        promulgated thereunder.

      

      “Financial
        Statements”
shall
        have the meaning ascribed to such term in Section 3.1(h).

      

      “Form
        8-K Filing”
shall
        have the meaning ascribed to such term in Section 4.7.

      

      “GAAP”
shall
        have the meaning ascribed to such term in Section 3.1(h).

      

      “Indebtedness”
shall
        have the meaning ascribed to such term in Section 3.1(z).

      

      “Intellectual
        Property Rights”
shall
        have the meaning ascribed to such term in Section 3.1(o).

      

      “Legend
        Removal Date”
shall
        have the meaning ascribed to such term in Section 4.1(c).

      

      “Liens”
means
        a
        lien, charge, security interest, pledge, encumbrance, right of first refusal,
        preemptive right or other preferential arrangement or restriction.

      

      “Material
        Adverse Effect”
shall
        have the meaning assigned to such term in Section 3.1(b).

      

      “Material
        Permits”
shall
        have the meaning ascribed to such term in Section 3.1(m).

      

      “Maximum
        Rate”
shall
        have the meaning ascribed to such term in Section 5.16.

      

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      “Person”
means
        an individual or corporation, partnership, trust, incorporated or unincorporated
        association, joint venture, limited liability company, joint stock company,
        government (or an agency or subdivision thereof) or other entity of any
        kind.

      

      “Plans”
shall
        have the meaning ascribed to such term in Section 3.1(kk).

      

      “Proceeding”
means
        an action, claim, suit, arbitration, inquiry, notice of violation, investigation
        or proceeding (including, without limitation, an investigation or partial
        proceeding, such as a deposition), whether commenced or threatened.

      

      “Purchase
        Price”
shall
        have the meaning ascribed to such term in Section 2.1.

      

      “Purchaser
        Counsel”
means
        Duane Morris LLP with offices at 1180 West Peachtree Street, Suite 700, Atlanta,
        Georgia 30309-3449.

      

      “Purchaser
        Party”
shall
        have the meaning ascribed to such term in Section 4.11.

      

      “Registrable
        Securities”
means
        (i) all Warrant Shares, (ii) any additional shares of Common Stock issuable
        in
        connection with any anti-dilution provisions in the Warrant (in each case,
        without giving effect to any limitations on exercise set forth in the Warrant)
        and (iii) any securities issued or issuable upon any stock split, dividend
        or
        other distribution, recapitalization or similar event with respect to the
        foregoing.

      

      “Required
        Filings”
shall
        have the meaning ascribed to such term in Section 3.1(e).

      

      “Required
        Minimum”
means,
        as of any date, the maximum aggregate number of shares of Common Stock then
        issued or potentially issuable in the future pursuant to the Transaction
        Documents.

      

      “Rule
        144”
means
        Rule 144 promulgated by the Commission pursuant to the Securities Act, as
        such
        Rule may be amended from time to time, or any similar rule or regulation
        hereafter adopted by the Commission having substantially the same effect
        as such
        Rule.

      

      “SEC
        Reports”
shall
        have the meaning ascribed to such term in Section 3.1(h).

      

      “Securities”
means
        the Debenture, the Warrant and the Warrant Shares.

      

      “Securities
        Act”
means
        the Securities Act of 1933, as amended, and the rules and regulations
        promulgated hereunder.

      

      “Short
        Sales”
means
        all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
        Act (but shall not be deemed to include the location and/or reservation of
        borrowable shares of Common Stock).

      

      “Subsidiary”
with
        respect to a Person, means another Person more than 50% of the equity and
        voting
        interests of which are owned, directly or indirectly, by the first such
        Person.

      

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      “Trading
        Day”
means
        a
        day on which the Common Stock is traded on a Trading Market.

      

      “Trading
        Market”
means
        the following markets or exchanges on which the Common Stock is listed or
        quoted
        for trading on the date in question: the American Stock Exchange, the Nasdaq
        Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
        the
        New York Stock Exchange or the OTC Bulletin Board.

      

      “Transaction
        Documents”
means
        this Agreement, the Debenture, the Warrant, and any other documents or
        agreements executed in connection with the transactions contemplated
        hereunder.

      

      “Transfer
        Agent”
means
        Stock Trans, Inc, with a mailing address of 44 W. Lancaster Avenue, Ardmore,
        Pennsylvania 19003 and a facsimile number of (610)649−7302, and any successor
        transfer agent of the Company.

      

      “VWAP”
means,
        for any date, the price determined by the first of the following clauses
        that
        applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
        the daily volume weighted average price of the Common Stock for such date
        (or
        the nearest preceding date) on the Trading Market on which the Common Stock
        is
        then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
        from
        9:30 a.m. New York City time to 4:02 p.m. New York City time); (b) if the
        OTC
        Bulletin Board is not a Trading Market, the volume weighted average price
        of the
        Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
        Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin
        Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding
        to
        its functions of reporting prices), the last bid price per share of the Common
        Stock so reported on such date (or the nearest preceding date); or (d) in
        all
        other cases, the fair market value of a share of Common Stock as determined
        by
        an independent appraiser selected in good faith by the Purchaser and reasonably
        acceptable to the Company, the fees and expenses of which shall be paid by
        the
        Company.

      

      “Warrant”
means
        the Common Stock purchase warrant delivered to Purchaser at the Closing in
        accordance with Section 2.2(a) hereof, in the form of Exhibit
        B
        attached
        hereto.

      

      “Warrant
        Shares”
means
        the shares of Common Stock issuable upon exercise of the Warrant.

      

      ARTICLE
        II

      PURCHASE
        AND SALE

       

      2.1  Closing.
        Upon
        the terms and subject to the conditions set forth herein, substantially
        concurrent with the execution and delivery of this Agreement by the parties
        hereto, the Company shall and hereby agrees to sell, and Purchaser, shall
        and
        hereby agrees to purchase, Seven Hundred Thousand Dollars ($700,000.00) in
        principal amount of the Debenture. On December 22, 2006 (the “Closing Date”),
        Purchaser shall deliver to the Company, via wire transfer, immediately available
        funds equal to Seven Hundred Thousand Dollars ($700,000.00) (the “Purchase
        Price”), and the Company shall deliver to Purchaser the Debenture and Warrant,
        and the Company and Purchaser shall deliver the other items set forth in
        Section
        2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth
        in
        Section 2.2, the Closing shall occur at the offices of Purchaser Counsel
        or such
        other location as the parties shall mutually agree.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      2.2  Deliveries

       

      (a)  On
        the
        Closing Date, the Company shall deliver or cause to be delivered to Purchaser
        the following:

       

      (i)  a
        legal
        opinion of Company Counsel, in a form reasonably acceptable to Purchaser
        Counsel;

       

      (ii)  the
        Debenture registered in
        the
        name of Purchaser;

       

      (iii)  the
        Warrant registered in the name of Purchaser;
        and

       

      (iv)  any
        other
        document reasonably requested by Purchaser or Purchaser Counsel.

       

      (b)  On
        the
        Closing Date, Purchaser shall deliver or cause to be delivered to the Company
        the Purchase Price by wire transfer to the account as specified in writing
        by
        the Company.

       

      ARTICLE
        III

      REPRESENTATIONS
        AND WARRANTIES

       

      3.1  Representations
        and Warranties of the Company.
        The
        Company hereby makes the following representations and warranties to
Purchaser:

       

      (a)  Subsidiaries.
        The
        Company does not directly or indirectly control or own any interest in any
        other
        Person.

       

      (b)  Organization
        and Qualification.
        The
        Company is an entity duly incorporated, validly existing and in good standing
        under the laws of the jurisdiction of its incorporation, with the requisite
        power and authority to own, lease and use its properties and assets and to
        carry
        on its business as currently conducted. The Company is not in violation or
        default of any of the provisions of its articles of incorporation or bylaws.
        The
        Company is duly qualified to conduct business and is in good standing as
        a
        foreign corporation in each jurisdiction in which the nature of the business
        conducted or property owned by it makes such qualification necessary, except
        where the failure to be so qualified or in good standing, as the case may
        be,
        could not have or reasonably be expected to result in (i) a material adverse
        effect on the legality, validity or enforceability of any Transaction Document,
        (ii) a material adverse effect on the results of operations, assets, business,
        prospects or condition (financial or otherwise) of the Company, or (iii)
        a
        material adverse effect on the Company’s ability to perform fully on a timely
        basis its obligations under any Transaction Document (any of (i), (ii) or
        (iii),
        a “Material Adverse Effect”), and no Proceeding has been instituted in any such
        jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
        or
        curtail such power and authority or qualification.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      (c)  Authorization;
        Enforcement.
        The
        Company has the requisite corporate power and authority to enter into and
        to
        consummate the transactions contemplated by each of the Transaction Documents
        and otherwise to carry out its obligations hereunder and thereunder.
        The execution, delivery and performance of each of the Transaction Documents
        by
        the Company and the consummation by it of the transactions contemplated hereby
        and thereby have been duly authorized by all necessary corporate action on
        the
        part of the Company and no further consent or action is required by the Company,
        its Board of Directors or its stockholders in connection therewith other
        than
        actions necessary to satisfy the Company’s post-closing obligations under the
        Transaction Documents including, to the extent necessary, making the Required
        Filings. Each Transaction Document has been duly executed by the Company
        and,
        when delivered in accordance with the terms hereof and thereof, will constitute
        the valid and legally binding obligation of the Company enforceable against
        the
        Company in accordance with its terms except (i) as limited by general equitable
        principles and applicable bankruptcy, insolvency, reorganization, moratorium
        and
        other laws of general application affecting enforcement of creditors’ rights
        generally, (ii) as limited by laws relating to the availability of specific
        performance, injunctive relief or other equitable remedies and (iii) insofar
        as
        indemnification and contribution provisions may be limited by applicable
        law.
        The Company is not in violation of any of the provisions of its articles
        of
        incorporation or by-laws.

       

      (d)  No
        Conflicts.
        Except
        as set forth on Schedule 3.1(d)
        attached
        hereto, the execution, delivery and performance of the Transaction Documents
        by
        the Company and the consummation by the Company of the other transactions
        contemplated hereby and thereby do not and will not: (i) conflict with or
        violate any provision
        of the Company’s articles of incorporation or bylaws, (ii) conflict with, or
        constitute a default (or an event that with notice or lapse of time or both
        would become a default) under, result in the creation of any Lien upon any
        of
        the properties or assets of the Company, or give to others any rights of
        termination, amendment, acceleration or cancellation (with or without notice,
        lapse of time or both) of, any agreement, credit facility, debt or other
        instrument (evidencing a Company debt or otherwise) or other understanding
        to
        which the Company is a party or by which any property or asset of the Company
        is
        bound or affected, or (iii) subject to the Required Filings, conflict with
        or
        result in a violation of any law, rule, regulation, order, judgment, injunction,
        decree or other restriction of any court or governmental authority to which
        the
        Company is subject (including federal and state securities laws and
        regulations), or by which any property or asset of the Company is bound or
        affected; except in the case of each of clauses (ii) and (iii), such as could
        not have or reasonably be expected to result in a Material Adverse
        Effect.

       

      (e)  Filings,
        Consents and Approvals.
        Except
        as set forth on Schedule
        3.1(e),
        the
        Company is not required to obtain any consent, waiver, authorization or order
        of, give any notice to, or make any filing or registration with, any court
        or
        other federal, state, local or other governmental authority or other Person
        in
        connection with the execution, delivery and performance by the Company of
        the
        Transaction Documents, other than (i) filings required pursuant to Section
        4.7,
        and (ii) such filings (if any) as are required to be made under applicable
        state
        securities laws (collectively, the “Required Filings”). All filings of the
        Company required to be filed with federal, state, local or governmental
        authorities (including the Federal Trade Commission) in connection with the
        Company’s sale of franchises are current as of the date of this
        Agreement.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      (f)  Issuance
        of the Securities.
        The
        Debenture and Warrant are duly authorized and, when issued and paid for in
        accordance with this Agreement, will be duly and validly issued, fully paid
        and
        nonassessable, free and clear of all Liens imposed by the
        Company other than those provided for in the Transaction Documents. The Warrant
        Shares, when issued and paid for in accordance with the terms of the Transaction
        Documents, will: (i) be validly issued, fully paid and nonassessable;
(ii)
        be
        issued in compliance with an exemption from registration under all applicable
        federal and state securities laws; and (iii) be free
        and
        clear of all Liens imposed by the Company. The Company has reserved from
        its
        duly authorized capital stock a number of shares of Common Stock for issuance
        of
        the Warrant Shares at least equal to the Required Minimum.

       

      (g)  Capitalization.
        The
        capitalization of the Company is as follows: 50,000,000 shares of Common
        Stock,
        par value $.001 per share, are authorized, of which 19,836,175 shares are
        issued
        and outstanding on the date hereof, and 5,000,000 shares of preferred stock,
        without
        par value, are authorized, of which no shares are issued or outstanding.
        Except
        as set forth on Schedule 3.1(g)
        attached
        hereto, no Person has any right of first refusal, preemptive right, right
        of
        participation, or any similar right to participate in the transactions
        contemplated by the Transaction Documents. In addition to the Warrant offered
        for sale to Purchaser hereunder, there are three outstanding warrants to
        purchase 440,000 shares of Common Stock in the aggregate at an exercise price
        of
        $1.00 per share. There are no other outstanding warrants or options, script
        rights to subscribe to, calls or commitments of any character whatsoever
        relating to, or securities, rights or obligations convertible into or
        exercisable or exchangeable for, or giving any Person any right to subscribe
        for
        or acquire, any shares of Common Stock, or contracts, commitments,
        understandings or arrangements by which the Company is or may become bound
        to
        issue additional shares of Common Stock or Common Stock Equivalents other
        than
        pursuant to the exercise of employee stock options under the Company’s stock
        option plans or the issuance of shares of Common Stock to employees pursuant
        to
        the Company’s employee stock purchase plan or pursuant to the warrants referred
        to in the preceding sentence. Except as set forth on Schedule
        3.1(g),
        the
        issuance and sale of the Securities will not obligate the Company to issue
        shares of Common Stock or other securities to any Person (other than Purchaser)
        and will not result in a right of any holder of Company securities to adjust
        the
        exercise, conversion, exchange or reset price under any of such securities.
        All
        of the outstanding shares of capital stock of the Company are validly issued,
        fully paid and nonassessable, have been issued in compliance with all federal
        and state securities laws, and none of such outstanding shares was issued
        in
        violation of any preemptive rights or similar rights to subscribe for or
        purchase securities. No further approval or authorization of any stockholder,
        the Board of Directors of the Company or others is required for the issuance
        and
        sale of the Securities. There are no stockholders’ agreements, voting agreements
        or other similar agreements with respect to the Company’s capital stock to which
        the Company is a party or, to the knowledge of the Company, between or among
        any
        holder of securities of the Company. 

       

      (h)  SEC
        Reports; Financial Statements.
        The
        Company has filed all reports, schedules, forms, statements and other documents
        required to be filed by the Company under the Securities Act and the Exchange
        Act, including pursuant to Section 13(a) or 15(d) thereof,
        for the two (2) years preceding the date hereof (or such shorter period as
        the
        Company was required by law or regulation to file such material) (the foregoing
        materials, including the exhibits thereto and documents incorporated by
        reference therein, being collectively referred to herein as the 

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      “SEC
        Reports”) on a timely basis or has received a valid extension of such time of
        filing and has filed any such SEC Reports prior to the expiration of any
        such
        extension. As of their respective dates of filing with the Commission, the
        SEC
        Reports, together with any amendments thereto, complied in all material respects
        with the requirements of the Securities Act and the Exchange Act, as applicable,
        and none of the SEC Reports, when filed, contained any untrue statement of
        a
        material fact or omitted to state a material fact required to be stated therein
        or necessary in order to make the statements therein, in the light of the
        circumstances under which they were made, not misleading. The financial
        statements of the Company included in the SEC Reports (the “Financial
        Statements”) comply in all material respects with applicable accounting
        requirements and the rules and regulations of the Commission with respect
        thereto as in effect at the time of filing. The Financial Statements have
        been
        prepared in accordance with United States generally accepted accounting
        principles applied on a consistent basis during the periods involved (“GAAP”),
        except as may be otherwise specified in the Financial Statements or the notes
        thereto and except that unaudited financial statements may not contain all
        footnotes required by GAAP and are subject to routine year-end adjustments
        which
        are not material in the aggregate. The Financial Statements fairly present
        in
        all material respects the financial position of the Company as of and for
        the
        dates thereof and the results of operations and cash flows for the periods
        then
        ended, subject, in the case of unaudited statements, to normal, year-end
        audit
        adjustments as referred to above.

       

      (i)  Material
        Changes.
        Since
        the date of the latest audited financial statements included within the SEC
        Reports, except as specifically disclosed in a subsequent SEC Report filed
        prior
        to the date hereof, (i) there has been no event, occurrence or development
        that
        has had
        or
        that could reasonably be expected to result in a Material Adverse Effect,
        (ii)
        the Company has not incurred any liabilities (contingent or otherwise) other
        than (A) trade payables, new real estate leases, and accrued expenses incurred
        in the ordinary course of business consistent with past practice, and (B)
        liabilities not required to be reflected in the Company’s financial statements
        pursuant to GAAP or disclosed in filings made with the Commission, (iii)
        the
        Company has not altered its method of accounting, (iv) the Company has not
        declared or made any dividend or distribution of cash or other property to
        its
        stockholders or purchased, redeemed or made any agreements to purchase or
        redeem
        any shares of its capital stock, and (v) the Company has not issued any equity
        securities to any officer, director or Affiliate, except pursuant to existing
        Company stock option plans. The Company does not have pending before the
        Commission any request for confidential treatment of information. Except
        for the
        issuance of the Securities contemplated by this Agreement, no event, liability
        or development has occurred or exists with respect to the Company or its
        business, properties, operations or financial condition, that would be required
        to be disclosed by the Company under applicable securities laws at the time
        this
        representation is made that has not been publicly disclosed at least one
        Trading
        Day prior to the date that this representation is made.

       

      (j)  Litigation.
        There
        is no Proceeding pending or, to the knowledge of the Company, threatened
        against
        or affecting the Company or any of its properties before or by any court,
        arbitrator,
        governmental or administrative agency or regulatory authority (federal, state,
        county, local or foreign) which (i) adversely affects or challenges the
        legality, validity or enforceability of any of the Transaction Documents
        or the
        Debenture and Warrant, or (ii) could, if there were an unfavorable decision,
        have or reasonably be expected to result in a Material Adverse Effect. Neither
        the Company, nor any director or officer thereof, is or has been the

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      subject
        of any Proceeding involving a claim of violation of or liability under federal
        or state securities laws or a claim of breach of fiduciary duty. There has
        not
        been, and to the knowledge of the Company, there is not pending or contemplated,
        any investigation by the Commission or the Federal Trade Commission involving
        the Company or any current or former director or officer of the Company.
        The
        Commission has not issued any stop order or other order suspending the
        effectiveness of any registration statement filed by the Company under the
        Exchange Act or the Securities Act.

       

      (k)  Labor
        Relations.
        No
        labor dispute exists or, to the knowledge of the Company, is imminent with
        respect to any of the employees of the Company which could reasonably be
        expected to result in a Material Adverse Effect. None of the Company’s
employees
        is a member of a union that relates to such employee’s relationship with the
        Company, and the Company is not a party to a collective bargaining agreement,
        and the Company believes that its relationships with its employees are good.
        No
        executive officer, to the knowledge of the Company, is or is now expected
        to be,
        in violation of any material term of any employment contract, confidentiality,
        disclosure or proprietary information agreement or non-competition agreement,
        or
        any other contract or agreement or any restrictive covenant, and the continued
        employment of each such executive officer does not subject the Company to
        any
        liability with respect to any of the foregoing matters. The Company is in
        compliance with all U.S. federal, state, local and foreign laws and regulations
        relating to employment and employment practices, terms and conditions of
        employment and wages and hours, except where the failure to be in compliance
        could not, individually or in the aggregate, reasonably be expected to have
        a
        Material Adverse Effect.

       

      (l)  Compliance.
        The
        Company (i) is not in default under or in violation of (and no event has
        occurred that has not been waived that, with notice or lapse of time or both,
        would result in a default by the Company under), nor
        has
        the Company received notice of a claim that it is in default under or that
        it is
        in violation of, any indenture, loan or credit agreement or any other agreement,
        contract or instrument to which it is a party or by which it or any of its
        properties is bound (whether or not such default or violation has been waived),
        (ii) is in violation of any order of any court, arbitrator or governmental
        body,
        or (iii) is or has been in violation of any statute, rule or regulation of
        any
        governmental authority, including without limitation all foreign, federal,
        state
        and local laws applicable to its business, including franchise laws, and
        all
        such laws that affect the environment, except in each case as could not have
        or
        reasonably be expected to result in a Material Adverse Effect.

       

      (m)  Regulatory
        Permits.
        The
        Company possesses all certificates, authorizations and permits issued by
        the
        appropriate federal, state, local or foreign regulatory authorities necessary
        to
        conduct its business as described in the SEC Reports,
        except where the failure to possess such permits could not have or reasonably
        be
        expected to result in a Material Adverse Effect (“Material Permits”), and the
        Company has not received any notice of Proceedings relating to the revocation
        or
        modification of any certificates, authorizations or permits applicable to
        the
        Company.

       

      (n)  Title
        to Assets.
        The
        Company has good and marketable title in fee simple to all real property
        owned
        by it that is material to the business of the Company and good and marketable
        title in all personal
        property owned by it that is material to the business of the 

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      Company,
        in each case free and clear of all Liens, except for purchase money security
        interests, Liens as do not materially affect the value of such property and
        do
        not materially interfere with the use made and proposed to be made of such
        property by the Company and Liens for the payment of federal, state or other
        taxes, the payment of which is neither delinquent nor subject to penalties.
        Any
        real property and facilities held under lease by the Company are held by
        it
        under valid, subsisting and enforceable leases with which the Company is
        in
        material compliance.

       

      (o)  Patents
        and Trademarks.
        The
        Company has, or has rights to use, all patents, patent applications, trademarks,
        trademark applications, service marks, trade names, trade secrets, inventions,
        copyrights, licenses and other intellectual property rights
        and similar rights necessary for use in connection with its business as
        described in the SEC Reports and which the failure to so have would have
        a
        Material Adverse Effect (collectively, the “Intellectual Property Rights”). The
        Company has not received a notice (written or otherwise) that the Intellectual
        Property Rights used by the Company violates or infringes upon the rights
        of any
        Person. To the knowledge of the Company, all such Intellectual Property Rights
        are enforceable and there is no existing infringement by another Person of
        any
        of the Intellectual Property Rights. The Company has taken reasonable security
        measures to protect the secrecy, confidentiality and value of all of its
        intellectual properties, except where failure to do so could not, individually
        or in the aggregate, reasonably be expected to have a Material Adverse
        Effect.

       

      (p)  Insurance.
        The
        Company is insured against such losses and risks and in such amounts as
        management of the Company believes to be prudent. The Company has
        no
        reason to believe that it will not be able to renew its existing insurance
        coverage as and when such coverage expires or to obtain similar coverage
        from
        similar insurers as may be necessary to continue its business without a
        significant increase in cost.

       

      (q)  Transactions
        With Affiliates and Employees.
        Except
        as set forth in the SEC Reports, none of the officers or directors of the
        Company and, to the knowledge of the Company, none of the employees of the
        Company is presently a party to any transaction with the Company
        (other than for services as employees, officers and directors), including
        any
        contract, agreement or other arrangement providing for the furnishing of
        services to or by, providing for rental of real or personal property to or
        from,
        or otherwise requiring payments to or from any officer, director or such
        employee or, to the knowledge of the Company, any 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 $60,000 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.

       

      (r)  Sarbanes-Oxley;
        Internal Accounting Controls.
        The
        Company is in compliance with all provisions of the Sarbanes-Oxley Act of
        2002
        which are applicable to it as of the Closing Date. The Company maintains
        a
        system of internal accounting
        controls sufficient to provide reasonable assurance that (i) transactions
        are
        executed in accordance with management’s general or specific authorizations,
        (ii) transactions are recorded as necessary to permit preparation of financial
        statements in conformity with GAAP and to maintain asset accountability,
        (iii)
        access to assets is permitted only in accordance with management’s general or
        specific authorization, and (iv) the recorded accountability for assets is
        compared with the 

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      existing
        assets at reasonable intervals and appropriate action is taken with respect
        to
        any differences. If applicable to the Company on the date hereof, the Company
        has established disclosure controls and procedures (as defined in Exchange
        Act
        Rules 13a−15(e) and 15d−15(e)) for the Company and designed such disclosure
        controls and procedures to ensure that information required to be disclosed
        by
        the Company in the reports it files or submits under the Exchange Act is
        recorded, processed, summarized and reported, within the time periods specified
        in the Commission’s rules and forms. If applicable to the Company on the date
        hereof, the Company’s certifying officers have evaluated the effectiveness of
        the Company’s disclosure controls and procedures as of the end of the period
        covered by the Company’s most recently filed periodic report under the Exchange
        Act (such date, the “Evaluation Date”). The Company presented in its most
        recently filed periodic report under the Exchange Act the conclusions of
        the
        certifying officers about the effectiveness of the disclosure controls and
        procedures based on their evaluations as of the Evaluation Date. Since the
        Evaluation Date, there have been no changes in the Company’s internal control
        over financial reporting (as such term is defined in the Exchange Act) that
        has
        materially affected, or is reasonably likely to materially affect, the Company’s
        internal control over financial reporting. 

       

      (s)  Brokerage
        or Finder’s Fees.
        No
        brokerage or finder’s fees or commissions are or will be payable by the Company
        to any broker, financial advisor or consultant, finder, placement agent,
        investment banker, bank or other Person with respect
        to the transactions contemplated by the Transaction Documents. Purchaser
        shall
        have no obligation with respect to any fees or with respect to any claims
        made
        by or on behalf of other Persons for fees of a type contemplated in this
        Section
        that may be due in connection with the transactions contemplated by the
        Transaction Documents.

       

      (t)  Private
        Placement.
        Assuming the accuracy of Purchaser’s representations and warranties set forth in
        Section 3.2, no registration under the Securities Act is required for the
        offer
        and sale of the Securities by the Company to Purchaser as contemplated hereby.
        The
        issuance and sale of the Securities hereunder does not contravene the rules
        and
        regulations of the Trading Market.

       

      (u)  Investment
        Company.
        The
        Company is not, and is not an Affiliate of, and immediately after receipt
        of
        payment for the Securities, will not be or be an Affiliate of, an “investment
        company” within the meaning of the Investment Company Act of 1940, as amended.
The
        Company shall conduct its business in a manner so that it will not become
        subject to the Investment Company Act of 1940, as amended.

       

      (v)  Registration
        Rights.
        Other
        than Purchaser, no Person has any right to cause the Company to effect the
        registration under the Securities Act of any securities of the Company, except
        for any such rights which have been satisfied by the Company.

       

      (w)  Listing
        and Maintenance Requirements.
        The
        Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
        Exchange Act, and the Company has taken no action designed to, or which to
        its
        knowledge is likely to have the effect of, terminating
        the registration of the Common Stock under the Exchange Act nor has the Company
        received any notification that the Commission is contemplating terminating
        such
        registration. The Company has not, in the twelve (12) months preceding the
        date
        hereof, received notice from any Trading 

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      Market
        on
        which the Common Stock is or has been listed or quoted to the effect that
        the
        Company is not in compliance with the listing or maintenance requirements
        of
        such Trading Market. The Company is, and has no reason to believe that it
        will
        not in the foreseeable future continue to be, in compliance with all such
        listing and maintenance requirements. Trading in the Common Stock has not
        been
        suspended by the Commission or the Company’s principal Trading
        Market.

       

      (x)  Disclosure.
        Subject
        to the limitations acknowledged by Purchaser in Section 3.2(f)(iii), all
        disclosure furnished by or on behalf of the Company to Purchaser regarding
        the
        Company, its business and the transactions contemplated hereby, is true and
        correct and does not contain any untrue statement of a material fact or omit
        to
        state any material fact necessary in order to make the statements made therein,
        in light of the circumstances under which they were made, not misleading.
        The
        press
        releases disseminated by the Company during the twelve (12) months prior
        to the
        Closing Date did not contain, at the time of their respective releases, any
        untrue statement of a material fact or omit to state a material fact required
        to
        be stated therein or necessary in order to make the statements, in light
        of the
        circumstances under which they were made and when made, not misleading. The
        Company acknowledges and agrees that Purchaser makes no or has made no
        representations or warranties with respect to the transactions contemplated
        hereby other than those specifically set forth in Section 3.2
        hereof.

       

      (y)  No
        Integrated Offering.
        Assuming the accuracy of Purchaser’s representations and warranties set forth in
        Section 3.2, 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 this offering of the Securities to be integrated with prior
        offerings by the Company for purposes of the Securities Act or any applicable
        shareholder approval provision of any Trading Market on which any of the
        securities of the Company are listed or designated.

       

      (z)  Solvency.
        Based
        on the financial condition of the Company as of the Closing Date after giving
        effect to the receipt by the Company of the proceeds from the sale of the
        Securities hereunder: (i) the fair saleable value of the Company’s assets
        exceeds the amount that
        will
        be required to be paid on or in respect of the Company’s existing debts and
        other liabilities (including known contingent liabilities) as they mature;
        (ii)
        the Company’s assets do not constitute unreasonably small capital to carry on
        its business as now conducted and as proposed to be conducted including its
        capital needs taking into account the particular capital requirements of
        the
        business conducted by the Company, and projected capital requirements and
        capital availability thereof; and (iii) the current cash flow of the Company,
        together with the proceeds the Company would receive, were it to liquidate
        all
        of its assets, after taking into account all anticipated uses of the cash,
        would
        be sufficient to pay all amounts on or in respect of its liabilities when
        such
        amounts are required to be paid. The Company does not intend to incur debts
        beyond its ability to pay such debts as they mature (taking into account
        the
        timing and amounts of cash to be payable on or in respect of its debt). The
        Company has no knowledge of any facts or circumstances which lead it to believe
        that it will file for reorganization or liquidation under the bankruptcy
        or
        reorganization laws of any jurisdiction within one year from the Closing
        Date.
        The balance sheet of the Company at September 30, 2006, contained in the
        SEC
        Reports sets forth as of the date thereof all outstanding secured and unsecured
        Indebtedness of the Company, or for which the Company has any commitments.
        Since
        September 30, 2006, 

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      the
        Company has not incurred any Indebtedness except as set forth on Schedule
        3.1(z).
        For the
        purposes of this Agreement, “Indebtedness” shall mean: (a) any liabilities for
        borrowed money or amounts owed in excess of $50,000 (other than trade accounts
        payable incurred in the ordinary course of business); (b) all guaranties,
        endorsements and other contingent obligations in respect of Indebtedness
        of
        others, whether or not the same are or should be reflected in the Company’s
        balance sheet (or the notes thereto), except guaranties by endorsement of
        negotiable instruments for deposit or collection or similar transactions
        in the
        ordinary course of business; and (c) the present value of any lease payments
        in
        excess of $50,000 due under leases required to be capitalized in accordance
        with
        GAAP. The Company is not in default with respect to any Indebtedness. Except
        as
        set forth on Schedule
        3.1(z),
        there is
        no outstanding Indebtedness of the Company owed to any Person who owns directly
        or indirectly five percent (5%) or more of the issued and outstanding capital
        stock of the Company. 

       

      (aa)  Tax
        Status.
        The
        Company has properly completed and timely filed all necessary federal, state
        and
        foreign income and franchise tax returns required to be filed by it, and
        has
        paid all taxes shown to be payable thereon or which are otherwise due and
        payable by it or as to which claim for payment has been made. There is (i)
        no
        claim for any tax that is an encumbrance against any of the Company’s assets and
        properties, (ii) no audit of any tax return relating to the Company that
        is
        being conducted with respect to the Company, and (iii) no extension of any
        statute of limitations on the assessment of any tax with respect to the Company.
        The Company has no knowledge of a tax deficiency which has been asserted
        or
        threatened against the Company. The Company has withheld all amounts required
        to
        be withheld by law from payment made to any Person, whether that Person is
        an
        employee, independent contractor, or otherwise.

       

      (bb)  No
        General Solicitation.
        Neither
        the Company nor any Person acting on behalf of the Company has offered or
        sold
        any securities of the Company by any form of general solicitation or general
        advertising. 

       

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

       

      (dd)  Accountants.
        The
        Company’s accounting firm is Morison Cogen LLP. To the knowledge and belief of
        the Company, such
        accounting firm is a registered public accounting firm as required by the
        Exchange Act.

       

      (ee)  Seniority.
        Except
        as set forth on Schedule
        3.1(ee),
        as of
        the Closing Date, no Indebtedness or other claim against the Company is senior
        to the Debenture in right of payment, whether with respect to interest or
        upon
        liquidation or dissolution, or otherwise, other than indebtedness secured
        by
        purchase money
        security interests (which is senior only as to underlying assets covered
        thereby) and capital lease obligations (which is senior only as to the property
        covered thereby).

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      (ff)  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 on the one hand and the accountants
        and lawyers formerly or presently employed by the Company
        on the other hand. At December 11, 2006, the Company owed $9,175 and $95,455.59
        to its accountants and lawyers, respectively.

       

      (gg)  Acknowledgment
        Regarding Purchaser’s Purchase of the Securities.
        The
        Company acknowledges and agrees that Purchaser is acting solely in the capacity
        of an arm’s length purchaser with respect to the Transaction Documents and the
        transactions contemplated
        thereby. The Company further acknowledges that Purchaser is not acting as
        a
        financial advisor or fiduciary of the Company (or in any similar capacity)
        with
        respect to the Transaction Documents and the transactions contemplated thereby
        and any advice given by Purchaser or any of its respective representatives
        or
        agents in connection with the Transaction Documents and the transactions
        contemplated thereby is merely incidental to Purchaser’s purchase of the
        Securities. The Company further represents to Purchaser that the Company’s
        decision to enter into the Transaction Documents has been based solely on
        the
        independent evaluation of the transactions contemplated hereby by the Company
        and its representatives. 

       

      (hh)  Acknowledgment
        Regarding Purchaser’s Trading Activity.
        Anything in this Agreement or elsewhere herein to the contrary notwithstanding
        (except for Section 3.2(g) hereof), it is understood and acknowledged by
        the
        Company: (i) that Purchaser has not been asked to agree, nor has Purchaser
        agreed, to desist from purchasing or selling, long and/or short, securities
        of
        the Company, or “derivative” securities based on securities issued by the
        Company or to hold any securities of the Company for any specified term;
        (ii)
        that future open market or other transactions by Purchaser with respect to
        securities of the Company after the closing of this or future private placement
        transactions, may negatively impact the market price of the Company’s
        publicly-traded securities; and (iii) that Purchaser shall not be deemed
        to have
        any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
        (a) Purchaser may engage in hedging activities at various times during the
        period that the Securities are outstanding, including, without limitation,
        during the periods that the value of the Warrant Shares deliverable with
        respect
        to Securities are being determined and (b) such hedging activities (if any)
        could reduce the value of the existing stockholders’ equity interests in the
        Company at and after the time that the hedging activities are being conducted.
        The Company acknowledges that such aforementioned hedging activities do not
        constitute a breach of any of the Transaction Documents.

       

      (ii)  Regulation
        M Compliance.
        The
        Company has not, and to its knowledge no one acting on its behalf has, (i)
        taken, directly or indirectly, any action designed to cause or to result
        in the
        stabilization or manipulation of the price of any security of the Company
        to
facilitate
        the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
        or
        paid any compensation for soliciting purchases of, any of the securities
        of the
        Company, or (iii) paid or agreed to pay to any Person any compensation for
        soliciting another to purchase any other securities of the Company.

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      (jj)  Contracts.
        All of
        the Company’s material contracts, agreements, understandings and arrangements,
        whether written or oral (collectively, the “Contracts”) are valid, subsisting,
        in full force and effect and binding upon the Company and the other parties
        thereto. The Company is not in default under any of the Contracts. To the
        knowledge of the Company, no other party to any such Contract is in default
        thereunder, nor does any condition exist that with notice or lapse of time
        or
        both would constitute a default by such other party thereunder, except as
        would
        not be reasonably expected to have a Material Adverse Effect.

       

      (kk)  Employee
        Benefit Plans.
        The SEC
        Reports describe all material employee benefit plans (including any “multiple
        employer plan” within the meaning of the Code or ERISA), arrangements, policies,
        programs, agreements or commitments maintained by the Company (collectively,
        the
“Plans”). Except as would not reasonably be expected to have a Material Adverse
        Effect, (i) each Plan (and related trust, insurance contract or fund) has
        been
        established and administered in accordance with its terms, and complies in
        form
        and in operation with the applicable requirements of ERISA and the Code and
        other applicable law and regulation, (ii) no claim with respect to the
        administration or the investment of the assets of any Plan (other than routine
        claims for benefits) is pending and all contributions (including all employer
        contributions and employee salary reduction contributions) which are due
        have
        been paid to each Plan, (iii) each Plan that is intended to be qualified
        under
        Section 401(a) of the Code is so qualified and has been so qualified during
        the
        period since its adoption; each trust created under any such Plan is exempt
        from
        tax under Section 501(a) of the Code and has been so exempt since its creation
        and (iv) there are no unfunded obligations under any Plan which are not fully
        reflected on the Financial Statements.

       

      (ll)  Product
        Liability Claims.
        There
        have been no: (i) product or service warranty claims made by the Company’s
        customers which were not reimbursed or assumed by the Company’s suppliers other
        than routine claims in the ordinary course of business; (ii) product recalls
        by
        the Company; or (iii) product and/or service warranties outstanding or currently
        being offered by the Company to its customers (other than those of third
        parties
        for which the Company has no obligation or responsibility and the Company’s
        standard quality guarantee to replace any defective product or service) other
        than 30-day installation warranties for which the Company receives no additional
        consideration and longer-term service warranties for which the Company does
        receive additional consideration. Furthermore, neither the Company nor any
        of
        its predecessors in interest have been subject to any product or service
        liability claim relating to any of the Company’s products, services, or
        operation of business of the Company and, to the knowledge of the Company,
        no
        such claim is threatened and no circumstance or condition exists that would
        reasonably be expected to give rise to such a claim.

       

      (mm)  Environmental
        Claims.
        There
        are no environmental claims, or environmental liabilities, pending or, to
        the
        knowledge of the Company, threatened against the Company by any Person
        (including, without limitation, any governmental entity) relating to: (i)
        any of
        the assets or properties of the Company; (ii) any property currently or formerly
        operated, occupied or leased by the Company; or (iii) any current or former
        product of the Company that has been manufactured, sold, transported or disposed
        of. In addition, the Company has not released any hazardous material. The
        Company is in compliance with all environmental laws.

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      3.2  Representations
        and Warranties of Purchaser.
        Purchaser hereby makes the following representations and warranties to
        the
        Company:

       

      (a)  Organization;
        Authority.
        Purchaser is an entity duly organized, validly existing and in good standing
        under the laws of the jurisdiction of its organization with the requisite
        corporate power and authority to enter into and to consummate the transactions
        contemplated by each of the Transaction Documents and otherwise to carry
        out its
        obligations hereunder and thereunder. The execution, delivery and performance
        by
        Purchaser of the transactions contemplated by this Agreement have been duly
        authorized by all necessary corporate action on the part of Purchaser. Each
        Transaction Document to which it is a party has been duly executed by Purchaser
        and, when delivered in accordance with the terms hereof and thereof, will
        constitute the valid and legally binding obligation of Purchaser, enforceable
        against it in accordance with its terms, except (i) as limited by general
        equitable principles and applicable bankruptcy, insolvency, reorganization,
        moratorium and other laws of general application affecting enforcement of
        creditors’ rights generally, (ii) as limited by laws relating to the
        availability of specific performance, injunctive relief or other equitable
        remedies and (iii) insofar as indemnification and contribution provisions
        may be
        limited by applicable law. The Purchaser’s Federal taxpayer identification
        number and mailing address for notices have been provided to the
        Company.

       

      (b)  Own
        Account.
        Purchaser understands that the Securities are “restricted securities” and have
        not been registered under the Securities Act or any applicable state securities
        law. Purchaser is acquiring the Securities as principal for its own account
        and
        not with a view to
        or for
        distributing or reselling such Securities or any part thereof in violation
        of
        the Securities Act or any applicable state securities law, has no present
        intention of distributing any of such Securities in violation of the Securities
        Act or any applicable state securities law and has no direct or indirect
        arrangement or understandings with any other Person to distribute or regarding
        the distribution of such Securities (this representation and warranty not
        limiting such Purchaser’s right to sell the Securities in compliance with
        applicable federal and state securities laws) in violation of the Securities
        Act
        or any applicable state securities law. Purchaser is acquiring the Securities
        hereunder in the ordinary course of its business.

       

      (c)  Purchaser
        Status.
        At the
        time Purchaser was offered the Securities, it was, and at the date hereof
        it is,
        either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
        (a)(3), (a)(7) or (a)(8) under
        the
        Securities Act, or (ii) a “qualified institutional buyer” as defined in Rule
        144A(a) under the Securities Act. Purchaser is not required to be registered
        as
        a broker-dealer under Section 15 of the Exchange Act.

       

      (d)  Experience
        of Purchaser.
        Purchaser has such knowledge, sophistication and experience in business and
        financial matters so as to be capable of evaluating the merits and risks
        of the
investment
        in the Securities, and has so evaluated the merits and risks of such investment.
        Purchaser is able to bear the economic risk of an investment in the Securities
        and, at the present time, is able to afford a complete loss of such
        investment.

       

      (e)  General
        Solicitation.
        Purchaser is not purchasing the Securities as a result of any advertisement,
        article, notice or other communication regarding the Securities published
        in any
        newspaper, magazine or similar media or broadcast over television or radio
        or
presented
        at any seminar or any other general solicitation or general
        advertisement.

       

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

      (f)  Available
        Information.
        Purchaser understands and acknowledges that 

       

      (i)  Purchaser
        has been given access to, and prior to the execution of the Transaction
        Documents, an opportunity to ask questions of and receive answers from, the
        Company concerning the terms and conditions of the offering of the Securities
        and to obtain any other information that Purchaser requested with respect
        to the
        Company’s operations and Purchaser’s proposed investment in the Company in order
        to evaluate the investment and verify the accuracy of all information furnished
        to it regarding the Company;

       

      (ii)  Purchaser
        has been given access to all of the SEC Reports; and

       

      (iii)  Financial
        projections have been provided to Purchaser by the Company as part of the
        information sought by Purchaser, that such projections are based on assumptions
        made by the Designated Officers as to Company operations, that although such
        assumptions are believed by the Designated Officers to be reasonable, not
        all
        assumptions will actually eventuate and therefore, such projections represent
        possible but necessarily the most likely financial results for the Company,
        and
        that such projections must therefore be viewed as estimates only, and there
        can
        be no assurance of their accuracy.

       

      (g)  Purchases,
        Sales and Confidentiality Prior To The Date Hereof.
        Other
        than the transaction contemplated hereunder, Purchaser has not, nor has any
        Affiliate of Purchaser,
        purchased or sold (including Short Sales) any securities of the Company during
        the period commencing from September 28, 2006 and ending on the date hereof.
        Purchaser and its Affiliates have used reasonable efforts to maintain the
        confidentiality of all disclosures made to it in connection with this
        transaction (including the existence and terms of this
        transaction).

       

      ARTICLE
        IV

      OTHER
        AGREEMENTS OF THE PARTIES

       

      4.1  Transfer
        Restrictions.

       

      (a)  Purchaser
        acknowledges that the Securities may only be disposed of in compliance with
        state and federal securities laws. In connection with any transfer of the
        Securities other than (i) pursuant to an effective registration statement
        or
        Rule 144, (ii) to the Company, (iii) to an Affiliate
        of Purchaser or, (iv) in connection with a pledge as contemplated in Section
        4.1(b), the Company may require the transferor thereof to provide to the
        Company
        an opinion of counsel selected by the transferor and reasonably acceptable
        to
        the Company, the form and substance of which opinion shall be reasonably
        satisfactory to the Company and the Transfer Agent, to the effect that such
        transfer does not require registration of such transferred Securities under
        the
        Securities Act. In the case of (iii) and (iv) above, as a condition of transfer,
        any such transferee shall agree in writing to be bound by the terms of this
        Agreement.

       

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

      (b)  Purchaser
        agrees to the imprinting, so long as is required by this Section 4.1, of
        a
        legend on any of the Securities, as applicable, in substantially the
        following form:

       

      NEITHER
        THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
        HAS
        BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
        COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
        THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
        MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
        FROM,
        OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
        SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
        EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
        THE
        SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
        AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED
        IN
        CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
        SECURITIES.

       

      The
        Company acknowledges and agrees that Purchaser may from time to time pledge
        pursuant to a bona fide margin agreement with a registered broker-dealer
        or
        grant a security interest in some or all of the Securities to a financial
        institution that is an “accredited investor” as defined in Rule 501(a) under the
        Securities Act and who agrees to be bound by the provisions of this Agreement
        and, if required under the terms of such arrangement, Purchaser may transfer
        pledged or secured Securities to the pledgees or secured parties. Such a
        pledge
        or transfer would not be subject to approval of the Company and no legal
        opinion
        of legal counsel of the pledgee, secured party or pledgor shall be required
        in
        connection therewith. Further, no notice shall be required of such pledge.
        At
        Purchaser’s expense, the Company will execute and deliver such reasonable
        documentation as a pledgee or secured party of Securities may reasonably
        request
        in connection with a pledge or transfer of the Securities including, if the
        Securities are subject to registration with the Commission under the Securities
        Act, the preparation and filing of any required prospectus supplement under
        Rule
        424(b)(3) under the Securities Act or other applicable provision of the
        Securities Act to appropriately amend the list of Selling Stockholders
        thereunder.

       

      (c)  Certificates
        evidencing the Warrant Shares shall not contain any legend (including the
        legend
        set forth in Section 4.1(b) hereof): (i) while a registration statement covering
        the resale of such security is effective under the Securities
        Act, (ii) following any sale of such Warrant Shares pursuant to Rule 144,
        (iii)
        if such Warrant Shares are eligible for sale under Rule 144(k), or (iv) if
        such
        legend is not required under applicable requirements of the Securities Act
        (including judicial interpretations and pronouncements issued by the staff
        of
        the Commission). Under any such circumstances the Company shall cause its
        counsel to issue a legal opinion to the Transfer Agent if required by the
        Transfer Agent to effect the removal of the legend hereunder. If all or any
        portion of a Warrant is exercised at a time when there is an effective
        registration statement to cover the resale of the Warrant Shares, or if such
        Warrant Shares may be sold under Rule 144(k) or if such legend on the Warrant
        Shares is not otherwise required under applicable requirements of the Securities
        Act (including judicial interpretations 

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

      and
        pronouncements issued by the staff of the Commission) then such Warrant Shares
        shall be issued free of all legends. The Company agrees that at such time
        as
        such legend is no longer required under this Section 4.1(c), it will, no
        later
        than three Trading Days following the delivery by Purchaser to the Company
        or
        the Transfer Agent of a certificate representing Warrant Shares, issued with
        a
        restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver
        or cause to be delivered to Purchaser a certificate representing such shares
        that is free from all restrictive and other legends. The Company may not
        make
        any notation on its records or give instructions to the Transfer Agent that
        enlarge the restrictions on transfer set forth in this Section. If possible,
        certificates for Warrant Shares subject to legend removal hereunder shall
        be
        transmitted by the Transfer Agent to Purchaser by crediting the account of
        Purchaser’s prime broker with the Depository Trust Company System.

       

      (d)  In
        addition to Purchaser’s other available remedies, the Company shall pay to
        Purchaser, in cash, as partial liquidated damages and not as a penalty, for
        each
        $2,000 of Warrant Shares (based on the VWAP of the Common Stock on the date
        such
Securities
        are submitted to the Transfer Agent) delivered for removal of the restrictive
        legend and subject to Section 4.1(c), $10 per Trading Day (increasing to
        $20 per
        Trading Day 5 Trading Days after such damages have begun to accrue) for each
        Trading Day after the second Trading Day following the Legend Removal Date
        until
        such certificate is delivered without a legend. Nothing herein shall limit
        Purchaser’s right to pursue actual damages for the Company’s failure to deliver
        certificates representing any Securities as required by the Transaction
        Documents, and Purchaser shall have the right to pursue all remedies available
        to it at law or in equity including, without limitation, a decree of specific
        performance and/or injunctive relief. 

       

      (e)  Purchaser
        agrees that the removal of the restrictive legend from certificates representing
        Securities as set forth in this Section 4.1 is predicated upon the Company’s
        reliance that Purchaser will sell any Securities
        pursuant
        to either the registration requirements of the Securities Act, including
        any
        applicable prospectus delivery requirements, or an exemption therefrom, and
        that
        if Securities are sold pursuant to a registration statement, they will be
        sold
        in compliance with the plan of distribution set forth therein and upon
        compliance with the prospectus delivery requirement.

       

      4.2  Acknowledgment
        of Dilution.
        The
        Company acknowledges that the issuance of the Securities may result in dilution
        of the outstanding shares of Common Stock, which dilution may be substantial
        under certain market conditions. The Company further acknowledges that its
        obligations under the Transaction Documents, including without limitation
        its
        obligation to issue the Warrant Shares pursuant to the Transaction Documents,
        are unconditional and absolute and not subject to any right of set off,
        counterclaim, delay or reduction, regardless of the effect of any such dilution
        or any claim the Company may have against Purchaser and regardless of the
        dilutive effect that such issuance may have on the ownership of the other
        stockholders of the Company.

       

      4.3  Furnishing
        of Information.
        As long
        as Purchaser owns Securities, the Company covenants to timely file (or obtain
        extensions in respect thereof and file within the applicable grace period)
        all
        reports required to be filed by the Company after the date hereof pursuant
        to
        the Exchange Act. As long as Purchaser owns Securities, if the Company is
        not
        required to file reports pursuant to the Exchange Act, it will prepare and
        furnish to Purchaser and make publicly 

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

      available
        in accordance with Rule 144(c) such information as is required for Purchaser
        to
        sell the Securities under Rule 144. The Company further covenants that it
        will
        take such further action as Purchaser may reasonably request, to the extent
        required from time to time to enable Purchaser to sell such Securities without
        registration under the Securities Act within the requirements of the exemption
        provided by Rule 144.

       

      4.4  Integration.
        The
        Company shall not, and shall use its best efforts to ensure that no Affiliate
        of
        the Company shall, sell, offer for sale or solicit offers to buy or otherwise
        negotiate in respect of any security (as defined in Section
        2
        of the Securities Act) that would be integrated with the offer or sale of
        the
        Securities in a manner that would require the registration under the Securities
        Act of the sale of the Securities to Purchaser or that would be integrated
        with
        the offer and sale of the Securities for purposes of the rules and regulations
        of any Trading Market.

       

      4.5  Reservation
        and Listing of Conversion Shares.

       

      (a)  The
        Company shall maintain a reserve from its duly authorized shares of Common
        Stock
        for issuance pursuant to the Transaction Documents in such amount as may
        be
        required to fulfill its obligations in full under the Transaction Documents.
        

       

      (b)  The
        Company shall (i) in the time and manner required by each Trading Market,
        prepare and file with such Trading Market an additional shares listing
        application covering all of the shares of Common Stock issued or issuable
        under
        the Transaction Documents, (ii) take all steps necessary to cause such
        shares of Common Stock to be approved for listing on each Trading Market
        as soon
        as possible thereafter, (iii) provide to Purchaser evidence of such listing,
        and
        (iv) maintain the listing of such Common Stock on each such Trading
        Market.

       

      (c)  In
        the
        case of a breach by the Company of Section 4.5(a), in addition to the other
        remedies available to Purchaser, Purchaser shall have the right to require
        the
        Company to either: (i) use its best efforts to obtain the required shareholder
        approval necessary to permit the issuance of such shares of Common Stock
        as soon
        as is possible, but in any event not later than the seventy-fifth
        (75th)
        day
        after such notice, or (ii) within five Trading Days after delivery of a written
        notice, pay cash to Purchaser, as liquidated damages and not as a penalty,
        in an
        amount equal to the number of shares of Common Stock not issuable by the
        Company
        multiplied by one hundred fifteen percent (115%) of the average VWAP over
        the
        ten (10) Trading Days immediately prior to the date of such notice or, if
        greater, the ten (10) Trading Days immediately prior to the date of payment
        (the
“Cash Amount”). If Purchaser elects the first option under the preceding
        sentence and the Company fails to obtain the required shareholder approval
        on or
        prior to the seventy-fifth (75th)
        day
        after such notice, then within three Trading Days after such seventy-fifth
        (75th)
        day,
        the Company shall pay the Cash Amount to such Purchaser, as liquidated damages
        and not as a penalty.

       

      4.6  Exercise
        Procedures.
        The
        form of Notice of Exercise included in the Warrant sets forth the totality
        of
        the procedures required of Purchaser in order to exercise the Warrant other
        than
        the payment for Warrant Shares. No additional legal opinion or other information
        or instructions shall be required of Purchaser to exercise the Warrant. The
        Company shall honor exercises of the Warrant and shall deliver Warrant Shares
        in
        accordance with the terms, conditions and time periods set forth in the
        Transaction Documents.

       

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

      4.7  Securities
        Laws Disclosure; Publicity.
        Within
        the time prescribed by law, the Company shall file a Current Report on Form
        8-K
        with the Commission (the “Form 8-K Filing”) describing the terms of the
        transactions contemplated by the Transaction Documents and including as exhibits
        to such Form 8-K Filing each of the Transaction Documents, in the form required
        by the Exchange Act. Thereafter, the Company shall timely file any filings
        and
        notices required by the Commission or applicable law with respect to the
        transactions contemplated hereby and provide copies thereof to Purchaser
        promptly after filing. The Company shall, at least two (2) Trading Days prior
        to
        the filing or dissemination of any disclosure required by this paragraph,
        provide a copy thereof to Purchaser for its review. The Company and Purchaser
        shall consult with each other in issuing any press releases or otherwise
        making
        public statements or filings and other communications with the Commission
        or any
        regulatory agency or Trading Market with respect to the transactions
        contemplated hereby, and neither party shall issue any such press release
        or
        otherwise make any such public statement, filing or other communication without
        the prior consent of the other, except if such disclosure is required by
        law, in
        which case the disclosing party shall promptly provide the other party with
        prior notice of such public statement, filing or other communication.
        Notwithstanding the foregoing, the Company shall not publicly disclose the
        name
        of Purchaser or any of its Affiliates, or include the name of Purchaser or
        any
        of its Affiliates in any filing with the Commission or any regulatory agency
        or
        Trading Market, without the prior written consent of Purchaser, except to
        the
        extent such disclosure is required by law or Trading Market regulations,
        in
        which case the Company shall provide Purchaser with prior notice of such
        disclosure. The Company shall not, and shall cause each of its officers,
        directors, employees and agents not to, provide Purchaser or any of its
        Affiliates with any material nonpublic information regarding the Company
        from
        and after the filing of the Form 8-K Filing without the express written consent
        of Purchaser. In the event of a breach of the foregoing covenant by the Company
        or any of its or officers, directors, employees and agents, in addition to
        any
        other remedy provided herein or in the Transaction Documents, Purchaser shall
        have the right to require the Company to make a public disclosure, in the
        form
        of a press release, public advertisement or otherwise, of such material
        nonpublic information. Neither Purchaser nor any of its Affiliates shall
        have
        any liability to the Company or any of its officers, directors, employees,
        shareholders or agents for any such disclosure. Subject to the foregoing,
        neither the Company nor Purchaser shall issue any press releases or any other
        public statements with respect to the transactions contemplated hereby.

       

      4.8  Shareholder
        Rights Plan.
        No
        claim will be made or enforced by the Company or, with the consent of the
        Company, any other Person, that Purchaser is an “Acquiring Person” under any
        control share acquisition, business combination, poison pill (including any
        distribution under a rights agreement) or similar anti-takeover plan or
        arrangement in effect or hereafter adopted by the Company, or that Purchaser
        could be deemed to trigger the provisions of any such plan or arrangement,
        by
        virtue of receiving the Securities under the Transaction Documents or under
        any
        other agreement between the Company and the Purchaser.

       

      4.9  [INTENTIONALLY
        DELETED.]

       

      4.10  No
        Impairment.
        At all
        times after the date hereof, the Company will not take or permit any action,
        or
        cause or permit any Affiliate to take or permit any action that impairs or
        adversely affects the rights of Purchaser under the Transaction
        Documents.

       

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

      4.11  Indemnification
        of Purchaser.
        Subject
        to the provisions of this Section 4.11, the Company will indemnify and hold
        Purchaser and its directors, officers, Affiliates, shareholders, members,
        partners, employees and agents (and any other Persons with a functionally
        equivalent role of a Person holding such titles notwithstanding a lack of
        such
        title or any other title) (each, a “Purchaser Party”) harmless from any and all
        losses, liabilities, obligations, claims, contingencies, damages, costs and
        expenses, including all judgments, amounts paid in settlements, court costs
        and
        reasonable attorneys’ fees and costs of investigation that any such Purchaser
        Party may suffer or incur as a result of or relating to (a) any breach of
        any of
        the representations, warranties, covenants or agreements made by the Company
        in
        this Agreement or in the other Transaction Documents, or (b) any Proceeding
        instituted against any Purchaser Party in connection with or as a result
        of the
        transactions contemplated by the Transaction Documents (unless such Proceeding
        is based upon a breach of Purchaser’s representations, warranties or covenants
        under the Transaction Documents or any conduct by Purchaser which constitutes
        fraud, gross negligence, willful misconduct or malfeasance). If any Proceeding
        shall be brought against any Purchaser Party in respect of which indemnity
        may
        be sought pursuant to this Agreement, such Purchaser Party shall promptly
        notify
        the Company in writing, and the Company shall have the right to assume the
        defense thereof with counsel of its own choosing reasonably acceptable to
        the
        Purchaser Party. Any Purchaser Party shall have the right to employ separate
        counsel in any such Proceeding and participate in the defense thereof, but
        the
        fees and expenses of such counsel shall be at the expense of such Purchaser
        Party except to the extent that (i) the employment thereof has been specifically
        authorized by the Company in writing, (ii) the Company has failed after a
        reasonable period of time to assume such defense and to employ counsel, or
        (iii)
        in such Proceeding there is, in the reasonable opinion of such separate counsel,
        a material conflict on any material issue between the position of the Company
        and the position of such Purchaser Party, in which case the Company shall
        be
        responsible for the reasonable fees and expenses of no more than one such
        separate counsel for all Purchaser Parties. The Company will not be liable
        to
        any Purchaser Party under this Agreement (i) for any settlement by a Purchaser
        Party effected without the Company’s prior written consent, which shall not be
        unreasonably withheld or delayed; or (ii) to the extent, but only to the
        extent
        that a loss, claim, damage or liability is attributable to any Purchaser
        Party’s
        breach of any of the representations, warranties, covenants or agreements
        made
        by such Purchaser Party in this Agreement or in the other Transaction
        Documents.
        Purchaser’s rights to indemnification set forth herein shall not be deemed
        waived or otherwise effected by any investigation made, or any knowledge
        acquired, by Purchaser.

       

      4.12  Blue
        Sky Filings.
        The
        Company shall take such action as the Company shall reasonably determine
        is
        necessary in order to obtain an exemption for, or to qualify the Securities
        for,
        sale to Purchaser at the Closing under applicable securities or “Blue Sky” laws
        of the states of the United States, and shall provide evidence of such actions
        promptly upon request of Purchaser.

       

      4.13  Piggy-Back
        Registrations.
        If at
        any time there is not an effective registration statement covering all of
        the
        Registrable Securities and the Company shall determine to prepare and file
        with
        the Commission a registration statement relating to an offering for its own
        account or the account of others under the Securities Act of any of its equity
        securities, other than on Form S-4 or Form S-8 (each as promulgated under
        the
        Securities Act) or their then equivalents relating to equity securities to
        be
        issued solely in connection with any acquisition of any entity or 

       

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

      business
        or equity securities issuable in connection with the stock option or other
        employee benefit plans, then the Company shall send to Purchaser a written
        notice of such determination and, if within fifteen (15) days after the date
        of
        such notice, Purchaser shall so request in writing, subject to customary
        lead
        underwriter cutbacks, the Company shall include in such registration statement
        all or any part of such Registrable Securities Purchaser requests to be
        registered; provided,
        however,
        that
        the Company shall not be required to register any Registrable Securities
        pursuant to this Section 4.13 that are eligible for resale pursuant to Rule
        144(k) promulgated under the Securities Act or that are the subject of a
        then
        effective registration statement. All fees and expenses of the registration
        and
        sale shall be borne by the Company whether or not any Registrable Securities
        are
        sold pursuant to a registration statement, provided that the Company shall
        not
        be responsible for broker or similar commissions of Purchaser. The Company
        shall
        also indemnify Purchaser pursuant to customary terms.

       

      ARTICLE
        V

      MISCELLANEOUS

       

      5.1  Fees
        and Expenses.
        Except
        as
        expressly set forth in the Transaction Documents to the contrary, each party
        shall pay the fees and expenses of its advisers, counsel, accountants and
        other
        experts, if any, and all other expenses incurred by such party incident to
        the
        negotiation, preparation, execution, delivery and performance of this Agreement.
        The Company shall pay all stamp taxes and other taxes and duties levied in
        connection with the delivery of the Securities to Purchaser.

       

      5.2  Entire
        Agreement.
        The
        Transaction Documents, together with the exhibits and schedules thereto,
        contain
        the entire understanding of the parties with respect to the subject matter
        hereof and supersede all prior and contemporaneous agreements and
        understandings, oral or written, with respect to such matters, which the
        parties
        acknowledge have been merged into such documents, exhibits and
        schedules.
        Without
        intending any limitations on the generality of the foregoing, the parties
        acknowledge that the Transaction Documents supersede that certain Letter
        of
        Interest dated December 5, 2006. At or after the Closing, and without further
        consideration, the Company will execute and deliver to Purchaser such further
        documents as may be reasonably requested in order to give practical effect
        to
        the intention of the parties under the Transaction Documents.

       

      5.3  Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be in writing and shall be deemed given and effective
        on the earliest of (a) the date of transmission, if such notice or communication
        is delivered via facsimile prior
        to
        5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day
        after
        the date of transmission, if such notice or communication is delivered via
        facsimile on a day that is not a Trading Day or later than 5:30 p.m. (New
        York
        City time) on any Trading Day, (c) the 2nd
        Trading
        Day following the date of mailing, if sent by U.S. nationally recognized
        overnight courier service, or (d) upon actual receipt by the party to whom
        such
        notice is required to be given. The facsimile number and address for such
        notices and communications shall be as set forth on the signature pages attached
        hereto with respect to the Company, and as set forth in writing with respect
        to
        Purchaser.

       

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

      5.4  Amendments;
        Waivers.
        No
        provision of this Agreement may be waived or amended except in a written
        instrument signed, in the case of an amendment, by the Company and Purchaser
        or,
        in the case of a waiver, by the party against whom enforcement of any such
        waived provision is sought. No waiver of any default with respect to any
        provision, condition or requirement of this Agreement shall be deemed to
        be a
        continuing waiver in the future or a waiver of any subsequent default or
        a
        waiver of any other provision, condition or requirement hereof, nor shall
        any
        delay or omission of any party to exercise any right hereunder in any manner
        impair the exercise of any such right. 

       

      5.5  Headings.
        The
        headings herein are for convenience only, do not constitute a part of this
        Agreement and shall not be deemed to limit or affect any of the provisions
        hereof.

       

      5.6  Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties and
        their successors and permitted assigns. The Company may not assign this
        Agreement or any rights or obligations hereunder without the prior written
        consent of Purchaser. Purchaser may assign any or all of its rights under
        this
        Agreement to any Person to whom Purchaser assigns or transfers any Securities,
        as applicable, provided that (i) such transferee agrees in writing to be
        bound,
        with respect to the transferred Securities, by the provisions of the Transaction
        Documents that apply to “Purchaser,” (ii) such transferee is an “accredited
        investor” as defined in Rule 501(a) under the Securities Act or a “qualified
        institutional buyer” as defined in Rule 144A(a) under the Securities Act, or
        (iii) such transfer does not violate any representation or warranty made
        in this
        Agreement by Purchaser.

       

      5.7  No
        Third-Party Beneficiaries.
        This
        Agreement is intended for the benefit of the parties hereto and their respective
        successors and permitted assigns and is not for the benefit of, nor may any
        provision hereof be enforced by, any other Person, except as otherwise set
        forth
        in Section 4.11. 

       

      5.8  Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of the Transaction Documents shall be governed by and construed and enforced
        in
        accordance with the internal laws of the State of New York, without regard
        to
        the principles of conflicts of law thereof. Each party agrees that all legal
        proceedings concerning the interpretations, enforcement and defense of the
        transactions contemplated by this Agreement and any other Transaction Documents
        (whether brought against a party hereto or its respective affiliates, directors,
        officers, shareholders, employees or agents) shall be commenced exclusively
        in
        the state and federal courts sitting in Albany, New York. Each party hereby
        irrevocably submits to the exclusive jurisdiction of the state and federal
        courts sitting in Albany, New York for the adjudication of any dispute hereunder
        or in connection herewith or with any transaction contemplated hereby or
        discussed herein (including with respect to the enforcement of any of the
        Transaction Documents), and hereby irrevocably waives, and agrees not to
        assert
        in any Proceeding, any claim that it is not personally subject to the
        jurisdiction of any such court, that such Proceeding is improper or is an
        inconvenient venue for such Proceeding. Each party hereby irrevocably waives
        personal service of process and consents to process being served in any such
        Proceeding by mailing a copy thereof via registered or certified mail or
        overnight delivery (with evidence of delivery) to such party at the address
        in
        effect for notices to it under this Agreement and agrees that such service
        shall
        constitute good and sufficient service of process and notice thereof. Nothing
        contained herein shall be deemed to limit in any way any right to serve process
        

       

      
        
           

        

        
          24

          
            

          

        

        
           

        

      

      in
        any
        other manner permitted by law. The parties hereto hereby irrevocably waive
        to
        the fullest extent permitted by applicable law any and all right to a trial
        by
        jury in any Proceeding arising out of or relating to this Agreement or any
        of
        the Transaction Documents or the transactions contemplated hereby or thereby.
        If
        either
        party shall commence an action or proceeding to enforce any provisions of
        the
        Transaction Documents, then the prevailing party in such action or proceeding
        shall be reimbursed by the other party for its reasonable attorneys’ fees and
        other reasonable costs and expenses incurred with the investigation, preparation
        and prosecution of such action or proceeding.

       

      5.9  Survival.
        The
        representations, warranties, agreements and covenants contained herein shall
        survive the Closing and the delivery of the Securities, provided that the
        representations and warranties shall only survive for the applicable statute
        of
limitations.

       

      5.10  Execution.
        This
        Agreement may be executed in two or more counterparts, all of which when
        taken
        together shall be considered one and the same agreement and shall become
        effective when counterparts have been signed by each party and delivered
        to the
        other party, it being understood that both parties need not sign the same
        counterpart. In the event that any signature is delivered by facsimile
        transmission or by e-mail delivery of a “.pdf” format data file, such signature
        shall create a valid and binding obligation of the party executing (or on
        whose
        behalf such signature is executed) with the same force and effect as if such
        facsimile or “.pdf” signature page were an original thereof. 

       

      5.11  Severability.
        If any
        term, provision, covenant or restriction of this Agreement is held by a court
        of
        competent jurisdiction to be invalid, illegal,
        void or unenforceable, the remainder of the terms, provisions, covenants
        and
        restrictions set forth herein shall remain in full force and effect and shall
        in
        no way be affected, impaired or invalidated, and the parties hereto shall
        use
        their commercially reasonable efforts to find and employ an alternative means
        to
        achieve the same or substantially the same result as that contemplated by
        such
        term, provision, covenant or restriction. It is hereby stipulated and declared
        to be the intention of the parties that they would have executed the remaining
        terms, provisions, covenants and restrictions without including any of such
        that
        may be hereafter declared invalid, illegal, void or unenforceable.

       

      5.12  Rescission
        and Withdrawal Right.
        Notwithstanding anything to the contrary contained in (and without limiting
        any
        similar provisions of) any of the other Transaction Documents, whenever
        Purchaser exercises a right, election, demand or option under a Transaction
        Document and the Company does not timely perform its related obligations
        within
        the periods therein provided, then Purchaser may rescind or withdraw, in
        its
        sole discretion from time to time upon written notice to the Company, any
        relevant notice, demand or election in whole or in part without prejudice
        to its
        future actions and rights; provided,
        however,
        in the
        case of a rescission of an exercise of a Warrant, Purchaser shall be required
        to
        return any shares of Common Stock delivered in connection with any such
        rescinded exercise notice.

       

      5.13  Replacement
        of Securities.
        If any
        certificate or instrument evidencing any Securities is mutilated, lost, stolen
        or destroyed, the Company shall issue or cause to be issued in exchange and
        substitution for and upon cancellation thereof (in the case of mutilation),
        or
        in lieu of and substitution therefor, a new certificate or instrument, but
        only
        upon receipt of evidence reasonably satisfactory to the Company of such loss,
        theft or destruction and upon provision of 

       

      
        
           

        

        
          25

          
            

          

        

        
           

        

      

      an
        indemnity reasonably acceptable to the Company and the Transfer Agent. The
        applicant for a new certificate or instrument under such circumstances shall
        also pay any reasonable third-party costs (including customary indemnity)
        associated with the issuance of such replacement Securities.

       

      5.14  Remedies.
        In
        addition to being entitled to exercise all rights provided herein or granted
        by
        law, including recovery of damages, Purchaser
        and the Company will be entitled to specific performance under the Transaction
        Documents. The parties agree that monetary damages may not be adequate
        compensation for any loss incurred by reason of any breach of obligations
        contained in the Transaction Documents and hereby agrees to waive and not
        to
        assert in any Proceeding for specific performance of any such obligation
        the
        defense that a remedy at law would be adequate.

       

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

       

      5.16  Usury.
        To the
        extent it may lawfully do so, the Company hereby agrees not to insist upon
        or
        plead or in any manner whatsoever claim, and will
        resist any and all efforts to be compelled to take the benefit or advantage
        of,
        usury laws wherever enacted, now or at any time hereafter in force, in
        connection with any claim, action or proceeding that may be brought by Purchaser
        in order to enforce any right or remedy under any Transaction Document.
        Notwithstanding any provision to the contrary contained in any Transaction
        Document, it is expressly agreed and provided that the total liability of
        the
        Company under the Transaction Documents for payments in the nature of interest
        shall not exceed the maximum lawful rate authorized under applicable law
        (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate
        of interest or default interest, or both of them, when aggregated with any
        other
        sums in the nature of interest that the Company may be obligated to pay under
        the Transaction Documents exceed such Maximum Rate. It is agreed that if
        the
        maximum contract rate of interest allowed by law and applicable to the
        Transaction Documents is increased or decreased by statute or any official
        governmental action subsequent to the date hereof, the new maximum contract
        rate
        of interest allowed by law will be the Maximum Rate applicable to the
        Transaction Documents from the effective date forward, unless such application
        is precluded by applicable law. If under any circumstances whatsoever, interest
        in excess of the Maximum Rate is paid by the Company to Purchaser with respect
        to indebtedness evidenced by the Transaction Documents, such excess shall
        be
        applied by Purchaser to the unpaid principal balance of any such indebtedness
        or
        be refunded to the Company, the manner of handling such excess to be at
        Purchaser’s election.

       

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

      5.17  Liquidated
        Damages.
        The
        Company’s obligations to pay any partial liquidated damages or other amounts
        owing under the Transaction Documents is a continuing obligation of the Company
        and shall not terminate until all unpaid partial liquidated damages and other
        amounts have been paid notwithstanding the fact that the instrument or security
        pursuant to which such partial liquidated damages or other amounts are due
        and
        payable shall have been canceled.

       

      5.18  Construction.
        The
        parties agree that each of them and/or their respective counsel has reviewed
        and
        had an opportunity to revise the Transaction Documents and, therefore, the
        normal rule of construction to the effect that any ambiguities are to be
        resolved against the drafting party shall not be employed in the interpretation
        of the Transaction Documents or any amendments hereto.

       

      

      

      

      

      

      [Remainder
        of Page Intentionally Left Blank]

      

      

      
        
           

        

        
          27

          
            

          

        

        
           

        

      

      

       

      IN
        WITNESS WHEREOF,
        the
        parties hereto have caused this Securities Purchase Agreement to be duly
        executed by their respective authorized signatories as of the date first
        indicated above.

       

      

       

      
        	
                THEATER
                  XTREME ENTERTAINMENT GROUP, INC.

                 

              
	 	 
	
                By:
                  /s/
                  Scott R. Oglum

                 

              
	
                Title:
                  Chief Executive Officer

                 

              
	
                Address:
                  

              	250 Corporate
                Blvd.
	
                 

              	
                Suites
                  E & F

              
	
                 

              	
                Newark,
                  DE 19702

              
	 	 
	
                Facsimile:
                  

                 

              	302-455-1612
	
                Attention:

              	
              
	 	 
	
                With
                  a copy to (which shall not constitute notice):

                 

              
	
                Ballard
                  Spahr Andrews & Ingersoll, LLP

                 

              
	
                1735
                  Market Street, 51st Floor

                 

              
	
                Philadelphia,
                  Pennsylvania 19103−7599

                 

              
	
                Attention:
                  Steven King

                 

              
	
                Facsimile:
                  (215) 864-9961

              

      

      

      

       

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

      [Counterpart
        signature page to that certain Securities Purchase Agreement by and between
        Theater Xtreme Entertainment Group, Inc. and Kinzer Technology, LLC, dated
        December 22, 2006.]

       

      

       

      
        	
                KINZER
                  TECHNOLOGY, LLC

                 

              
	 
	
                By:
                  /s/ Authorized Signatory

                 

              

      

      

       

      

       

      

      
        
           

        

        
          29

          
            

          

        

        
           

        

      

      Exhibits
        and Schedules to the Securities Purchase Agreement have been intentionally
        omitted.

       

       

      

      30Exhibit 10.2

    NON−CONVERTIBLE

    10%
      DEBENTURE

    

    
      	
              $700,000.00
                

            	
              December
                22, 2006

            

    

    

    

    FOR
      VALUE
      RECEIVED, Theater Xtreme Entertainment Group, Inc., a Florida corporation (the
      “Maker”), with its primary offices located at 250 Corporate Boulevard, Suites E
& F, Newark, Delaware 19702, promises to pay to the order of Kinzer
      Technology, LLC, or its registered assigns (the “Payee”), upon the terms set
      forth below, the principal sum of SEVEN HUNDRED THOUSAND (U.S. $700,000.00)
      plus
      accrued interest on the unpaid principal sum outstanding at the rate of ten
      percent (10%) per annum (this “Debenture”). Capitalized terms used and not
      otherwise defined herein that are defined in the Securities Purchase Agreement,
      dated the date hereof (the “Purchase Agreement”) shall have the respective
      meanings given such terms in the Purchase Agreement.

    

    1.  Payments.

     

    (a)  The
      full
      amount of principal and accrued interest under this Debenture shall be due
      on
      the earlier of (i) November 15, 2007 and (ii) the date that the Maker shall
      have
      received net proceeds, in the aggregate since the issue date of this Debenture
      and in one or more transactions during such period, from debt and/or equity
      financings, of at least One Million Five Hundred Thousand Dollars ($1,500,000)
      (the “Maturity Date”), unless due earlier in accordance with the terms of this
      Debenture.

     

    (b)  The
      Maker
      shall pay interest to the Payee on the aggregate then outstanding principal
      amount of this Debenture at the rate of ten percent (10%) per annum, payable
      quarterly on April 1, July 1 and October 1, beginning on April 1, 2007, and
      on
      the Maturity Date.

     

    (c)  All
      overdue accrued and unpaid principal and interest to be paid hereunder shall
      entail a late fee at the rate of twenty-two percent (22%) per annum (or such
      lower maximum amount of interest permitted to be charged under applicable law)
      which will accrue daily, from the date such principal and/or interest is due
      hereunder through and including the date of payment. For the avoidance of doubt,
      payments will not be overdue if made within the grace period provided in Section
      2(a)(i).

     

    (d)  The
      Maker
      shall have the right to prepay this Debenture prior to the Maturity Date without
      penalty or premium.

     

    2.  Events
      of Default.

     

    (a)  “Event
      of
      Default”, wherever used herein, means any one of the following events (whatever
      the reason and whether it shall be voluntary or involuntary or effected by
      operation of law or pursuant to any judgment, decree or order of any court,
      or
      any order, rule or regulation of any administrative or governmental
      body):

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (i)
      any
      default in the payment of the principal of, or the interest on, this Debenture,
      as and when the same shall become due and payable or with a grace period of
      three (3) Trading Days thereafter in the case of interest payments;

     

    (ii)
      Maker shall fail to observe or perform any obligation or shall breach any term
      or provision of this Debenture and such failure or breach shall not have been
      remedied within ten (10) days after the date on which notice of such failure
      or
      breach shall have been delivered to Maker;

     

    (iii)
      Maker shall fail to observe or perform any of its obligations owed to Payee
      or
      any other covenant, agreement, representation or warranty contained in, or
      otherwise commit any breach hereunder or under any other agreement executed
      in
      connection herewith;

     

    (iv)
      Maker shall commence, or there shall be commenced against Maker a case under
      any
      applicable bankruptcy or insolvency laws as now or hereafter in effect or any
      successor thereto, or Maker commences any other proceeding under any
      reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
      insolvency or liquidation or similar law of any jurisdiction whether now or
      hereafter in effect relating to Maker, or there is commenced against Maker
      any
      such bankruptcy, insolvency or other proceeding which remains undismissed for
      a
      period of sixty (60) days; or Maker is adjudicated insolvent or bankrupt; or
      any
      order of relief or other order approving any such case or proceeding is entered;
      or Maker suffers any appointment of any custodian or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of sixty (60) days; or Maker makes a general assignment for the benefit
      of creditors; or Maker shall fail to pay, or shall state that it is unable
      to
      pay, or shall be unable to pay, its debts generally as they become due; or
      Maker
      shall call a meeting of its creditors with a view to arranging a composition,
      adjustment or restructuring of its debts; or Maker shall by any act or failure
      to act expressly indicate its consent to, approval of or acquiescence in any
      of
      the foregoing; or any corporate or other action is taken by Maker for the
      purpose of effecting any of the foregoing;

     

    (v)
      Maker
      shall default in any of its respective obligations under any other Debenture
      or
      any mortgage, credit agreement or other facility, indenture agreement, factoring
      agreement or other instrument under which there may be issued, or by which
      there
      may be or evidenced any indebtedness for borrowed money or money due under
      any
      long term leasing or factoring arrangement of Maker, whether such indebtedness
      now exists or shall hereafter be created and such default shall result in such
      indebtedness becoming or being declared due and payable prior to the date on
      which it would otherwise become due and payable; or

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (vi)
      Maker shall (a) be a party to any Change of Control Transaction (as defined
      below), (b) agree to sell or dispose of more than of fifty percent (50%) of
      its
      assets in one or more transactions (whether or not such sale would constitute
      a
      Change of Control Transaction), (c) make any distribution or declare or pay
      any
      dividends (in cash or other property, other than common stock) on, or purchase,
      acquire, redeem, (not counting any such shares deemed to have been redeemed
      in a
      cashless exercise of employee stock options issued pursuant to the Maker’s Stock
      Option Plan or warrants) or retire any of Maker's capital stock, of any class,
      whether now or hereafter outstanding. “Change of Control Transaction” means the
      occurrence of any of: (i) an acquisition after the date hereof by an individual
      or legal entity or “group” (as described in Rule 13d−5(b)(1) promulgated under
      the Securities Exchange Act of 1934, as amended) of effective control (whether
      through legal or beneficial ownership of capital stock of Maker, by contract
      or
      otherwise) of in excess of fifty percent (50%) of the voting securities of
      Maker, (ii) a replacement at one time or over time of more than one-half of
      the
      members of Maker's board of directors which is not approved by a majority of
      those individuals who are members of the board of directors on the date hereof
      (or by those individuals who are serving as members of the board of directors
      on
      any date whose nomination to the board of directors was approved by a majority
      of the members of the board of directors who are members on the date hereof),
      (iii) the merger of Maker with or into another entity that is not wholly-owned
      by Maker, or (iv) the execution by Maker of an agreement to which Maker is
      a
      party or by which it is bound, providing for any of the events set forth above
      in (i), (ii) or (iii).

     

    (b)  If
      any
      Event of Default occurs, the full principal amount of this Debenture, together
      with all accrued interest thereon, shall become, at the Payee's election,
      immediately due and payable in cash. Commencing five (5) days after the
      occurrence of any Event of Default that results in the acceleration of this
      Debenture, the interest rate on this Debenture shall accrue at the rate of
      eighteen percent (18%) per annum, or such lower maximum amount of interest
      permitted to be charged under applicable law. The Payee need not provide and
      Maker hereby waives any presentment, demand, protest or other notice of any
      kind, and the Payee may immediately and without expiration of any grace period
      enforce any and all of its rights and remedies hereunder and all other remedies
      available to it under applicable law. Such declaration may be rescinded and
      annulled by Payee at any time prior to payment hereunder. No such rescission
      or
      annulment shall affect any subsequent Event of Default or impair any right
      consequent thereon.

     

    3.  Negative
      Covenants.
      So long
      as any portion of this Debenture is outstanding, the Maker will not and will
      not
      permit any of its Subsidiaries to directly or indirectly:

     

    (a)  other
      than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
      suffer to exist any indebtedness for borrowed money of any kind, including
      but
      not limited to, a guarantee, on or with respect to any of its property or assets
      now owned or hereafter acquired or any interest therein or any income or profits
      therefrom;

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    (b)  other
      than Permitted Liens, enter into, create, incur, assume or suffer to exist
      any
      liens of any kind, on or with respect to any of its property or assets now
      owned
      or hereafter acquired or any interest therein or any income or profits
      therefrom;

     

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

     

    (d)  except
      as
      contractually required by the Maker as of the date of issuance of this
      Debenture, repay, repurchase or offer to repay, repurchase or otherwise acquire
      more than a de minimis number of securities;

     

    (e)  enter
      into any agreement with respect to any of the foregoing; or

     

    (f)  pay
      cash
      dividends or distributions on any equity securities of the Maker.

     

    “Permitted
      Indebtedness” shall mean (a) the indebtedness of the Maker existing on the date
      of issuance of this Debenture, (b) indebtedness incurred by the Maker that
      does
      not mature or require payments of principal prior to the Maturity Date of this
      Debenture and is made expressly subordinate in right of payment to the
      indebtedness evidenced by this Debenture, as reflected in a written agreement
      acceptable to the Payee and approved by the Payee in writing and (c) up to
      One
      Million Dollars ($1,000,000), in the aggregate, of additional unsecured
      indebtedness incurred after the date of issuance of this Debenture.

    

    “Permitted
      Lien” shall mean the individual and collective reference to the following: (a)
      liens for taxes, assessments and other governmental charges or levies not yet
      due or liens for taxes, assessments and other governmental charges or levies
      being contested in good faith and by appropriate proceedings for which adequate
      reserves (in the good faith judgment of the management of the Maker) have been
      established in accordance with generally accepted accounting procedures and
      (b)
      liens imposed by law which were incurred in the ordinary course of business,
      such as carriers’, warehousemen’s and mechanics’ liens, statutory landlords’
liens, and other similar liens arising in the ordinary course of business,
      and
      (x) which do not individually or in the aggregate materially detract from the
      value of such property or assets or materially impair the use thereof in the
      operation of the business of the Maker and its consolidated subsidiaries or
      (y)
      which are being contested in good faith by appropriate proceedings, which
      proceedings have the effect of preventing the forfeiture or sale of the property
      or asset subject to such lien.

    

    4.  No
      Waiver of Payee's Rights.
      All
      payments of principal and interest shall be made without setoff, deduction
      or
      counterclaim. No delay or failure on the part of the Payee in exercising any
      of
      its options, powers or rights, nor any partial or single exercise of its
      options, powers or rights shall constitute a waiver thereof or of any other
      option, power or right, and no waiver on the part of the Payee of any of its
      options, powers or rights shall constitute a waiver of any other option, power
      or right. Maker hereby waives presentment of payment, protest, and all notices
      or demands in connection with the delivery, acceptance, performance, default
      or
      endorsement of this Debenture. Acceptance by the Payee of less than the full
      amount due and payable hereunder shall in no way limit the right of the Payee
      to
      require full payment of all sums due and payable hereunder in accordance with
      the terms hereof.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    5.  Modifications.
      No term
      or provision contained herein may be modified, amended or waived except by
      written agreement or consent signed by the party to be bound
      thereby.

     

    6.  Cumulative
      Rights and Remedies; Usury.
      The
      rights and remedies of Payee expressed herein are cumulative and not exclusive
      of any rights and remedies otherwise available under this Debenture, or
      applicable law (including at equity). The election of Payee to avail itself
      of
      any one or more remedies shall not be a bar to any other available remedies,
      which Maker agrees Payee may take from time to time. If it shall be found that
      any interest due hereunder shall violate applicable laws governing usury, the
      applicable rate of interest due hereunder shall be reduced to the maximum
      permitted rate of interest under such law.

     

    7.  Collection
      Expenses.
      If
      Payee shall commence and prevail in an action or proceeding to enforce this
      Debenture, then Maker shall reimburse Payee for its costs of collection and
      reasonable attorneys fees incurred with the investigation, preparation and
      prosecution of such action or proceeding. 

     

    8.  Subordination.
      This
      Debenture is expressly made subordinate in right of payment to the indebtedness
      evidenced by those two certain Company debentures dated October 23, 2006 each
      in
      the face amount of $250,000.

     

    9.  Severability.
      If any
      provision of this Debenture is declared by a court of competent jurisdiction
      to
      be in any way invalid, illegal or unenforceable, the balance of this Debenture
      shall remain in effect, and if any provision is inapplicable to any person
      or
      circumstance, it shall nevertheless remain applicable to all other persons
      and
      circumstances. If it shall be found that any interest or other amount deemed
      interest due hereunder shall violate applicable laws governing usury, the
      applicable rate of interest due hereunder shall automatically be lowered to
      equal the maximum permitted rate of interest.

     

    10.  Successors
      and Assigns.
      This
      Debenture shall be binding upon Maker and its successors and shall inure to
      the
      benefit of the Payee and its successors and assigns. The term "Payee" as used
      herein, shall also include any endorsee, assignee or other holder of this
      Debenture.

     

    11.  Lost
      or Stolen Debenture.
      If this
      Debenture is lost, stolen, mutilated or otherwise destroyed, Maker shall execute
      and deliver to the Payee a new Debenture containing the same terms, and in
      the
      same form, as this Debenture. In such event, Maker may require the Payee to
      deliver to Maker an affidavit of lost instrument and customary indemnity in
      respect thereof as a condition to the delivery of any such new
      Debenture.

     

    12.  Due
      Authorization.
      This
      Debenture has been duly authorized, executed and delivered by Maker and is
      the
      legal obligation of Maker, enforceable against Maker in accordance with its
      terms. No consent of any other party and no consent, license, approval or
      authorization of, or registration or declaration with, any governmental
      authority, bureau or agency is required in connection with the execution,
      delivery or performance by the Maker, or the validity or enforceability of
      this
      Debenture other than such as have been met or obtained. The execution, delivery
      and performance of this Debenture and all other agreements and instruments
      executed and delivered or to be executed and delivered pursuant hereto or
      thereto of this will not violate any provision of any existing law or regulation
      or any order or decree of any court, regulatory body or administrative agency
      or
      the certificate of incorporation or by-laws of the Maker or any mortgage,
      indenture, contract or other agreement to which the Maker is a party or by
      which
      the Maker or any property or assets of the Maker may be bound.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    13.  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Debenture shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflicts of law thereof. Each of Maker and Payee agree that
      all
      legal proceedings concerning the interpretations, enforcement and defense of
      this Debenture shall be commenced in the state and federal courts sitting in
      Albany, New York (the "Albany Courts"). Each of Maker and Payee hereby
      irrevocably submit to the exclusive jurisdiction of the Albany Courts for the
      adjudication of any dispute hereunder (including with respect to the enforcement
      of this Debenture), and hereby irrevocably waives, and agrees not to assert
      in
      any suit, action or proceeding, any claim that it is not personally subject
      to
      the jurisdiction of any such court, that such suit, action or proceeding is
      improper. Each of Maker and Payee hereby irrevocably waive personal service
      of
      process and consents to process being served in any such suit, action or
      proceeding by mailing a copy thereof via registered or certified mail or
      overnight delivery (with evidence of delivery) to the other at the address
      in
      effect for notices to it under this Debenture and agrees that such service
      shall
      constitute good and sufficient service of process and notice thereof. Nothing
      contained herein shall be deemed to limit in any way any right to serve process
      in any manner permitted by law. Each of Maker and Payee hereby irrevocably
      waive, to the fullest extent permitted by applicable law, any and all right
      to
      trial by jury in any legal proceeding arising out of or relating to this
      Debenture or the transactions contemplated hereby.

     

    14.  Notice.
      Any and
      all notices or other communications or deliveries to be provided by the Payee
      hereunder, shall be in writing and delivered personally, by facsimile, sent
      by a
      nationally recognized overnight courier service or sent by certified or
      registered mail, postage prepaid, addressed to the Maker, at the address set
      forth in the first paragraph of this Debenture or such other address or
      facsimile number as the Maker may specify for such purposes by notice to the
      Payee delivered in accordance with this paragraph. Any and all notices or other
      communications or deliveries to be provided by the Maker hereunder shall be
      in
      writing and delivered personally, by facsimile, sent by a nationally recognized
      overnight courier service or sent by certified or registered mail, postage
      prepaid, addressed to the Payee at the address of the Payee appearing on the
      books of the Maker, or if no such address appears, at the principal place of
      business of the Payee. Any notice or other communication or deliveries hereunder
      shall be deemed given and effective on the earliest of (i) the date of
      transmission if delivered by hand or by telecopy that has been confirmed as
      received by 5:00 P.M. on a business day, (ii) one business day after being
      sent
      by nationally recognized overnight courier or received by telecopy after 5:00
      P.M. on any day, or (iii) five (5) business days after being sent by certified
      or registered mail, postage and charges prepaid, return receipt
      requested.

     

    15.  Required
      Notice to Payee.
      The
      Payee is to be immediately notified by the Maker, in accordance with Section
      14,
      of the existence or occurrence, of any Event of Default.

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
      undersigned signs this Debenture as a maker and not as a surety or guarantor
      or
      in any other capacity.

    

    

    THEATER
      XTREME ENTERTAINMENT GROUP, INC.

    

    

    By: _   
      /s/ Scott R. Oglum___________________

    Name:_Scott
      R. Oglum______________________

    Title:__Chief
      Executive Officer________________

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