Document:

Unassociated Document

    Exhibit
      10.1

     

    SIXTH
      AMENDMENT TO CREDIT AGREEMENT

    

    

    THIS
      SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of
      February 16, 2007 by and between INFOSONICS CORPORATION, a Maryland corporation
      ("Borrower"), and WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION ("Trade
      Bank").

     

    RECITALS

    

    WHEREAS,
      Borrower is currently indebted to Trade Bank pursuant to the terms and
      conditions of that certain Credit Agreement between Borrower and Trade Bank
      dated as of October 6, 2005, as amended from time to time ("Credit
      Agreement").

    

    WHEREAS,
      Trade Bank and Borrower have agreed to certain changes in the terms and
      conditions set forth in the Credit Agreement and have agreed to amend the Credit
      Agreement to reflect said changes.

    

    NOW,
      THEREFORE, for valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the parties hereto agree that the Credit Agreement shall
      be
      amended as follows:

    

    
      	
              I.

            	
              The
                second paragraph of Article I.
                CREDIT
                FACILITY,
                Section 1.2 Credit
                Extension Limit,
                is hereby deleted in its entirety, and the following substituted
                therefor:

            

    

     

    “The
      Subfacility(s) of the
      Revolving Credit
      Facility are as follows:

     

    
      	 	(a)	
              Sight
                Commercial Letters of Credit

            
	 	(b)	
              Usance
                Commercial Letters of Credit including

            
	 	 	(1) Acceptances
	 	(c)	Standby Letters of
              Credit.”

    

    

    
      	
              II.

            	
              The
                REPORTS,
                Borrowing Base Certificate
                section of EXHIBIT
                A, ADDENDUM TO CREDIT AGREEMENT
                is
                hereby deleted in its entirety, and the following substituted
                therefor:

            

    

     

    “Borrowing
      Base Certificate and Reconciliation of Accounts:
      Not
      later than twenty (20) calendar days after and as of the end of each month,
      a
      borrowing base certificate and reconciliation of accounts.”

    

    
      	
              III.

            	
              The
                REPORTS,
                Projections
                section of EXHIBIT
                A, ADDENDUM TO CREDIT AGREEMENT
                is
                hereby deleted in its entirety, and the following substituted
                therefor:

            

    

    
      	 	 	 

    

    
      	 	 	
              “Projections:
                Not later than sixty (60) calendar days after each of Borrower’s fiscal
                years, a projection in form and substance satisfactory to Trade
                Bank.”

            

    

    

    
      	
              IV.

            	
              The
                REPORTS,
                Credit Insurance Policy
                section of EXHIBIT
                A, ADDENDUM TO CREDIT AGREEMENT
                is
                hereby deleted in its entirety, and the following substituted
                therefor:

            

    

     

    1.  “Credit
      Insurance Policy: Not
      later
      than November 30, 2007, a copy of Euler Hermes ACI credit insurance policy
      renewal and not later than August 1, 2008 a copy of FCIA Management Company,
      Inc.’s credit insurance policy renewal.”

    

    
      	
              V.

            	
              “Lender’s
                address “as noted on Page 14, shall be deleted in its entirety and the
                following substituted therefor:

            

    

     

    “2030
      Main Street, Suite 650, Irvine, CA 92614”

     

    
      	
              VI.

            	
              EXHIBIT
                B, REVOLVING CREDIT FACILITY SUPPLEMENT
                shall be deleted in its entirety, and the attached EXHIBIT
                B, REVOLVING CREDIT FACILITY SUPPLEMENT,
                all terms of which are incorporated herein by this reference, shall
                be
                substituted therefor.

            

    

    

    Except
      as
      specifically provided herein, all terms and conditions of the Credit Agreement
      remain in full force and effect, without waiver or modification. All terms
      defined in the Credit Agreement shall have the same meaning when used in this
      Amendment. This Amendment and the Credit Agreement shall be read together,
      as
      one document.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Borrower
      hereby remakes all representations and warranties contained in the Credit
      Agreement and reaffirms all covenants set forth therein. Borrower further
      certifies that as of the date of this Amendment there exists no Event of Default
      as defined in the Credit Agreement, nor any condition, act or event which with
      the giving of notice or the passage of time or both would constitute any such
      Event of Default.

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
      as
      of the day and year first written above.

     

     

    
      	INFOSONICS
              CORPORATION	 	
              WELLS FARGO HSBC TRADE BANK,

              NATIONAL
                ASSOCIATION

            
	 	 	 
	By: /s/ Jeffrey
              Klausner                  
              	 	By:
              /s/ Naseem
              Aboudaher               
              
	
              Jeffrey
                Klausner

              Title:
                Chief Financial Officer

            	 	
              Naseem
                Aboudaher

              Assistant
                Vice President

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

    
      	WELLS FARGO HSBC TRADE
              BANK	 	
              REVOLVING
                CREDIT
                FACILITY SUPPLEMENT

            

    

    
      
        

      

    

    

    THIS
      SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO
      HSBC
      TRADE BANK AND THE FOLLOWING BORROWER:

    

    NAME
      OF BORROWER: INFOSONICS
      CORPORATION

    

    CREDIT
      LIMIT FOR THIS REVOLVING
      CREDIT
      LOAN FACILITY
      AND SUBLIMITS: Credit
      Limit: the lesser of (a) Thirty Million Dollars ($30,000,000) or (b) the
      Borrowing Base in effect from time to time.

    

    CREDIT
      SUBLIMITS:
      Subject
      to the Revolving
      Credit
      Facility
      Credit Limit, the Credit Sublimit for each Subfacility specified below refers
      to
      the aggregate amount which may be outstanding at any one time under each such
      Subfacility.

     

    
      	
              ·  Sight
                Commercial Letters of Credit

            	
              $15,000,000

            
	
              ·  Usance
                Commercial Letters of Credit

            	
              $15,000,000

            
	
              (a) Acceptances

            	
              $10,000,000

            
	
              ·  Standby
                Letters of Credit

            	
              $5,000,000

            

    

    

    The
      aggregate amount of Credit Extensions outstanding under the following
      Subfacilities may not at any one time exceed $15,000,000:

     

    
      	
              ·  Sight
                Commercial Letters of Credit Facility

              ·  Usance
                Commercial Letters of Credit
                Facility

            

    

    

    FACILITY
      DESCRIPTION:
      Trade
      Bank will make the Revolving
      Credit
      Facility
      available to finance Borrower’s working capital requirements. Subject to the
      credit sublimits specified above, the Revolving
      Credit
      Facility
      may be supported by (i) a standby letter of credit in favor of Trade Bank,
      (ii) a guarantee or (iii) accounts receivable, inventory or other
      collateral. Revolving Credit Loans cannot be used to repay outstanding Revolving
      Credit Loans or Term Loans that have matured or to repay amounts due under
      any
      other Facilities provided to Borrower.

    

    FACILITY
      DOCUMENTS:

    

    
      	·  	
              Revolving
                Credit Loans Note:
                The term and prepayment conditions of the Loans under Revolving Credit
                Facility are set forth in Revolving Credit Loans
                Note.

            

    

    

    INTEREST
      RATES:

    

    
      	·  	
              Loans
                under Revolving Credit Facility:
                All outstanding Loans
                under Revolving Credit Facility
                will bear interest at the following
                rate:

            

    

    

    Prime
      Rate:
      The
      Prime Rate minus .25%
      per
      annum.

    Other
      Rate: Libor
      plus 1.50% per annum

    

    Interest
      Payment Dates:
      Interest
      on all outstanding Loans
      under Revolving Credit Facility
      will be
      paid at least once each month on the first
      day of
      the month.

    

    FEES:

    

    
      	·  	
              Sight
                Commercial Credits
                and Usance
                Commercial Credits:

            

    

     

    Issuance
      Fees/Fees For Increasing Credit Amounts:
      (Minimum $100)

    1/10
      of
      1%
      of the
      face amount of each Sight
      Commercial Credit
      or
Usance
      Commercial Credit
      and of
      any increase in such amount.

    Payable:
      At the
      time each Sight
      Commercial Credit
      or
Usance
      Commercial Credit
      is
      issued or increased.

    

    Extending
      Expiration Dates:
      (Minimum $100)

    1/10
      of
      1% per annum for the extension of expiration dates

    Payable:
      At the
      time the expiration date of any Sight
      Commercial Credit
      or
Usance
      Commercial Credit
      is
      extended.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Amendment
      Fees:
      (Minimum $100)

    $100
      for each
      amendment, unless the amendment is an increase in the Sight
      Commercial Credit
      or
Usance
      Commercial Credit
      amount
      or an extension of the expiration date, in which case the Issuance Fee above
      will substitute for any Amendment Fee.

    Payable:
      At the
      time each amendment is issued.

    

    Negotiation/Payment/Examination
      Fees:
      (Minimum $125)

    1/10
      of
      1%
      of the
      face amount of each drawing under each Sight
      Commercial Credit
      or
Usance
      Commercial Credit.

    Payable:
      At the
      time any draft or other documents are negotiated, paid or examined.

    

    Swift
      Fee:
      (Flat
      fee $75)

    

    Acceptance
      Fees:
      (Minimum $125)

    1.5%
      per
      annum, calculated on a year of 360 calendar days for the number of days in
      the
      term of each acceptance, on the face amount of each draft accepted under each
      Usance Commercial Credit.

     

    Payable:
      At the
      time each draft is accepted.

    

    
      	·  	
              Standby
                Credits:

            

    

     

    Commission
      Fees/Fees For Increasing Credit Amounts or Extending Expiration
      Dates:
      (Minimum $500)

    1.5%
      per
      annum of each Standby Credit and of any increase in such
      amount.

    Payable:
      At the
      time each Standby Credit is issued or increased and at the time the expiration
      date of any Standby Credit is extended. 

    

    Amendment
      Fees:
      (Minimum $130)

    $130
      for each
      amendment, unless the amendment is an increase in the Standby Credit amount
      or
      an extension of the expiration date, in which case the Commission Fee above
      will
      substitute for any Amendment Fee.

    Payable:
      At the
      time each amendment is issued.

    

    Negotiation/Payment/Examination
      Fees:
      (Minimum $250)

    1/4
      of
      1%
      of the
      face amount of each drawing under each Standby Credit.

    Payable:
      At the
      time any draft or other documents are negotiated, paid or examined.

    

     

    COLLATERAL:
      See
      Exhibit C - Collateral/Credit Support Document.

     

    SUBFACILITIES
      DESCRIPTION, PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS:

    

    
      	·  	
              Sight
                Commercial Credits:

            

    

     

    Description
      And Purpose:
      Trade
      Bank will issue sight commercial letters of credit (each a "Sight Commercial
      Credit") for the account of Borrower for the purpose or purposes stated below.
      Subject to the credit sublimits specified above, these Sight Commercial Credits
      will be transferable or not transferable and have the goods related to them
      consigned to or not consigned to, or controlled by or not controlled by, Trade
      Bank. The Sight Commercial Credit Sublimit specified above refers to the
      aggregate undrawn amount of all Sight Commercial Credits which may be at any
      one
      time outstanding under this Facility together with the aggregate amount of
      all
      drafts drawn under such Sight Commercial Credits which have not been reimbursed
      as provided below at such time. 

    

    This
      Subfacility may only be used for the following purpose: issuance
      of Sight Commercial Credits for the importation of wireless handsets,
      accessories and related components.

    

    Documents:

    Before
      the first Sight Commercial Credit is issued:

    Trade
      Bank's standard form Commercial Letter of Credit Agreement;

    

    Before
      each Sight Commercial Credit is issued:

    Trade
      Bank's standard form Application For Commercial Letter of
      Credit;

    

    Before
      each Sight Commercial Credit is amended:

    Trade
      Bank's standard form Application For Amendment To Letter of
      Credit;

    

    Term:
      No
      Sight Commercial Credit may expire more than one
      hundred eighty
      (180)
      calendar days after the date it is issued.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	·  	
              Usance
                Commercial Credits:

            

    

     

    Description
      And Purpose:
      Trade
      Bank will issue usance commercial letters of credit (each a "Usance Commercial
      Credit") for the account of Borrower and create bankers' acceptances from drafts
      drawn under these Usance Commercial Credits ("Acceptances") and, if indicated
      above, incur deferred payment obligations from drawings under Usance Commercial
      Credits. Subject to the credit sublimits specified above, these Usance
      Commercial Credits will be transferable or not transferable and have the goods
      related to them consigned to or not consigned to, or controlled by or not
      controlled by, Trade Bank. The Usance Commercial Credit Sublimit specified
      above
      refers to the aggregate undrawn amount of all Usance Commercial Credits together
      with the aggregate amount of all Acceptances and deferred payment obligations
      which may be outstanding at any one time under each subcategory of the Usance
      Commercial Credit Sublimit.

    

    This
      Subfacility may only be used for the following purpose: issuance of Usance
      Commercial Credits for the importation of wireless handsets, accessories and
      related components.

    

    Documents:

    Before
      the first Usance Commercial Credit is issued:

    Trade
      Bank's standard form Commercial Letter of Credit Agreement;

    

    Before
      each Usance Commercial Credit is issued:

    Trade
      Bank's standard form Application For Commercial Letter of
      Credit;

    

    Before
      each Usance Commercial Credit is amended:

    Trade
      Bank's standard form Application For Amendment To Letter of
      Credit;

    

    Term:
      No
      Usance Commercial Credit may expire more than one
      hundred eighty (180) days after the date it is issued.

    No
      usance
      draft may have a term of more than sixty (60) calendar days.

    

    
      	·  	
              Standby
                Credits:

            

    

     

    Description
      And Purpose:
      Trade
      Bank will issue standby letters of credit (each a "Standby Credit") for the
      account of Borrower the purpose or purposes stated below. Subject to the credit
      sublimits specified above, these Standby Credits will be issued to support
      Borrower's open account trade terms, bid and performance bonds, industrial
      revenue bonds, worker's compensation obligations, or the moving of Borrower
      as a
      new customer from another bank to Trade Bank. The Standby Credit Sublimit
      specified above refers to the aggregate undrawn amount of all Standby Credits
      which may be at any one time outstanding under this Subfacility together with
      the aggregate amount of all drafts drawn under such Standby Credits which have
      not been reimbursed as provided below at such time.

    

    This
      Subfacility may only be used for the following purpose: issuance
      of Standby Credits to new and existing vendors.

    

    Documents:

    Before
      the first Standby Credit is issued:

    Trade
      Bank's standard form Standby Letter of Credit Agreement.

    

    Before
      each Standby Credit is issued:

    Trade
      Bank's standard form Application For Standby Letter of Credit.

    

    Before
      each Standby Credit is amended:

    Trade
      Bank's standard form Application For Amendment To Letter of Credit.

    

    Term:
      No
      Standby Credit will expire more than three
      hundred sixty-five
      (365)
      calendar days after the date it is issued. 

    

    REIMBURSEMENTS
      FOR SIGHT
      COMMERCIAL CREDITS,
      USANCE COMMERCIAL CREDITS,
      ACCEPTANCES
      AND STANDBY
      CREDITS:

     

    The
      amount of each (i) drawing
      paid
      by Trade Bank under a Sight Commercial Credit
      or Standby Credit and (ii) accepted drawing
      paid at its maturity by Trade
      Bank under a Usance Commercial Credit will be reimbursed to
      Trade Bank as follows: 

     

    by
      Trade
      Bank having Wells Fargo Bank debit any of Borrower's accounts with Wells Fargo
      Bank and forwarding such amount debited to Trade Bank;
      or

     

    immediately
      on demand of Trade Bank; or

     

    by
      treating such amount drawn as an advance to Borrower under
      Borrower's
      Revolving Credit Facility.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    DEFAULT
      INTEREST RATE ON UNREIMBURSED
      SIGHT
      COMMERCIAL CREDITS,
      ACCEPTANCES
      AND
STANDBY
      CREDITS:

    

    Default
      interest will accrue at a per annum rate equal to the Prime Rate plus five
      percent
      (5%)
      ("Default Interest Rate") and be paid at least once each month as
      follows:

     

    All
      drawings
      (i)
      under
      Sight Commercial Credits and (ii)
      under Standby Credits, not
      reimbursed on the day they are paid by Trade Bank, will bear interest at the
      Default Interest Rate from the date they are paid to the date such payment
      is
      fully reimbursed.

     

    All
      acceptances created under Usance Commercial Credits not reimbursed on the day
      they mature will bear interest at the Default Interest Rate from the date they
      mature to the date such reimbursement is made in full.

    

    BY
      INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT:
      _________________________Unassociated Document

    SECURITIES
      PURCHASE AGREEMENT

    

    THIS SECURITIES
      PURCHASE AGREEMENT
      (this
“Agreement”),
      dated
      as of February 15, 2007, by and among IQ
      MICRO INC.,
      a
      Colorado corporation (the “Company”),
      and
      the Buyers listed on Schedule I attached hereto (individually, a
“Buyer”
or
      collectively “Buyers”).

     

    WITNESSETH

    

    WHEREAS,
      the
      Company and the Buyer(s) are executing and delivering this Agreement in reliance
      upon an exemption from securities registration pursuant to Section 4(2) and/or
      Rule 506 of Regulation D (“Regulation
      D”)
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “Securities
      Act”);

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Buyer(s), as provided herein,
      and the Buyer(s) shall purchase (i) up to Ninety Five Thousand Dollars ($95,000)
      of secured convertible debentures in the form attached hereto as “Exhibit
      A”
(the
      “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Company’s common stock, par value $0.001
      (the “Common
      Stock”)
      (as
      converted, the “Conversion
      Shares”)
      which
      shall be funded on the date hereof (the “First
      Closing”
or
      “Closing”),
      for a
      total purchase price of up to Ninety Five Thousand Dollars ($95,000), (the
      “Purchase
      Price”)
      in the
      respective amounts set forth opposite each Buyer(s) name on Schedule I (the
      “Subscription
      Amount”);
      

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Registration Rights Agreement (the
“Registration
      Rights Agreement”)
      pursuant to which the Company has agreed to provide certain registration rights
      under the Securities Act and the rules and regulations promulgated there under,
      and applicable state securities laws; 

     

    WHEREAS,
      the
      Convertible Debentures are secured by (i) a security interest in all of the
      assets of the Company and of each of the Company's subsidiaries as evidenced
      by
      the security agreement of even date herewith (the “Security
      Agreement”),
      and
      (ii) a partial guaranty by certain officers of the Company as evidenced by
      the
      guaranty agreement of even date herewith (the “Guaranty
      Agreement,”
and
      together with the Security Agreement collectively the “Security
      Documents”);
      and

     

    WHEREAS,
      the
      Convertible Debentures and the Conversion Shares collectively are referred
      to
      herein as the “Securities”).
      

     

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

     

    1. PURCHASE
      AND SALE OF CONVERTIBLE DEBENTURES.

     

    (a) Purchase
      of Convertible Debentures.
      Subject
      to the satisfaction (or waiver) of the terms and conditions of this Agreement,
      each Buyer agrees, severally and not jointly, to purchase at each Closing and
      the Company agrees to sell and issue to each Buyer, severally and not jointly,
      at each Closing, Convertible Debentures in amounts corresponding with the
      Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (b) Closing
      Date.
      The
      Closing of the purchase and sale of the Convertible Debentures shall take place
      at 10:00 a.m. Eastern Standard Time on the date hereof, subject to notification
      of satisfaction of the conditions to the Closing set forth herein and in
      Sections 6 and 7 below (or such later date as is mutually agreed to by the
      Company and the Buyer(s)) (the “First
      Closing Date”
or
      the
“Closing
      Dates”).
      The
      Closing shall occur on the respective Closing Dates at the offices of Yorkville
      Advisors, LLC, 3700 Hudson Street, Suite 3700, Jersey City, New Jersey 07302
      (or
      such other place as is mutually agreed to by the Company and the Buyer(s)).
      

     

    (c) Form
      of Payment.
      Subject
      to the satisfaction of the terms and conditions of this Agreement, on each
      Closing Date, (i) the Buyers shall deliver to the Company or the Company’s
      designees, such aggregate proceeds for the Convertible Debentures to be issued
      and sold to such Buyer at such Closing, minus the fees to be paid directly
      from
      the proceeds of such Closing as set forth herein, and (ii) the Company
      shall deliver to each Buyer, Convertible Debentures which such Buyer is
      purchasing at such Closing in amounts indicated opposite such Buyer’s name on
      Schedule I, duly executed on behalf of the Company.

     

    2. BUYER’S
      REPRESENTATIONS AND WARRANTIES.

     

    Each
      Buyer represents and warrants, severally and not jointly, that:

     

    (a) Investment
      Purpose.
      Each
      Buyer is acquiring the Convertible Debentures and, upon conversion of
      Convertible Debentures, the Buyer will acquire the Conversion Shares then
      issuable, for its own account for investment only and not with a view towards,
      or for resale in connection with, the public sale or distribution thereof,
      except pursuant to sales registered or exempted under the Securities Act;
      provided, however, that by making the representations herein, such Buyer
      reserves the right to dispose of the Securities at any time in accordance with
      or pursuant to an effective registration statement covering such Securities
      or
      an available exemption under the Securities Act. Such Buyer does not presently
      have any agreement or understanding, directly or indirectly, with any Person
      to
      distribute any of the Securities. 

     

    (b) Accredited
      Investor Status.
      Each
      Buyer is an “Accredited
      Investor”
as
      that
      term is defined in Rule 501(a)(3) of Regulation D.

     

    (c) Reliance
      on Exemptions.
      Each
      Buyer understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and such Buyer’s compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      such Buyer set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Buyer to acquire the
      Securities.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (d) Information.
      Each
      Buyer and its advisors (and his or, its counsel), if any, have been furnished
      with all materials relating to the business, finances and operations of the
      Company and information he deemed material to making an informed investment
      decision regarding his purchase of the Securities, which have been requested
      by
      such Buyer. Each Buyer and its advisors, if any, have been afforded the
      opportunity to ask questions of the Company and its management. Neither such
      inquiries nor any other due diligence investigations conducted by such Buyer
      or
      its advisors, if any, or its representatives shall modify, amend or affect
      such
      Buyer’s right to rely on the Company’s representations and warranties contained
      in Section 3 below. Each Buyer understands that its investment in the Securities
      involves a high degree of risk. Each Buyer is in a position regarding the
      Company, which, based upon employment, family relationship or economic
      bargaining power, enabled and enables such Buyer to obtain information from
      the
      Company in order to evaluate the merits and risks of this investment. Each
      Buyer
      has sought such accounting, legal and tax advice, as it has considered necessary
      to make an informed investment decision with respect to its acquisition of
      the
      Securities.

     

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

     

    (f) Transfer
      or Resale.
      Each
      Buyer understands that except as provided in the Registration Rights Agreement:
      (i) the Securities have not been and are not being registered under the
      Securities Act or any state securities laws, and may not be offered for sale,
      sold, assigned or transferred unless (A) subsequently registered thereunder,
      (B)
      such Buyer shall have delivered to the Company an opinion of counsel, in a
      generally acceptable form, to the effect that such Securities to be sold,
      assigned or transferred may be sold, assigned or transferred pursuant to an
      exemption from such registration requirements, or (C) such Buyer provides the
      Company with reasonable assurances (in the form of seller and broker
      representation letters) that such Securities can be sold, assigned or
      transferred pursuant to Rule 144, Rule 144(k), or Rule 144A promulgated under
      the Securities Act, as amended (or a successor rule thereto) (collectively,
      “Rule
      144”),
      in
      each case following the applicable holding period set forth therein; (ii) any
      sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the
      seller (or the person through whom the sale is made) may be deemed to be an
      underwriter (as that term is defined in the Securities Act) may require
      compliance with some other exemption under the Securities Act or the rules
      and
      regulations of the SEC thereunder; and (iii) neither the Company nor any other
      person is under any obligation to register the Securities under the Securities
      Act or any state securities laws or to comply with the terms and conditions of
      any exemption thereunder. 

     

    (g) Legends.
      Each
      Buyer agrees to the imprinting, so long as is required by this Section 2(g),
      of
      a restrictive legend in substantially the following form:

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
      VIEW
      TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      IN
      THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
      AN
      OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
      REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    Certificates
      evidencing the Conversion Shares shall not contain any legend (including the
      legend set forth above), (i) while a registration statement (including the
      Registration Statement) covering the resale of such security is effective under
      the Securities Act, (ii) following any sale of such Conversion Shares pursuant
      to Rule 144, (iii) if such Conversion 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). The Company shall cause its counsel to issue
      a
      legal opinion to the Company’s transfer agent promptly after the effective date
      (the “Effective
      Date”)
      of a
      Registration Statement if required by the Company’s transfer agent to effect the
      removal of the legend hereunder. If all or any portion of the Convertible
      Debentures are exercised by a Buyer that is not an Affiliate of the Company
      (a
“Non-Affiliated
      Buyer”)
      at a
      time when there is an effective registration statement to cover the resale
      of
      the Conversion Shares, such Conversion Shares shall be issued free of all
      legends. The Company agrees that following the Effective Date or at such time
      as
      such legend is no longer required under this Section 2(g), it will, no later
      than three (3) Trading Days following the delivery by a Non-Affiliated Purchaser
      to the Company or the Company’s transfer agent of a certificate representing
      Conversion Shares issued with a restrictive legend (such third Trading Day,
      the
“Legend
      Removal Date”),
      deliver or cause to be delivered to such Non-Affiliated 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
      any
      transfer agent of the Company that enlarge the restrictions on transfer set
      forth in this Section. The Buyer’s acknowledge that the Company’s agreement
      hereunder to remove all legends from Conversion Shares is not an affirmative
      statement or representation that such Conversion Shares are freely tradeable.
      Each Buyer, severally and not jointly with the other Buyers, agrees that the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 3(g) is predicated upon the Company’s reliance that
      the buyer 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.

     

    (h) Authorization,
      Enforcement.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of such Buyer and is a valid and binding agreement of such Buyer enforceable
      in
      accordance with its terms, except as such enforceability may be limited by
      general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors’ rights and
      remedies.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (i) Receipt
      of Documents.
      Each
      Buyer and his or its counsel has received and read in their entirety: (i) this
      Agreement and each representation, warranty and covenant set forth herein and
      the Transaction Documents (as defined herein); (ii) all due diligence and other
      information necessary to verify the accuracy and completeness of such
      representations, warranties and covenants; (iii) the Company’s Form 10-SB filed
      with the SEC on July 17, 2006, as amended and (iv) answers to all questions
      each
      Buyer submitted to the Company regarding an investment in the Company; and
      each
      Buyer has relied on the information contained therein and has not been furnished
      any other documents, literature, memorandum or prospectus.

     

    (j) Due
      Formation of Corporate and Other Buyers.
      If the
      Buyer(s) is a corporation, trust, partnership or other entity that is not an
      individual person, it has been formed and validly exists and has not been
      organized for the specific purpose of purchasing the Securities and is not
      prohibited from doing so.

     

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

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    Except
      as
      set forth under the corresponding section of the Disclosure Schedules which
      Disclosure Schedules shall be deemed a part hereof and to qualify any
      representation or warranty otherwise made herein to the extent of such
      disclosure, the Company hereby makes the representations and warranties set
      forth below to each Buyer: 

     

    (a) Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth on
Schedule
      3(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each subsidiary free and clear of any liens, and all the issued
      and
      outstanding shares of capital stock of each subsidiary are validly issued and
      are fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities.

     

    (b) Organization
      and Qualification.
      The
      Company and its subsidiaries are corporations duly organized and validly
      existing in good standing under the laws of the jurisdiction in which they
      are
      incorporated, and have the requisite corporate power to own their properties
      and
      to carry on their business as now being conducted. Each of the Company and
      its
      subsidiaries is duly qualified as a foreign corporation to do business and
      is in
      good standing in every jurisdiction in which the nature of the business
      conducted by it makes such qualification necessary, except to the extent that
      the failure to be so qualified or be in good standing would not have 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 or
      condition (financial or otherwise) of the Company and the subsidiaries, taken
      as
      a whole, or (iii) a material adverse effect on the Company’s ability to perform
      in any material respect 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..

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (c) Authorization,
      Enforcement, Compliance with Other Instruments.
      (i) The Company has the requisite corporate power and authority to enter
      into and perform this Agreement, The Convertible Debentures, the Security
      Documents, the Registration Rights Agreement, and each of the other agreements
      entered into by the parties hereto in connection with the transactions
      contemplated by this Agreement (collectively the “Transaction
      Documents”)
      and to
      issue the Securities in accordance with the terms hereof and thereof, (ii)
      the
      execution and delivery of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated hereby and thereby,
      including, without limitation, the issuance of the Securities, the reservation
      for issuance and the issuance of the Conversion Shares, have been duly
      authorized by the Company’s Board of Directors and no further consent or
      authorization is required by the Company, its Board of Directors or its
      stockholders, (iii) the Transaction Documents have been duly executed and
      delivered by the Company, (iv) the Transaction Documents constitute the valid
      and binding obligations of the Company enforceable against the Company in
      accordance with their terms, except as such enforceability may be limited by
      general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally, the enforcement of creditors’ rights and remedies. The
      authorized officer of the Company executing the Transaction Documents knows
      of
      no reason why the Company cannot file the registration statement as required
      under the Registration Rights Agreement or perform any of the Company’s other
      obligations under such documents. 

     

    (d) Capitalization.
      The
      authorized capital stock of the Company consists of 300,000,000 shares of Common
      Stock and 25,000,000 shares of Preferred Stock, par value $0.001 (“Preferred
      Stock”)
      of
      which 50,199,500 shares of Common Stock and zero shares of Preferred Stock
      are
      issued and outstanding. 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. Except as disclosed in Schedule
      3(d): (i) none of the Company's capital stock is subject to preemptive rights
      or
      any other similar rights or any liens or encumbrances suffered or permitted
      by
      the Company; (ii) there are no outstanding options, warrants, scrip, rights
      to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its subsidiaries, or contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      subsidiaries is or may become bound to issue additional capital stock of the
      Company or any of its subsidiaries or options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its subsidiaries; (iii) there are no
      outstanding debt securities, notes, credit agreements, credit facilities or
      other agreements, documents or instruments evidencing indebtedness of the
      Company or any of its subsidiaries or by which the Company or any of its
      subsidiaries is or may become bound; (iv) there are no financing statements
      securing obligations in any material amounts, either singly or in the aggregate,
      filed in connection with the Company or any of its subsidiaries; (v) there
      are
      no outstanding securities or instruments of the Company or any of its
      subsidiaries which contain any redemption or similar provisions, and there
      are
      no contracts, commitments, understandings or arrangements by which the Company
      or any of its subsidiaries is or may become bound to redeem a security of the
      Company or any of its subsidiaries; (vi) there are no securities or instruments
      containing anti-dilution or similar provisions that will be triggered by the
      issuance of the Securities; (vii) the Company does not have any stock
      appreciation rights or "phantom stock" plans or agreements or any similar plan
      or agreement; and (viii) the Company and its subsidiaries have no liabilities
      or
      obligations required to be disclosed in the SEC Documents but not so disclosed
      in the SEC Documents, other than those incurred in the ordinary course of the
      Company's or its subsidiaries' respective businesses and which, individually
      or
      in the aggregate, do not or would not have a Material Adverse Effect. The
      Company has furnished to the Buyers true, correct and complete copies of the
      Company's Certificate of Incorporation, as amended and as in effect on the
      date
      hereof (the “Certificate
      of Incorporation”),
      and
      the Company's Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, shares of Common Stock and the material rights of the holders thereof
      in
      respect thereto. 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
      of the Company’s stockholders. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (e) Issuance
      of Securities.
      The
      issuance of the Convertible Debentures are duly authorized and are free from
      all
      taxes, liens and charges with respect to the issue thereof. Upon conversion
      in
      accordance with the terms of the Convertible Debentures, the Conversion Shares
      when issued will be validly issued, fully paid and nonassessable, are free
      from
      all taxes, liens and charges with respect to the issue thereof. The Company
      has
      reserved from its duly authorized capital stock the appropriate number of shares
      of Common Stock as set forth in this Agreement. 

     

    (f) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby (including, without limitation, the issuance of the Convertible
      Debentures, and reservation for issuance and issuance of the Conversion Shares
      and) will not (i) result in a violation of any certificate of incorporation,
      certificate of formation, any certificate of designations or other constituent
      documents of the Company or any of its subsidiaries, any capital stock of the
      Company or any of its subsidiaries or bylaws of the Company or any of its
      subsidiaries or (ii) conflict with, or constitute a default (or an event which
      with notice or lapse of time or both would become a default) in any respect
      under, or give to others any rights of termination, amendment, acceleration
      or
      cancellation of, any agreement, indenture or instrument to which the Company
      or
      any of its subsidiaries is a party, or (iii) result in a violation of any law,
      rule, regulation, order, judgment or decree (including foreign, federal and
      state securities laws and regulations and the rules and regulations of the
      National Association of Securities Dealers Inc.’s OTC Bulletin Board) applicable
      to the Company or any of its subsidiaries or by which any property or asset
      of
      the Company or any of its subsidiaries is bound or affected; except in the
      case
      of each of clauses (ii) and (iii), such as could
      not, individually or in the aggregate, have or reasonably be expected to result
      in a Material Adverse Effect.
      The
      business of the Company and its subsidiaries is not being conducted, and shall
      not be conducted in violation of any material law, ordinance, or regulation
      of
      any governmental entity. Except as specifically contemplated by this Agreement
      and as required under the Securities Act and any applicable state securities
      laws, the Company is not required to obtain any consent, authorization or order
      of, or make any filing or registration with, any court or governmental agency
      in
      order for it to execute, deliver or perform any of its obligations under or
      contemplated by this Agreement or the Registration Rights Agreement in
      accordance with the terms hereof or thereof. All consents, authorizations,
      orders, filings and registrations which the Company is required to obtain
      pursuant to the preceding sentence have been obtained or effected on or prior
      to
      the date hereof. The Company and its subsidiaries are unaware of any facts
      or
      circumstance, which might give rise to any of the foregoing.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (g) SEC
      Documents; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it with the SEC under the Securities Exchange Act of
      1934, as amended (the “Exchange
      Act”),
      for
      the two years preceding the date hereof (or such shorter period as the Company
      was required by law or regulation to file such material) (all of the foregoing
      filed prior to the date hereof or amended after the date hereof and all exhibits
      included therein and financial statements and schedules thereto and documents
      incorporated by reference therein, being hereinafter referred to as the
“SEC
      Documents”)
      on
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Document prior to the expiration of any such extension.
      The
      Company has delivered to the Buyers or their representatives, or made available
      through the SEC’s website at http://www.sec.gov., true and complete copies of
      the SEC Documents. As of their respective dates, the SEC Documents complied
      in
      all material respects with the requirements of the Exchange Act and the rules
      and regulations of the SEC promulgated thereunder applicable to the SEC
      Documents, and none of the SEC Documents, at the time they were filed with
      the
      SEC, 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. As of their respective dates, the financial statements
      of
      the Company included in the SEC Documents complied as to form in all material
      respects with applicable accounting requirements and the published rules and
      regulations of the SEC with respect thereto. Such financial statements have
      been
      prepared in accordance with generally accepted accounting principles,
      consistently applied, during the periods involved (except (i) as may be
      otherwise indicated in such financial statements or the notes thereto, or (ii)
      in the case of unaudited interim statements, to the extent they may exclude
      footnotes or may be condensed or summary statements) and fairly present in
      all
      material respects the financial position of the Company as of the dates thereof
      and the results of its operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to normal year-end audit
      adjustments). No other information provided by or on behalf of the Company
      to
      the Buyers which is not included in the SEC Documents, including, without
      limitation, information referred to in Section 2(i) of this Agreement, contains
      any untrue statement of a material fact or omits to state any material fact
      necessary in order to make the statements therein, in the light of the
      circumstance under which they are or were made and not misleading. 

     

    (h) 10(b)-5.
      The SEC
      Documents do not include any untrue statements of material fact, nor do they
      omit to state any material fact required to be stated therein necessary to
      make
      the statements made, in light of the circumstances under which they were made,
      not misleading.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (i) Absence
      of Litigation.
      There
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      against or affecting the Company, the Common Stock or any of the Company’s
      subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
      have
      a Material Adverse Effect.

     

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

     

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

     

    (l) No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any security
      or
      solicited any offers to buy any security, under circumstances that would require
      registration of the Securities under the Securities Act or cause this offering
      of the Securities to be integrated with prior offerings by the Company for
      purposes of the Securities Act.

     

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

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (o) Environmental
      Laws.
      The
      Company and its subsidiaries are (i) in compliance with any and all applicable
      foreign, federal, state and local laws and regulations relating to the
      protection of human health and safety, the environment or hazardous or toxic
      substances or wastes, pollutants or contaminants (“Environmental
      Laws”),
      (ii)
      have received all permits, licenses or other approvals required of them under
      applicable Environmental Laws to conduct their respective businesses and (iii)
      are in material compliance with all terms and conditions of any such permit,
      license or approval.

     

    (p) Title.
      Any
      real property and facilities held under lease by the Company and its
      subsidiaries are held by them under valid, subsisting and enforceable leases
      with such exceptions as are not material and do not interfere with the use
      made
      and proposed to be made of such property and buildings by the Company and its
      subsidiaries.

     

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

     

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

     

    (s) Internal
      Accounting Controls.
      The
      Company and each of its subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset accountability, and (iii) the recorded amounts for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (t) No
      Material Adverse Breaches, etc.
      Neither
      the Company nor any of its subsidiaries is subject to any charter, corporate
      or
      other legal restriction, or any judgment, decree, order, rule or regulation
      which in the judgment of the Company’s officers has or is expected in the future
      to have a material adverse effect on the business, properties, operations,
      financial condition, results of operations or prospects of the Company or its
      subsidiaries. Neither the Company nor any of its subsidiaries is in breach
      of
      any contract or agreement which breach, in the judgment of the Company’s
      officers, has or is expected to have a material adverse effect on the business,
      properties, operations, financial condition, results of operations or prospects
      of the Company or its subsidiaries.

     

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

     

    (v) Certain
      Transactions.
      Except
      for arm’s length transactions pursuant to which the Company makes payments in
      the ordinary course of business upon terms no less favorable than the Company
      could obtain from third parties and other than the grant of stock options
      disclosed in the SEC Documents, none of the officers, directors, or employees
      of
      the Company is presently a party to any transaction with the Company (other
      than
      for services as employees, officers and directors), including any contract,
      agreement or other arrangement providing for the furnishing of services to
      or
      by, providing for rental of real or personal property to or from, or otherwise
      requiring payments to or from any officer, director or such employee or, to
      the
      knowledge of the Company, any corporation, partnership, trust or other entity
      in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner.

     

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

     

    (x) 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.

     

    (y) Registration
      Rights.
      Other
      than each of the Buyers, no Person has any right to cause the Company to effect
      the registration under the Securities Act of any securities of the Company.
      There are no outstanding registration statements not yet declared effective
      and
      there are no outstanding comment letters from the SEC or any other regulatory
      agency.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (z) Private
      Placement.
      Assuming the accuracy of the Buyers’ representations and warranties set forth in
      Section 2, no registration under the Securities Act is required for the offer
      and sale of the Securities by the Company to the Buyers as contemplated hereby.
      The issuance and sale of the Securities hereunder does not contravene the rules
      and regulations of the Primary Market.

     

    (aa) 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 Primary 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 Primary 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.

     

    (bb) Manipulation
      of Price. 
      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, or (iii) paid or agreed to pay to any Person any compensation for
      soliciting another to purchase any other securities of the Company, other than,
      in the case of clauses (ii) and (iii), compensation paid to the Company’s
      placement agent in connection with the placement of the Securities.

     

    (cc) Dilutive
      Effect.
      The
      Company understands and acknowledges that the number of Conversion Shares
      issuable upon conversion of the Convertible Debentures will increase in certain
      circumstances. The Company further acknowledges that its obligation to issue
      Conversion Shares upon conversion of the Convertible Debentures in accordance
      with this Agreement and the Convertible Debentures is absolute and unconditional
      regardless of the dilutive effect that such issuance may have on the ownership
      interests of other stockholders of the Company.

     

    4. COVENANTS.

     

    (a) Best
      Efforts.
      Each
      party shall use its best efforts to timely satisfy each of the conditions to
      be
      satisfied by it as provided in Sections 6 and 7 of this Agreement.

     

    (b) Form
      D.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary to qualify the Securities,
      or obtain an exemption for the Securities for sale to the Buyers at the Closing
      pursuant to this Agreement under applicable securities or “Blue Sky” laws of the
      states of the United States, and shall provide evidence of any such action
      so
      taken to the Buyers on or prior to the Closing Date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (c) Reporting
      Status.
      Until
      the earlier of (i) the date as of which the Buyer(s) may sell all of the
      Securities without restriction pursuant to Rule 144(k) promulgated under the
      Securities Act (or successor thereto), or (ii) the date on which (A) the Buyers
      shall have sold all the Securities and (B) none of the Convertible Debentures
      are outstanding (the “Registration
      Period”),
      the
      Company shall file in a timely manner all reports required to be filed with
      the
      SEC pursuant to the Exchange Act and the regulations of the SEC thereunder,
      and
      the Company shall not terminate its status as an issuer required to file reports
      under the Exchange Act even if the Exchange Act or the rules and regulations
      thereunder would otherwise permit such termination.

     

    (d) Use
      of
      Proceeds.
      The
      Company will use the proceeds from the sale of the Convertible Debentures only
      for the specific uses set forth on Exhibit B attached hereto.

     

    (e) Reservation
      of Shares.
      On the
      date hereof, the Company shall reserve for issuance to the Buyers 815,000 shares
      for issuance upon conversions of the Convertible Dentures (the “Share
      Reserve”).
      The
      Company represents that it has sufficient authorized and unissued shares of
      Common Stock available to create the Share Reserve after considering all other
      commitments that may require the issuance of Common Stock. The Company shall
      take all action reasonably necessary to at all times have authorized, and
      reserved for the purpose of issuance, such number of shares of Common Stock
      as
      shall be necessary to effect the full conversion of the Convertible Debentures.
      If at any time the Share Reserve is insufficient to effect the full conversion
      of the Convertible Debentures, the Company shall increase the Share Reserve
      accordingly. If the Company does not have sufficient authorized and unissued
      shares of Common Stock available to increase the Share Reserve, the Company
      shall call and hold a special meeting of the shareholders within one hundred
      twenty (120) days of such occurrence, for the sole purpose of increasing the
      number of shares authorized. The Company’s management shall recommend to the
      shareholders to vote in favor of increasing the number of shares of Common
      Stock
      authorized. Management shall also vote all of its shares in favor of increasing
      the number of authorized shares of Common Stock.

     

    (f) Listings
      or Quotation.
      The
      Company’s Common Stock shall be listed or quoted for trading on any of (a) the
      American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global
      Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board
      (“OTC”)
      (each,
      a “Primary
      Market”).
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which the Common Stock
      is
      then listed (subject to official notice of issuance) and shall maintain such
      listing of all Registrable Securities from time to time issuable under the
      terms
      of the Transaction Documents. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (g) Fees
      and Expenses.
      

     

    (i) Each
      of
      the Company and the Buyer(s) shall pay all costs and expenses incurred by such
      party in connection with the negotiation, investigation, preparation, execution
      and delivery of the Transaction Documents. The Company shall pay Yorkville
      Advisors, LLC a fee equal to ten percent (10%) of the Purchase Price which
      shall
      be paid pro rata directly from the gross proceeds of each Closing. 

     

    (ii) The
      Company shall pay a structuring fee to Yorkville Advisors, LLC of Five Thousand
      Five Hundred Dollars ($5,500) which shall be paid directly from the proceeds
      of
      the First Closing. 

     

    (iii) At
      the
      Closing, the Company shall issue to the Buyer a warrant to purchase 212,000
      shares of the Company’s Common Stock for a period of five (5) years at an
      exercise price of $0.001 per share.

     

    (h) Corporate
      Existence.
      So long
      as any of the Convertible Debentures remain outstanding, the Company shall
      not
      directly or indirectly consummate any merger, reorganization, restructuring,
      reverse stock split consolidation, sale of all or substantially all of the
      Company’s assets or any similar transaction or related transactions (each such
      transaction, an “Organizational
      Change”)
      unless, prior to the consummation an Organizational Change, the Company obtains
      the written consent of each Buyer. In any such case, the Company will make
      appropriate provision with respect to such holders’ rights and interests to
      insure that the provisions of this Section 4(h) will thereafter be applicable
      to
      the Convertible Debentures.

     

    (i) Transactions
      With Affiliates.
      So long
      as any Convertible Debentures are outstanding, the Company shall not, and shall
      cause each of its subsidiaries not to, enter into, amend, modify or supplement,
      or permit any subsidiary to enter into, amend, modify or supplement any
      agreement, transaction, commitment, or arrangement with any of its or any
      subsidiary’s officers, directors, person who were officers or directors at any
      time during the previous two (2) years, stockholders who beneficially own five
      percent (5%) or more of the Common Stock, or Affiliates (as defined below)
      or
      with any individual related by blood, marriage, or adoption to any such
      individual or with any entity in which any such entity or individual owns a
      five
      percent (5%) or more beneficial interest (each a “Related
      Party”),
      except for (a) customary employment arrangements and benefit programs on
      reasonable terms, (b) any investment in an Affiliate of the Company, (c) any
      agreement, transaction, commitment, or arrangement on an arms-length basis
      on
      terms no less favorable than terms which would have been obtainable from a
      person other than such Related Party, (d) any agreement, transaction,
      commitment, or arrangement which is approved by a majority of the disinterested
      directors of the Company; for purposes hereof, any director who is also an
      officer of the Company or any subsidiary of the Company shall not be a
      disinterested director with respect to any such agreement, transaction,
      commitment, or arrangement. “Affiliate”
for
      purposes hereof means, with respect to any person or entity, another person
      or
      entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
      interest in that person or entity, (ii) has ten percent (10%) or more common
      ownership with that person or entity, (iii) controls that person or entity,
      or
      (iv) shares common control with that person or entity. “Control”
or
      “controls”
for
      purposes hereof means that a person or entity has the power, direct or indirect,
      to conduct or govern the policies of another person or entity.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (j) Transfer
      Agent.
      The
      Company covenants and agrees that, in the event that the Company’s agency
      relationship with the transfer agent should be terminated for any reason prior
      to a date which is two (2) years after the Closing Date, the Company shall
      immediately appoint a new transfer agent and shall require that the new transfer
      agent execute and agree to be bound by the terms of the Irrevocable Transfer
      Agent Instructions (as defined herein).

     

    (k) Restriction
      on Issuance of the Capital Stock.
      Except
      for issuances of Common Stock to Cornell Capital Partners, L.P. under any
      pre-existing obligations, so long as any Convertible Debentures are outstanding,
      the Company shall not, without the prior written consent of the Buyer(s), (i)
      issue or sell shares of Common Stock or Preferred Stock without consideration
      or
      for a consideration per share less than 80% of the bid price of the Common
      Stock
      determined immediately prior to its issuance, (ii) issue any preferred stock,
      warrant, option, right, contract, call, or other security or instrument granting
      the holder thereof the right to acquire Common Stock without consideration
      or
      for a consideration less than 80% of such Common Stock’s Bid Price determined
      immediately prior to it’s issuance, (iii) enter into any security instrument
      granting the holder a security interest in any and all assets of the Company,
      or
      (iv) file any registration statement on Form S-8.
      The
      foregoing restrictions shall not apply to the issuance of shares of Common
      Stock
      pursuant to a bona fide employee stock option plan of no more than 15% of the
      Company’s outstanding shares of Common Stock as of the date hereof provided,
      however, such options are issued not less than the closing bid price of the
      Company’s Common Stock
      on the
      Primary Market as quoted by Bloomberg, LP
      at the
      date of issuance.

     

    (l) Neither
      the Buyer(s) nor any of its affiliates have an open short position in the Common
      Stock of the Company, and the Buyer(s) agrees that it shall not, and that it
      will cause its affiliates not to, engage in any short sales of or hedging
      transactions with respect to the Common Stock as long as any Convertible
      Debentures shall remain outstanding. 

     

    (m) Rights
      of First Refusal.
      So
      long
      as any portion of Convertible Debentures are outstanding, if the Company intends
      to raise additional capital by the issuance or sale of capital stock of the
      Company, including without limitation shares of any class of common stock,
      any
      class of preferred stock, options, warrants or any other securities convertible
      or exercisable into shares of common stock (whether the offering is conducted
      by
      the Company, underwriter, placement agent or any third party) the Company shall
      be obligated to offer to the Buyers such issuance or sale of capital stock,
      by
      providing in writing the principal amount of capital it intends to raise and
      outline of the material terms of such capital raise, prior to the offering
      such
      issuance or sale of capital stock  to any third parties including, but not
      limited to, current or former officers or directors, current or former
      shareholders and/or investors of the obligor, underwriters, brokers, agents
      or
      other third parties.  The Buyers shall have ten (10) business days from
      receipt of such notice of the sale or issuance of capital stock to accept or
      reject all or a portion of such capital raising offer. 

     

    (n) Lock
      Up Agreements.
      On the
      date hereof, the Company shall obtain from each officer and director a lock
      up
      agreement in the form attached hereto as Exhibit
      C.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (o) Additional
      Registration Statements.
      Until
      the effective date of the initial Registration Statement, the Company will
      not
      file a registration statement under the 1933 Act relating to securities that
      are
      not the Securities.

     

    (p) Review
      of Public Disclosures.
      All SEC
      filings (including, without limitation, all filings required under the Exchange
      Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc) and other
      public disclosures made by the Company, including, without limitation, all
      press
      releases, investor relations materials, and scripts of analysts meetings and
      calls, shall be reviewed and approved for release by the Company’s attorneys
      and, if containing financial information, the Company’s independent certified
      public accountants.

     

    (q) Disclosure
      of Transaction.
      Within
      four Business Day following the date of this Agreement, the Company shall file
      a
      Current Report on Form 8-K describing the terms of the transactions contemplated
      by the Transaction Documents in the form required by the Exchange Act and
      attaching the material Transaction Documents (including, without limitation,
      this Agreement, the form of the Convertible Debenture, and the form of the
      Registration Rights Agreement) as exhibits to such filing.

     

    5. TRANSFER
      AGENT INSTRUCTIONS.

     

    (a) The
      Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
      agent, and any subsequent transfer agent, irrevocably appointing David Gonzalez,
      Esq. as the Company’s agent for purpose instructing its transfer agent to issue
      certificates or credit shares to the applicable balance accounts at The Deposity
      Trust Company (“DTC”),
      registered in the name of each Buyer or its respective nominee(s), for the
      Conversion Shares issued upon conversion of the Convertible Debentures as
      specified from time to time by each Buyer to the Company upon conversion of
      the
      Convertible Debentures. The Company shall not change its transfer agent without
      the express written consent of the Buyers, which may be withheld by the Buyers
      in their sole discretion. The Company warrants that no instruction other than
      the Irrevocable Transfer Agent Instructions referred to in this Section 5,
      and
      stop transfer instructions to give effect to Section 2(g) hereof (in the case
      of
      the Conversion Shares prior to registration of such shares under the Securities
      Act) will be given by the Company to its transfer agent, and that the Securities
      shall otherwise be freely transferable on the books and records of the Company
      as and to the extent provided in this Agreement and the other Transaction
      Documents. If a Buyer effects a sale, assignment or transfer of the Securities
      in accordance with Section 2(f), the Company shall promptly instruct its
      transfer agent to issue one or more certificates or credit shares to the
      applicable balance accounts at DTC in such name and in such denominations as
      specified by such Buyer to effect such sale, transfer or assignment and, with
      respect to any transfer, shall permit the transfer. In the event that such
      sale,
      assignment or transfer involves Conversion Shares sold, assigned or transferred
      pursuant to an effective registration statement or pursuant to Rule 144, the
      transfer agent shall issue such Securities to the Buyer, assignee or transferee,
      as the case may be, without any restrictive legend. Nothing in this Section
      5
      shall affect in any way the Buyer’s obligations and agreement to comply with all
      applicable securities laws upon resale of Conversion Shares. The Company
      acknowledges that a breach by it of its obligations hereunder will cause
      irreparable harm to the Buyer by vitiating the intent and purpose of the
      transaction contemplated hereby. Accordingly, the Company acknowledges that
      the
      remedy at law for a breach of its obligations under this Section 5 will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Section 5, that the Buyer(s) shall be
      entitled, in addition to all other available remedies, to an injunction
      restraining any breach and requiring immediate issuance and transfer, without
      the necessity of showing economic loss and without any bond or other security
      being required.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    6. CONDITIONS
      TO THE COMPANY’S OBLIGATION TO SELL.

     

    The
      obligation of the Company hereunder to issue and sell the Convertible Debentures
      to the Buyer(s) at the Closings is subject to the satisfaction, at or before
      the
      Closing Dates, of each of the following conditions, provided that these
      conditions are for the Company’s sole benefit and may be waived by the Company
      at any time in its sole discretion:

     

    (a) Each
      Buyer shall have executed the Transaction Documents and delivered them to the
      Company.

     

    (b) The
      Buyer(s) shall have delivered to the Company the Purchase Price for Convertible
      Debentures in respective amounts as set forth next to each Buyer as outlined
      on
      Schedule I attached hereto, minus any fees to be paid directly from the proceeds
      the Closings as set forth herein, by wire transfer of immediately available
      U.S.
      funds pursuant to the wire instructions provided by the Company.

     

    (c) The
      representations and warranties of the Buyer(s) shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Dates as though
      made at that time (except for representations and warranties that speak as
      of a
      specific date), and the Buyer(s) shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Buyer(s)
      at or
      prior to the Closing Dates. 

     

    7. CONDITIONS
      TO THE BUYER’S OBLIGATION TO PURCHASE.

     

    (a) The
      obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
      at
      the First Closing is subject to the satisfaction, at or before the First Closing
      Date, of each of the following conditions:

     

    (i) The
      Company shall have executed the Transaction Documents and delivered the same
      to
      the Buyers.

     

    (ii) The
      Common Stock shall be authorized for quotation or trading on the Primary Market,
      trading in the Common Stock shall not have been suspended for any reason, and
      all the Conversion Shares issuable upon the conversion of the Convertible
      Debentures shall be approved for listing or trading on the Primary Market.
      

     

    (iii) The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except to the extent that any of such representations and
      warranties is already qualified as to materiality in Section 3 above, in which
      case, such representations and warranties shall be true and correct without
      further qualification) as of the date when made and as of the First Closing
      Date
      as though made at that time (except for representations and warranties that
      speak as of a specific date) and the Company shall have performed, satisfied
      and
      complied in all material respects with the covenants, agreements and conditions
      required by this Agreement to be performed, satisfied or complied with by the
      Company at or prior to the First Closing Date

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (iv) The
      Company shall have executed and delivered to the Buyer(s) the Convertible
      Debentures in the respective amounts set forth opposite each Buyer’s name on
      Schedule I attached hereto.

     

    (v) The
      Buyers shall have received an opinion of counsel from counsel to the Company
      in
      a form satisfactory to the Buyers.

     

    (vi) The
      Company shall have provided to the Buyers a true copy of a certificate of good
      standing evidencing the formation and good standing of the Company from the
      secretary of state (or comparable office) from the jurisdiction in which the
      Company is incorporated, as of a date within 10 days of the First Closing
      Date.

     

    (vii) The
      Company shall have delivered to the Buyers a certificate, executed by the
      Secretary of the Company and dated as of the First Closing Date, as to (i)
      the
      resolutions consistent with Section 3(c) as adopted by the Company's Board
      of
      Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
      of
      Incorporation and (iii) the Bylaws, each as in effect at the First
      Closing.

     

    (viii) The
      Company shall have filed a form UCC-1 or such other forms as may be required
      to
      perfect the Buyer’s interest in the Pledged Property as detailed in the Security
      Agreement dated the date hereof and provided proof of such filing to the
      Buyer(s).

     

    (ix) The
      Guaranty Agreement shall have been executed and delivered to the
      Buyers.

     

    (x) The
      Company shall have created the Share Reserve. 

     

    8. INDEMNIFICATION.

     

    (a) In
      consideration of the Buyer’s execution and delivery of this Agreement and
      acquiring the Convertible Debentures and the Conversion Shares hereunder, and
      in
      addition to all of the Company’s other obligations under this Agreement, the
      Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
      each
      other holder of the Convertible Debentures and the Conversion Shares, and all
      of
      their officers, directors, employees and agents (including, without
      limitation, those retained in connection with the transactions contemplated
      by
      this Agreement) (collectively, the “Buyer
      Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Buyer Indemnitee is a party to the action
      for
      which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified
      Liabilities”),
      incurred by the Buyer Indemnitees or any of them as a result of, or arising
      out
      of, or relating to (a) any misrepresentation or breach of any representation
      or
      warranty made by the Company in this Agreement, the Convertible Debentures
      or
      the Transaction Documents or any other certificate, instrument or document
      contemplated hereby or thereby, (b) any breach of any covenant, agreement or
      obligation of the Company contained in this Agreement, or the Transaction
      Documents or any other certificate, instrument or document contemplated hereby
      or thereby, or (c) any cause of action, suit or claim brought or made against
      such Indemnitee and arising out of or resulting from the execution, delivery,
      performance or enforcement of this Agreement or any other instrument, document
      or agreement executed pursuant hereto by any of the parties hereto, any
      transaction financed or to be financed in whole or in part, directly or
      indirectly, with the proceeds of the issuance of the Convertible Debentures
      or
      the status of the Buyer or holder of the Convertible Debentures the Conversion
      Shares, as a Buyer of Convertible Debentures in the Company. To the extent
      that
      the foregoing undertaking by the Company may be unenforceable for any reason,
      the Company shall make the maximum contribution to the payment and satisfaction
      of each of the Indemnified Liabilities, which is permissible under applicable
      law.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

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

     

    9. GOVERNING
      LAW: MISCELLANEOUS.

     

    (a) Governing
      Law.
      This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New Jersey without regard to the principles of conflict of laws.
      The parties further agree that any action between them shall be heard in Hudson
      County, New Jersey, and expressly consent to the jurisdiction and venue of
      the
      Superior Court of New Jersey, sitting in Hudson County and the United States
      District Court for the District of New Jersey sitting in Newark, New Jersey
      for
      the adjudication of any civil action asserted pursuant to this
      Paragraph.

     

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      In
      the event any signature page is delivered by facsimile transmission, the party
      using such means of delivery shall cause four (4) additional original executed
      signature pages to be physically delivered to the other party within five (5)
      days of the execution and delivery hereof.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (c) Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d) Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

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

     

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

     

    
      	
              If
                to the Company, to:

            	
              IQ
                Micro Inc.

            
	 	
              500
                Australian Avenue, Suite 700

            
	 	
              West
                Palm Beach, Florida 33401

            
	 	
              Attention:
                Chief Executive Officer

            
	 	
              Telephone: (561)
                514-0118

            
	 	
              Facsimile: (561)
                514-0195

            
	 	 
	
              With
                a copy to:

            	
              Gallagher,
                Briody & Butler

            
	 	
              Princeton
                Forrestal Village

            
	 	
              155
                Village Blvd., Suite 201

              Princeton,
                NJ 08540

            
	 	
              Telephone: (609)
                452-6000

            
	 	
              Facsimile: (609)
                452-0090

            
	 	 
	 	 

    

    If
      to the
      Buyer(s), to its address and facsimile number on Schedule I, with copies to
      the
      Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5)
      days’ prior written notice to the other party of any change in address or
      facsimile number.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns. Neither the Company nor any Buyer
      shall
      assign this Agreement or any rights or obligations hereunder without the prior
      written consent of the other party hereto.

     

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

    (i) Survival.
      Unless
      this Agreement is terminated under Section 9(l), the representations and
      warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
      agreements and covenants set forth in Sections 4, 5 and 9, and the
      indemnification provisions set forth in Section 8, shall survive the Closing
      for
      a period of two (2) years following the date on which the Convertible Debentures
      are converted in full. The Buyer(s) shall be responsible only for its own
      representations, warranties, agreements and covenants hereunder.

     

    (j) Publicity.
      The
      Company and the Buyer(s) shall have the right to approve, before issuance any
      press release or any other public statement with respect to the transactions
      contemplated hereby made by any party; provided, however, that the Company
      shall
      be entitled, without the prior approval of the Buyer(s), to issue any press
      release or other public disclosure with respect to such transactions required
      under applicable securities or other laws or regulations (the Company shall
      use
      its best efforts to consult the Buyer(s) in connection with any such press
      release or other public disclosure prior to its release and Buyer(s) shall
      be
      provided with a copy thereof upon release thereof).

     

    (k) Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    (l) Termination.
      In the
      event that the First Closing shall not have occurred with respect to the Buyers
      on or before five (5) business days from the date hereof due to the Company’s or
      the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
      above (and the non-breaching party’s failure to waive such unsatisfied
      condition(s)), the non-breaching party shall have the option to terminate this
      Agreement with respect to such breaching party at the close of business on
      such
      date without liability of any party to any other party; provided, however,
      that
      if this Agreement is terminated by the Company pursuant to this Section 9(l),
      the Company shall remain obligated to reimburse the Buyer(s) for the fees and
      expenses of Yorkville Advisors LLC described in Section 4(g) above.

     

    (m) Brokerage.
      The
      Company represents that no broker, agent, finder or other party has been
      retained by it in connection with the transactions contemplated hereby and
      that
      no other fee or commission has been agreed by the Company to be paid for or
      on
      account of the transactions contemplated hereby. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    (n) No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    

    [REMAINDER
      PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

     

    

    
      	 	 	
              COMPANY:

            
	 	 	
              IQ
                MICRO INC. 

            
	 	 	 
	 	 	
              By:
                /s/ Robert V. Rudman

            
	 	 	
              Name: Robert
                V. Rudman

            
	 	 	
              Title: Chief
                Financial Officer

            
	 	 	 

    

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

     

    

    
      	 	
              BUYERS:

            
	 	
              CORNELL
                CAPITAL PARTNERS, LP 

            
	 	 
	 	
              By:
                 Yorkville
                Advisors, LLC 

            
	 	
              Its: General
                Partner

            
	 	 
	 	 
	 	
              By:
                /s/Mark Angelo

            
	 	
              Name: Mark
                Angelo

            
	 	
              Its: Portfolio
                Manager

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    SCHEDULE
      I

     

    SCHEDULE
      OF BUYERS

     

    

    

    
      	
              (1)

            	
              (2)

            	 	 	
              (3)

            
	
              Buyer
                

            	
              Subscription
                Amount

            	
              Legal
                Representative’s Address and Facsimile Number

            
	 	
              First
                Closing

            	 	 	 
	 	 	 	 	 
	
              Cornell
                Capital Partners, LP

               

              101
                Hudson Street, Suite 3700

              Jersey
                City, NJ 07303

              Attention:
                Mark Angelo

              Telephone:
                (201) 985-8300

              Facsimile:
                (201) 985-8266

              Residence:
                Delaware

            	
              $95,000

            	 	 	
              Troy
                Rillo, Esq.

              101
                Hudson Street, Suite 3700

              Jersey
                City, New Jersey 07302 

              Telephone:
                (201) 985-8300 

              Facsimile:
                (201) 985-8266

            
	 	 	 	 	 
	 	 	 	 	 

    

    

    

     

    

    

    

    

    

    

    
      
        
          

        

         

      

      
         

        
          

        

      

      
         

        
        

      

    

    DISCLOSURE
      SCHEDULE

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

     

    FORM
      OF CONVERTIBLE DEBENTURE

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      B

     

    USE
      OF PROCEEDS

     

    

    
      	 	
              1.

            	
              Commitment
                Fee to Yorkville Advisors, LLC of
                $9,500

            

    

    

    
      	 	
              2.

            	
              Structuring
                Fee to Yorkville Advisors, LLC of
                $5,500

            

    

    

    
      	 	
              3.

            	
              To
                Gallagher, Briody & Butler $30,000 ($25,000 legal fees; $5,000 in
                escrow for SEC filing fees and EDGAR processing
                fees)

            

    

    

    
      	 	
              4.

            	
              Audit
                Fees to Daszkal Bolton of
                $50,000.

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      C

     

    LOCK
      UP AGREEMENT

     

    The
      undersigned hereby agrees that for a period commencing on February 15, 2007
      and
      expiring on the date thirty (30) days after the date that all amounts owed
      to
      Cornell Capital Partners, LP (the “Buyer”),
      under
      the Secured Convertible Debentures issued to the Buyer pursuant to the
      Securities Purchase Agreement between IQ Micro Inc. (the “Company”)
      and
      the Buyer dated February 15, 2007 have been paid (the “Lock-up
      Period”),
      he,
      she or it will not, directly or indirectly, without the prior written consent
      of
      the Buyer, issue, offer, agree or offer to sell, sell, grant an option for
      the
      purchase or sale of, transfer, pledge, assign, hypothecate, distribute or
      otherwise encumber or dispose of any securities of the Company, including common
      stock or options, rights, warrants or other securities underlying, convertible
      into, exchangeable or exercisable for or evidencing any right to purchase or
      subscribe for any common stock (whether or not beneficially owned by the
      undersigned), or any beneficial interest therein (collectively, the
“Securities”)
      except
      in accordance with the volume limitations set forth in Rule 144(e) of the
      General Rules and Regulations under the Securities Act of 1933, as
      amended.

     

    In
      order
      to enable the aforesaid covenants to be enforced, the undersigned hereby
      consents to the placing of legends and/or stop-transfer orders with the transfer
      agent of the Company’s securities with respect to any of the Securities
      registered in the name of the undersigned or beneficially owned by the
      undersigned, and the undersigned hereby confirms the undersigned’s investment in
      the Company.

     

    Dated:
      _______________, 2006

    

    
      	 	
              Signature

            	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	
              Name:
                

            	 
	 	
              Address:

            	 
	 	
              City,
                State, Zip Code:

            	 
	 	 	 	 
	 	 	 	 
	 	 
	 	
              Print
                Social Security Number 

            
	 	
              or
                Taxpayer I.D. Number

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