Document:

d25558_ex10-1.htm

    STATE
OF DELAWARE

    CERTIFICATE
OF AMENDMENT

    OF
CERTIFICATE OF INCORPORATION

    

    The corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware does
hereby certify that:

    

    FIRST: That by unanimous
consent of the Board of Directors of Laredo Mining, Inc.
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and in the best interest of the shareholders of the
Corporation.  The resolution setting forth the proposed amendment is
as follows:

    

    RESOLVED,
that the Certificate of Incorporation of this corporation be amended by changing
Articles numbered “FIRST” so that, as
amended, said Articles shall be and read as follows:

    

    FIRST:
The name of this corporation is Laredo Oil, Inc.

    

    RESOLVED,
that the Certificate of Incorporation of this corporation be amended by changing
the Article numbered “FOURTH” so that, as
amended, said Article shall be and read as follows:

    

    FOURTH:
The total number of shares which the corporation shall have the authority to
issue is 90,000,000 Shares of Common Stock with $0.0001 par value and 10,000,000
shares of Preferred Stock with $0.0001 par value.

    

    Each one
(1) share of the corporation’s Common Stock, par value $0.0001, issued and
outstanding as of October 26, 2009, shall be converted into six and one quarter
(6.25) shares of the corporation’s Common Stock, par value
$0.0001.  Any fractional shares resulting from such conversion shall
be rounded up to the nearest whole share.

    

    SECOND: That thereafter,
pursuant to resolution of its Board of Directors, a majority of the
corporation’s stockholders voted in favor of the amendment.

    

    THIRD: That said amendment was
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    IN WITNESS WHEREOF, said
corporation has caused this certificate to be signed this 16th day of October,
2009.

    

    

    By:  /s/ Mark
See____________________

    

    Title: CEO_________________________

    

    Name: Mark
See____________________EXHIBIT 10.01
    

    
      

      

      

      PROELITE, INC.
    

    
      and
    

    
      STRATUS MEDIA GROUP, INC.
    

    
      

      

      

      

      

      

      

      

    

    

    
      

      

      

      STRATEGIC INVESTMENT AGREEMENT
    

    
      October 9, 2009
    

    
      

      

      

    

    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    

    

    
    	
          
            TABLE OF CONTENTS
          

        
	
           
        	

        	

        	

        	
          
            Page
          

        
	
          ARTICLE 1
        	
          INTERPRETATION
        	

        	
          1
        
	

        	
          Section 1.1
        	
          Defined Terms.
        	
          
            7
          

        
	

        	
          Section 1.2
        	
          Headings, etc.
        	
          7
        
	

        	
          Section 1.3
        	
          Fully Diluted Basis.
        	
          7
        
	

        	
          Section 1.4
        	
          Certain Phrases, etc.
        	
          7
        
	

        	
          Section 1.5
        	
          Knowledge.
        	
          7
        
	

        	
          Section 1.6
        	
          Accounting Terms.
        	
          8
        
	

        	
          Section 1.7
        	
          Incorporation of Schedules.
        	
          8
        
	
          ARTICLE 2
        	
          PURCHASED SHARES AND PURCHASE PRICE
        	
          8
        
	

        	
          Section 2.1
        	
          Preferred Shares.
        	
          8
        
	

        	
          Section 2.2
        	
          Payment of Transfer Taxes.
        	
          8
        
	
          ARTICLE 3
        	
          
            REPRESENTATIONS AND WARRANTIES OF THE COMPANY
          

        	
          9
        
	

        	
          Section 3.1
        	
          Corporate Matters
        	
          9
        
	

        	
          Section 3.2
        	
          General Matters Relating to the Business
        	
          12
        
	

        	
          Section 3.3
        	
          Matters Relating to the Assets
        	
          13
        
	

        	
          Section 3.4
        	
          Financial Matters
        	
          16
        
	

        	
          Section 3.5
        	
          Particular Matters Relating to the Business
        	
          17
        
	
          ARTICLE 4
        	
          
            REPRESENTATIONS AND WARRANTIES OF SMGI
          

        	
          20
        
	

        	
          Section 4.1
        	
          Representations and Warranties of SMGI.
        	
          20
        
	
          ARTICLE 5
        	
          PRE-CLOSING COVENANTS OF THE PARTIES
        	
          22
        
	

        	
          Section 5.1
        	
          Conduct of Business Prior to the Closing.
        	
          22
        
	

        	
          Section 5.2
        	
          Access for Due Diligence.
        	
          24
        
	

        	
          Section 5.3
        	
          Actions to Satisfy Closing Conditions.
        	
          24
        
	

        	
          Section 5.4
        	
          Notice of Untrue Representation or Warranty.
        	
          24
        
	

        	
          Section 5.5
        	
          Use of Proceeds
        	
          25
        
	

        	
          Section 5.6
        	
          Closing Uses of Purchase Price
        	
          25
        
	

        	
          Section 5.7
        	
          Proof of Funds
        	
          25
        
	

        	
          Section 5.8
        	
          Use of Loan Proceeds
        	
          25
        
	
          ARTICLE 6
        	
          CONDITIONS OF CLOSING
        	
          25
        
	

        	
          Section 6.1
        	
          Conditions for the Benefit of SMGI.
        	
          25
        
	

        	
          Section 6.2
        	
          Conditions for the Benefit of the Company.
        	
          27
        
	
          ARTICLE 7
        	
          CLOSING
        	
          29
        
	

        	
          Section 7.1
        	
          Date, Time and Place of Closing.
        	
          29
        

    

    

    

    
      
        

        

      

      
        
          i
        

        
          

        

      

      
        

        

      

    

    

    

    
    	
          ARTICLE 8
        	
          POST CLOSING COVENANTS
        	
          29
        
	
           
        	
          Section 8.1
        	
          Further Assurances
        	
          29
        
	

        	
          Section 8.2
        	
          Announcements
        	
          29
        
	

        	
          Section 8.3
        	
          Conduct of the Company
        	
          29
        
	
          ARTICLE 9
        	
          TERMINATION
        	
          30
        
	

        	
          Section 9.1
        	
          Termination Rights.
        	
          30
        
	

        	
          Section 9.2
        	
          Effect of Termination
        	
          31
        
	
          ARTICLE 10
        	
          INDEMNIFICATION
        	
          31
        
	

        	
          Section 10.1
        	
          Survival.
        	
          31
        
	

        	
          Section 10.2
        	
          Indemnification in Favor of SMGI
        	
          31
        
	

        	
          Section 10.3
        	
          Indemnification in Favor of the Company
        	
          31
        
	

        	
          Section 10.4
        	
          Notification; SMGI Indemnity Claims.
        	
          32
        
	

        	
          Section 10.5
        	
          Procedure for Third Party Claims.
        	
          32
        
	

        	
          Section 10.6
        	
          Alternative Remedies.
        	
          34
        
	

        	
          Section 10.7
        	
          Exclusive Remedies
        	
          35
        
	
          ARTICLE 11
        	
          MISCELLANEOUS
        	
          35
        
	

        	
          Section 11.1
        	
          Notices.
        	
          35
        
	

        	
          Section 11.2
        	
          Time of the Essence.
        	
          35
        
	

        	
          Section 11.3
        	
          Brokers.
        	
          36
        
	

        	
          Section 11.4
        	
          Third Party Beneficiaries.
        	
          36
        
	

        	
          Section 11.5
        	
          Expenses.
        	
          36
        
	

        	
          Section 11.6
        	
          Independent Counsel.
        	
          36
        
	

        	
          Section 11.7
        	
          Amendments.
        	
          36
        
	

        	
          Section 11.8
        	
          Waiver.
        	
          37
        
	

        	
          Section 11.9
        	
          Entire Agreement.
        	
          37
        
	

        	
          Section 11.10
        	
          Successors and Assigns.
        	
          37
        
	

        	
          Section 11.11
        	
          Severability.
        	
          38
        
	

        	
          Section 11.12
        	
          Informal Dispute Resolution.
        	
          38
        
	

        	
          Section 11.13
        	
          Governing Law.
        	
          38
        
	

        	
          Section 11.14
        	
          Waiver of Jury Trial.
        	
          38
        
	

        	
          Section 11.15
        	
          No Commitment for Additional Financing.
        	
          39
        
	

        	
          Section 11.16
        	
          Counterparts.
        	
          39
        
	

        	

        	

        	
           
        
	
          Exhibit “A”
        	
          Form of Certificate of Designation, Voting Powers and Preferences of
          Series A Convertible Preferred Stock
        
	

        	

        	

        	
           
        
	
          Exhibit “B”
        	
          Form of Release
        	

        

    

    

    

    
      
        

        

      

      
        
          ii
        

        
          

        

      

      
        

        

      

    

    

    

    
      STRATEGIC INVESTMENT AGREEMENT
    

    
      This STRATEGIC INVESTMENT AGREEMENT (“Agreement”), dated as
      of October 9, 2009, is made by and between ProElite, Inc., a New Jersey
      corporation (the “Company”), on the one hand, and Stratus
      Media Group, Inc., a Nevada corporation (“SMGI”) on the
      other hand. The Company and SMGI are collectively referred to herein as
      the “Parties” or “parties.”  This
      Agreement is entered into with reference to the following:
    

    
      A.        The Company is and has been engaged in the business of
      organizing and promoting mixed martial arts (“MMA”) events
      and has developed certain Intellectual Property relating thereto.
    

    
      B.        SMGI is engaged, inter alia, in developing and operating
      sports and entertainment properties and intends to use the Company
      and/or its Affiliates as the vehicle to conduct MMA events.
    

    
      C.        The Company desires to sell to SMGI and SMGI desires to
      purchase from the Company shares of the preferred stock of the Company
      on the terms and conditions set forth herein.
    

    
      D.        Concurrently with the execution of this Agreement, SMGI is
      loaning the Company $100,000 (the “Loan”) pursuant to a demand
      promissory note (the “Note”).
    

    
      

      ARTICLE 1  
INTERPRETATION
    

    
      Section 1.1     Defined Terms.
    

    
      As used in this Agreement, the following terms have the following
      meanings:
    

    
      “Affiliate” means, with respect to any specified Person,
      (i) any other Person who, directly or indirectly, owns or controls, is
      under common ownership or control with, or is owned or controlled by,
      such specified Person, (ii) any other Person who is a director, officer,
      partner or trustee of the specified Person or a Person described in
      clause (i) of this definition or any spouse of the specified Person or
      any such other Person, (iii) any relative of the specified Person or any
      other Person described in clause (ii) of this definition, or (iv) any
      Person of which the specified Person and/or any one or more of the
      Persons specified in clause (i), (ii) or (iii) of this definition,
      individually or in the aggregate, beneficially own 10% or more of any
      class of voting securities.
    

    
      “Agreement” means this Strategic Investment Agreement, all
      exhibits thereto, and the Disclosure Schedules; and the expressions “Article”
      and “Section” followed by a number mean and refer to the
      specified Article or Section of this Agreement.
    

    
      “Ancillary Agreements” means the Note, Series A Certificate
      of Designation, Voting Powers and Preferences of Series A Convertible
      Preferred Stock and any other agreements referred to in this Agreement.
    

    
      “Assets” means all of the assets, rights, intellectual
      property, interests and other properties, real, personal and mixed,
      tangible and intangible, owned by the Company Group.
    

    
      
        

        

      

      
        

        

        
          

        

      

      
        

        

      

    

    
      “Authorization” means, with respect to any Person, the
      Business or any matter, any order, permit, approval, waiver, license or
      similar authorization of any Governmental Entity having jurisdiction
      over the Person, Business or matter.
    

    
      “Balance Sheet Date” means July 31, 2009.
    

    
      “Books and Records” means all books of account, tax
      records, sales and purchase records, customer and supplier lists,
      computer software, formulae, business reports, plans and projections and
      all other documents, files, correspondence and other information of the
      applicable Party (whether in written, printed, electronic or computer
      printout form).
    

    
      “Business” means the business of organizing and promoting
      MMA events.
    

    
      “Business Day” means any day of the year, other than a
      Saturday, Sunday or any day on which banks are required or authorized to
      close in Los Angeles, California.
    

    
      “Closing” has the meaning set forth in Section 7.1.
    

    
      “Closing Date” means the date of Closing.
    

    
      “Code” means the U.S. Internal Revenue Code of 1986, as
      amended from time to time, together with all rules and regulations
      promulgated thereunder.
    

    
      “Company” means ProElite, Inc.
    

    
      “Common Stock” means the common stock of the Company.
    

    
      “Company Group” means, collectively, the Company and its
      Subsidiaries.
    

    
      “Company Intellectual Property” shall mean any and all
      Intellectual Property and Intellectual Property Rights that are owned by
      any member of the Company Group in any jurisdiction.
    

    
      “Consent” means the consent of a contracting party to the
      transactions contemplated herein, if required by the terms of any
      Contract.
    

    
      “Contracts” means all agreements to which any member of the
      Company Group is a party including all contracts, leases, mortgages,
      leases of personal property, employment agreements, understandings,
      options, warrants, indentures, notes or other obligations or commitments
      of any nature, written or oral, including the Material Contracts.
    

    
      “Conversion Shares” has the meaning set forth in Section
      3.1(c).
    

    
      “Corporate Records” means the corporate records of all
      members of the Company Group, including (i) all charter documents and
      by-laws, (ii) all minutes of meetings and resolutions of stockholders
      and directors (and any committees), (iii) the stock certificate books,
      securities register, register of transfers and register of directors,
      and (iv) any other documents required to be kept by applicable Law.
    

    
      
        

        

      

      
        
          2
        

        
          

        

      

      
        

        

      

    

    
      “Damages” means any loss, liability, claim, damage
      (including incidental but excluding consequential damages and lost
      profits (except to the extent arising from third party claims)) or
      expense (including legal expenses) whether resulting from any action,
      suit, proceeding, arbitration, claim or demand that is instituted or
      asserted by a third party or any cause, matter, thing, act, omission or
      state of facts not involving a third party.
    

    
      “Derivative Securities” has the meaning set forth in
      Section 3.1(i).
    

    
      “Direct Claim” means any cause, matter, thing, act,
      omission or state of facts not involving a Third Party Claim which
      entitles an Indemnified Person to make a claim for indemnification under
      this Agreement.
    

    
      “Disclosure Schedules” means those schedules attached
      hereto and delivered by the Company to SMGI, which shall be divided into
      sections containing the disclosure information required in each such
      section by the terms of this Agreement.
    

    
      “Employee Plans” means all the employee benefit, fringe
      benefit, supplemental employment benefit, bonus, incentive, deferred
      compensation, profit sharing, savings sharing, termination, change of
      control, pension, retirement, stock option, stock purchase, phantom
      stock, severance, stock appreciation, health, welfare, medical, dental,
      disability, life insurance and similar plans, programs, arrangements or
      practices relating to the current or former employees, officers or
      directors of the Company Group maintained, sponsored or funded by any
      member of the Company Group, whether written or oral, funded or
      unfunded, insured or self-insured, registered or unregistered other than
      government-sponsored employment insurance, workers compensation, health
      insurance and pension plans, including, without limitation, all
      “employee benefit plans” as defined in Section 3(3) of the ERISA.  
    

    
      “ERISA” means the U.S. Employee Retirement Income Security
      Act of 1974, as amended from time to time, the rules and regulations
      promulgated thereunder and any successor statute.
    

    
      “ERISA Affiliate” has the meaning set forth in Section 3.1.
    

    
      “Financial Statements” means the audited and unaudited
      consolidated financial statements of the Company for the fiscal years
      ended December 31, 2006, 2007 and 2008, and the period(s) ended July 31,
      2009.  
    

    
      “GAAP” means, at any time, accounting principles generally
      accepted in the United States of America, at the relevant time applied
      on a consistent basis.
    

    
      “Governmental Entity” means any (i) multinational, federal,
      state, provincial, municipal, local or other governmental or public
      department, central bank, court, commission, board, bureau, agency or
      instrumentality, domestic or foreign, (ii) any subdivision or authority
      of any of the foregoing, or (iii) any quasi-governmental or private body
      exercising any regulatory, expropriation or taxing authority under or
      for the account of any of the above and includes a stock exchange or
      self-regulatory body.
    

    
      
        

        

      

      
        
          3
        

        
          

        

      

      
        

        

      

    

    
      “Indemnified Person” means a Person with indemnification
      rights or benefits under Section 10.3 or 10.4 of this Agreement.
    

    
      “Independent Director” has the meaning set forth in Section
      6.1(e) as modified by Section 10.4(5).
    

    
      “Indemnifying Party” means a party against which a claim
      may be made for indemnification under this Agreement.
    

    
      “Intellectual Property” means any and all of the following:
      (i) proprietary and non-public business information, including
      inventions (whether patentable or not), invention disclosures,
      improvements, trade secrets, know-how, processes, designs, technology,
      technical data, schematics and formulae, and documentation relating to
      any of the foregoing; (ii) works of authorship, including computer
      programs, source code, and executable code, whether embodied in
      software, firmware or otherwise, documentation, files, and records;
      (iii) copyrights, copyright registrations and applications for copyright
      registration; (iv) trade names, business names, corporate names, domain
      names, website names and world wide web addresses, registered and
      unregistered trade-marks, trade-mark applications, trade dress and
      logos, service marks, certification marks and the goodwill associated
      with any of the foregoing;  and (v) proprietary and confidential
      business information including know-how, inventions, discoveries,
      improvements, concepts, ideas, methods, processes, designs, formulae,
      technical data, drawings, specifications, research and development
      information and other proprietary and confidential information,
      including customer lists, business plans and marketing plans, in each
      case to the extent not included in the foregoing subparagraphs, but
      excluding any of the foregoing that is generally known or available to
      the public (collectively, “Trade Secrets”).
    

    
      “Interim Period” means the period between the date of this
      Agreement and the Closing Date.
    

    
      “Laws” means any and all applicable laws including all
      domestic or foreign, federal, state, provincial or local statutes,
      codes, ordinances, decrees, rules, regulations, municipal by-laws,
      judicial or arbitral or administrative or ministerial or departmental or
      regulatory judgments, orders, decisions, rulings or awards, policies,
      notices, guidelines, including, without limitation, any and all by-laws,
      rules, regulations, policies, guidelines, orders, decisions, rulings or
      awards, of any applicable stock exchanges and self-regulatory
      organizations and general principles of common and civil law and equity,
      binding on or affecting the Person referred to in the context in which
      the word is used.
    

    
      “Liabilities” means with respect to any Person, any
      liability or obligation of such Person of any kind, character or
      description, whether known or unknown, absolute or contingent, accrued
      or unaccrued, disputed or undisputed, liquidated or unliquidated,
      secured or unsecured, joint or several, due or to become due, vested or
      unvested, executory, determined, determinable or otherwise, and whether
      or not the same is required to be set forth in the financial statements
      of such Person.
    

    
      “Lien” means any mortgage, charge, pledge, hypothecation,
      security interest, assignment, lien (statutory or otherwise), charge,
      title retention agreement or arrangement, restrictive covenant or other
      encumbrance of any nature or any other arrangement, deemed or statutory
      trust, or condition which, in substance, secures payment or performance
      of an obligation.  Lien does not include securities law restrictions.
    

    
      
        

        

      

      
        
          4
        

        
          

        

      

      
        

        

      

    

    
      “Loan” has the meaning set forth in the Recitals.
    

    
      “Material Adverse Effect” means a material adverse effect
      on the business, assets (including intangible assets), liabilities,
      financial condition, property, or results of operations of the Company
      Group, taken as a whole.
    

    
      “Material Contracts” has the meaning set forth in Section
      3.3(c).
    

    
      “MMA” means mixed martial arts.
    

    
      “Note” has the meaning set forth in the Recitals
    

    
      “Order” means any order, ruling, decree, directive,
      consent, approval, injunction or other similar determination or finding
      by, before, or under the supervision of any Governmental Authority,
      arbitrator or mediator and, in the case of a Regulatory Authority, a
      memorandum of understanding or agreement entered into in the exercise of
      its supervisory authority.
    

    
      “Ordinary Course” means, with respect to an action taken by
      a Person, that such action is taken in the ordinary course of the normal
      day-to-day operations of the Person.
    

    
      “Outstanding Debts” means all obligations of the Company
      for borrowed money and all obligations of the Company evidenced by
      bonds, debentures, notes, loan agreements or other similar instruments.
    

    
      “Parties” or “parties” means the Company
      and SMGI and any other Person who may become a party to this Agreement.
    

    
      “Pension Plan” has the meaning set forth in Section 3.5(c).
    

    
      “Person” means a natural person, partnership, limited
      partnership, limited liability company or partnership, corporation,
      syndicate, sole proprietorship, company, joint stock company, trust,
      trustee, executor, administrator or other legal representative,
      unincorporated association, joint venture or other entity or
      Governmental Entity, and pronouns have a similarly extended meaning.
    

    
      “Preferred Shares” has the meaning set forth in Section 2.1.
    

    
      “Public Statement” means any press release, public
      statement or announcement with respect to the transactions contemplated
      by this Agreement.
    

    
      “Purchase Price” has the meaning set forth in Section 2.1.
    

    
      “Related Party” means in respect of any member of the
      Company Group: (i) a Person which alone or in combination with others
      controlled by such Person holds a sufficient number of securities of the
      Company Group or has contractual rights binding on the Company
      sufficient to control any member of the Company Group, (ii) a Person in
      respect of which a Person referred to in clause (i) above alone or in
      combination with others controlled by the Person holds a sufficient
      number of securities or has contractual rights sufficient to control the
      Person referred to in clause (i) above (but only if the Company knows of
      the control relationship between the two Persons), (iii) a Person (other
      than employees of the Company Group) in respect of which any member of
      the Company Group alone or in combination with others such member
      controls holds a sufficient number of securities or has contractual
      rights sufficient to control such Person, (iv) a Person who beneficially
      owns, directly or indirectly, voting securities of any member of the
      Company Group or who is known by the Company to exercise control or
      direction over voting securities of any member of the Company Group or a
      combination of both carrying more than 10% of the voting rights attached
      to all voting securities of any member of the Company Group for the time
      being outstanding, or (v) a director or officer of any member of the
      Company Group or any Person known to be an immediate relative of such
      director or officers.
    

    
      
        

        

      

      
        
          5
        

        
          

        

      

      
        

        

      

    

    
      “Series A Certificate of Designation” means the Certificate
      of Designation, Voting Powers and Preferences of the Series A
      Convertible Preferred Stock of the Company, which Certificate shall be
      in the form of Exhibit A or such other form that may be agreed to
      between the Company and SMGI.
    

    
      “Series A Preferred Stock” means the preferred stock of the
      Company designated as Series A Convertible Preferred Stock, which series
      of preferred stock will be created prior to the Closing by the filing of
      the Series A Certificate of Designation.
    

    
      “SMGI” means Stratus Media Group, Inc.
    

    
      “Stock Option” means any option to acquire shares in the
      capital of any member of the Company Group.  
    

    
      “Subsidiary” means any corporation, partnership, joint
      venture or other legal entity of which a Person (either alone or through
      or together with any other subsidiary), owns, directly or indirectly,
      more than 50% of the stock or other equity interests the holders of
      which are generally entitled to vote for the election of the board of
      directors or other governing body of such corporation or other legal
      entity or has, directly or indirectly, the right to appoint a majority
      of the board of directors or other governing body of such corporation or
      other legal entity.
    

    
      “Suppliers” means the suppliers of the Company Group.
    

    
      “Tax” or “Taxes” means (i) any federal,
      provincial, state, local or foreign tax, duty, fee, excise, premium,
      assessment, impost, levy and all taxes, duties, fees, excises, premiums,
      assessments, imposts, levies and other charges or assessments of any
      kind whatsoever imposed by any Governmental Entity, whether computed on
      a separate, consolidated, unitary, combined or other basis, including
      those levied on, or measured by, or described with respect to, federal,
      state, local or foreign income, gross receipts, profits, gains,
      windfalls, capital, capital stock, production, recapture, transfer, land
      transfer, license, gift, occupation, wealth, environment, net worth,
      indebtedness, surplus, sales, goods and services, harmonized sales, use,
      value-added, excise, special assessment, stamp, withholding, business,
      franchising, real or personal property, health, employee health,
      payroll, workers’ compensation, employment or unemployment, severance,
      social services, social security, education, utility, surtaxes, customs,
      import or export, and including all license and registration fees and
      all employment insurance, health insurance and government pension plan
      premiums or contributions; (ii) all interest, penalties, fines additions
      to tax or other additional amounts imposed by any Governmental Entity on
      or in respect of amounts of the type described in clause (i) above or
      this clause (ii); (iii) any liability for the payment of any amounts of
      the type described in clauses (i) or (ii) as a result of being a member
      of an affiliated, consolidated, combined or unitary group for any
      period; and (iv) any liability for the payment of any amounts of the
      type described in clauses (i) or (ii) as a result of any express or
      implied obligation to indemnify any other Person or as a result of being
      a transferee or successor in interest to any party.
    

    
      
        

        

      

      
        
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      “Tax Return” means any return, declaration, report,
      election, notice, designation, filing, claim for refund, or information
      return or statement relating to any Tax, including any schedule or
      attachment thereto, and any amendment thereof.
    

    
      “Third Party Claim” means any action, suit, proceeding,
      arbitration, claim or demand that is instituted or asserted by a third
      party against an Indemnified Person which entitles the Indemnified
      Person to make a claim for indemnification under this Agreement.
    

    
      Section 1.2     Headings, etc.
    

    
      The provision of a Table of Contents, the division of this Agreement
      into Articles and Sections and the insertion of headings are for
      convenient reference only and are not to affect its interpretation.
    

    
      Section 1.3     Fully Diluted Basis.
    

    
      Whenever ownership or holding of a number of shares of Common Stock is
      determined under this Agreement, subject to the last sentence of Section
      2.1, such determination will be made on a fully diluted basis taking
      into account the issued and outstanding shares of Common Stock and
      assuming conversion to or exercise for shares of all preferred shares,
      debentures, options, warrants, convertible securities or other rights
      exercisable or convertible for shares of Common Stock, including Stock
      Options whether vested or not.
    

    
      Section 1.4     Certain Phrases, etc.
    

    
      In this Agreement and any Ancillary Agreement (i) (a) the words “including”
      and “includes” mean “including (or includes)
      without limitation”, and (b) the phrase “the
      aggregate of”, “the total of”, “the
      sum of”, or a phrase of similar meaning means “the
      aggregate (or total or sum), without duplication, of”, and (ii) in
      the computation of periods of time from a specified date to a later
      specified date, unless otherwise expressly stated, the word “from”
      means “from and including” and the words “to”
      and “until” each mean “to but excluding”.
    

    
      Section 1.5     Knowledge.
    

    
      Where any representation or warranty contained in this Agreement or any
      Ancillary Agreement or in any other document delivered pursuant to this
      Agreement is expressly qualified by reference to the knowledge of the
      Company or SMGI, it shall be deemed to refer to the actual knowledge of
      any and all of the directors and officers of the Company Group or SMGI,
      as applicable.
    

    
      
        

        

      

      
        
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      Section 1.6     Accounting Terms.
    

    
      All accounting terms not specifically defined in this Agreement shall be
      interpreted in accordance with GAAP.
    

    
      Section 1.7     Incorporation of Schedules.
    

    
      The schedules attached to this Agreement shall, for all purposes of this
      Agreement, form an integral part of it.
    

    
      

      ARTICLE 2  
PREFERRED SHARES AND PURCHASE PRICE
    

    
      Section 2.1     Preferred Shares.
    

    
      Subject to the terms and conditions of this Agreement, the Company
      agrees to issue and sell to SMGI and SMGI agrees to subscribe for and
      purchase from the Company at the Closing that number of shares of Series
      A Preferred Stock (the “Preferred Shares”) necessary for
      SMGI to hold on an as-converted basis, 95% of the issued and outstanding
      shares of Common Stock of the Company as of the Closing Date, on a fully
      diluted basis, after giving effect to shares issuable upon conversion of
      the Preferred Shares.  The parties shall determine the exact number of
      shares of Series A Preferred Stock to be issued pursuant to this
      Agreement prior to Closing.  The purchase price payable by SMGI for the
      Preferred Shares shall be $2.0 million (the “Purchase Price”)
      payable in cash on the Closing Date less any amount owing pursuant to
      the Note as provided in Section 5.5.  For avoidance of doubt, the Series
      A Certificate of Designation shall provide that the amount of shares of
      Common Stock issuable upon conversion on a cumulative basis shall equal
      95% of the sum of (a) the issued and outstanding shares as of the
      Closing, plus (b) any shares of Common Stock issued after the Closing
      Date upon exercise or conversion of any Derivative Securities
      outstanding as of the Closing Date, subject to any adjustment for stock
      splits, stock dividends, recapitalizations, etc. and in all cases, after
      giving effect to shares issuable upon conversion of the Preferred Shares.
    

    
      Section 2.2     Payment of Transfer Taxes.
    

    
      Other than as set forth in this Agreement, all transfer, documentary,
      sales, use, stamp, registration and other similar Taxes and fees
      (including any penalties, and interest) incurred in connection with the
      issuance by the Company of the Preferred Shares under this Agreement,
      shall be paid by the Company when due and the Company, will, at its own
      expense, prepare all necessary Tax Returns and other documentation with
      respect to all such transfer, documentary, sales, use, stamp,
      registration and other similar Taxes and fees, and, if required by
      applicable Law, SMGI will, and will cause its Affiliates to, join in the
      execution of any such Tax Returns and other documentation.
    

    
      
        

        

      

      
        
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      ARTICLE 3  
REPRESENTATIONS AND
      WARRANTIES OF THE COMPANY
    

    
      The Company represents and warrants as follows to SMGI as of the date
      hereof and as of the Closing Date and acknowledges and confirms that
      SMGI is relying on such representations and warranties in connection
      with the purchase by SMGI of the Preferred Shares and the other
      transactions contemplated hereby (it being understood that no
      investigations made by or on behalf of SMGI shall have the effect of
      waiving, diminishing the scope of, or otherwise affecting any such
      representations and warranties):
    

    
      Section 3.1     Corporate Matters
    

    
                 (a)  Incorporation
      and Qualification.  The Disclosure Schedules set forth all of the
      Subsidiaries of the Company and such other entities in which any member
      of the Company Group has an equity interest. Each member of the Company
      Group is a corporation incorporated, validly existing and in good
      standing under the laws of its jurisdiction of incorporation and has the
      corporate power to own or lease and operate its property, carry on its
      business and enter into and perform its obligations under this Agreement
      and each of the Ancillary Agreements to which it is a party.  The
      members of the Company Group are duly qualified, licensed or registered
      to carry on business in all jurisdictions in which the failure to so
      qualify would have a Material Adverse Effect. All such jurisdictions are
      disclosed on the Disclosure Schedules.  
    

    
                 (b)  Validity
      of Agreement.  The execution, delivery and performance by the
      Company of this Agreement and each of the Ancillary Agreements to which
      the Company is a party:
    

    
                     (i)  have been duly authorized by all necessary corporate
      action on the part of the Company;
    

    
                    (ii)  do not and will not (or would not with the giving of
      notice, the lapse of time or the happening of any other event or
      condition) constitute or result in a violation or breach of, or conflict
      with, or allow any other Person to exercise any rights under, any of the
      terms or provisions of the Company’s charter documents, by-laws or any
      stockholders agreement relating to the Company;
    

    
                   (iii)  do not and will not (or would not with the giving of
      notice, the lapse of time or the happening or any other event or
      condition) constitute or result in a breach or violation of, or conflict
      with or allow any other Person to exercise any rights under, any of the
      terms or provisions of any Contracts, leases or instruments to which the
      Company is a party or pursuant to which any of its assets or property
      may be affected, in each case except as would not have a Material
      Adverse Effect;
    

    
                    (iv)  will not result in a breach of, or cause the
      termination or revocation of, any Authorization held by the Company or
      necessary to the ownership of the Preferred Shares or the operation of
      the Business, in each case except as would not have a Material Adverse
      Effect; and
    

    
      
        

        

      

      
        
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                     (v)  will not result in the violation of any Law, except
      as would not have a Material Adverse Effect.
    

    
                 (c)  Securities
      Authorization. The authorization, issuance (or reservation for
      issuance), sale and delivery of the Preferred Shares and the shares of
      Common Stock issuable upon conversion thereof (the “Conversion
      Shares”), has been authorized by all requisite action of both the
      Company’s Board of Directors and shareholders, as applicable.  The
      Preferred Shares and the Conversion Shares, when issued in accordance
      with this Agreement and the Ancillary Agreements, will be validly issued
      and outstanding, fully paid and nonassessable, with no personal
      liability attaching to the ownership thereof, free and clear of any
      Liens whatsoever, other than pursuant to the Agreement and the Ancillary
      Agreements.
    

    
                 (d)  Required
      Authorizations.  Except for the filing of a Form D and a report on
      Form 8-K, there is no requirement to make any filing with, give any
      notice to, or to obtain any consent or approval of any Governmental
      Entity or any other Person, or to obtain any Authorization of, any
      Governmental Entity as a condition to the lawful completion of the
      transactions contemplated by this Agreement or any Ancillary Agreement.
    

    
                 (e)  Required
      Consents.  There is no requirement to obtain any Consent, approval
      or waiver of a third party under any Contract as a condition to the
      completion of the transactions contemplated by this Agreement or the
      Ancillary Agreements or to avoid potential cancellation or default
      thereunder.
    

    
                 (f)  Execution
      and Binding Obligation.  This Agreement and each of the Ancillary
      Agreements to which the Company is a party have been or will by the
      Closing Date have been duly executed and delivered by the Company and
      constitute or will constitute legal, valid and binding obligations of
      the Company enforceable against the Company in accordance with their
      respective terms subject only to any limitation under applicable Laws
      relating to (i) bankruptcy, winding-up, insolvency, arrangement and
      other laws of general application affecting the enforcement of
      creditors’ rights, and (ii) the discretion that a court may exercise in
      the granting of equitable remedies.
    

    
                 (g)  Authorized
      and Issued Capital.  
    

    
                     (i)  The Disclosure Schedules sets forth, as of the date
      of this Agreement and as of immediately prior to Closing, (i) the
      authorized capital of the Company, (ii) the number of shares of Common
      Stock that have been duly issued and are outstanding as fully paid and
      non-assessable,  and (iii) the number of shares of preferred stock that
      have been duly issued and are outstanding as fully paid and
      non-assessable.  On the Closing Date, the Conversion Shares shall
      represent 95% of the issued and outstanding shares of Common Stock, on a
      fully diluted basis.
    

    
                    (ii)  On the Closing Date all of the Purchased Shares
      shall have been issued in material compliance with all applicable Laws
      including, without limitation, applicable securities Laws (based in part
      on the accuracy of the representations in Section 4.1(d) and (e)), and
      shall have been fully paid and non-assessable.
    

    
      
        

        

      

      
        
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                   (iii)  A true and complete list of the registered holders
      of the issued and outstanding securities of the Company as of the date
      hereof (which list consists of the Company’s transfer agent’s list) is
      set forth in the Disclosure Schedules.
    

    
                    (iv)  All of the equity interests owned by the Company of
      each of its Subsidiaries are free and clear of all Liens. All of the
      issued and outstanding shares of capital stock of each member of the
      Company Group have been duly authorized and are validly issued, fully
      paid, and non-assessable.
    

    
                 (h)  Other
      Rights.  Except as provided in the Company’s articles of
      incorporation and bylaws or as contemplated by this Agreement or as set
      forth in the Disclosure Schedules, there are no outstanding contractual
      obligations of any member of the Company Group (i) restricting the
      transfer of; (ii) affecting the voting rights of; (iii) requiring the
      repurchase, redemption or disposition of, or containing any right of
      first refusal with respect to; (iv) requiring the registration or sale
      of; or (v) granting any pre-emptive or anti-dilutive right with respect
      to, any shares in the capital of any member of the Company Group.  No
      debt securities of any member the Company Group are issued and
      outstanding.
    

    
                 (i)  Derivative
      Securities.  Except with the respect to the issuance of the
      Preferred Shares under this Agreement or as set forth on the Disclosure
      Schedules, there are no outstanding options, Stock Options, warrants,
      privileges, convertible debentures, agreements or rights to subscribe
      for or to purchase or which would require the Company to issue, now or
      in the future, any shares of capital stock or any other securities of
      the Company (collectively, “Derivative Securities”).
    

    
                 (j)  No
      Other Agreements to Purchase.  Except for the rights of SMGI under
      this Agreement and the Ancillary Agreements, no Person has any written
      or oral agreement, option or warrant or any right or privilege (whether
      by Law, pre-emptive or contractual) capable of becoming such for (i) the
      purchase or acquisition from the Company of any of the Preferred Shares,
      or (ii) the purchase, subscription, allotment or issuance of any of the
      unissued shares or other securities of any member of the Company Group.
    

    
                 (k)  Registration
      Rights.  The Company is under no obligation to register any of its
      presently outstanding securities or any of its securities that may be
      hereafter issued pursuant to this or any other existing agreement,
      except as provided for in SMGI Rights Agreement.
    

    
                 (l)  409A.
      The Company does not have any “nonqualified deferred compensation plan”
      (as such term is defined under Section 409A(d)(1) of the Code and the
      Treasury Regulations thereunder) under which the Company Group makes, is
      obligated to make or promises to make, payments.
    

    
                 (m)  Corporate
      Records.  The Corporate Records are complete and accurate in all
      material respects and all corporate proceedings and actions reflected in
      the Corporate Records have been conducted or taken in material
      compliance with all applicable Laws and with the articles of
      incorporation and by-laws of the applicable member of the Company Group,
      in all material respects. Without limiting the generality of the
      foregoing, in respect of each member of the Company Group, in all
      material respects, (i) the minute books contain complete and accurate
      minutes of all meetings of the directors and stockholders held since
      incorporation and all such meetings were properly called and held, (ii)
      the minute books contain all resolutions passed by the directors and
      stockholders (and committees, if any) and all such resolutions were
      properly passed, (iii) the share certificate books, register of
      stockholders and register of transfers are complete and accurate, all
      transfers have been properly completed and approved and any tax payable
      in connection with the transfer of any securities has been paid, and
      (iv) all former and present directors and officers were properly elected
      or appointed, as the case may be.
    

    
      
        

        

      

      
        
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      Section 3.2     General Matters Relating to
      the Business
    

    
                 (a)  Conduct
      of Business in Ordinary Course.  Since the Balance Sheet Date,
      except as described in the Disclosure Schedules, since the Balance Sheet
      Date each member of the Company Group has not:
    

    
                     (i)  sold, transferred or otherwise disposed of any
      Assets except for Assets which are obsolete and which individually or in
      the aggregate do not exceed $25,000 and except for licenses entered into
      in the Ordinary Course;
    

    
                    (ii)  incurred any material liability or obligation
      (including the borrowing of funds under existing lines of credit or
      otherwise), or assumed, guaranteed or otherwise became liable with
      respect to the liabilities of any Person, except in the Ordinary Course;
    

    
                   (iii)  declared, made, paid or committed to any form of
      distribution or reduction of the profits of any member of the Company
      Group or of its respective capital, including any (i) dividend
      (including stock dividends) or other distribution on any present or
      future shares of capital stock, (ii) purchase, redemption or retirement
      or acquisition of any of its shares of capital stock, or any option,
      warrant or other right to acquire any such shares, or apply or set apart
      any of its assets therefor, (iii) bonuses to stockholders, (iv) payment
      on account of loans made to any stockholders of any member of the
      Company Group , or (v) payment of any bonuses or management fees;
    

    
                    (iv)  created, allotted or issued any shares of capital
      stock, or entered into any agreement, or grant any option, right or
      privilege, whether pre-emptive, contractual or otherwise for the
      purchase or other acquisition of shares of capital stock or securities
      convertible into such shares of any member of the Company Group, nor
      amended its charter documents, changed its capital structure or entered
      into any agreement or make any offer to do so;
    

    
                     (v)  discharged any secured or unsecured obligation or
      liability (whether accrued, absolute, contingent or otherwise) which
      individually or in the aggregate exceeded $50,000;
    

    
                    (vi)  made any payment to any employee, officer, manager
      or director other than salary, commission, bonus or expense
      reimbursement other than in the Ordinary Course;
    

    
                   (vii)  made any bonus or profit sharing distribution or
      similar payment of any kind, or incurred the obligation for the same;
    

    
      
        

        

      

      
        
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                  (viii)  granted any general increase in the rate of wages,
      salaries, bonuses or other remuneration of any employees of the Company;
    

    
                    (ix)  made any change to the rate or form of compensation
      or remuneration payable or to become payable to any of its shareholders,
      directors, officers, managers, employees, consultants, agents or
      contractors which is outside of Ordinary Course;
    

    
                     (x)  entered into any termination, notice, severance, or
      change of control agreement with any of its shareholders, directors,
      managers, employees, or consultants or agents;
    

    
                    (xi)  instituted, adopted or amended (or committed to do
      so) any Employee Plan;
    

    
                   (xii)  written off as uncollectible any material amount of
      accounts receivable not otherwise reserved for;
    

    
                  (xiii)  made any material Tax election or changed any
      existing material Tax election or settled or compromised any material
      Tax liability;
    

    
                   (xiv)  made, or agreed to make, any material change in any
      method of accounting or auditing practice;
    

    
                    (xv)  amended or changed its articles of incorporation or
      by-laws;
    

    
                   (xvi)  issued or authorized for issuance any shares of its
      capital stock;
    

    
                  (xvii)  entered into any “related
      party transaction” as such term is defined under GAAP; or
    

    
                 (xviii)  authorized, agreed or otherwise committed, whether
      or not in writing, to do any of the foregoing.
    

    
                 (b)  Compliance
      with Laws.  The Company Group is conducting and, over the past four
      years has conducted the Business in compliance with all applicable Laws
      other than acts of non-compliance which, individually or in the
      aggregate, are not material to the Company Group.
    

    
      Section 3.3     Matters Relating to the
      Assets
    

    
                 (a)  Title
      to the Assets.  The Company Group owns (with good title) all of the
      properties and Assets (whether real, personal or mixed and whether
      tangible or intangible) that it purports to own, including all the
      properties and assets reflected as being owned by the Company Group in
      its Books and Records.  
    

    
                 (b)  No
      Options, etc.  No Person has any written or oral agreement, option,
      understanding or commitment, or any right or privilege capable of
      becoming such, for the purchase or other acquisition from any member of
      the Company Group of any of the Assets.
    

    
      
        

        

      

      
        
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                 (c)  No
      Breach of Material Contracts.  Except as set forth on the Disclosure
      Schedules, neither the Company nor any other member of the Company Group
      is a party to any Material Contract.  Except as set forth in the
      Disclosure Schedules, the Company has performed all of the obligations
      required to be performed by it and is entitled to all benefits under,
      and is not alleged to be in default of, any Material Contract, in each
      case as would not have a Material Adverse Effect.  Except as disclosed
      on the Disclosure Schedules, each of the Material Contracts is in full
      force and effect, unamended, and there exists no default or event of
      default or event, occurrence, condition or act (including the purchase
      of the Purchased Shares) which, with the giving of notice, the lapse of
      time or the happening of any other event or condition, would become a
      default or event of default under any Material Contract, in each case as
      would not have a Material Adverse Effect.  “Material Contracts” means:
    

    
                     (i)  any leases;
    

    
                    (ii)  any continuing Contracts with any Customers or
      Suppliers which are material to the operation of the Company Group’s
      Business;
    

    
                   (iii)  any promissory note, loan agreement or other
      Contract for the borrowing of money, any currency exchange, commodities
      or other hedging arrangement or any leasing transaction of the type
      required to be capitalized in accordance with GAAP;
    

    
                    (iv)  any Contract for capital expenditures in excess of
      $25,000 in the aggregate;
    

    
                     (v)  any confidentiality, secrecy or non-disclosure
      Contract or any Contract limiting the freedom of any member of the
      Company Group to engage in any line of business, compete with any other
      Person, operate its assets at maximum production capacity or otherwise
      conduct its business or to solicit or hire employees;
    

    
                    (vi)  any Contract with any Related Party;
    

    
                   (vii)  any agreement of guarantee, support,
      indemnification, assumption or endorsement of, or any similar commitment
      with respect to, the obligations, liabilities (whether accrued,
      absolute, contingent or otherwise) or indebtedness of any other Person;
    

    
                  (viii)  any Contract in respect of Intellectual Property
      Rights owned by, licensed to or used by the Company;
    

    
                    (ix)  any employment, service, union, agency, consulting,
      contractor, termination and severance contract and agreement, bonus,
      incentive, deferred compensation, pension, profit sharing, share
      savings, notice, change of control, stock option, phantom stock plan,
      employee stock purchase, stock appreciation, health, welfare, medical,
      dental, disability, life, insurance, retirement or other benefit plan,
      program, arrangement or practice relating to former and current
      employees, shareholders, directors, officers, managers, consultants,
      agents or contractors, or any agreement (oral or written) providing for
      compensation to be paid subsequent upon the sale of any substantial
      portion of  outstanding shares in the capital of any member of the
      Company Group or upon a change of control of any member of the Company
      Group; and
    

    
      
        

        

      

      
        
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                     (x)  any Contract made out of the Ordinary Course or that
      is otherwise material to the Company Group.
    

    
                 (d)  Intellectual
      Property Rights. The Intellectual Property rights used in whole or
      in part in, or required for the carrying on of, the Business in the
      manner heretofore carried on are owned by, or validly licensed to, a
      member of the Company Group.  All of the Intellectual Property rights
      owned by the Company Group are in full force and effect and have not
      been used or enforced or failed to be used or enforced in a manner that
      would reasonably be expected to result in the abandonment, cancellation
      or unenforceability thereof.  No member of the Company Group is bound by
      any agreement or other obligation whatsoever that limits or impairs its
      ability to sell, transfer, assign, convey or license, or that otherwise
      affects the Company’s Intellectual Property rights.  The Company has
      taken commercially reasonable steps to require current or former
      employees, consultants, and contractors of the Company Group that have
      created or contributed to Company Intellectual Property to assign to the
      Company Group all of their right, title, and interest in such Company
      Intellectual Property, and to the Company’s knowledge, no party to any
      such agreement(s) is in breach thereof.  The Company Group has made all
      prudent and reasonable efforts to ensure that all registrations,
      assignments and filings necessary to preserve the rights of the Company
      Group in their Intellectual Property have been made with the appropriate
      authorities in all relevant jurisdictions and are in good
      standing.  Except as set forth in the Disclosure Schedules, the
      Company Group owns all right, title, and interest free and clear of any
      and all liens or other encumbrances, in and to all the Company
      Intellectual Property.
    

    
                 (e)  No
      Infringement of Intellectual Property.  The conduct of the Business
      does not infringe upon the Intellectual Property rights of any other
      Person.  The Company Group has not received any written, or to the
      knowledge of the Company, any oral, communications alleging that any
      member of the Company Group has violated or, by conducting its business
      as presently proposed, would violate any of the patents, trademarks,
      service marks, trade names, copyrights or trade secrets or other
      proprietary rights of any other person or entity.  To the knowledge of
      the Company, none of its employees are obligated under any contract
      (including licenses, covenants or commitments of any nature) or other
      agreement, or subject to any judgment, decree or order of any court of
      administrative agency, that would materially interfere with their duties
      to the Company Group or that would materially conflict with the Business.
    

    
                 (f)  No
      Order.  There are no consents, settlements, judgments, injunctions,
      decrees awards, stipulations, orders, or inner parties decisions, or
      government-imposed written or statutory obligations to which the Company
      is a party or are otherwise bound that do, or to the knowledge of the
      Company may: (i) restrict the rights of the Company Group to use,
      transfer, license, or enforce any of the Company Intellectual Property,
      or (ii) restrict the conduct of the business of the Company Group in
      order to accommodate a third party’s Intellectual Property Rights; or
      (iii) grant any third party any right with respect to any Company
      Intellectual Property.
    

    
                 (g)  Employee
      Intellectual Property Matters.  Neither the execution nor delivery
      of this Agreement, nor the carrying on of the Business by the employees
      of the Company Group, nor the conduct of the Business as presently
      conducted, will, to the knowledge of the Company, conflict with or
      result in a breach of the terms, conditions or provisions of, or
      constitute a default under any Contract, covenant or instrument under
      which any employee of the Company is now obligated.
    

    
      
        

        

      

      
        
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      Section 3.4     Financial Matters
    

    
                 (a)  Books
      and Records.  All accounting and financial Books and Records have
      been fully, properly and accurately kept and completed in all material
      respects.
    

    
                 (b)  Financial
      Statements.  The Financial Statements have been prepared in
      accordance with GAAP applied on a basis consistent with those of
      previous fiscal years, are accurate and complete in all material
      respects and present fairly:
    

    
                     (i)  The assets, liabilities, (whether accrued, absolute,
      contingent or otherwise) and financial position of the Company as at the
      dates of the relevant statements; and
    

    
                    (ii)  The results of operations of the Company during the
      periods covered by the Financial Statements.
    

    
      The Financial Statements include all adjustments (consisting of only
      normal accruals) that are necessary for a fair presentation of the
      consolidated financial position of the Company and the results of
      operation of the Company as of the date thereof and the periods covered
      thereby.  True, correct and complete copies of the Financial Statements
      are included in the Disclosure Schedules.
    

    
                 (c)  No
      Liabilities.  Except as reflected or reserved against in the Balance
      Sheet forming part of Financial Statements or as set forth on the
      Disclosure Schedules, the Company Group has no Liabilities required by
      GAAP to be disclosed or accrued and are not so disclosed or accrued nor
      is the Company a party to or bound by any agreement of guarantee,
      support, indemnification, assumption, or endorsement of, or any other
      similar commitment with respect to the Liabilities or indebtedness of
      any Person, except for current liabilities incurred in the Ordinary
      Course since the Balance Sheet Date which liabilities in the aggregate
      are not material or are otherwise disclosed in the Disclosure Schedules.
    

    
                 (d)  Related
      Party Transactions.  Except as set forth in the Disclosure
      Schedules, no member of the Company Group has made any payment or loan
      to, or has borrowed any monies from or is otherwise indebted to, any
      Related Party, any stockholder of the Company Group or any other Person
      with whom the Company Group is not dealing at arm’s length or any
      Affiliate of any of the foregoing, except as disclosed in the Financial
      Statements or for usual employment compensation and benefits paid in the
      Ordinary Course.  Except as set forth in the Disclosure Schedules and
      Contracts of employment, no member of the Company Group is a party to
      any Contract with any Related Party or any other Person with whom the
      Company Group is not dealing at arm’s length or any Affiliate of any of
      the foregoing.
    

    
                 (e)  Internal
      Controls.  The Company Group has devised and maintained systems of
      internal accounting controls with respect to its business sufficient to
      provide reasonable assurances that (i) all transactions are executed in
      accordance with management’s general or specific authorization, (ii) all
      transactions are recorded as necessary to permit the preparation of
      financial statements in conformity with GAAP and to maintain proper
      accountability for items, (iii) access to its property and assets is
      permitted only in accordance with management’s general or specific
      authorization, and (iv) the recorded accountability for items is
      compared with the actual levels at reasonable intervals and appropriate
      action is taken with respect to any differences.
    

    
      
        

        

      

      
        
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      Section 3.5     Particular Matters Relating
      to the Business
    

    
                 (a)  Employees.  
    

    
                     (i)  The Company Group has complied in all material
      respects with all Laws relating to the hiring of employees and the
      employment of labor, including provisions thereof relating to wages,
      hours, equal opportunity, verification of employment authorization,
      collective bargaining and the payment of social security and other
      Taxes, and, except as would not have a Material Adverse Effect, there
      are no outstanding or threatened claims, complaints, investigations or
      orders under any such Laws nor are there any circumstances, to the
      knowledge of the Company, that are likely to give rise to such a claim.
    

    
                    (ii)  The Company represents and warrants that:  (i) no
      managerial employee and no group employees of the Company Group have
      informed the Company in writing of any plans to terminate his, her or
      their employment with the Company; and (ii) the Company is not
      delinquent in payments to any of its employees for any wages, salaries,
      commissions, bonuses or other direct compensation for any services
      performed by them to date or amounts required to be reimbursed to such
      employees and upon any termination of the employment of any such
      employees.  The Company is not a party to or bound by any collective
      bargaining agreement or union contract.
    

    
                 (b)  Employee
      Plans.  
    

    
                     (i)  The Disclosure Schedules lists and describes all
      Employee Plans.  The Company will furnish to SMGI true, correct and
      complete copies of all the Employee Plans as amended as of the date
      hereof, together with all related documentation including, without
      limitation, funding and investment management agreements, all material
      employee communications by the plan administrator of any Employee Plan
      (including, but not limited to, summary plan descriptions and summaries
      of material  modifications), the most recent annual reports, actuarial
      reports, financial statements and asset  statements, all material
      opinions and memoranda (whether externally or internally prepared) and
      all material correspondence with all Governmental Entities or other
      relevant persons, as well as the three most recent reports filed on
      Forms 5500, including all attachments and schedules, prepared in
      connection with each Employee Plan for which a Form 5500 filing is
      required under ERISA.  No changes have occurred or are expected to occur
      which would materially affect the information contained in the actuarial
      reports, financial statements or asset statements required to be
      provided to SMGI pursuant to this provision.
    

    
                    (ii)  All of the Employee Plans are and have been
      established, registered, qualified, maintained, invested and
      administered, in all material respects, in accordance with their terms
      and all applicable Laws, including ERISA, and including all Tax Laws
      where qualification or other compliance is required for preferential tax
      treatment.
    

    
                   (iii)  There has been no amendment to, written
      interpretation of announcement (whether or not written) by any member of
      the Company Group relating to, or change in employee participation or
      coverage under, any Employee Plan that would be reasonably expected to
      increase materially the expense of maintaining such Employee Plans.  The
      execution of this Agreement and the consummation of the transactions
      contemplated hereby (including the purchase of the Purchased Shares) do
      not and will not constitute an event under any Employee Plan, which
      either alone or upon the occurrence of the subsequent event will result
      in any material payment, acceleration, vesting or material increase in
      benefits to any employee, former employee or director or former director
      of the Company Group or any spouse, dependent or heir thereof.
    

    
      
        

        

      

      
        
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                    (iv)  There are no pending or, to the knowledge of the
      Company, threatened (A) claims, suits or other proceedings by any
      employees, former employees or plan participants or the beneficiaries,
      spouses or representatives of any of them, other than ordinary and usual
      claims for benefits by participants or beneficiaries, or (B) suits,
      investigations or other proceedings by any governmental entity, of or
      against any Employee Plan, the assets held thereunder, the trustee of
      any such assets, or the Company relating to any of the Employee Plans.
    

    
                     (v)  No insurance policy or any other agreement affecting
      any Employee Plan requires or permits a retroactive increase in
      contributions, premiums or other payments due thereunder.  The level of
      insurance reserves under each insured Employee Plan is reasonable and
      sufficient to provide for all incurred but unreported claims.  Each
      member of the Company Group has made all required contributions under
      each Pension Plan on a timely basis or, if not yet due, adequate
      accruals therefore have been provided for in the Financial Statements.
    

    
                    (vi)  The execution, delivery and performance of this
      Agreement and the consummation of the transactions contemplated by this
      Agreement will not (alone or in combination with any other event) result
      in an increase in the amount of compensation and benefits or the
      acceleration of the vesting or timing of payment of any compensation or
      benefits payable to or in respect of any current or former employee,
      officer, director or independent contractor of the Company Group or any
      increased or accelerated funding obligation with respect to any Employee
      Plan.  
    

    
                 (c)  Insurance.  All
      the insurable properties of the Company, if applicable, are insured for
      the Company’s benefit in amounts and against risks that are reasonable
      under policies in effect and issued by insurers of recognized
      responsibility.
    

    
                 (d)  Litigation.  Except
      as disclosed in the Disclosure Schedules, there are no actions, suits or
      proceedings, at law or in equity, by any Person (including, without
      limitation, any member of the Company Group), nor any arbitration,
      administrative or other proceeding by or before (or to the knowledge of
      the Company any investigation by) any Governmental Entity pending, or,
      to the knowledge of the Company, threatened against or affecting any
      member of the Company Group, the Business or any of the Assets, and to
      the knowledge of the Company, there is no valid basis for any such
      action, suit, proceeding, arbitration or investigation by or against any
      member of the Company Group, the Business or the Assets, in each case
      except as would not have a Material Adverse Effect.  No member of the
      Company Group is subject to any judgment, order or decree entered in any
      lawsuit or proceeding nor has any member of the Company Group settled
      any claim prior to being prosecuted in respect of it in each case except
      as would not have a Material Adverse Effect.  No member of the Company
      Group is the plaintiff or complainant in any action, suit or proceeding.
    

    
      
        

        

      

      
        
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                 (e)  Taxes.
    

    
                     (i)  (A) All Tax Returns that are required to be filed
      (taking into account any extensions of time within which to file) by or
      with respect to the Company Group have been duly and timely filed, and
      all such Tax Returns are complete and accurate in all material respects,
      (B) all Taxes due in respect of such Tax Returns referred to in
      clause (A) have been paid in full, (C) all Taxes that the Company Group
      is obligated to withhold from amounts owing to any employee, creditor or
      third party have been paid over to the proper Governmental Authority in
      a timely manner, to the extent due and payable, (D) the Company Group
      has not received notice of any proposal or intention by the Internal
      Revenue Service or the appropriate Tax authority to audit or review the
      Tax Returns referred to in clause (A) or the period for assessment of
      the Taxes in respect of which such Tax Returns were required to be filed
      has expired, (E) all deficiencies asserted or assessments made as a
      result of such examinations have been paid in full, (F) no issues that
      have been raised by the relevant taxing authority in connection with the
      examination of any of the Tax Returns referred to in clause (A) are
      currently pending, and (G) no extensions or waivers of statutes of
      limitation have been given by or requested with respect to any of its
      Taxes or those of its Subsidiaries, except for the Tax Return for the
      year ended December 31, 2008 which is on extension as of the date of
      this Agreement.  The Company will make available to SMGI true and
      correct copies of the U.S. federal income Tax Returns filed by the
      Company Group for the year ended December 31, 2007.  The Company will
      make available to SMGI true and correct copies of the draft Tax Return
      for the Company Group for the year ended December 31, 2008, and the Tax
      Return for the Company Group for the year ended December 31, 2008 as
      filed if the Company Group files such Tax Return prior to the
      Closing.  The Company does not believe that it will incur any penalty or
      other liability in connection with the extension of the filing deadline
      for the Tax Return for the year ended December 31, 2008.   The
      information contained such return and report is true, correct and
      complete and such returns and reports reflect accurately all liability
      for Taxes of the Company Group for the periods covered thereby.
    

    
                    (ii)  The Company Group has made adequate provision in
      accordance with GAAP, in the Financial Statements, for all Taxes that
      accrued on or before the end of the most recent period covered by the
      Financial Statements filed prior to the date hereof.  
    

    
                   (iii)  No member of the Company Group is a party to any Tax
      allocation or sharing agreement, is or has been a member of an
      affiliated group filing consolidated or combined Tax returns (other than
      a group over which it is or was the common parent) or otherwise has any
      liability for the Taxes of any Person (other than its own Taxes and
      those of its Subsidiaries).  
    

    
                    (iv)  No Liens for Taxes exist with respect to any of the
      assets or properties of the Company Group, except for statutory Liens
      for Taxes not yet due and payable or that are being contested in good
      faith and reserved for in accordance with GAAP.  No member of the
      Company Group has been a party to any distribution occurring during the
      last three years in which the parties to such distribution treated the
      distribution as one to which Section 355 of the IRC applied.
    

    
                     (v)  There is no pending or threatened claim, action,
      suits, audit, proceeding or investigation against any member of the
      Company Group for the assessment or collection of any Taxes and the
      Company knows of no valid basis for any such claim, action, suit, audit,
      proceeding or investigation. There are no requests for rulings,
      subpoenas or requests for information pending with respect to any taxing
      authority.
    

    
      
        

        

      

      
        
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                 (f)  Privacy.  Each
      member of the Company Group is, and has for the past five years been,
      conducting the Business in material compliance with all applicable Laws
      governing privacy and the collection, use and/or disclosure of personal
      information.  Each member of the Company Group has implemented
      commercially reasonable protections against any unauthorized disclosure,
      access or transfer of personal information and, to the knowledge of the
      Company, there has been no unauthorized disclosure, access or transfer
      of personal information collected by each member of the Company Group,
      except where such unauthorized disclosure would not have a Material
      Adverse Effect.  
    

    
                 (g)  No
      Brokers.  No broker, finder, investment banker or other Person is
      entitled to any brokerage, finder’s or other fee or commission in
      connection with the transactions contemplated by this Agreement.
    

    
                 (h)  Full
      Disclosure.  To the Company’s knowledge, neither this Agreement nor
      any Ancillary Agreement to which the Company is a party (i) contains any
      untrue statement of a material fact in respect of the Company, the
      affairs, prospects, Liabilities, operations or condition of the Company
      Group, the Assets or the Business, or (ii) omits any statement of a
      material fact necessary in order to make the statements in respect of
      the Company, the affairs, prospects, Liabilities, operations or
      condition of the Company Group, the Assets or the Business contained
      herein or therein, in light of the circumstances in which they are made,
      not misleading.  This representation shall not operate to require
      disclosure (or create liability for non-disclosure) of any fact or
      agreement, or matter that, pursuant to the terms of any other
      representation in this Section, is excluded from disclosure, or is
      permitted to not be disclosed.
    

    
      

      ARTICLE 4  
REPRESENTATIONS AND WARRANTIES OF
      SMGI
    

    
      Section 4.1     Representations and
      Warranties of SMGI.
    

    
      SMGI represents and warrants as follows to the Company as of the date
      hereof and as of the Closing Date and acknowledges and confirms that the
      Company is relying on such representations and warranties in connection
      with the sale by the Company of the Preferred Shares and the other
      transactions contemplated hereby (it being understood that no
      investigations made by or on behalf of the Company shall have the effect
      of waiving, diminishing the scope of, or otherwise affecting any such
      representations and warranties):
    

    
                 (a)  Incorporation
      and Corporate Power.  SMGI is a corporation incorporated and
      existing under the laws of Nevada and has the corporate power and
      authority to enter into and perform its obligations under this Agreement
      and each of the Ancillary Agreements to which it is a party.
    

    
                 (b)  Validity
      of Agreement.  The execution, delivery and performance by SMGI of
      this Agreement and each of the Ancillary Agreements to which it is a
      party:
    

    
      
        

        

      

      
        
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                     (i)  have been duly authorized by all necessary corporate
      action on the part of SMGI.
    

    
                    (ii)  do not (or would not with the giving of notice, the
      lapse of time or the happening of any other event or condition) result
      in a violation or breach of, or conflict with, or allow any other reason
      to exercise any rights under, any of the terms or provisions of its
      certificate of incorporation or by-laws; and
    

    
                   (iii)  will not result in the violation of any Law.
    

    
                 (c)  Execution
      and Binding Obligation.  This Agreement and each of the Ancillary
      Agreements to which SMGI is a party have been, or will by the Closing
      Date have been, duly executed and delivered by SMGI and constitute, or
      will constitute, legal, valid and binding obligations of SMGI,
      enforceable against it in accordance with their respective terms subject
      only to any limitation under applicable laws relating to (i) bankruptcy,
      insolvency, arrangement or other similar laws of general application
      affecting creditors’ rights, and (ii) the discretion that a court may
      exercise in the granting of equitable remedies.
    

    
                 (d)  Experience.  SMGI
      is an accredited investor within the meaning of Regulation D promulgated
      by the Securities and Exchange Commission (the “SEC”) and,
      by virtue of its experience in evaluating and investing in private
      placement transactions of securities in companies similar to the
      Company, it is capable of evaluating the merits and risks of its
      investment in the Company and has the capacity to protect its own
      interests.
    

    
                 (e)  Investment.  SMGI
      is acquiring the Preferred Shares for investment for its own account,
      not as a nominee or agent, and not with the view to, or for resale in
      connection with, any distribution of any part thereof.  SMGI understands
      that the Preferred Shares to be acquired have not been registered under
      the Securities Act of 1933, as amended (the “Securities Act of
      1933”) or applicable state and other securities laws by reason of a
      specific exemption from the registration provisions of the Securities
      Act of 1933 and applicable state and other securities laws, the
      availability of which depends upon, among other things, the bona fide
      nature of the investment intent and the accuracy of its representations
      as expressed herein.
    

    
                 (f)  Restrictions
      on Transfer.  SMGI acknowledges and understands that it must bear
      the economic risk of this investment for an indefinite period of time
      because the Preferred Shares must be held indefinitely unless
      subsequently registered under the Securities Act of 1933 and applicable
      state and other securities laws or unless an exemption from such
      registration is available.  SMGI understands that any transfer agent of
      the Company will be issued stop-transfer instructions with respect to
      the Preferred Shares, unless any transfer thereof is subsequently
      registered under the Securities Act of 1933 and applicable state and
      other securities laws or unless an exemption from such registration is
      available.
    

    
                 (g)  Restrictive
      Legend.
    

    
                     (i)  Each certificate representing the Purchased Shares
      may be endorsed with a legend substantially similar to the following:
    

    
      
        

        

      

      
        
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      THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
      TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
      REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
      TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT
      OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
      SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
      SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
      REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
    

    
      THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
      REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
      PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF THE SERIES A
      CONVERTIBLE PREFERRED STOCK AND THE QUALIFICATIONS, LIMITATIONS OR
      RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
    

    
                    (ii)  Each certificate representing the Purchased Shares
      may also be endorsed with any other legends required by applicable state
      securities laws.
    

    
                   (iii)  The Company need not register a transfer of any
      Purchased Shares, and may also instruct its transfer agent, if any, not
      to register the transfer of the Purchased Shares, unless the conditions
      specified in the foregoing legends are satisfied.
    

    
                 (h)  Acknowledgement
      of Status of the Company.  SMGI understands that the Company is
      delinquent in its filings with the SEC and is not currently conducting
      any operations.
    

    
                 (i)  Availability
      of Funds.  SMGI currently has under its control all funds necessary
      to consummate the purchase of the Preferred Shares, and that such funds,
      upon satisfaction of the closing conditions in favor of SMGI, are
      readily available to SMGI to purchase the Preferred Shares.
    

    
      

      ARTICLE 5  
PRE-CLOSING COVENANTS OF THE
      PARTIES
    

    
      Section 5.1     Conduct of Business Prior to
      the Closing.
    

    
             (1)  During the Interim Period, each member of the Company Group
      shall conduct the Business in the Ordinary Course.
    

    
             (2)  Without limiting the generality of Section 5.1(1), no member
      of the Company Group shall:  
    

    
      
        

        

      

      
        
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                 (a)  if such member is a corporation (i) amend or propose to
      amend its articles of incorporation or its bylaws, (ii) split, combine,
      subdivide or reclassify any shares of outstanding capital stock, (iii)
      declare, set aside or pay any dividend or distribution payable in cash,
      stock, property or otherwise, or make any other distribution in respect
      of any shares of its capital stock, or (iv) repurchase, redeem or
      otherwise acquire, or modify or amend, any shares of its capital stock
      or any other securities or any rights, warrants or options to acquire
      any such shares or other securities;
    

    
                 (b)  issue, sell, pledge, grant or dispose of, or agree to
      issue, sell, pledge, grant or dispose of, any additional shares of, or
      any options, warrants or rights of any kind to acquire any shares of,
      its capital stock of any class or any debt or equity securities
      convertible into or exchangeable for its capital stock, other than the
      issuance of employee options and the shares issuable upon exercise
      thereof;
    

    
                 (c)  (i) make any acquisition of any capital stock, assets or
      businesses of any other Person other than expenditures for current
      assets in the Ordinary Course and expenditures for fixed or capital
      assets in the Ordinary Course, or (ii) sell, pledge, dispose of or
      encumber any assets or businesses that are material to the Company
      Group, except (A) sales, leases, rentals and licenses in the Ordinary
      Course, (B) pursuant to contracts that are in force at the date of this
      Agreement and are disclosed in the Disclosure Schedules, or (C)
      dispositions of obsolete or worthless assets;
    

    
                 (d)  make any capital expenditure or commitment to do so
      which individually or in the aggregate exceeds $10,000;
    

    
                 (e)  discharge any secured or unsecured obligation or
      liability (whether accrued, absolute, contingent or otherwise) which
      individually or in the aggregate exceeds $10,000;
    

    
                 (f)  increase its indebtedness for borrowed money or make any
      loan or advance or assume, guarantee or otherwise become liable with
      respect to the liabilities or obligations of any Person;
    

    
                 (g)  remove the Company’s firm of independent auditors or any
      director or terminate any officer (other than a termination for cause);
    

    
                 (h)  cancel or waive any material claims or rights;
    

    
                 (i)  cancel or reduce any of its insurance coverage;
    

    
                 (j)  adopt a plan or agreement of complete or partial
      liquidation or dissolution; or
    

    
                 (k)  authorize, agree, or otherwise commit, whether or not in
      writing, to take any of the foregoing actions.
    

    
      
        

        

      

      
        
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      Section 5.2     Access for Due Diligence.
    

    
             (1)  The Company shall (i) permit SMGI and its employees, agents,
      counsel, accountants or other representatives and advisers, between the
      date hereof and the Closing, without undue interference to the ordinary
      conduct of the Business, to have reasonable access during normal
      business hours and upon reasonable notice to (w) the premises of the
      Company, (x) the Assets and, in particular to any information, including
      all Books and Records whether retained by the Company or otherwise, (y)
      all Contracts and leases, and (z) the senior personnel of the Company,
      and (ii) furnish to SMGI or its employees, agents, counsel, accountants
      or other representatives and advisers such financial and operating data
      and other information with respect to the Assets and the Company as SMGI
      shall from time to time reasonably request.
    

    
             (2)  SMGI shall permit the Company and its employees, agents,
      counsel, accountants or other representatives and advisors to have
      reasonable access to all Books and Records of SMC.
    

    
             (3)  No investigations made by or on behalf of either Party,
      whether under this Section 5.2 or any other provision of this Agreement
      or any Ancillary Agreement shall have the effect of waiving, diminishing
      the scope of, or otherwise affecting any representation or warranty made
      in this Agreement or any Ancillary Agreement, except as otherwise
      provided in Article 10 with respect to a Party right to indemnification
      if it has actual knowledge of a breach of, or an inaccuracy in, a
      representation or warranty.
    

    
      Section 5.3     Actions to Satisfy Closing
      Conditions.
    

    
             (1)  The Company shall use commercially reasonable efforts to
      ensure satisfaction of all of the conditions set forth in Section 6.1
      including ensuring that, during the Interim Period and at the Closing,
      there is no breach of any of its representations and warranties.
    

    
             (2)  SMGI shall take all such actions as are within its power to
      control and shall use its commercially reasonable efforts to cause other
      actions to be taken which are not within its power to control, so as to
      ensure satisfaction of all of the conditions set forth in Section 6.2
      including ensuring that, during the Interim Period and at the Closing,
      there is no breach of any of its representations and warranties.
    

    
      Section 5.4     Notice of Untrue
      Representation or Warranty.
    

    
      The Company shall promptly notify SMGI, and SMGI shall promptly notify
      the Company, upon it becoming aware that any representation or warranty
      made by it contained in this Agreement or any Ancillary Agreement
      becoming untrue or incorrect during the Interim Period materially untrue
      or incorrect, and for the purposes of this Section 5.4, each
      representation and warranty shall be deemed to be given at and as of all
      times during the Interim Period.  Any such notification shall set out
      particulars of the untrue or incorrect representation or warranty and
      details of any actions being taken to rectify that state of affairs.  No
      notification made by or on behalf of SMGI, on the one hand, or the
      Company, on the other hand, whether under this Section 5.4 or any other
      provision of this Agreement or any Ancillary Agreement, shall have the
      effect of waiving, diminishing the scope of, or otherwise affecting any
      representation or warranty made in this Agreement, except as otherwise
      provided in Article 10 with respect to SMGI’s right to indemnification
      if it has actual knowledge of a breach of, or an inaccuracy in, a
      representation or warranty.
    

    
      
        

        

      

      
        
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      Section 5.5     Use of the Purchase Price.  The
      Purchase Price shall be used as follows:
    

    
                     (i)  the payment of the outstanding Liabilities
      of the Company as such Liabilities may be renegotiated (other than
      the Closing Payments in accordance with Section 5.6);
    

    
                    (ii)  for general working capital and other corporate
      purposes; and
    

    
                   (iii)  repayment of all amounts due under the Note.
    

    
      Section 5.6     Closing Uses of Purchase
      Price.  SMGI agrees and acknowledges that as a condition to Closing,
      ProElite shall pay, not later than the Closing, the amounts set forth on
      Schedule 5.6 to the persons listed thereon (the “Closing
      Payments”).  The source of such payments may be existing ProElite
      cash or the capital SMGI is investing in connection with this Agreement.
    

    
      Section 5.7     Proof of Funds.  SMGI
      agrees to promptly provide the Company with proof of availability of
      funds to purchase the Preferred Shares as the Company may reasonably
      request.
    

    
      Section 5.8     Use of Loan Proceeds.  The
      Company shall use the proceeds from the Loan in accordance with Schedule
      5.8.
    

    
      

      ARTICLE 6  
CONDITIONS OF CLOSING
    

    
      Section 6.1     Conditions for the Benefit
      of SMGI.
    

    
      The purchase and sale of the Preferred Shares and the consummation of
      the other transactions contemplated by this Agreement is subject to the
      following conditions to be fulfilled or performed prior to the Closing,
      which conditions are for the exclusive benefit of SMGI and may be
      waived, in whole or in part, by SMGI in its sole discretion:
    

    
                 (a)  Truth
      of Representations and Warranties.  The representations and
      warranties of the Company contained in this Agreement or in any
      Ancillary Agreement, shall have been true and correct in all material
      respects as of the date of this Agreement and shall be true and correct
      in all material respects as of the Closing Date with the same force and
      effect as if such representations and warranties had been made on and as
      of such date (except for representations and warranties that by their
      express terms are made as of a specific date), and the Company shall
      have executed and delivered a certificate to that effect with respect to
      its representations and warranties.  The receipt of such certificates
      and the Closing shall not constitute a waiver by SMGI of any of such
      representations and warranties of the Company, except if and to the
      extent that SMGI had actual knowledge prior to the Closing Date of a
      breach of, or an inaccuracy in, any such representation or
      warranty.  Upon the delivery of such certificates, such representations
      and warranties of the Company shall be deemed to have been made on and
      as of the Closing Date with the same force and effect as if made on and
      as of such date (except for representations and warranties that by their
      express terms are made as of a specific date).
    

    
      
        

        

      

      
        
          25
        

        
          

        

      

      
        

        

      

    

    
                 (b)  Performance
      of Covenants.  The Company shall have in all material respects
      fulfilled or complied with all covenants contained in this Agreement and
      in any Ancillary Agreement to be fulfilled or complied with by the
      Company at or prior to the Closing Date, and the Company shall have
      executed and delivered a certificate to that effect with respect to its
      covenants.  The receipt of such certificate and the Closing shall not
      constitute a waiver by SMGI of any of the covenants of the Company,
      except if and to the extent that SMGI had actual knowledge prior to the
      Closing Date that any such covenant was not fulfilled or complied with.
    

    
                 (c)  Shareholder
      Approvals.  The Company shall have received any consent or approvals
      necessary for the completion of the transactions contemplated by this
      Agreement, including but not limited to, consents or approval to approve
      the Series A Certificate of Designation.
    

    
                 (d)  Deliveries.  The
      Company shall deliver or cause to be delivered to SMGI (unless otherwise
      indicated) the following in form and substance reasonably satisfactory
      to SMGI, acting reasonably:
    

    
                     (i)  a stock certificate registered in SMGI’s name,
      representing the Preferred Shares;
    

    
                    (ii)  evidence of the filing of the Series A Certificate
      of Designation with the Secretary of State of the State of New Jersey;
    

    
                   (iii)  evidence of the appointment by the Board of
      Directors of the two designees of SMGI, the resignation of all members
      of the Board of Directors and the appointment of [Douglas DeLuca] (the “Independent
      Director”);
    

    
                    (iv)  a certificate of the Secretary of the Company dated
      as of the Closing Date, certifying:  (A) the Company’s articles of
      incorporation and bylaws, as in effect on the date hereof, as true and
      complete and attaching certified copies of same; (B) as to the
      incumbency and genuineness of the specimen signatures of each officer of
      the Company executing any of the Agreement or the Ancillary Agreements;
      (C) the resolutions of the Board and the security holders of the
      Company, as applicable, authorizing the execution, delivery and
      performance of the Agreement and the Ancillary Agreements to which the
      Company is a party and the consummation of the transactions contemplated
      thereby, as true and complete and attaching copies of same; and (D) that
      all consents, approvals and other actions of, and notices and filings
      with, all entities and persons as may be necessary or required with
      respect to the execution by the parties of the transactions contemplated
      hereby, have been obtained or made;
    

    
                     (v)  the officer’s certificates contemplated by Sections 6.1(a)
      and (b) hereof;
    

    
                    (vi)  good standing certificates of the members of the
      Company, as of a date not more than five (5) days prior to the Closing
      Date, issued by the Secretary of State of the State of New Jersey;
    

    
      
        

        

      

      
        
          26
        

        
          

        

      

      
        

        

      

    

    
                   (vii)  such other documents as SMGI may reasonably request.
    

    
                 (e)  Proceedings.  All
      proceedings to be taken by the Company in connection with the
      transactions contemplated in this Agreement, and the Ancillary
      Agreements shall be reasonably satisfactory in form and substance to
      SMGI, acting reasonably, and SMGI shall have received copies of all
      instruments and other evidence as it may reasonably request in order to
      establish the consummation of such transactions and the taking of all
      necessary proceedings in connection therewith.
    

    
                 (f)  No
      Legal Action.  No action, proceeding, inquiry, investigation or
      request for information, including notice of any of the foregoing, by
      any Person (other than SMGI) shall be pending, proposed, threatened or
      ongoing in any jurisdiction which could, in the reasonable opinion of
      SMGI and its counsel, potentially result in a restriction, limitation,
      injunction or prohibition on or of, or any other adverse effects on any
      of the transactions contemplated by this Agreement.
    

    
                 (g)  No
      Material Adverse Change.  On the Closing Date, there shall not have
      been any Material Adverse Effect, from the date hereof excluding any
      such material adverse effect that results from changes in political
      conditions or from changes in general business, economic or market
      conditions.
    

    
                 (h)  Slice
      Release.  Release of the Company by Kimbo Slice;
    

    
                 (i)  Arrangements
      with Management.  Employment/consulting arrangements on terms
      reasonably satisfactory to SMGI shall have been entered into with
      William Kelly, Eric Ficksman and Dale Bolen;
    

    
                 (j)  Financial
      Records.  SMGI shall have received confirmation reasonably
      satisfactory to SMGI that the financial records of the Company are such
      that (a) they will enable the Company to become current in its filings
      with the SEC without undue expense and (b) SMGI will be able to timely
      file by amendment the Company financial statements as required under
      Form 8-K;
    

    
                 (k)  Resignation
      of Officers.  Except with respect to those management personnel
      referred to in (i) above, all officers of the Company shall have
      resigned.
    

    
      Section 6.2     Conditions for the Benefit
      of the Company.
    

    
      The purchase and sale of the Preferred Shares is subject to the
      following conditions to be fulfilled or performed prior to the Closing,
      which conditions are for the exclusive benefit of the Company and may be
      waived, in whole or in part, by the Company in its sole discretion:
    

    
                 (a)  Truth
      of Representations and Warranties.  The representations and
      warranties of SMGI contained in this Agreement and in any Ancillary
      Agreement shall be true and correct in all material respects as of the
      date of this Agreement and as of the Closing Date with the same force
      and effect as if such representations and warranties had been made on
      and as of such date (except for representations and warranties that by
      their express terms are made as of a specific date), and SMGI shall have
      executed and delivered a certificate to that effect.  The receipt of
      such certificate and the Closing shall not constitute a waiver of the
      representations and warranties of SMGI which are contained in this
      Agreement or any Ancillary Agreement, except if and to the extent that
      the Company had actual knowledge prior to the Closing Date of a breach
      of, or an inaccuracy in, any such representation or warranty.   Upon
      delivery of such certificate, the representations and warranties of SMGI
      in Article 4 shall be deemed to have been made on and as of the Closing
      Date with the same force and effect as if made on and as of such date
      (except for representations and warranties that by their express terms
      are made as of a specific date).
    

    
      
        

        

      

      
        
          27
        

        
          

        

      

      
        

        

      

    

    
                 (b)  Performance
      of Covenants.  SMGI shall have in all material respects fulfilled or
      complied with all covenants contained in this Agreement and in any
      Ancillary Agreement to be fulfilled or complied with by it at or prior
      to the Closing and SMGI shall have executed and delivered a certificate
      to that effect.  The receipt of such certificate and the Closing shall
      not constitute a waiver by the Company of the covenants of SMGI which
      are contained in this Agreement or any Ancillary Agreement; except if
      and to the extent that the Company had actual knowledge prior to the
      Closing Date that any such covenant was not fulfilled or complied with.
    

    
                 (c)  Deliveries.  SMGI
      shall deliver or cause to be delivered to the Company the following in
      form and substance satisfactory to the Company acting reasonably:
    

    
                     (i)  a bank draft, certified check or wire transfer of
      immediately available funds payable to the Company in an amount equal to
      the Purchase Price;
    

    
                    (ii)  assignment of the Transferred Event to the Company;
    

    
                   (iii)  a certificate of the Secretary of SMGI dated as of
      the Closing Date, certifying:  (A) SMGI’s articles of incorporation and
      bylaws, as in effect on the date hereof, as true and complete and
      attaching certified copies of same; (B) as to the incumbency and
      genuineness of the specimen signatures of each officer of SMGI executing
      any of the Agreement or the Ancillary Agreements; (C) the resolutions of
      the Board, authorizing the execution, delivery and performance of the
      Agreement and the Ancillary Agreements to which SMGI is a party and the
      consummation of the transactions contemplated thereby, as true and
      complete and attaching copies of same;
    

    
                    (iv)  the certificates referred to in Section 6.2(a) and
      Section 6.2(b);
    

    
                     (v)  good standing certificates of SMGI as of a date not
      more than five (5) days prior to the Closing Date, issued by the
      Secretary of State of the State of Nevada;
    

    
                    (vi)  a Release in substantially the form of Exhibit B
      hereto; and
    

    
                   (vii)  such other documents as the Company may reasonably
      request.
    

    
                 (d)  Proceedings.  All
      proceedings to be taken by SMGI in connection with the transactions
      contemplated in this Agreement and any Ancillary Agreement shall be
      reasonably satisfactory in form and substance to the Company, acting
      reasonably, and the Company shall have received copies of all the
      instruments and other evidence as it may reasonably request in order to
      establish the consummation of such transactions and the taking of all
      corporate proceedings in connection therewith.
    

    
      
        

        

      

      
        
          28
        

        
          

        

      

      
        

        

      

    

    
                 (e)  No
      Legal Action.  No action, proceeding, inquiry, investigation or
      request for information, including notice of any of the foregoing, by
      any Person (other than the Company) shall be pending, proposed,
      threatened or ongoing in any jurisdiction which could, in the reasonable
      opinion of the Company and its counsel, potentially result in a
      restriction, limitation, injunction or prohibition on or of, or any
      other adverse effects on any of the transactions contemplated by this
      Agreement.
    

    
      

      ARTICLE 7  
CLOSING
    

    
      Section 7.1     Date, Time and Place of
      Closing.
    

    
      The completion of any transactions of purchase and sale contemplated by
      this Agreement (the “Closing”) shall take place at the
      offices of TroyGould PC at 1801 Century Park East, Suite 1600, Los
      Angeles, California, 90067, one business day after the conditions
      provided in Article 5 have either been satisfied or waived, or at such
      other place, on such other date and at such other time as may be agreed
      upon between the Parties.
    

    
      

      ARTICLE 8  
POST CLOSING COVENANTS
    

    
      Section 8.1     Further Assurances.  From
      time to time after the Closing Date, each party shall, at the request of
      any other party, execute and deliver such additional conveyances,
      transfers and other assurances as may be reasonably required to
      effectively transfer the Purchased Shares to SMGI and carry out the
      intent of this Agreement and any Ancillary Agreement.
    

    
      Section 8.2    Announcements.  At all times
      prior to the Closing, any Public Statement shall be made only with the
      prior written consent and joint approval of the Company and SMGI, unless
      such Public Statement is required by Law or by any stock exchange, in
      which case the party (or its Affiliate) required to make the Public
      Statement shall use its commercially reasonable efforts to obtain the
      approval of the other party as to the form, nature and extent of the
      disclosure.  After the Closing, any Public Statement by the Company
      shall be made only with the prior written consent and approval of SMGI,
      which approval shall not be unreasonably withheld.
    

    
      Section 8.3    Conduct of the Company.  As
      long as SMGI is in control of the Company, SMGI shall:
    

    
                 (a)  use commercially reasonable efforts to provide to the
      Company’s shareholders (such as through filings with the SEC or the pink
      sheets or pursuant to press releases) reasonably prompt information
      relating to material developments of the Company.
    

    
                 (b)  not take any action which could result in personal
      liability to any Company shareholder.  
    

    
      
        

        

      

      
        
          29
        

        
          

        

      

      
        

        

      

    

    
                 (c)  cause the Company to reasonably cooperate and provide
      information as reasonably requested with respect to any claims against
      the former directors or officers of the Company.
    

    
                 (d)  not adversely change indemnity rights or limits on
      liability with respect to the former directors or officers of the
      Company or its subsidiaries.
    

    
                 (e)  not make or support claims against the former directors,
      officers, advisors, bankers and counsel of the Company.
    

    
                 (f)  not pay any dividends or make redemptions to SMGI or its
      Affiliates in the first six months after Closing.
    

    
                 (g)  Not seek to terminate the coverage, including as to
      amount, that provide insurance to the Company’s directors and officers
      as of immediately prior to the Closing.
    

    
      

      ARTICLE 9  
TERMINATION
    

    
      Section 9.1     Termination Rights.
    

    
      This Agreement may, by notice in writing given prior to or on the
      Closing Date, be terminated by:
    

    
                 (a)  the mutual consent of SMGI and the Company; or
    

    
                 (b)  the Company, on the one hand, or SMGI, on the other
      hand, if the Closing has not been completed by October 30, 2009 or such
      later date as the parties agree to in writing, unless the Closing has
      not occurred by such date because the party seeking to terminate this
      Agreement has failed to perform any one or more of its obligations or
      covenants under this Agreement to be performed at or prior to the
      Closing.  Notwithstanding the foregoing, if in SMGI’s reasonable
      determination, the condition set forth in Section 6.1(j) has not been
      satisfied, SMGI may extend the Closing for up to an additional 15
      business days, and in such event, at the request of the Company, will
      loan the Company up to an additional $100,000 reasonably necessary to
      satisfy the Company’s working capital expenses for such extended period
      subject to the reasonable approval of SMGI as to such expenses.
    

    
      In the event of a termination described in this Section 9.1, each party
      shall be released from all obligations under this Agreement, save and
      except for the Parties’ obligations under Section 11.3, 11.4, and 11.5
      which shall survive.
    

    
      
        

        

      

      
        
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      Section 9.2     Effect of Termination.  Except
      for the obligations set forth in Sections 11.3, 11.4, and 11.5, which
      shall survive any termination of this Agreement, in the event of a
      termination of this Agreement pursuant to the foregoing provisions of
      this Article 9, this Agreement shall forthwith become void and have no
      effect and neither SMGI nor the Company shall have any further liability
      under this Agreement.  Notwithstanding the foregoing, no termination of
      this Agreement shall release any party to this Agreement from any
      liabilities or damages arising out of its fraud or prior breach of this
      Agreement.
    

    
      

      ARTICLE 10  
INDEMNIFICATION
    

    
      Section 10.1     Survival.
    

    
             (1)  The representations and warranties set forth in Sections
      3.1(a), (b), (f), (g), (i), (j); 3.3(a), (b); 3.5 (b) and (e); and
      Article IV of this Agreement will survive the Closing and continue in
      full force and effect for the maximum duration of the statute of
      limitations applicable to an action arising as a result of a breach of
      such representation or warranty.  All of the other representations and
      warranties set forth in this Agreement shall survive the Closing for a
      period of one year from the Closing, and any claim with respect to such
      other representations not commenced within such period shall not
      thereafter be instituted.
    

    
      Section 10.2     Indemnification in Favor of
      SMGI.  The Company shall indemnify and save SMGI and its Affiliates
      and respective stockholders, current and former directors, officers,
      employees, agents and representatives harmless of and from any Damages
      suffered by or imposed upon or asserted against any of them as a result
      of, in respect of, or arising out of:
    

    
                     (i)  any breach or inaccuracy of any representation or
      warranty given by the Company contained in Article 3, for which a notice
      of claim under Section 10.6 has been provided to the Company prior to
      the end of the applicable time period specified in Section 10.1(1);
    

    
                    (ii)  any failure of the Company to perform or fulfill any
      covenant of the Company under this Agreement or any Ancillary Agreement;
      and
    

    
                   (iii)  any failure of the Company to transfer good and
      valid title to the Purchased Shares to SMGI, free and clear of all Liens.
    

    
      Section 10.3     Indemnification in Favor of
      the Company.  SMGI will indemnify and save the Company and each of
      its Affiliates and each of their respective stockholders, current and
      former directors, officers, employees, agents and representatives
      harmless of and from, and will pay for, any Damages suffered by, imposed
      upon or asserted against any of them as a result of, in respect of,
      connected with, or arising out of, under, or pursuant to:
    

    
                     (i)  any breach or inaccuracy of any representation or
      warranty given by SMGI contained in this Agreement or for which a notice
      of claim under Section 10.6 has been provided to SMGI prior to the end
      of the applicable time period specified in Section 10.1(1); and
    

    
      
        

        

      

      
        
          31
        

        
          

        

      

      
        

        

      

    

    
                    (ii)  any failure of SMGI to perform or fulfill any of its
      covenants or obligations under this Agreement or any Ancillary Agreement.
    

    
      Section 10.4     Notification; SMGI
      Indemnity Claims.
    

    
             (1)  If a Third Party Claim is instituted or asserted against an
      Indemnified Person, the Indemnified Person must, within 10 days after
      learning of the Third Party Claim, notify the Indemnifying Party in
      writing of the Third Party Claim.
    

    
             (2)  If an Indemnified Person becomes aware of a Direct Claim,
      the Indemnified Person must, within 10 days after learning of the Direct
      Claim, notify the Indemnifying Party in writing of the Direct Claim.
    

    
             (3)  Notice to an Indemnifying Party under this Section 10.4 of a
      Direct Claim or a Third Party Claim is assertion of a claim for
      indemnification against the Indemnifying Party under this
      Agreement.  Upon receipt of such notice, the provisions of Section 10.5
      will apply to any Third Party Claim.
    

    
             (4)  The omission to notify the Indemnifying Party will not
      relieve the Indemnifying Party from any obligation to indemnify the
      Indemnified Person, unless the notification occurs after the expiration
      of the applicable period set out in Section 10.5 or (and only to that
      extent that) the omission to notify materially prejudices the ability of
      the Indemnifying Party to exercise its right to defend provided in
      Section 10.7.
    

    
             (5)  Without limitation of any otherwise applicable law or duty,
      any settlement of a claim by SMGI or its Affiliates for indemnification
      shall be approved or rejected only by the independent and disinterested
      director of the Company (the “Independent Director”) and any claim by
      the Company against SMGI or its Affiliates for indemnification shall be
      approved, rejected or settled only by such Independent Director.  As
      used herein, Independent Director shall mean the Independent Director or
      his replacement or successor.
    

    
      Section 10.5     Procedure for Third Party
      Claims.
    

    
      Upon receiving notice of a Third Party Claim, the Indemnifying Party may
      participate in the investigation and defense of the Third Party Claim,
      subject to the terms of this Section 10.5.  The Indemnifying Party may
      also assume the investigation and defense of the Third Party Claim,
      subject to the terms of this Section.  
    

    
             (1)  In order to assume the investigation and defense of a Third
      Party Claim, the Indemnifying Party must give the Indemnified Person
      written notice of its election within 15 days of Indemnifying Party’s
      receipt of notice of the Third Party Claim.
    

    
             (2)  The Indemnifying Party may not assume the investigation and
      defense of a Third Party Claim if:
    

    
                 (a)  the Indemnifying Party fails to provide reasonable
      assurance to the Indemnified Person of its financial capacity to defend
      the Third Party Claim and provide indemnification with respect to the
      Third Party Claim; or
    

    
      
        

        

      

      
        
          32
        

        
          

        

      

      
        

        

      

    

    
                 (b)  the Indemnifying Party does not continue in good faith
      its defense of the Third Party Claim.  
    

    
             (3)  If the Indemnifying Party assumes the investigation and
      defense of a Third Party Claim:
    

    
                 (a)  the Indemnifying Party will pay for all costs and
      expenses of the investigation and defense of the Third Party Claim
      except that the Indemnifying Party will not, so long as it diligently
      conducts such defense, be liable to the Indemnified Person for any fees
      of other counsel or any other expenses with respect to the defense of
      the Third Party Claim, incurred by the Indemnified Person after the date
      the Indemnifying Party validly exercised its right to assume the
      investigation and defense of the Third Party Claim;
    

    
                 (b)  the Indemnifying Party will reimburse the Indemnified
      Person for all costs and expenses incurred by the Indemnified Person in
      connection with the investigation and defense of the Third Party Claim
      prior to the date the Indemnifying Party validly exercised its right to
      assume the investigation and defense of the Third Party Claim; and
    

    
                 (c)  legal counsel chosen by the Indemnifying Party to defend
      the Third Party Claim must be satisfactory to the Indemnified Person,
      acting reasonably.
    

    
             (4)  If the Indemnifying Party does not elect to assume the
      investigation and defense of a Third Party Claim or assumes the
      investigation and defense of a Third Party Claim but fails to diligently
      pursue such defense, the Indemnified Person has the right (but not the
      obligation) to undertake the defense of the Third Party Claim and (with
      the consent of the Indemnifying Party, which may not be unreasonably
      withheld) compromise and settle the Third Party Claim on behalf, for the
      account, and at the risk and expense, of the Indemnifying Party.  In the
      case where the Indemnifying Party fails to diligently pursue the defense
      of the Third Party Claim, the Indemnified Person may not assume the
      defense of the Third Party Claim unless the Indemnified Person gives the
      Indemnifying Party written demand to diligently pursue the defense and
      the Indemnifying Party fails to do so within 15 days after receipt of
      the demand, or such shorter period as may be required to respond to any
      deadline imposed by a court or other tribunal.
    

    
             (5)  The Indemnifying Party will not be permitted to compromise
      and settle or to cause a compromise and settlement of a Third Party
      Claim without the prior written consent of the Indemnified Person, which
      may not be unreasonably withheld, unless:
    

    
                 (a)  the terms of the compromise and settlement require only
      the payment of money for which the Indemnified Person is entitled to
      full indemnification under this Agreement;
    

    
                 (b)  the Indemnified Person is not required to admit any
      wrongdoing, take or refrain from taking any action, acknowledge any
      rights of the Person making the Third Party Claim or waive any rights
      that the Indemnified Person may have against the Person making the Third
      Party Claim; and
    

    
      
        

        

      

      
        
          33
        

        
          

        

      

      
        

        

      

    

    
                 (c)  the Indemnified Person receives, as part of the
      compromise and settlement, a legally binding and enforceable
      unconditional satisfaction or release from any and all obligations or
      liabilities it may have with respect to the Third Party Claim.  Such
      release must be, in form and substance, satisfactory to the Indemnified
      Person, acting reasonably.
    

    
             (6)  The Indemnified Person and the Indemnifying Party agree to
      keep the other fully informed of the status of any Third Party Claim and
      any related proceedings.  If the Indemnifying Party assumes the
      investigation and defense of a Third Party Claim, the Indemnified Person
      will use its reasonable efforts to make available to the Indemnifying
      Party those employees whose assistance, testimony or presence is
      necessary to assist the Indemnifying Party in investigating and
      defending the Third Party Claim.  The Indemnified Person shall, at the
      request and expense of the Indemnifying Party, make available to the
      Indemnifying Party, or its representatives, on a timely basis all
      documents, records and other materials in the possession of the
      Indemnified Person, reasonably required by the Indemnifying Party for
      its use in defending any Third Party Claim which it has elected to
      assume the investigation and defense of.  The Indemnified Person shall
      cooperate on a timely basis with the Indemnifying Party in the defense
      of any Third Party Claim.
    

    
             (7)  The parties acknowledge and agree that the obligations
      pursuant to this Article 10 shall survive the execution and delivery of
      this Agreement and the Closing.
    

    
      Section 10.6     Alternative Remedies.
    

    
                 (a)  Equitable
      Relief. The parties acknowledge that the failure to comply with the
      terms of this Agreement may give rise to irreparable injury to a party
      inadequately compensable in damages.  Accordingly, notwithstanding
      anything else contained herein, a party may, in addition to its right to
      seek indemnification under this Article 10, seek to enforce the
      performance of this Agreement by injunction or specific performance upon
      application to a court of competent jurisdiction without proof of actual
      damage (and without the requirement of posting a bond or other security).
    

    
                 (b)  Share
      Amount Adjustment.  In the event any breach or inaccuracy of the
      representation contained in Section 3.1(g), in lieu of the
      indemnification provisions, the Company shall issue to SMGI that number
      of additional shares of Series A Preferred Stock necessary for SMGI to
      beneficially own 95% of the outstanding voting securities of the Company
      on a fully diluted basis as of the Closing Date.
    

    
      
        

        

      

      
        
          34
        

        
          

        

      

      
        

        

      

    

    
      Section 10.7     Exclusive Remedies.  Except
      in the case of fraud or willful breach, the remedies set forth in
      Article 10 shall be the exclusive remedies in connection with all
      breaches under or related to this Agreement.
    

    
      

      ARTICLE 11  
MISCELLANEOUS
    

    
      Section 11.1     Notices.
    

    
      Any notice, direction or other communication given under this Agreement
      or any Ancillary Agreement shall be in writing and given by delivering
      it or sending it by facsimile or other similar form of recorded
      communication addressed:
    

    

    

    
    	
          (a)
        	
           
        	
          to SMGI:
        	

        
	

        	

        	

        	
           
        
	

        	

        	
          3 East De La Guerra Street, 2nd Floor
        	

        
	

        	

        	
          Santa Barbara, California 93101
        	

        
	

        	

        	
          Attention: Paul Feller
        	

        
	

        	

        	

        	
           
        
	

        	

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

        
	

        	

        	

        	
           
        
	

        	

        	
          David L. Ficksman, Esq.
        	

        
	

        	

        	
          Troy Gould, PC
        	

        
	

        	

        	
          1801 Century Park East, Suite 1600
        	

        
	

        	

        	
          Los Angeles, CA 90067
        	

        
	

        	

        	

        	
           
        
	
          (b)
        	

        	
          to the Company:
        	

        
	

        	

        	

        	
           
        
	

        	

        	
          ProElite, Inc.
        	

        
	

        	

        	
          12121 Wilshire Boulevard, Suite 1112
        	

        
	

        	

        	
          Los Angeles, CA 90025
        	

        
	

        	

        	
          Attention: Charles Champion
        	

        

    

    
      Any such communication shall be deemed to have been validly and
      effectively given (i) if personally delivered, on the date of such
      delivery if such date is a Business Day and such delivery was made prior
      to 4:00 p.m. (local time in the place of receipt) and otherwise on the
      next Business Day, or (ii) if transmitted by facsimile or similar means
      of recorded communication on the Business Day following the date of
      transmission.  Any party may change its address for service from time to
      time by notice given in accordance with the foregoing and any subsequent
      notice shall be sent to such party at its changed address.
    

    
      Section 11.2     Time of the Essence.
    

    
      Time shall be of the essence of this Agreement.
    

    
      
        

        

      

      
        
          35
        

        
          

        

      

      
        

        

      

    

    
      Section 11.3     Brokers.
    

    
      The Company shall indemnify and save harmless SMGI from and against any
      and all claims, losses and costs whatsoever for any commission or other
      remuneration payable or alleged to be payable to any broker, agent or
      other intermediary who purports to act or have acted for the Company
      related to the transactions contemplated herein.  SMGI shall indemnify
      and save harmless the Company from and against any and all claims,
      losses and costs whatsoever for any commission or other remuneration
      payable or alleged to be payable to any broker, agent or other
      intermediary who purports to act or have acted for SMGI related to the
      transactions contemplated herein.
    

    
      Section 11.4     Third Party Beneficiaries.
    

    
      Except as otherwise provided in Section 10.3 and Section 10.4, the
      parties intend that this Agreement shall not benefit or create any right
      or cause of action in, or on behalf of, any Person other than the
      parties to this Agreement and no Person, other than the parties to this
      Agreement, shall be entitled to rely on the provisions of this Agreement
      in any action, suit, proceeding, hearing or other forum.   
    

    
      Section 11.5     Expenses.
    

    
      Except as otherwise expressly provided in this Agreement, all costs and
      expenses (including the fees and disbursements of legal counsel,
      advisers and accountants) incurred in connection with this Agreement,
      the Ancillary Agreements and the transactions contemplated therein shall
      be paid by the party incurring such expenses.
    

    
      Section 11.6     Independent Counsel.  
    

    
      This Agreement is the product of negotiation by the parties, having the
      assistance of counsel and other advisers.  The Parties has been afforded
      an adequate opportunity to consult with legal counsel regarding this
      Agreement and the Ancillary Agreements and each Party has availed itself
      of such opportunity through the negotiation of this Agreement and the
      Ancillary Agreements, and understands and appreciates the nature and
      consequences of this Agreement and the Ancillary Agreements.  The
      interpretation of this Agreement shall not be affected by the Party who
      drafted this Agreement, and the Parties waive any statute, legal
      decision, or common law principle that would require interpretation of
      any ambiguities in this Agreement against the Party that drafted this
      Agreement.  The Parties acknowledge and consent to the fact that
      TroyGould PC is representing SMGI in this transaction contemplated by
      this Agreement and that TroyGould PC has also represented the Company in
      the past.
    

    
      Section 11.7     Amendments.
    

    
      This Agreement may only be amended, supplemented or otherwise modified
      by written agreement signed by each Party to this Agreement.  No
      amendment of this Agreement after the Closing shall be effective against
      the Company without the approval of the Independent Director in his
      discretion, provided that if the Independent Director has a material
      conflict with respect to the matter being amended, no amendment shall be
      effective unless approved in writing by Charles Champion.
    

    
      
        

        

      

      
        
          36
        

        
          

        

      

      
        

        

      

    

    
      Section 11.8     Waiver.
    

    
             (1)  No waiver of any of the provisions of this Agreement or any
      Ancillary Agreement shall be deemed to constitute a waiver of any other
      provision (whether or not similar); nor shall such waiver be binding
      unless executed in writing by the party to be bound by the waiver (with
      any waiver by the Company being exclusively in the discretion of the
      Independent Directors).
    

    
             (2)  No failure on the part of the Company or SMGI to exercise,
      and no delay in exercising, any right under this Agreement shall operate
      as a waiver of such right; nor shall any single or partial exercise of
      any such right preclude any other or further exercise of such right or
      the exercise of any other right.
    

    
      Section 11.9     Entire Agreement.
    

    
      This Agreement together with the Ancillary Agreements constitutes the
      entire agreement between the parties and supersedes all prior
      agreements, understandings, negotiations and discussions, whether oral
      or written, of the parties.  There are no representations, warranties,
      covenants, conditions or other agreements, express or implied,
      collateral, statutory or otherwise, between the parties in connection
      with the subject matter of this Agreement except as specifically set
      forth herein and therein, and neither the Company nor SMGI have relied
      or are relying on any other information, discussion or understanding in
      entering into and completing the transactions contemplated in this
      Agreement and the Ancillary Agreements.
    

    
      Section 11.10    Successors and Assigns.
    

    
             (1)  This Agreement shall become effective when executed by the
      Company and SMGI and after that time shall be binding upon and ensure to
      the benefit of the Company, SMGI and their respective heirs, legal
      representatives, successors and permitted assigns.
    

    
             (2)  Except as provided in this Section 11.10, neither this
      Agreement nor any of the rights or obligations under this Agreement
      shall be assignable or transferable by any party without the prior
      written consent of the other parties.  SMGI shall be entitled, upon
      giving notice to the Company at any time on or prior to the Closing
      Date, to assign this Agreement or any of SMGI’s rights and obligations
      under this Agreement to any Affiliate of SMGI subject to the following
      conditions:
    

    
                 (a)  the assignee shall become jointly and severally liable
      with SMGI, as a principal and not as a surety, with respect to all of
      the representations, warranties, covenants, indemnities and agreements
      of SMGI, and no such assignment shall relieve SMGI from any of its
      obligations under this Agreement; and
    

    
                 (b)  the assignee shall execute an agreement confirming the
      assignment and the assumption by the assignee of all obligations of SMGI
      under this Agreement.
    

    
      
        

        

      

      
        
          37
        

        
          

        

      

      
        

        

      

    

    
      Section 11.11    Severability.
    

    
      If any provision of this Agreement shall be determined by any court of
      competent jurisdiction to be illegal, invalid or unenforceable, that
      provision shall be severed from this Agreement and the remaining
      provisions shall continue in full force and effect.
    

    
      Section 11.12    Informal Dispute Resolution.  
    

    
      Except as set forth elsewhere in this Agreement, the Parties shall seek
      to resolve any disagreement, dispute, controversy or claim arising out
      of or in relation to or in connection with the construction,
      interpretation or validity of this Agreement or the other agreements
      contemplated herein or the alleged breach thereof or the transactions
      contemplated thereby amicably and in good faith through discussions
      between the Parties hereto.  If the matter is not resolved through
      discussion of such individuals within thirty (30) days, each Party
      agrees to consider in good faith any reasonable request by the other
      Party to engage in mediation or any other means of alternative dispute
      resolution.  Only if the Parties fail to resolve such disagreement,
      dispute, controversy, claim or breach by such means within thirty (30)
      days after having begun the resolution process may the aggrieved Party
      initiate legal proceedings.
    

    
      Section 11.13    Governing Law.
    

    
      This Agreement and any controversy arising out of or relating to this
      Agreement shall be governed by and construed in accordance with the
      internal laws of the State of California, without regard to conflict of
      law principles that would result in the application of any law other
      than the law of the State of California.  The parties, including the
      Lenders, shall resolve any dispute arising out of this Agreement in the
      federal and state courts of the State of California, in Los Angeles
      County, and all related appellate courts, and the parties hereby consent
      to the jurisdiction of such courts and agree that venue shall be
      exclusively in Los Angeles County, California.
    

    
      Section 11.14    Waiver of Jury Trial.
    

    
      EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE
      UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
      ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLE AND
      UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY
      IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
      RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
      AGREEMENT.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
      REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
      EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
      LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
      UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
      EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN
      INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
      WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.14.
    

    
      
        

        

      

      
        
          38
        

        
          

        

      

      
        

        

      

    

    
      Section 11.15    No Commitment for Additional
      Financing.  
    

    
      The Company acknowledges and agrees that SMGI has not made any
      representation, undertaking, commitment or agreement to provide or
      assist the Company in obtaining any financing, investment or other
      assistance.  In addition, the Company acknowledges and agrees that (i)
      no statements, whether written or oral, made by SMGI or its
      representatives on or after the date of this Agreement shall create an
      obligation, commitment or agreement to provide or assist the Company in
      obtaining any financing or investment, (ii) the Company shall not rely
      on any such statement by SMGI or its representatives and (iii) an
      obligation, commitment or agreement to provide or assist the Company in
      obtaining any financing or investment may only be created by a written
      agreement, signed by SMGI and the Company, setting forth the terms and
      conditions of such financing or investment and stating that the parties
      intend for such writing to be a binding obligation or agreement.  SMGI
      shall have the right, in it sole and absolute discretion, to refuse or
      decline to participate in any other financing of or investment in the
      Company, and shall have no obligation to assist or cooperate with the
      Company in obtaining any financing, investment or other assistance.
    

    
      Section 11.16    Counterparts.
    

    
      This Agreement may be executed in any number of counterparts including
      counterparts by facsimile transmission and by e-mail transmission in PDF
      format and all such counterparts taken together shall be deemed to
      constitute one and the same instrument.  
    

    
      IN WITNESS WHEREOF the parties have executed and delivered this
      Strategic Acquisition Agreement.
    

    
    	
           
        	
          
            PROELITE, INC.
          

        	

        
	

        	

        	

        	
           
        
	

        	

        	

        	
           
        
	

        	
          
            By:
          

        	
          
             
          

          
             
          

        	

        
	

        	

        	
          
            Name: Charles Champion
          

        	

        
	

        	

        	
          
            Title: Chief Executive Officer
          

        	

        
	

        	

        	

        	
           
        
	

        	

        	

        	
           
        
	

        	
          
            STRATUS MEDIA GROUP, INC.
          

        	

        
	

        	

        	

        	
           
        
	

        	

        	

        	
           
        
	

        	
          
            By:
          

        	
          
             
          

        	

        
	

        	

        	
          
            Name: Paul Feller
          

        	

        
	

        	

        	
          
            Title: President
          

        	

        

    

    
      

      39

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